sv1za
As filed with the Securities and Exchange Commission on
February 1, 2007
Registration
No. 333-138747
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Amendment No. 4
to
Form S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
TARGA RESOURCES PARTNERS LP
(Exact name of registrant as
specified in its charter)
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Delaware
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4922
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65-1295427
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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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1000 Louisiana, Suite 4300
Houston, Texas 77002
(713) 584-1000
(Address, including zip code and
telephone number, including area code, of registrants
principal executive offices)
Rene R. Joyce
Chief Executive Officer
1000 Louisiana, Suite 4300
Houston, Texas 77002
(713) 584-1000
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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David P. Oelman
Christopher S. Collins
Vinson & Elkins LLP
1001 Fannin Street, Suite 2500
Houston, Texas 77002
(713) 758-2222
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Joshua Davidson
Douglass M. Rayburn
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. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, please check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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Subject to Completion, dated
February 1, 2007
PROSPECTUS
TARGA RESOURCES PARTNERS
LP
16,800,000 Common
Units
Representing Limited Partner
Interests
Targa Resources Partners LP is a limited partnership recently
formed by Targa Resources, Inc. This is the initial public
offering of our common units. All of the common units are being
sold by us. Prior to this offering, there has been no public
market for our common units. We expect the initial public
offering price to be between $19.00 and $21.00 per unit. Our
common units have been approved for listing on The NASDAQ Global
Market under the symbol NGLS.
Investing in our common units
involves risks. Please see Risk Factors beginning on
page 17.
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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Our cash flow is affected by natural gas and natural gas liquid
prices, and decreases in these prices could adversely affect our
ability to make distributions to holders of our common units and
subordinated units.
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Because of the natural decline in production from existing wells
in our operating regions, our success depends on our ability to
obtain new sources of supplies of natural gas and natural gas
liquids, which depends on certain factors beyond our control.
Any decrease in supplies of natural gas or natural gas liquids
could adversely affect our business and operating results.
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Our hedging activities may not be effective in reducing the
variability of our cash flows and may, in certain circumstances,
increase the variability of our cash flows. In addition, the
significant contribution to our results of operations that we
are currently receiving from our hedge positions will decrease
substantially through 2010.
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We depend on one natural gas producer for a significant portion
of our supply of natural gas. The loss of this customer or
replacement of its contracts on less favorable terms could
result in a decline in our volumes, revenues and cash available
for distribution.
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Targa Resources, Inc. controls our general partner, which has
sole responsibility for conducting our business and managing our
operations. Targa Resources, Inc. has conflicts of interest with
us and may favor its own interests to your detriment.
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Targa Resources, Inc. is not limited in its ability to compete
with us, which could limit our ability to acquire additional
assets or businesses.
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Holders of our common units have limited voting rights and are
not entitled to elect our general partner or its directors.
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You may be required to pay taxes on your share of our income
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 to Targa Resources
Partners LP (before expenses)(2)
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$
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$
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(1)
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Excludes an aggregate structuring
fee equal to 0.4% of the gross proceeds of this offering, or
approximately $1.3 million, payable to Citigroup Global
Markets Inc., Goldman, Sachs & Co., UBS Securities LLC
and Merrill Lynch & Co.
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(2)
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We will pay approximately
$307.1 million of the proceeds we receive from this
offering to Targa Resources, Inc. to retire a portion of our
affiliate indebtedness.
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We have granted the underwriters a
30-day
option to purchase up to an additional 2,520,000 common units
from us on the same terms and conditions as set forth above if
the underwriters sell more than 16,800,000 common units in this
offering.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the common units through the
facilities of The Depository Trust Company on or
about ,
2007.
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Citigroup |
Goldman,
Sachs &
Co. |
UBS
Investment
Bank |
Merrill
Lynch & Co. |
,
2007
TABLE OF
CONTENTS
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1
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1
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4
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4
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4
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5
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6
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7
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8
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8
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9
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13
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15
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17
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17
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28
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33
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36
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37
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38
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40
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40
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41
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43
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46
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49
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54
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54
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55
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56
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57
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57
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58
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58
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59
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61
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62
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62
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65
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69
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69
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69
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71
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72
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72
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74
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75
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81
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85
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87
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91
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91
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92
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93
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95
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96
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100
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100
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101
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102
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107
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107
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108
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110
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113
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113
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113
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114
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114
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115
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117
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117
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118
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118
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120
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122
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123
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125
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125
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126
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126
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127
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ii
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128
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128
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133
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136
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136
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136
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136
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138
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138
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138
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138
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138
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139
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139
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140
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141
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142
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144
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144
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145
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145
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146
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146
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147
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147
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147
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148
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148
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148
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149
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149
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149
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150
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150
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151
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152
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152
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153
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154
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159
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160
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162
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162
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163
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165
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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 ,
2007 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common units, whether or not
participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
iv
SUMMARY
This summary provides a brief overview of information
contained elsewhere in this prospectus. Because it is
abbreviated, this summary may not contain all of the information
that you should consider before investing in the common units.
You should read the entire prospectus carefully, including the
historical and pro forma financial statements and the notes to
those financial statements. Unless indicated otherwise, the
information presented in this prospectus assumes (1) an
initial public offering price of $20.00 per unit and
(2) that the underwriters do not exercise their option to
purchase additional units. You should read Risk
Factors beginning on page 17 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. As used in
this prospectus, unless we indicate otherwise:
(1) our, we, us and
similar terms refer to Targa Resources Partners LP, together
with our subsidiaries, after giving effect to the Formation
Transactions described on page 5 of this prospectus,
(2) Targa refers to Targa Resources, Inc.
and its subsidiaries and affiliates (other than us) and
(3) references to our pro forma financial information refer
to the historical financial information of the Predecessor
Business described on page 13 of this prospectus as adjusted to
give effect to the Formation Transactions.
Targa
Resources Partners LP
We are a growth-oriented Delaware limited partnership recently
formed by Targa, a leading provider of midstream natural gas and
NGL services in the United States, to own, operate, acquire and
develop a diversified portfolio of complementary midstream
energy assets. We currently operate in the Fort Worth Basin
in north Texas and are engaged in the business of gathering,
compressing, treating, processing and selling natural gas and
fractionating and selling natural gas liquids, or NGLs, and NGL
products. Fractionating means separating a mixed stream of NGLs
into its constituent products. We intend to leverage our
relationship with Targa to acquire and construct additional
midstream energy assets and to utilize the significant
experience of Targas management team to execute our growth
strategy. At September 30, 2006, Targa had total assets of
$3.4 billion, with the North Texas System to be contributed
to us in connection with this offering representing
$1.1 billion of this amount. Targa intends, but is not
obligated, to offer us the opportunity to purchase substantially
all of its remaining businesses.
Our operations consist of an extensive network of approximately
3,950 miles of integrated gathering pipelines that gather
and compress natural gas received from approximately 2,650
receipt points in the Fort Worth Basin, two natural gas
processing plants that compress, treat and process the natural
gas and a fractionator that fractionates a portion of our raw
NGLs produced in our processing operations into NGL products.
These assets, together with the business conducted thereby, are
collectively referred to as the North Texas System.
We serve a fourteen-county natural gas producing region in the
Fort Worth Basin that includes production from the Barnett
Shale formation and other shallower formations, which are
subsurface rock formations containing hydrocarbons, including
the Bend Conglomerate, Caddo, Atoka, Marble Falls, and other
Pennsylvanian and upper Mississippian formations, which we refer
to as the other Fort Worth Basin formations.
For more information on the North Texas System, please see
Business Our Partnership.
For the year ended December 31, 2005 and the nine months
ended September 30, 2006, we generated pro forma net income
(loss) of approximately $(6.8) million and $0.4 million,
respectively, pro forma operating margin of $81.2 million
and $67.8 million, respectively, and had 162.5 million
cubic feet of natural gas per day, or MMcf/d, and
168.2 MMcf/d of gathering throughput, respectively. For the
year ended December 31, 2005 and the nine months ended
September 30, 2006, we generated approximately
$72.8 million and $62.7 million of pro forma income
before interest, income taxes, depreciation and amortization, or
EBITDA, respectively.
1
Non-GAAP
Financial Measures
EBITDA. We define EBITDA as net income before
interest, income taxes, depreciation and amortization. EBITDA is
used as a supplemental financial measure by our management and
by external users of our financial statements such as investors,
commercial banks and others, to assess:
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the financial performance of our assets without regard to
financing methods, capital structure or historical cost basis;
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our operating performance and return on capital as compared to
other companies in the midstream energy sector, without regard
to financing or capital structure; and
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the viability of acquisitions and capital expenditure projects
and the overall rates of return on alternative investment
opportunities.
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The economic substance behind managements use of EBITDA is
to measure the ability of our assets to generate cash sufficient
to pay interest costs, support our indebtedness, and make
distributions to our investors.
The GAAP measures most directly comparable to EBITDA are net
cash provided by operating activities and net income. Our
non-GAAP financial measure of EBITDA should not be considered as
an alternative to GAAP net cash provided by operating activities
and GAAP net income. EBITDA is not a presentation made in
accordance with GAAP and has important limitations as an
analytical tool. You should not consider EBITDA in isolation or
as a substitute for analysis of our results as reported under
GAAP. Because EBITDA excludes some, but not all, items that
affect net income and net cash provided by operating activities
and is defined differently by different companies in our
industry, our definition of EBITDA may not be comparable to
similarly titled measures of other companies.
Management compensates for the limitations of EBITDA as an
analytical tool by reviewing the comparable GAAP measures,
understanding the differences between the measures and
incorporating these learnings into managements
decision-making processes.
Operating Margin. We define operating margin
as total operating revenues, which consist of natural gas and
NGL sales plus service fee revenues, less product purchases,
which consist primarily of producer payments and other natural
gas purchases, and operating expense. Management reviews
operating margin monthly for consistency and trend analysis.
Based on this monthly analysis, management takes appropriate
action to maintain positive trends or to reverse negative
trends. Management uses operating margin as an important
performance measure of the core profitability of our operations.
The GAAP measure most directly comparable to operating margin is
net income. Our non-GAAP financial measure of operating margin
should not be considered as an alternative to GAAP net income.
Operating margin is not a presentation made in accordance with
GAAP and has important limitations as an analytical tool. You
should not consider operating margin in isolation or as a
substitute for analysis of our results as reported under GAAP.
Because operating margin excludes some, but not all, items that
affect net income and is defined differently by different
companies in our industry, our definition of operating margin
may not be comparable to similarly titled measures of other
companies, thereby diminishing its utility.
Management compensates for the limitations of operating margin
as an analytical tool by reviewing the comparable GAAP measures,
understanding the differences between the measures and
incorporating these learnings into managements
decision-making processes.
We believe that investors benefit from having access to the same
financial measures that our management uses in evaluating our
operating results. Operating margin provides useful information
to investors because it is used as a supplemental financial
measure by our management and by external users of our financial
statements, including such investors, commercial banks and
others, to assess:
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the financial performance of our assets without regard to
financing methods, capital structure or historical cost basis;
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2
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our operating performance and return on capital as compared to
other companies in the midstream energy sector, without regard
to financing or capital structure;
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the viability of acquisitions and capital expenditure projects
and the overall rates of return on alternative investment
opportunities.
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Predecessor Business
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Targa Resources Partners LP
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Dynegy
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Targa
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Pro Forma
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Nine Months
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Ten Months
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Two Months
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Nine Months
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Nine Months
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Years Ended
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Ended
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Ended
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Ended
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Ended
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Year Ended
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Ended
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December 31,
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September 30,
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October 31,
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December 31,
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September 30,
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December 31,
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September 30,
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2003
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2004
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2005
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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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(Audited)
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(Audited)
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(Unaudited)
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(Audited)
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(Audited)
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(Unaudited)
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(Unaudited)
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(Unaudited)
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(in millions of dollars)
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Reconciliation of
EBITDA to net cash provided by (used in) operating
activities:
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Net cash provided by (used in)
operating activities
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$
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31.3
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$
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58.0
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$
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59.2
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$
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72.7
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$
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(1.5
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$
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11.1
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Allocated interest expense from
parent(1)
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10.7
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50.5
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Changes in operating working
capital which provided (used) cash:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
0.7
|
|
|
|
(0.7
|
)
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
|
0.1
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(1.0
|
)
|
|
|
(2.7
|
)
|
|
|
1.1
|
|
|
|
1.3
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, including changes in
noncurrent assets and liabilities
|
|
|
(4.9
|
)
|
|
|
(3.8
|
)
|
|
|
(12.6
|
)
|
|
|
(17.1
|
)
|
|
|
|
5.5
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
26.1
|
|
|
$
|
50.8
|
|
|
$
|
48.2
|
|
|
$
|
57.2
|
|
|
|
$
|
15.6
|
|
|
$
|
62.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
EBITDA to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14.1
|
|
|
$
|
38.6
|
|
|
$
|
38.1
|
|
|
$
|
45.9
|
|
|
|
$
|
(5.1
|
)
|
|
$
|
(35.4
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
0.4
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.5
|
|
|
|
54.4
|
|
|
|
24.8
|
|
|
|
18.6
|
|
Deferred tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
Depreciation and amortization
expense
|
|
|
12.0
|
|
|
|
12.2
|
|
|
|
10.1
|
|
|
|
11.3
|
|
|
|
|
9.2
|
|
|
|
41.7
|
|
|
|
54.8
|
|
|
|
41.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
26.1
|
|
|
$
|
50.8
|
|
|
$
|
48.2
|
|
|
$
|
57.2
|
|
|
|
$
|
15.6
|
|
|
$
|
62.7
|
|
|
$
|
72.8
|
|
|
$
|
62.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
operating margin to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14.1
|
|
|
$
|
38.6
|
|
|
$
|
38.1
|
|
|
$
|
45.9
|
|
|
|
$
|
(5.1
|
)
|
|
$
|
(35.4
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
0.4
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
expense
|
|
|
12.0
|
|
|
|
12.2
|
|
|
|
10.1
|
|
|
|
11.3
|
|
|
|
|
9.2
|
|
|
|
41.7
|
|
|
|
54.8
|
|
|
|
41.7
|
|
Deferred income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
Other, net
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.5
|
|
|
|
54.4
|
|
|
|
24.8
|
|
|
|
18.6
|
|
General and administrative expense
|
|
|
7.7
|
|
|
|
7.2
|
|
|
|
6.7
|
|
|
|
7.3
|
|
|
|
|
1.1
|
|
|
|
5.1
|
|
|
|
8.4
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
$
|
34.4
|
|
|
$
|
58.3
|
|
|
$
|
54.9
|
|
|
$
|
64.5
|
|
|
|
$
|
16.7
|
|
|
$
|
67.8
|
|
|
$
|
81.2
|
|
|
$
|
67.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Excludes non-cash amortization of debt issue costs of $0.8
million for the two months ended December 31, 2005 and
$3.9 million for the nine months ended September 30, 2006.
|
Please see Business Strategies and
Business Competitive Strengths for a
discussion of our strategies and competitive strengths.
3
Our
Relationship with Targa Resources, Inc.
One of our principal strengths is our relationship with Targa, a
leading provider of midstream natural gas and NGL services in
the United States. Targa has indicated that it intends to use us
as a growth vehicle to pursue the acquisition and expansion of
midstream natural gas, NGL and other complementary energy
businesses and assets. We expect to have the opportunity to make
acquisitions directly from Targa in the future. Targa intends to
offer us the opportunity to purchase substantially all of its
remaining businesses, although it is not obligated to do so.
While Targa believes it will be in its best interest to
contribute additional assets to us given its significant
ownership of limited and general partner interests in us, Targa
constantly evaluates acquisitions and dispositions and may elect
to acquire, construct or dispose of midstream assets in the
future without offering us the opportunity to purchase or
construct those assets. Targa has retained such flexibility
because it believes it is in the best interests of its
shareholders to do so. We cannot say with any certainty which,
if any, opportunities to acquire assets from Targa may be made
available to us or if we will choose to pursue any such
opportunity. Moreover, Targa is not prohibited from competing
with us and constantly evaluates acquisitions and dispositions
that do not involve us. In addition, through our relationship
with Targa, we will have access to a significant pool of
management talent, strong commercial relationships throughout
the energy industry and access to Targas broad
operational, commercial, technical, risk management and
administrative infrastructure.
Following this offering, Targa will continue to own interests in
or operate approximately 6,680 miles of natural gas
pipelines and approximately 720 miles of NGL pipelines,
with natural gas gathering systems covering approximately
11,900 square miles and 20 natural gas processing plants
with access to natural gas supplies in the Permian basin,
onshore Louisiana and the Gulf of Mexico. Additionally, Targa
has a significant, integrated NGL logistics and marketing
business, with 13 storage, marine and transport terminals with
an NGL storage capacity of 730 MBbls, net NGL fractionation
capacity of approximately 287 thousand barrels per day, or
MBbls/d, and 43 operated storage wells with a capacity of
103 MMBbls. These asset locations provide Targa access to
relatively stable natural gas supplies and proximity to end-use
markets and market hubs while positioning Targa to capitalize on
growth opportunities from the continued development of onshore
as well as deepwater and deep shelf Gulf of Mexico natural gas
reserves and the increasing importation of liquified natural
gas, or LNG, to the Gulf Coast.
Our
Relationship with Warburg Pincus LLC
Warburg Pincus LLC, or Warburg Pincus, controls us through its
ownership of securities in Targa Resources Investments Inc., the
indirect parent of Targa, and a stockholders agreement among
Targa Resources Investments Inc. and its owners. Warburg Pincus
is a private equity firm and over four decades has invested more
than $20 billion in 525 companies in
30 countries, representing a variety of industries
including energy, information and communication technology,
financial services, healthcare, media and business services and
real estate.
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 see these and other risks described under Risk
Factors.
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.
|
|
|
|
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 year ended December 31,
2005 or for the twelve months ended September 30, 2006.
|
4
|
|
|
|
|
Our cash flow is affected by natural gas and NGL prices, and
decreases in these prices could adversely affect our ability to
make distributions to holders of our common units and
subordinated units.
|
|
|
|
Because of the natural decline in production from existing wells
in our operating regions, our success depends on our ability to
obtain new sources of supplies of natural gas and NGLs, which
depends on certain factors beyond our control. Any decrease in
supplies of natural gas or NGLs could adversely affect our
business and operating results.
|
|
|
|
Our hedging activities may not be effective in reducing the
variability of our cash flows and may, in certain circumstances,
increase the variability of our cash flows. In addition, the
significant contribution to our results of operations that we
are currently receiving from our hedge positions will decrease
substantially through 2010.
|
Risks
Inherent in an Investment in Us
|
|
|
|
|
Targa controls our general partner, which has sole
responsibility for conducting our business and managing our
operations. Targa has conflicts of interest with us and may
favor its own interests to your detriment.
|
|
|
|
The credit and business risk profile of our general partner and
its owners could adversely affect our credit ratings and profile.
|
|
|
|
|
|
Our partnership agreement limits our general partners
fiduciary duties to holders of our units and restricts the
remedies available to unitholders for actions taken by our
general partner that might otherwise constitute breaches of
fiduciary duty.
|
|
|
|
|
|
Targa is not limited in its ability to compete with us, which
could limit our ability to acquire additional assets or
businesses.
|
Tax
Risks to Common Unitholders
|
|
|
|
|
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, or IRS, were to treat us as a
corporation or if we were to become subject to a material amount
of entity-level taxation for state tax purposes, then our cash
available for distribution to you would be substantially reduced.
|
|
|
|
If the IRS contests the federal income tax positions we take,
the market for our common units may be adversely affected, and
the cost of any contest will reduce our cash available for
distribution to you.
|
|
|
|
You may be required to pay taxes on your share of our income
even if you do not receive any cash distributions from us.
|
Formation
Transactions and Partnership Structure
General
At the closing of this offering, we anticipate that the
following transactions, which we refer to as the Formation
Transactions, will occur:
|
|
|
|
|
Targa will contribute the North Texas System to us;
|
|
|
|
we will issue to Targa 11,528,231 subordinated units,
representing a 39.9% limited partner interest in us;
|
|
|
|
we will issue to our general partner, Targa Resources GP LLC,
578,127 general partner units representing its initial 2%
general partner interest in us, and all of our incentive
distribution rights,
|
5
|
|
|
|
|
which incentive distribution rights will entitle our general
partner to increasing percentages of the cash we distribute in
excess of $0.3881 per unit per quarter;
|
|
|
|
|
|
we will issue 16,800,000 common units to the public in this
offering, representing a 58.1% limited partner interest in us,
and will use the proceeds to pay expenses associated with this
offering, the Formation Transactions and our new credit facility
and to pay approximately $307.1 million to Targa to retire
a portion of our affiliate indebtedness;
|
|
|
|
|
|
we will borrow approximately $342.5 million under our new
$500 million credit facility, the proceeds of which will be
paid to Targa to retire an additional portion of our affiliate
indebtedness;
|
|
|
|
the remaining affiliate indebtedness will be retired and treated
as a capital contribution to us;
|
|
|
|
we will enter into an omnibus agreement with Targa and our
general partner, which will address, among other things, the
provision of and the reimbursement for general and
administrative and operating services;
|
|
|
|
we will enter into a natural gas purchase agreement, pursuant to
which we will sell all of our residue natural gas to Targa at
market-based prices for a term of 15 years; and
|
|
|
|
we will enter into NGL and condensate purchase agreements,
pursuant to which we will sell all of our NGLs and high-pressure
condensate to Targa at market-based prices for a term of
15 years.
|
Our affiliate indebtedness consists of borrowings incurred by
Targa and allocated to us for financial reporting purposes as
well as intercompany indebtedness to be contributed to us
together with the North Texas System.
We will use any net proceeds from the exercise of the
underwriters option to reduce outstanding borrowings under
our new credit facility. If the underwriters exercise in full
their option to purchase additional common units, the ownership
interest of the public unitholders will increase to 19,320,000
common units, representing an aggregate 61.4% limited partner
interest in us, the ownership interest of our general partner
will increase to 629,555 general partner units, representing a
2% general partner interest in us, and the ownership interest of
Targa will remain at 11,528,231 subordinated units, representing
a 36.6% limited partner interest in us.
Management
of Targa Resources Partners LP
Targa Resources GP LLC, our general partner, will manage our
business and operations, and its board of directors and officers
will make decisions on our behalf. All of the executive officers
and some of the directors of Targa also serve as executive
officers or directors of our general partner.
Unlike shareholders in a publicly traded corporation, our
unitholders will not be entitled to elect our general partner or
its directors. Targa will elect all five members to the board of
directors of our general partner and we will have three
directors that are independent as defined under the independence
standards established by The NASDAQ Global Market. For more
information about these individuals, please see
Management Directors and Executive
Officers.
The diagram on the following page depicts our organization and
ownership after giving effect to the offering and the related
Formation Transactions.
6
Simplified
Organizational Structure and Ownership of Targa Resources
Partners LP
after the Formation Transactions
|
|
|
|
|
Public Common Units
|
|
|
58.1
|
%
|
Targa Subordinated Units
|
|
|
39.9
|
%
|
General Partner Units
|
|
|
2.0
|
%
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
|
(1)
|
|
Ownership percentages are presented
on a fully-diluted basis.
|
|
(2)
|
|
Targa Resources, Inc. is an
indirect wholly-owned subsidiary of Targa Resources Investments
Inc. Warburg Pincus LLC controls us through its ownership of
securities in Targa Resources Investments Inc. and a
stockholders agreement among Targa Resources Investments Inc.
and its owners.
|
7
Principal
Executive Offices and Internet Address
Our principal executive offices are located at 1000 Louisiana,
Suite 4300, Houston, Texas 77002 and our telephone number
is
(713) 584-1000.
Our website is located at www.targaresources.com. We expect to
make our periodic reports and other information filed with or
furnished to the Securities and Exchange Commission, or 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
Targa Resources GP LLC, our general partner, has a legal duty to
manage us in a manner beneficial to holders of our common units
and subordinated units. This legal duty originates in statutes
and judicial decisions and is commonly referred to as a
fiduciary duty. However, because our general partner
is owned by Targa, the officers and directors of our general
partner also have fiduciary duties to manage our general partner
in a manner beneficial to Targa. As a result of this
relationship, conflicts of interest may arise in the future
between us and holders of our common units and subordinated
units, on the one hand, and our general partner and its
affiliates on the other hand. Our partnership agreement also
provides that Targa is not restricted from competing with us.
For a more detailed description of the conflicts of interest and
fiduciary duties of our general partner, please see
Conflicts of Interest and Fiduciary Duties.
8
The
Offering
|
|
|
Common units offered to the public |
|
16,800,000 common units or 19,320,000 common units if the
underwriters exercise in full their option to purchase
additional common units. |
|
Units outstanding after this offering |
|
16,800,000 common units and 11,528,231 subordinated units,
representing 58.1% and 39.9% limited partner interests in us
(19,320,000 common units and 11,528,231 subordinated units,
representing 61.4% and 36.6% limited partner interests in us if
the underwriters exercise in full their option to purchase
additional common units). The general partner will own 578,127
general partner units, or 629,555 general partner units if the
underwriters exercise in full their option to purchase
additional common units, in each case representing a 2% general
partner interest in us. |
|
Use of proceeds |
|
We intend to use the net proceeds of approximately
$315.3 million from this offering (at an assumed offering
price of $20.00 per common unit), after deducting underwriting
discounts and deducting a structuring fee of approximately
$1.3 million but before paying offering expenses, to: |
|
|
|
|
|
|
pay approximately $4.0 million in expenses
associated with this offering and the Formation Transactions;
|
|
|
|
|
|
pay approximately $4.2 million in fees and
expenses related to our new credit facility; and
|
|
|
|
|
|
use the remaining proceeds to pay approximately
$307.1 million to Targa to retire a portion of our
affiliate indebtedness.
|
|
|
|
|
|
We also expect to borrow approximately $342.5 million under
our new credit facility upon the closing of this offering and to
pay that amount to Targa to retire an additional portion of our
affiliate indebtedness. The remaining balance of our affiliate
indebtedness will be retired and treated as a capital
contribution to us. Please see Certain Relationships and
Related Party Transactions Distributions and
Payments to our General Partner and its Affiliates. |
|
|
|
We will use any net proceeds from the exercise of the
underwriters option to purchase additional common units to
reduce outstanding borrowings under our new credit facility. |
|
Cash distributions |
|
We will make an initial quarterly distribution of $0.3375 per
common unit ($1.35 per common unit on an annualized basis) to
the extent we have sufficient cash from operations after
establishment of cash reserves and payment of fees and expenses.
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. |
|
|
|
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. Our |
9
|
|
|
|
|
partnership agreement also requires that we distribute all of
our available cash from operating surplus each quarter during
the subordination period in the following manner: |
|
|
|
first, 98% to the holders of common units and
2% to our general partner, until each common unit has received a
minimum quarterly distribution of $0.3375 plus any arrearages
from prior quarters;
|
|
|
|
second, 98% to the holders of subordinated
units and 2% to our general partner, until each subordinated
unit has received a minimum quarterly distribution of
$0.3375; and |
|
|
|
third, 98% to all unitholders, pro rata, and
2% to our general partner, until each unit has received an
aggregate distribution of $0.3881. |
|
|
|
If cash distributions to our unitholders exceed $0.3881 per
common unit in any quarter, our general partner will receive, in
addition to distributions on its 2% general partner interest,
increasing percentages, up to 48%, of the cash we distribute in
excess of that amount. We refer to these distributions as
incentive distributions. Please see Provisions
of Our Partnership Agreement Relating to Cash
Distributions. |
|
|
|
|
|
We will adjust the quarterly distribution for the period from
the closing of this offering through March 31, 2007 based
on the actual length of the period. We expect to pay this cash
distribution on or about May 15, 2007. |
|
|
|
|
|
The amount of our pro forma available cash generated during the
year ended December 31, 2005 and the twelve months ended
September 30, 2006 would have been sufficient to allow us
to pay the full minimum quarterly distribution on all of our
common units but only approximately 29% and 98%, respectively,
of the minimum quarterly distribution on our subordinated units
during these periods (28% and 97%, respectively, assuming the
underwriters exercise in full their option to purchase
additional common units). For a calculation of our ability to
make distributions to unitholders based on our pro forma results
for 2006, please see Our Cash Distribution Policy and
Restrictions on Distributions. |
|
|
|
We believe that, based on the minimum estimated EBITDA for the
twelve months ending December 31, 2007 included 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 December 31, 2007 at the initial quarterly
distribution rate of $0.3375 per unit on all common units,
subordinated units and general partner units. |
|
Subordinated units |
|
Targa 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 $0.3375 per unit only after
the common units have received the minimum quarterly
distribution plus any |
10
|
|
|
|
|
arrearages in the payment of the minimum quarterly distribution
from prior quarters. Subordinated units will not accrue
arrearages. The subordination period generally will end if we
have earned and paid at least $0.3375 on each outstanding unit
and general partner unit for any three consecutive,
non-overlapping four-quarter periods ending on or after
December 31, 2009. The subordination period will also end
if the unitholders remove our general partner other than for
cause and units held by our general partner and its affiliates
are not voted in favor of such removal. |
|
|
|
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. |
|
Early conversion of subordinated units |
|
If we have earned and paid at least $2.025 (150% of the
annualized minimum quarterly distribution) on each outstanding
common unit, subordinated unit and general partner unit for any
four-quarter
period, the subordination period will terminate automatically
and all of the subordinated units will convert into an equal
number of common units. Please see Provisions of Our
Partnership Agreement Related to Cash Distributions
Subordination Period. |
|
General Partners right to reset the target distribution
levels |
|
Our general partner has the right, at a time when there are no
subordinated units outstanding and it has received incentive
distributions at the highest level to which it is entitled (48%)
for each of the prior four consecutive fiscal quarters, to reset
the initial cash target distribution levels at higher levels
based on the distribution at the time of the exercise of the
reset election. Following a reset election by our general
partner, the minimum quarterly distribution amount will be reset
to an amount equal to the average cash distribution amount per
common unit for the two fiscal quarters immediately preceding
the reset election (such amount is referred to as the
reset minimum quarterly distribution) and the target
distribution levels will be reset to correspondingly higher
levels based on the same percentage increases above the reset
minimum quarterly distribution amount as in our current target
distribution levels. |
|
|
|
In connection with resetting these target distribution levels,
our general partner will be entitled to receive Class B
units. The Class B units will be entitled to the same cash
distributions per unit as our common units and will be
convertible into an equal number of common units. The number of
Class B units to be issued will be equal to that number of
common units whose aggregate quarterly cash distributions
equaled the average of the distributions to our general partner
on the incentive distribution rights in the prior two quarters.
For a more detailed description of our general partners
right to reset the target distribution levels upon which the
incentive distribution payments are based and the concurrent
right of our general partner to receive Class B units in
connection with this reset, please see Provisions of Our |
11
|
|
|
|
|
Partnership Agreement Related to Cash Distributions
General Partners Right to Reset Incentive Distribution
Levels. |
|
Issuance of additional units |
|
We can issue an unlimited number of units without the consent of
our unitholders. Please see Units Eligible for Future
Sale and The Partnership Agreement
Issuance of Additional Securities. |
|
Limited voting rights |
|
Our general partner will manage and operate us. Unlike the
holders of common stock in a corporation, you will have only
limited voting rights on matters affecting our business. You
will have no right to elect our general partner or its directors
on an annual or other continuing basis. Our general partner may
not be removed except by a vote of the holders of at least
662/3%
of the outstanding units, including any units owned by our
general partner and its affiliates, voting together as a single
class. Upon consummation of this offering, our general partner
and its affiliates will own an aggregate of 40.7% of our common
and subordinated units. This will give our general partner the
ability to prevent its involuntary removal. Please see The
Partnership Agreement Voting Rights. |
|
Limited call right |
|
If at any time our general partner and its affiliates own more
than 80% of the outstanding common units, our general partner
has the right, but not the obligation, to purchase all of the
remaining common units at a price not less than the then-current
market price of the common units. |
|
|
|
Estimated ratio of taxable income to distributions |
|
We estimate that if you own the common units you purchase in
this offering through the record date for distributions for the
period ending December 31, 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 $1.35 per unit, we estimate that your
average allocable federal taxable income per year will be no
more than $0.27 per unit. Please see Material Tax
Consequences Tax Consequences of Unit
Ownership Ratio of Taxable Income to
Distributions. |
|
|
|
Material tax consequences |
|
For a discussion of other material federal income tax
consequences that may be relevant to prospective unitholders who
are individual citizens or residents of the United States,
please see Material Tax Consequences. |
|
|
|
Exchange listing |
|
Our common units have been approved for listing on The NASDAQ
Global Market under the symbol NGLS. |
12
Summary
Historical and Pro Forma Financial and Operating Data
The following table shows summary historical financial and
operating data of the North Texas System and pro forma financial
data of Targa Resources Partners LP for the periods and as of
the dates indicated. The historical financial statements
included in this prospectus reflect the results of operations of
the North Texas System to be contributed to us by Targa upon the
closing of this offering. We refer to the results of operations
of the North Texas System as the results of operations of the
Predecessor Business. The summary historical financial data for
the years ended December 31, 2003 and 2004, the ten-month
period ended October 31, 2005 and for the two-month period
ended December 31, 2005 are derived from the audited
financial statements of the Predecessor Business. The summary
historical financial data for the nine months ended
September 30, 2005 and 2006 are derived from the unaudited
financial statements of the Predecessor Business. The
Predecessor Business was acquired by Targa as part of
Targas acquisition of substantially all of Dynegy
Inc.s midstream business on October 31, 2005 (the
DMS Acquisition). The summary pro forma financial
data for the year ended December 31, 2005 and the nine
months ended September 30, 2006 are derived from the
unaudited pro forma financial statements of Targa Resources
Partners LP included 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
September 30, 2006, in the case of the pro forma balance
sheet, or as of January 1, 2005, in the case of the pro
forma statement of operations for the nine months ended
September 30, 2006 and for the year ended December 31,
2005. The transactions reflected in the pro forma adjustments
assume the following actions will occur:
Targa will contribute the North Texas System to us;
|
|
|
|
|
we will issue to Targa 11,528,231 subordinated units,
representing a 39.9% limited partner interest in us;
|
|
|
|
we will issue to our general partner, Targa Resources GP LLC,
578,127 general partner units representing its initial 2%
general partner interest in us, and all of our incentive
distribution rights, which incentive distribution rights will
entitle our general partner to increasing percentages of the
cash we distribute in excess of $0.3881 per unit per quarter;
|
|
|
|
|
|
we will issue 16,800,000 common units to the public in this
offering, representing a 58.1% limited partner interest in us,
and will use the proceeds to pay expenses associated with this
offering, the Formation Transactions and our new credit facility
and to pay approximately $307.1 million to Targa to retire
a portion of our affiliate indebtedness;
|
|
|
|
|
|
we will borrow approximately $342.5 million under our new
$500 million credit facility the proceeds of which will be
paid to Targa to retire an additional portion of our affiliate
indebtedness; and
|
|
|
|
the remaining affiliate indebtedness will be retired and treated
as a capital contribution to us.
|
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
condensed financial statements and the accompanying notes
included elsewhere in this prospectus.
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Business
|
|
|
Targa Resources Partners LP
|
|
|
|
Dynegy
|
|
|
|
Targa
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Ten Months
|
|
|
|
Two Months
|
|
|
Nine Months
|
|
|
|
|
|
Nine Months
|
|
|
|
Years Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
October 31,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(in millions of dollars, except per unit and operating
data)
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
196.8
|
|
|
$
|
258.6
|
|
|
$
|
249.7
|
|
|
$
|
293.3
|
|
|
|
$
|
75.1
|
|
|
$
|
290.9
|
|
|
$
|
368.4
|
|
|
$
|
290.9
|
|
Product purchases
|
|
|
147.3
|
|
|
|
182.6
|
|
|
|
179.0
|
|
|
|
210.8
|
|
|
|
|
54.9
|
|
|
|
205.2
|
|
|
|
265.7
|
|
|
|
205.2
|
|
Operating expense
|
|
|
15.1
|
|
|
|
17.7
|
|
|
|
15.8
|
|
|
|
18.0
|
|
|
|
|
3.5
|
|
|
|
17.9
|
|
|
|
21.5
|
|
|
|
17.9
|
|
Depreciation and amortization
expense
|
|
|
12.0
|
|
|
|
12.2
|
|
|
|
10.1
|
|
|
|
11.3
|
|
|
|
|
9.2
|
|
|
|
41.7
|
|
|
|
54.8
|
|
|
|
41.7
|
|
General and administrative expense
|
|
|
7.7
|
|
|
|
7.2
|
|
|
|
6.7
|
|
|
|
7.3
|
|
|
|
|
1.1
|
|
|
|
5.1
|
|
|
|
8.4
|
|
|
|
5.1
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.5
|
|
|
|
54.4
|
|
|
|
24.8
|
|
|
|
18.6
|
|
Deferred income tax(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
Other, net
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14.1
|
|
|
$
|
38.6
|
|
|
$
|
38.1
|
|
|
$
|
45.9
|
|
|
|
$
|
(5.1
|
)
|
|
$
|
(35.4
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) per
limited partner unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.24
|
)
|
|
$
|
0.01
|
|
Financial and Operating
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin(2)
|
|
$
|
34.4
|
|
|
$
|
58.3
|
|
|
$
|
54.9
|
|
|
$
|
64.5
|
|
|
|
$
|
16.7
|
|
|
$
|
67.8
|
|
|
$
|
81.2
|
|
|
$
|
67.8
|
|
EBITDA(3)
|
|
|
26.1
|
|
|
|
50.8
|
|
|
|
48.2
|
|
|
|
57.2
|
|
|
|
|
15.6
|
|
|
|
62.7
|
|
|
|
72.8
|
|
|
|
62.7
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering throughput, MMcf/d(4)
|
|
|
134.3
|
|
|
|
152.0
|
|
|
|
160.4
|
|
|
|
161.2
|
|
|
|
|
168.8
|
|
|
|
168.2
|
|
|
|
|
|
|
|
|
|
Plant natural gas inlet, MMcf/d(5)
|
|
|
128.6
|
|
|
|
145.4
|
|
|
|
155.4
|
|
|
|
156.2
|
|
|
|
|
161.9
|
|
|
|
161.6
|
|
|
|
|
|
|
|
|
|
Gross NGL production, MBbl/d
|
|
|
15.9
|
|
|
|
17.2
|
|
|
|
18.4
|
|
|
|
18.5
|
|
|
|
|
19.8
|
|
|
|
18.8
|
|
|
|
|
|
|
|
|
|
Natural gas sales, BBtu/d
|
|
|
42.0
|
|
|
|
59.2
|
|
|
|
68.4
|
|
|
|
68.9
|
|
|
|
|
72.3
|
|
|
|
75.2
|
|
|
|
|
|
|
|
|
|
NGL sales, MBbl/d
|
|
|
15.3
|
|
|
|
13.2
|
|
|
|
14.2
|
|
|
|
14.3
|
|
|
|
|
15.4
|
|
|
|
15.1
|
|
|
|
|
|
|
|
|
|
Condensate sales, MBbl/d
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at period
end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, net
|
|
$
|
180.4
|
|
|
$
|
191.2
|
|
|
|
195.4
|
|
|
$
|
196.4
|
|
|
|
$
|
1,097.0
|
|
|
$
|
1,073.0
|
|
|
|
|
|
|
$
|
1,073.0
|
|
Total assets
|
|
|
182.9
|
|
|
|
193.5
|
|
|
|
197.6
|
|
|
|
198.5
|
|
|
|
|
1,122.8
|
|
|
|
1,126.3
|
|
|
|
|
|
|
|
1,110.9
|
|
Long-term debt (including current
portion)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
868.9
|
|
|
|
865.2
|
|
|
|
|
|
|
|
342.5
|
|
Partners capital / Net parent
equity
|
|
|
164.8
|
|
|
|
168.8
|
|
|
|
161.9
|
|
|
|
158.5
|
|
|
|
|
219.5
|
|
|
|
227.2
|
|
|
|
|
|
|
|
734.5
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
31.3
|
|
|
$
|
58.0
|
|
|
$
|
59.2
|
|
|
$
|
72.7
|
|
|
|
$
|
(1.5
|
)
|
|
$
|
11.1
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
(14.6
|
)
|
|
|
(23.4
|
)
|
|
|
(14.2
|
)
|
|
|
(16.4
|
)
|
|
|
|
(2.1
|
)
|
|
|
(17.7
|
)
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
(16.7
|
)
|
|
|
(34.6
|
)
|
|
|
(45.0
|
)
|
|
|
(56.3
|
)
|
|
|
|
3.6
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In May 2006, Texas adopted a margin tax consisting of a 1% tax
on the amount by which total revenue exceeds cost of goods sold.
The amount presented represents our estimated liability for this
tax.
|
|
(2)
|
Operating margin is total operating revenues less product
purchases and operating expense. Please see
Non-GAAP Financial Measures.
|
|
(3)
|
EBITDA is net income before interest, income taxes, depreciation
and amortization. Please see Non-GAAP Financial
Measures.
|
|
(4)
|
Gathering throughput represents the volume of natural gas
gathered and passed through natural gas gathering pipelines from
connections to producing wells and central delivery points.
|
|
(5)
|
Plant natural gas inlet represents the volume of natural gas
passing through the meter located at the inlet point of a
natural gas processing plant.
|
14
Non-GAAP Financial
Measures
EBITDA. We define EBITDA as net income before
interest, income taxes, depreciation and amortization. EBITDA is
used as a supplemental financial measure by our management and
by external users of our financial statements such as investors,
commercial banks and others, to assess:
|
|
|
|
|
the financial performance of our assets without regard to
financing methods, capital structure or historical cost basis;
|
|
|
|
|
|
our operating performance and return on capital as compared to
other companies in the midstream energy sector, without regard
to financing or capital structure; and
|
|
|
|
|
|
the viability of acquisitions and capital expenditure projects
and the overall rates of return on alternative investment
opportunities.
|
The economic substance behind managements use of EBITDA is
to measure the ability of our assets to generate cash sufficient
to pay interest costs, support our indebtedness, and make
distributions to our investors.
The GAAP measures most directly comparable to EBITDA are net
cash provided by operating activities and net income. Our
non-GAAP financial measure of EBITDA should not be considered as
an alternative to GAAP net cash provided by operating activities
and GAAP net income. EBITDA is not a presentation made in
accordance with GAAP and has important limitations as an
analytical tool. You should not consider EBITDA in isolation or
as a substitute for analysis of our results as reported under
GAAP. Because EBITDA excludes some, but not all, items that
affect net income and net cash provided by operating activities
and is defined differently by different companies in our
industry, our definition of EBITDA may not be comparable to
similarly titled measures of other companies.
Management compensates for the limitations of EBITDA as an
analytical tool by reviewing the comparable GAAP measures,
understanding the differences between the measures and
incorporating these learnings into managements
decision-making processes.
Operating Margin. We define operating margin
as total operating revenues, which consist of natural gas and
NGL sales plus service fee revenues, less product purchases,
which consist primarily of producer payments and other natural
gas purchases, and operating expense. Management reviews
operating margin monthly for consistency and trend analysis.
Based on this monthly analysis, management takes appropriate
action to maintain positive trends or to reverse negative
trends. Management uses operating margin as an important
performance measure of the core profitability of our operations.
The GAAP measure most directly comparable to operating margin is
net income. Our non-GAAP financial measure of operating margin
should not be considered as an alternative to GAAP net income.
Operating margin is not a presentation made in accordance with
GAAP and has important limitations as an analytical tool. You
should not consider operating margin in isolation or as a
substitute for analysis of our results as reported under GAAP.
Because operating margin excludes some, but not all, items that
affect net income and is defined differently by different
companies in our industry, our definition of operating margin
may not be comparable to similarly titled measures of other
companies, thereby diminishing its utility.
Management compensates for the limitations of operating margin
as an analytical tool by reviewing the comparable GAAP measures,
understanding the differences between the measures and
incorporating these learnings into managements
decision-making processes.
We believe that investors benefit from having access to the same
financial measures that our management uses in evaluating our
operating results. Operating margin provides useful information
to investors because it is used as a supplemental financial
measure by our management and by external users of our financial
statements, including such investors, commercial banks and
others, to assess:
|
|
|
|
|
the financial performance of our assets without regard to
financing methods, capital structure or historical cost basis;
|
15
|
|
|
|
|
our operating performance and return on capital as compared to
other companies in the midstream energy sector, without regard
to financing or capital structure;
|
|
|
|
the viability of acquisitions and capital expenditure projects
and the overall rates of return on alternative investment
opportunities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Business
|
|
|
Targa Resources Partners LP
|
|
|
|
Dynegy
|
|
|
|
Targa
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Ten Months
|
|
|
|
Two Months
|
|
|
Nine Months
|
|
|
|
|
|
Nine Months
|
|
|
|
Years Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
October 31,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(in millions of dollars)
|
|
Reconciliation of
EBITDA to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
31.3
|
|
|
$
|
58.0
|
|
|
$
|
59.2
|
|
|
$
|
72.7
|
|
|
|
$
|
(1.5
|
)
|
|
$
|
11.1
|
|
|
|
|
|
|
|
|
|
Allocated interest expense from
parent(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.7
|
|
|
|
50.5
|
|
|
|
|
|
|
|
|
|
Changes in operating working
capital which provided (used) cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
0.7
|
|
|
|
(0.7
|
)
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
|
0.1
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(1.0
|
)
|
|
|
(2.7
|
)
|
|
|
1.1
|
|
|
|
1.3
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, including changes in
noncurrent assets and liabilities
|
|
|
(4.9
|
)
|
|
|
(3.8
|
)
|
|
|
(12.6
|
)
|
|
|
(17.1
|
)
|
|
|
|
5.5
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
26.1
|
|
|
$
|
50.8
|
|
|
$
|
48.2
|
|
|
$
|
57.2
|
|
|
|
$
|
15.6
|
|
|
$
|
62.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
EBITDA to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14.1
|
|
|
$
|
38.6
|
|
|
$
|
38.1
|
|
|
$
|
45.9
|
|
|
|
$
|
(5.1
|
)
|
|
$
|
(35.4
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
0.4
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.5
|
|
|
|
54.4
|
|
|
|
24.8
|
|
|
|
18.6
|
|
Deferred tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
Depreciation and amortization
expense
|
|
|
12.0
|
|
|
|
12.2
|
|
|
|
10.1
|
|
|
|
11.3
|
|
|
|
|
9.2
|
|
|
|
41.7
|
|
|
|
54.8
|
|
|
|
41.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
26.1
|
|
|
$
|
50.8
|
|
|
$
|
48.2
|
|
|
$
|
57.2
|
|
|
|
$
|
15.6
|
|
|
$
|
62.7
|
|
|
$
|
72.8
|
|
|
$
|
62.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
operating margin to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14.1
|
|
|
$
|
38.6
|
|
|
$
|
38.1
|
|
|
$
|
45.9
|
|
|
|
$
|
(5.1
|
)
|
|
$
|
(35.4
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
0.4
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
expense
|
|
|
12.0
|
|
|
|
12.2
|
|
|
|
10.1
|
|
|
|
11.3
|
|
|
|
|
9.2
|
|
|
|
41.7
|
|
|
|
54.8
|
|
|
|
41.7
|
|
Deferred income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
Other, net
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.5
|
|
|
|
54.4
|
|
|
|
24.8
|
|
|
|
18.6
|
|
General and administrative expense
|
|
|
7.7
|
|
|
|
7.2
|
|
|
|
6.7
|
|
|
|
7.3
|
|
|
|
|
1.1
|
|
|
|
5.1
|
|
|
|
8.4
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
$
|
34.4
|
|
|
$
|
58.3
|
|
|
$
|
54.9
|
|
|
$
|
64.5
|
|
|
|
$
|
16.7
|
|
|
$
|
67.8
|
|
|
$
|
81.2
|
|
|
$
|
67.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Excludes non-cash amortization of debt issue costs of $0.8
million for the two months ended December 31, 2005 and
$3.9 million for the nine months ended September 30, 2006.
|
16
RISK
FACTORS
Limited partner interests are inherently different from
capital stock of a corporation, although many of the business
risks to which we are subject are similar to those that would be
faced by a corporation engaged in similar businesses. You should
consider carefully the following risk factors together with all
of the other information included in this prospectus in
evaluating an investment in our common units.
If any of the following risks were actually to occur, then
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 $0.3375 per common unit and
subordinated unit per complete quarter, or $1.35 per unit per
year, we will require available cash of approximately
$9.8 million per quarter, or $39.0 million per year,
based on the common units and subordinated units outstanding
immediately after completion of this offering
($10.6 million or $42.5 million, respectively, if the
underwriters exercise in full their option to purchase
additional common units). We may not have sufficient available
cash from operating surplus each quarter to enable us to make
cash distributions at the initial distribution rate under our
cash distribution policy. The amount of cash we can distribute
on our units principally depends upon the amount of cash we
generate from our operations, which will fluctuate from quarter
to quarter based on, among other things:
|
|
|
|
|
the fees we charge and the margins we realize for our services;
|
|
|
|
the prices of, levels of production of, and demand for, natural
gas and natural gas liquids, or NGLs;
|
|
|
|
the volume of natural gas we gather, treat, compress, process,
transport and sell, and the volume of NGLs we process or
fractionate and sell;
|
|
|
|
the relationship between natural gas and NGL prices;
|
|
|
|
cash settlements of hedging positions;
|
|
|
|
the level of competition from other midstream energy companies;
|
|
|
|
the level of our operating and maintenance and general and
administrative costs; and
|
|
|
|
prevailing economic conditions.
|
In addition, the actual amount of cash we will have available
for distribution will depend on other factors, some of which are
beyond our control, including:
|
|
|
|
|
the level of capital expenditures we make;
|
|
|
|
our ability to make borrowings under our credit facility to pay
distributions;
|
|
|
|
the cost of acquisitions;
|
|
|
|
our debt service requirements and other liabilities;
|
|
|
|
fluctuations in our working capital needs;
|
|
|
|
general and administrative expenses, including expenses we will
incur as a result of being a public company;
|
17
|
|
|
|
|
restrictions on distributions contained in our debt
agreements; and
|
|
|
|
the amount of cash reserves established by our general partner
for the proper conduct of our business.
|
For a description of additional restrictions and factors that
may affect our ability to make cash distributions, please see
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 year ended December 31, 2005 or for
the twelve months ended September 30, 2006.
The amount of available cash we need to pay the minimum
quarterly distribution for four quarters on all of our units to
be outstanding immediately after this offering is approximately
$39.0 million. The amount of our pro forma available cash
generated during the year ended December 31, 2005 and the
twelve months ended September 30, 2006 would have been
sufficient to allow us to pay the full minimum quarterly
distribution on all of our common units but only approximately
29% and 98%, respectively, of the minimum quarterly distribution
on our subordinated units during these periods (28% and 97%
respectively, assuming the underwriters exercise in full their
option to purchase additional common units). For a calculation
of our ability to make distributions to unitholders based on our
pro forma results for 2006, please see Our Cash
Distribution Policy and Restrictions on Distributions.
Our
cash flow is affected by natural gas and NGL prices, and
decreases in these prices could adversely affect our ability to
make distributions to holders of our common units and
subordinated units.
Our operations can be affected by the level of natural gas and
NGL prices and the relationship between these prices. The prices
of natural gas and NGLs have been volatile and we expect this
volatility to continue. The NYMEX daily settlement price for
natural gas for the forward month contract in 2005 ranged from a
high of $15.38 per MMBtu to a low of $5.79 per MMBtu.
In the first nine months of 2006, NYMEX pricing ranged from a
high of $10.63 per MMBtu to a low of $4.20 per MMBtu.
Natural gas prices reached relatively high levels in 2005 and
early 2006 but have declined substantially through the first
three quarters of 2006, with the forward month gas futures
contracts closing at a four-year low in September of 2006. NGL
prices exhibit similar volatility. Based on monthly index
prices, the average price for our NGL composition ranged from a
high of $1.12 per gallon to a low $0.73 per gallon in 2005, and
from a high of $1.14 per gallon to a low of $0.88 per
gallon for the first nine months of 2006.
Our future cash flow will be materially adversely affected if we
experience significant, prolonged pricing deterioration below
general price levels experienced over the past few years in our
industry.
The markets and prices for natural gas and NGLs depend upon
factors beyond our control. These factors include demand for
these commodities, which fluctuate with changes in market and
economic conditions and other factors, including:
|
|
|
|
|
the impact of seasonality and weather;
|
|
|
|
general economic conditions;
|
|
|
|
the level of domestic crude oil and natural gas production and
consumption;
|
|
|
|
the availability of imported natural gas, NGLs and crude oil;
|
|
|
|
actions taken by foreign oil and gas producing nations;
|
|
|
|
the availability of local, intrastate and interstate
transportation systems;
|
|
|
|
the availability and marketing of competitive fuels;
|
|
|
|
the impact of energy conservation efforts; and
|
|
|
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the extent of governmental regulation and taxation.
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Our primary natural gas gathering and processing arrangements
that expose us to commodity price risk are our
percent-of-proceeds
arrangements. For the nine month period ended September 30,
2006, our
percent-of-proceeds
arrangements accounted for approximately 96% of our gathered
natural gas volume. Under
percent-of-proceeds
arrangements, we generally process natural gas from producers
for an agreed percentage of the proceeds from the sale of
residue gas and NGLs resulting from our processing activities,
selling the resulting residue gas and NGLs at market prices.
Under these types of arrangements, our revenues and our cash
flows increase or decrease, whichever is applicable, as the
price of natural gas, NGLs and crude oil fluctuates. For
additional information regarding our hedging activities, please
see Managements Discussion and Analysis of Financial
Condition and Results of Operation Quantitative and
Qualitative Disclosures about Market Risk Commodity
Price Risk.
Because
of the natural decline in production from existing wells in our
operating regions, our success depends on our ability to obtain
new sources of supplies of natural gas and NGLs, which depends
on certain factors beyond our control. Any decrease in supplies
of natural gas or NGLs could adversely affect our business and
operating results.
Our gathering systems are connected to natural gas wells, from
which the production will naturally decline over time, which
means that our cash flows associated with these wells will also
decline over time. To maintain or increase throughput levels on
our gathering systems and the utilization rate at our processing
plants and our treating and fractionation facilities, we must
continually obtain new natural gas supplies. Our ability to
obtain additional sources of natural gas depends in part on the
level of successful drilling activity near our gathering systems.
We have no control over the level of drilling activity in the
areas of our operations, the amount of reserves associated with
the wells or the rate at which production from a well will
decline. In addition, we have no control over producers or their
drilling or production decisions, which are affected by, among
other things, prevailing and projected energy prices, demand for
hydrocarbons, the level of reserves, geological considerations,
governmental regulations, availability of drilling rigs and
other production and development costs and the availability and
cost of capital. We believe that rig availability in the
Fort Worth Basin has been and will continue to be a
limiting factor on the number of wells drilled in that area.
Fluctuations in energy prices can greatly affect production
rates and investments by third parties in the development of new
oil and natural gas reserves. Drilling activity generally
decreases as oil and natural gas prices decrease. Natural gas
prices reached relatively high levels in 2005 and early 2006 but
have declined substantially through the first
three quarters of 2006, with gas futures contracts closing
at a four-year low in September of 2006. These recent declines
in natural gas prices are beginning to have a negative impact on
exploration, development and production activity, and if
sustained, could lead to a material decrease in such activity.
Reductions in exploration or production activity or shut-ins by
producers in the areas in which we operate as a result of a
sustained decline in natural gas prices would lead to reduced
utilization of our gathering and processing assets.
Because of these factors, even if new natural gas reserves are
discovered in areas served by our assets, producers may choose
not to develop those reserves. If, due to reductions in drilling
activity or competition, we are not able to obtain new supplies
of natural gas to replace the natural decline in volumes from
existing wells, throughput on our pipelines and the utilization
rates of our treating, processing and fractionation facilities
would decline, which could reduce our revenue and impair our
ability to make distributions to our unitholders.
Our
hedging activities may not be effective in reducing the
variability of our cash flows and may, in certain circumstances,
increase the variability of our cash flows. In addition, the
significant contribution to our results of operations that we
are currently receiving from our hedge positions will decrease
substantially through 2010.
We have entered into derivative transactions related to only a
portion of our equity volumes. As a result, we will continue to
have direct commodity price risk to the unhedged portion. Our
actual future volumes may be significantly higher or lower than
we estimated at the time we entered into the derivative
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transactions for that period. If the actual amount is higher
than we estimated, we will have greater commodity price risk
than we intended. If the actual amount is lower than the amount
that is subject to our derivative financial instruments, we
might be forced to satisfy all or a portion of our derivative
transactions without the benefit of the cash flow from our sale
of the underlying physical commodity, resulting in a reduction
of our liquidity. The derivative instruments we utilize for
these hedges are based on posted market prices, which may be
lower than the actual natural gas, NGL and condensate prices
that we realize in our operations. As a result of these factors,
our hedging activities may not be as effective as we intend in
reducing the variability of our cash flows, and in certain
circumstances may actually increase the variability of our cash
flows. To the extent we hedge our commodity price risk, we may
forego the benefits we would otherwise experience if commodity
prices were to change in our favor.
Our results of operations are currently realizing a significant
benefit from hedge positions entered into in April and May of
2006. We estimate that our hedges will generate approximately
$15 million in operating income for the twelve months
ending December 31, 2007. If future prices remain
comparable to current prices, we expect that this benefit will
decline materially over the life of the hedges, which cover
decreasing volumes at declining prices through 2010. For
additional information regarding our hedging activities, please
see Managements Discussion and Analysis of Financial
Condition and Results of Operation Quantitative and
Qualitative Disclosures about Market Risk.
The
assumptions underlying the minimum estimated EBITDA we include
in Our Cash Distribution Policy and Restrictions on
Distributions are inherently uncertain and are subject to
significant business, economic, financial, regulatory and
competitive risks and uncertainties that could cause actual
results to differ materially from those
forecasted.
The minimum estimated EBITDA set forth in Our Cash
Distribution Policy and Restrictions on Distributions
presents our ability to make the minimum quarterly distribution
for the twelve months ending December 31, 2007. Our minimum
estimated EBITDA and related assumptions have been prepared by,
and are the responsibility of, management and our independent
auditor has neither compiled nor examined our minimum estimated
EBITDA and provides no assurance nor any report on it. The
assumptions underlying our minimum estimated EBITDA are
inherently uncertain and are subject to significant business,
economic, financial, regulatory and competitive risks and
uncertainties that could cause actual results to differ
materially from those forecasted. If we do not achieve our
anticipated results, we may not be able to pay the full minimum
quarterly distribution or any amount on our common units or
subordinated units, in which event the market price of our
common units may decline materially.
We
depend on one natural gas producer for a significant portion of
our supply of natural gas. The loss of this customer or
replacement of its contracts on less favorable terms could
result in a decline in our volumes, revenues and cash available
for distribution.
Our largest natural gas supplier for the year ended
December 31, 2005 and the nine months ended
September 30, 2006 was ConocoPhillips, who accounted for
approximately 36% and 34%, respectively, of our supply. The loss
of all or even a portion of the natural gas volumes supplied by
this customer or the extension or replacement of these contracts
on less favorable terms, if at all, as a result of competition
or otherwise, could reduce our revenue or increase our cost for
product purchases, impairing our ability to make distributions
to our unitholders.
If
third-party pipelines and other facilities interconnected to our
natural gas pipelines and facilities become partially or fully
unavailable to transport natural gas and NGLs, our revenues and
cash available for distribution could be adversely
affected.
We depend upon third party pipelines and other facilities that
provide delivery options to and from our pipelines and
facilities. Since we do not own or operate these pipelines or
other facilities, their continuing operation is not within our
control. If any of these third-party pipelines and other
facilities become partially or fully unavailable to transport
natural gas and NGLs, our revenues and cash available for
distribution could be adversely affected.
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We
depend on our Chico system for a substantial majority of our
revenues and if those revenues were reduced, there would be a
material adverse effect on our results of operations and ability
to make distributions to unitholders.
Any significant curtailment of gathering, compressing, treating,
processing or fractionation of natural gas on our Chico system
could result in our realizing materially lower levels of
revenues and cash flow for the duration of such curtailment. For
the nine months ended September 30, 2006, our Chico plant
inlet volume accounted for over 90% of our revenues. Operations
at our Chico system could be partially curtailed or completely
shut down, temporarily or permanently, as a result of:
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competition from other systems that may be able to meet producer
needs or supply end-user markets on a more cost-effective basis;
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operational problems such as catastrophic events at the Chico
processing plant or gathering lines, labor difficulties or
environmental proceedings or other litigation that compel
cessation of all or a portion of the operations on our Chico
system;
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an inability to obtain sufficient quantities of natural gas for
the Chico system at competitive terms; or
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reductions in exploration or production activity, or shut-ins by
producers in the areas in which we operate.
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The magnitude of the effect on us of any curtailment of
operations will depend on the length of the curtailment and the
extent of the operations affected by such curtailment. We have
no control over many of the factors that may lead to a
curtailment of operations.
In addition, our business interruption insurance is subject to
limitations and deductions. If a significant accident or event
occurs at our Chico system that is not fully insured, it could
adversely affect our operations and financial condition.
We are
exposed to the credit risk of Targa and any material
nonperformance by Targa could reduce our ability to make
distributions to our unitholders.
At the closing of this offering, we will enter into purchase
agreements with Targa pursuant to which Targa will purchase all
of our natural gas, NGLs and high-pressure condensate for a term
of 15 years. We will also enter into an omnibus agreement
with Targa which will address, among other things, the provision
of general and administrative and operating services to us. As
of January 31, 2007, Moodys and Standard &
Poors assigned Targa corporate credit ratings of B1 and
B+, respectively, which are speculative ratings. These
speculative ratings signify a higher risk that Targa will
default on its obligations, including its obligations to us,
than does an investment grade credit rating. Any material
nonperformance under the omnibus and purchase agreements by
Targa could materially and adversely impact our ability to
operate and make distributions to our unitholders.
Our
general partner is an obligor under, and subject to a pledge
related to, Targas credit facility; in the event Targa is
unable to meet its obligations under that facility, or is
declared bankrupt, Targas lenders may gain control of our
general partner or, in the case of bankruptcy, our partnership
may be dissolved.
Our general partner is an obligor under, and all of its assets
and Targas ownership interest in it are subject to a lien
related to, Targas credit facility. In the event Targa is
unable to satisfy its obligations under the credit facility and
the lenders foreclose on their collateral, the lenders will own
our general partner and all of its assets, which include the
general partner interest in us and our incentive distribution
rights. In such event, the lenders would control our management
and operation. Moreover, in the event Targa becomes insolvent or
is declared bankrupt, our general partner may be deemed
insolvent or declared bankrupt as well. Under the terms of our
partnership agreement, the bankruptcy or insolvency of our
general partner will cause a dissolution of our partnership.
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Our
industry is highly competitive, and increased competitive
pressure could adversely affect our business and operating
results.
We compete with similar enterprises in our respective areas of
operation. Some of our competitors are large oil, natural gas
and petrochemical companies that have greater financial
resources and access to supplies of natural gas and NGLs than we
do. Some of these competitors may expand or construct gathering,
processing and transportation systems that would create
additional competition for the services we provide to our
customers. In addition, our customers who are significant
producers of natural gas may develop their own gathering,
processing and transportation systems in lieu of using ours. Our
ability to renew or replace existing contracts with our
customers at rates sufficient to maintain current revenues and
cash flows could be adversely affected by the activities of our
competitors and our customers. All of these competitive
pressures could have a material adverse effect on our business,
results of operations, financial condition and ability to make
cash distributions to you.
Our
business involves many hazards and operational risks, some of
which may not be fully covered by insurance. If a significant
accident or event occurs that is not fully insured, our
operations and financial results could be adversely
affected.
Our operations are subject to many hazards inherent in the
gathering, compressing, treating, processing and transporting of
natural gas and NGLs, including:
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damage to pipelines and plants, related equipment and
surrounding properties caused by hurricanes, tornadoes, floods,
fires and other natural disasters, explosions and acts of
terrorism;
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inadvertent damage from third parties, including from
construction, farm and utility equipment;
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leaks of natural gas, NGLs and other hydrocarbons or losses of
natural gas or NGLs as a result of the malfunction of equipment
or facilities; and
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other hazards that could also result in personal injury and loss
of life, pollution and suspension of operations.
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These risks could result in substantial losses due to personal
injury
and/or loss
of life, severe damage to and destruction of property and
equipment and pollution or other environmental damage and may
result in curtailment or suspension of our related operations. A
natural disaster or other hazard affecting the areas in which we
operate could have a material adverse effect on our operations.
Our insurance is provided under Targas insurance programs.
We are not fully insured against all risks inherent to our
business. We are not insured against all environmental accidents
that might occur which may include toxic tort claims, other than
those considered to be sudden and accidental. If a significant
accident or event occurs that is not fully insured, it could
adversely affect our operations and financial condition. In
addition, Targa may not be able to maintain or obtain insurance
of the type and amount we desire at reasonable rates. Moreover,
significant claims by Targa may limit or eliminate the amount of
insurance proceeds available to us. As a result of market
conditions, premiums and deductibles for certain of our
insurance policies have increased substantially, and could
escalate further. In some instances, certain insurance could
become unavailable or available only for reduced amounts of
coverage.
Our
debt levels may limit our flexibility in obtaining additional
financing and in pursuing other business
opportunities.
At the closing of this offering, we will borrow approximately
$342.5 million under our new credit facility. Our level of
debt could have important consequences for us, including the
following:
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our ability to obtain additional financing, if necessary, for
working capital, capital expenditures, acquisitions or other
purposes may be impaired or such financing may not be available
on favorable terms;
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we will need a portion of our cash flow to make interest
payments on our debt, reducing the funds that would otherwise be
available for operations, future business opportunities and
distributions to unitholders;
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our debt level will make us more vulnerable to competitive
pressures or a downturn in our business or the economy
generally; and
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our debt level may limit our flexibility in responding to
changing business and economic conditions.
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Our ability to service our debt will depend upon, among other
things, our future financial and operating performance, which
will be affected by prevailing economic conditions and
financial, business, regulatory and other factors, some of which
are beyond our control. If our operating results are not
sufficient to service our current or future indebtedness, we
will be forced to take actions such as reducing distributions,
reducing or delaying our business activities, acquisitions,
investments or capital expenditures, selling assets,
restructuring or refinancing our debt, or seeking additional
equity capital. We may not be able to effect any of these
actions on satisfactory terms, or at all. Please see
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Capital Requirements.
Increases
in interest rates could adversely affect our
business.
In addition to our exposure to commodity prices, we will have
significant exposure to increases in interest rates. After this
offering, we expect to have approximately $342.5 million of
debt on a pro forma basis at variable interest rates. An
increase of 1 percentage point in the interest rates will
result in an increase in annual interest expense of
$3.4 million. As a result, our results of operations, cash
flows and financial condition could be materially adversely
affected by significant increases in interest rates.
Restrictions
in our credit facility may interrupt distributions to us from
our subsidiaries, which may limit our ability to make
distributions to you, satisfy our obligations and capitalize on
business opportunities.
We are a holding company with no business operations. As such,
we depend upon the earnings and cash flow of our subsidiaries
and the distribution of that cash to us in order to meet our
obligations and to allow us to make distributions to our
unitholders. In connection with this offering, we expect to
enter into a new credit facility which will contain covenants
limiting our ability to make distributions, incur indebtedness,
grant liens, and engage in transactions with affiliates.
Furthermore, our credit facility will contain covenants
requiring us to maintain a ratio of consolidated indebtedness to
consolidated EBITDA initially of not more than 5.75 to 1.00 and
a ratio of consolidated EBITDA to consolidated interest expense
of not less than 2.25 to 1.00. If we fail to meet these tests or
otherwise breach the terms of our credit facility our operating
subsidiary will be prohibited from making any distribution to us
and, ultimately, to you. Any interruption of distributions to us
from our subsidiaries may limit our ability to satisfy our
obligations and to make distributions to you.
We may
incur significant costs and liabilities in the future resulting
from a failure to comply with new or existing environmental
regulations or an accidental release of hazardous substances or
hydrocarbons into the environment.
Our operations are subject to stringent and complex federal,
state and local environmental laws and regulations. These
include, for example, (1) the federal Clean Air Act and
comparable state laws and regulations that impose obligations
related to air emissions, (2) the federal Resource
Conservation and Recovery Act, or RCRA, and comparable state
laws that impose requirements for the handling, storage,
treatment or discharge of waste from our facilities and
(3) the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, or CERCLA, also known
as Superfund, and comparable state laws that
regulate the cleanup of hazardous substances that may have been
released at properties currently or previously owned or operated
by us or locations to which we have sent waste for disposal.
Failure to comply with these laws and regulations or newly
adopted laws or regulations may trigger a variety of
administrative, civil and criminal enforcement measures,
including the assessment of monetary penalties, the imposition
of remedial requirements, and the issuance of orders enjoining
future operations or imposing additional compliance requirements
on such operations. Certain environmental regulations,
23
including CERCLA and analogous state laws and regulations,
impose strict, joint and several liability for costs required to
clean up and restore sites where hazardous substances or
hydrocarbons have been disposed or otherwise released. Moreover,
it is not uncommon for neighboring landowners and other third
parties to file claims for personal injury and property damage
allegedly caused by the release of hazardous substances,
hydrocarbons or other waste products into the environment.
There is inherent risk of the incurrence of environmental costs
and liabilities in our business due to our handling of natural
gas and other petroleum products, air emissions related to our
operations, and historical industry operations and waste
disposal practices. For example, an accidental release from one
of our facilities could subject us to substantial liabilities
arising from environmental cleanup and restoration costs, claims
made by neighboring landowners and other third parties for
personal injury and property damage and fines or penalties for
related violations of environmental laws or regulations.
Moreover, the possibility exists that stricter laws, regulations
or enforcement policies could significantly increase our
operational or compliance costs and the cost of any remediation
that may become necessary. In particular, we may incur
expenditures in order to maintain compliance with legal
requirements governing emissions of air pollutants from our
facilities. We may not be able to recover these costs from
insurance. Please see
Business Environmental Matters.
We
typically do not obtain independent evaluations of natural gas
reserves dedicated to our gathering pipeline systems; therefore,
volumes of natural gas on our systems in the future could be
less than we anticipate.
We typically do not obtain independent evaluations of natural
gas reserves connected to our gathering systems due to the
unwillingness of producers to provide reserve information as
well as the cost of such evaluations. Accordingly, we do not
have independent estimates of total reserves dedicated to our
gathering systems or the anticipated life of such reserves. If
the total reserves or estimated life of the reserves connected
to our gathering systems is less than we anticipate and we are
unable to secure additional sources of natural gas, then the
volumes of natural gas on our gathering systems in the future
could be less than we anticipate. A decline in the volumes of
natural gas on our systems could have a material adverse effect
on our business, results of operations, financial condition and
our ability to make cash distributions to you.
A
change in the jurisdictional characterization of some of our
assets by federal, state or local regulatory agencies or a
change in policy by those agencies may result in increased
regulation of our assets, which may cause our revenues to
decline and operating expenses to increase.
Our natural gas gathering operations are generally exempt from
Federal Energy Regulatory Commission, or FERC, regulation under
the Natural Gas Act of 1938, or NGA, but FERC regulation still
affects these businesses and the markets for products derived
from these businesses. FERCs policies and practices across
the range of its natural gas regulatory activities, including,
for example, its policies on open access transportation,
ratemaking, capacity release and market center promotion,
indirectly affect intrastate markets. In recent years, FERC has
pursued pro-competitive policies in its regulation of interstate
natural gas pipelines. However, we cannot assure you that FERC
will continue this approach as it considers matters such as
pipeline rates and rules and policies that may affect rights of
access to natural gas transportation capacity. In addition, the
distinction between FERC-regulated transmission services and
federally unregulated gathering services has been the subject of
regular litigation; accordingly, the classification and
regulation of some of our intrastate pipelines may be subject to
change based on future determinations by FERC, the courts or
Congress.
State regulation of natural gas gathering facilities generally
includes various safety, environmental and, in some
circumstances, nondiscriminatory take requirements, and
complaint-based rate regulation. Natural gas gathering may
receive greater regulatory scrutiny at both the state and
federal levels now that FERC has taken a more light-handed
approach to regulation of the gathering activities of interstate
pipeline transmission companies and as a number of such
companies have transferred gathering facilities to unregulated
affiliates. The Railroad Commission of Texas, or TRRC, has
adopted regulations that generally allow natural gas producers
and shippers to file complaints with the TRRC in an effort to
resolve grievances relating to intrastate pipeline access and
rate discrimination. Our natural gas gathering operations could
be
24
adversely affected in the future should they become subject to
the application of state or federal regulation of rates and
services. Our gathering operations also may be or become subject
to safety and operational regulations relating to the design,
installation, testing, construction, operation, replacement and
management of gathering facilities. Additional rules and
legislation pertaining to these matters are considered or
adopted from time to time. We cannot predict what effect, if
any, such changes might have on our operations, but the industry
could be required to incur additional capital expenditures and
increased costs depending on future legislative and regulatory
changes. Other state and local regulations also may affect our
business. See Business Regulation of
Operations.
Our
costs may increase because our credit obligations under hedging
and other contractual arrangements will not be guaranteed by
Targa.
Prior to the completion of this offering, Targa maintains credit
support for our obligations related to derivative financial
instruments, such as commodity price hedging contracts.
Beginning with the closing of this offering, Targa will no
longer provide credit support for our obligations under
derivative financial instruments and other commercial contracts
governing our business or operations. Consequently, we will need
to provide our own credit support arrangements for commercial
contracts, which may increase our costs. For example, it could
be more costly for us to manage our commodity price risk through
certain types of financial hedging arrangements unless we are
able to achieve creditworthiness similar to the current
creditworthiness of Targa.
All of
our operations are based in the Fort Worth Basin and we are
dependent on drilling activities and our ability to attract and
maintain customers in such region.
All of our operations are located in the Fort Worth Basin
in north Texas. Due to our lack of diversification in industry
type and location, an adverse development in the oil and gas
production from this area would have a significantly greater
impact on our financial condition and results of operations than
if we maintained more diverse assets and operating areas.
Under
the terms of our gas sales agreement, Targa will manage the
sales of our natural gas and will pay us the amount it realizes
for gas sales less certain costs; however, unexpected volume
changes due to production variability or to gathering, plant, or
pipeline system disruptions may increase our exposure to
commodity price movements.
Targa will sell our processed natural gas to third parties and
other Targa affiliates at our plant tailgate or at interstate
pipeline pooling points. Sales made to natural gas marketers and
end-users may be interrupted by disruptions to volumes anywhere
along the system. Targa will attempt to balance sales with
volumes supplied from our processing operations, but unexpected
volume variations due to production variability or to gathering,
plant, or pipeline system disruptions may expose us to volume
imbalances which, in conjunction with movements in commodity
prices, could materially impact our income from operations, and
cash flow.
We may
incur significant costs and liabilities resulting from pipeline
integrity programs and related repairs.
Pursuant to the Pipeline Safety Improvement Act of 2002, the
United States Department of Transportation, or DOT, has adopted
regulations requiring pipeline operators to develop integrity
management programs for pipelines located where a leak or
rupture could do the most harm in high consequence
areas. The regulations require operators to:
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perform ongoing assessments of pipeline integrity;
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identify and characterize applicable threats to pipeline
segments that could impact a high consequence area;
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improve data collection, integration and analysis;
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repair and remediate the pipeline as necessary; and
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implement preventive and mitigating actions.
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We currently estimate that we will incur an aggregate cost of
approximately $1 million between 2006 and 2010 to implement
pipeline integrity management program testing along certain
segments of our natural gas and NGL pipelines. This does not
include the costs, if any, of any repair, remediation,
preventative or mitigating actions that may be determined to be
necessary as a result of the testing program, which costs could
be substantial.
Our
construction of new assets may not result in revenue increases
and is subject to regulatory, environmental, political, legal
and economic risks, which could adversely affect our results of
operations and financial condition.
One of the ways we intend to grow our business is through the
construction of new midstream assets. The construction of
additions or modifications to our existing systems, and the
construction of new midstream assets, involves numerous
regulatory, environmental, political and legal uncertainties
beyond our control and may require the expenditure of
significant amounts of capital. If we undertake these projects,
they may not be completed on schedule or at the budgeted cost,
or at all. Moreover, our revenues may not increase immediately
upon the expenditure of funds on a particular project. For
instance, if we expand a new pipeline, the construction may
occur over an extended period of time, and we will not receive
any material increases in revenues until the project is
completed. Moreover, we may construct facilities to capture
anticipated future growth in production in a region in which
such growth does not materialize. Since we are not engaged in
the exploration for and development of natural gas and oil
reserves, we do not possess reserve expertise and we often do
not have access to third-party estimates of potential reserves
in an area prior to constructing facilities in such area. To the
extent we rely on estimates of future production in our decision
to construct additions to our systems, such estimates may prove
to be inaccurate because there are numerous uncertainties
inherent in estimating quantities of future production. As a
result, new facilities may not be able to attract enough
throughput to achieve our expected investment return, which
could adversely affect our results of operations and financial
condition. In addition, the construction of additions to our
existing gathering and transportation assets may require us to
obtain new
rights-of-way
prior to constructing new pipelines. We may be unable to obtain
such
rights-of-way
to connect new natural gas supplies to our existing gathering
lines or capitalize on other attractive expansion opportunities.
Additionally, it may become more expensive for us to obtain new
rights-of-way
or to renew existing
rights-of-way.
If the cost of renewing or obtaining new
rights-of-way
increases, our cash flows could be adversely affected.
If we
do not make acquisitions on economically acceptable terms, or
efficiently and effectively integrate the acquired assets with
our asset base, our future growth will be limited.
Our ability to grow depends, in part, on our ability to make
acquisitions that result in an increase in the cash generated
from operations per unit. If we are unable to make these
accretive acquisitions either because we are (1) unable to
identify attractive acquisition candidates or negotiate
acceptable purchase contracts with them, (2) unable to
obtain financing for these acquisitions on economically
acceptable terms, or (3) outbid by competitors, then our
future growth and ability to increase distributions will be
limited.
Any acquisition involves potential risks, including, among other
things:
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mistaken assumptions about volumes, revenues and costs,
including synergies;
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an inability to integrate successfully the businesses we acquire;
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the assumption of unknown liabilities;
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limitations on rights to indemnity from the seller;
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mistaken assumptions about the overall costs of equity or debt;
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the diversion of managements and employees attention
from other business concerns;
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unforeseen difficulties operating in new product areas or new
geographic areas; and
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customer or key employee losses at the acquired businesses.
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If these risks materialize, the acquired assets may inhibit our
growth or fail to deliver expected benefits.
Our acquisition strategy is based, in part, on our expectation
of ongoing divestitures of energy assets by industry
participants. A material decrease in such divestitures would
limit our opportunities for future acquisitions and could
adversely affect our operations and cash flows available for
distribution to our unitholders.
We do
not own all of the land on which our pipelines and facilities
are located, which could disrupt our operations.
We do not own most of the land on which our pipelines and
facilities are located, and we are therefore subject to the
possibility of more onerous terms
and/or
increased costs to retain necessary land use if we do not have
valid rights of way or leases or if such rights of way or leases
lapse or terminate. We sometimes obtain the rights to land owned
by third parties and governmental agencies for a specific period
of time. Our loss of these rights, through our inability to
renew
right-of-way
contracts, leases or otherwise, could cause us to cease
operations on the affected land, increase costs related to
continuing operations elsewhere, reduce our revenue and impair
our ability to make distributions to our unitholders.
We do
not have any officers or employees and rely solely on officers
of our general partner and employees of Targa.
None of the officers of our general partner are employees of our
general partner. We intend to enter into an omnibus agreement
with Targa, pursuant to which Targa will operate our assets and
perform other administrative services for us such as accounting,
legal, regulatory, corporate development, finance, land and
engineering. Affiliates of Targa conduct businesses and
activities of their own in which we have no economic interest,
including businesses and activities relating to Targa. As a
result, there could be material competition for the time and
effort of the officers and employees who provide services to our
general partner and Targa. If the officers of our general
partner and the employees of Targa do not devote sufficient
attention to the management and operation of our business, our
financial results may suffer and our ability to make
distributions to our unitholders may be reduced.
If our
general partner fails to develop or maintain an effective system
of internal controls, then we may not be able to accurately
report our financial results or prevent fraud. As a result,
current and potential unitholders could lose confidence in our
financial reporting, which would harm our business and the
trading price of our common units.
Targa Resources GP LLC, our general partner, has sole
responsibility for conducting our business and for managing our
operations. Effective internal controls are necessary for our
general partner, on our behalf, to provide reliable financial
reports, prevent fraud and operate us successfully as a public
company. If our general partners efforts to develop and
maintain its internal controls are not successful, it is unable
to maintain adequate controls over our financial processes and
reporting in the future or it is unable to assist us in
complying with our obligations under Section 404 of the
Sarbanes-Oxley Act of 2002, our operating results could be
harmed or we may fail to meet our reporting obligations.
Ineffective internal controls also could cause investors to lose
confidence in our reported financial information, which would
likely have a negative effect on the trading price of our common
units.
The
amount of cash we have available for distribution to holders of
our common units and subordinated units depends primarily on our
cash flow and not solely on profitability. Consequently, even if
we are profitable, we may not be able to make cash distributions
to holders of our common units and subordinated
units.
You should be aware that the amount of cash we have available
for distribution depends primarily upon our cash flow and not
solely on profitability, which will be affected by non-cash
items. As a result, we
27
may make cash distributions during periods when we record losses
for financial accounting purposes and may not make cash
distributions during periods when we record net earnings for
financial accounting purposes.
Terrorist
attacks, and the threat of terrorist attacks, have resulted in
increased costs to our business. Continued hostilities in the
Middle East or other sustained military campaigns may adversely
impact our results of operations.
The long-term impact of terrorist attacks, such as the attacks
that occurred on September 11, 2001, and the threat of
future terrorist attacks on our industry in general, and on us
in particular, is not known at this time. Increased security
measures taken by us as a precaution against possible terrorist
attacks have resulted in increased costs to our business.
Uncertainty surrounding continued hostilities in the Middle East
or other sustained military campaigns may affect our operations
in unpredictable ways, including disruptions of crude oil
supplies and markets for our products, and the possibility that
infrastructure facilities could be direct targets of, or
indirect casualties of, an act of terror.
Changes in the insurance markets attributable to terrorist
attacks may make certain types of insurance more difficult for
us to obtain. Moreover, the insurance that may be available to
us may be significantly more expensive than our existing
insurance coverage. Instability in the financial markets as a
result of terrorism or war could also affect our ability to
raise capital.
Risks
Inherent in an Investment in Us
Targa
controls our general partner, which has sole responsibility for
conducting our business and managing our operations. Targa has
conflicts of interest with us and may favor its own interests to
your detriment.
Following this offering, Targa will own and control our general
partner. Some of our general partners directors, and some
of its executive officers, are directors or officers of Targa.
Therefore, conflicts of interest may arise between Targa,
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 Targa to pursue a business strategy that favors us.
Targas directors and officers have a fiduciary duty to
make decisions in the best interests of the owners of Targa,
which may be contrary to our interests;
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our general partner is allowed to take into account the
interests of parties other than us, such as Targa, or its
owners, including Warburg Pincus, in resolving conflicts of
interest; and
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Targa is not limited in its ability to compete with us and is
under no obligation to offer assets to us; please see
Targa is not limited in its ability to compete
with us, which could limit our ability to acquire additional
assets or businesses below.
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Please see Conflicts of Interest and Fiduciary
Duties.
The
credit and business risk profile of our general partner and its
owners could adversely affect our credit ratings and
profile.
The credit and business risk profiles of the general partner and
its owners may be factors in credit evaluations of a master
limited partnership. This is because the general partner can
exercise significant influence over the business activities of
the partnership, including its cash distribution and acquisition
strategy and business risk profile. Another factor that may be
considered is the financial condition of the general partner and
its owners, including the degree of their financial leverage and
their dependence on cash flow from the partnership to service
their indebtedness.
Targa, the owner of our general partner, has significant
indebtedness outstanding and is partially dependent on the cash
distributions from their indirect general partner and limited
partner equity interests
28
in us to service such indebtedness. Any distributions by us to
such entities will be made only after satisfying our then
current obligations to our creditors. Our credit ratings and
business risk profile could be adversely affected if the ratings
and risk profiles of the entities that control our general
partner were viewed as substantially lower or more risky than
ours.
Our
partnership agreement limits our general partners
fiduciary duties to holders of our units and restricts the
remedies available to unitholders for actions taken by our
general partner that might otherwise constitute breaches of
fiduciary duty.
The directors and officers of our general partner have a
fiduciary duty to manage our general partner in a manner
beneficial to its owner, Targa. Our partnership agreement
contains provisions that reduce the 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 partner;
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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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If you purchase any common units, you will agree to become bound
by the provisions in the partnership agreement, including the
provisions discussed above. Please see Conflicts of
Interests and Fiduciary Duties Fiduciary
Duties.
Targa
is not limited in its ability to compete with us, which could
limit our ability to acquire additional assets or
businesses.
Neither our partnership agreement nor the omnibus agreement
between us and Targa will prohibit Targa from owning assets or
engaging in businesses that compete directly or indirectly with
us. In addition, Targa may acquire, construct or dispose of
additional midstream or other assets in the future, without any
obligation to offer us the opportunity to purchase or construct
any of those assets. Targa is a large, established participant
in the midstream energy business, and has significantly greater
resources and experience than we have, which factors may make it
more difficult for us to compete with Targa with respect to
commercial activities as well as for acquisition candidates. As
a result, competition from Targa
29
could adversely impact our results of operations and cash
available for distribution. Please see Conflicts of
Interest and Fiduciary Duties.
Cost
reimbursements due our general partner and its affiliates for
services provided, which will be determined by our general
partner, will be substantial and will reduce our cash available
for distribution to you.
Pursuant to an omnibus agreement we will enter into with Targa
Resources GP LLC, our general partner and others upon the
closing of this offering, Targa 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 see 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 our general partner. 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.
Holders
of our common units have limited voting rights and are not
entitled to elect our general partner or its
directors.
Unlike the holders of common stock in a corporation, unitholders
have only limited voting rights on matters affecting our
business and, therefore, limited ability to influence
managements decisions regarding our business. Unitholders
will not elect our general partner or our general partners
board of directors, and will have no right to elect our general
partner or our general partners board of directors on an
annual or other continuing basis. The board of directors of our
general partner will be chosen by Targa. Furthermore, if the
unitholders were dissatisfied with the performance of our
general partner, they will have little ability to remove our
general partner. As a result of these limitations, the price at
which the common units will trade could be diminished because of
the absence or reduction of a takeover premium in the trading
price.
Even
if holders of our common units are dissatisfied, they cannot
initially remove our general partner without its
consent.
The unitholders will be unable initially to remove our general
partner without its consent because our general partner and its
affiliates will own sufficient units upon completion of this
offering to be able to prevent its removal. The vote of the
holders of at least
662/3%
of all outstanding units voting together as a single class is
required to remove the general partner. Following the closing of
this offering, our general partner and its affiliates will own
40.7% of our aggregate outstanding common and subordinated
units. Also, if our general partner is removed without cause
during the subordination period and units held by our general
partner and its affiliates are not voted in favor of that
removal, all remaining subordinated units will automatically
convert into common units and any existing arrearages on our
common units will be extinguished. A removal of our general
partner under these circumstances would adversely affect our
common units by prematurely eliminating their distribution and
liquidation preference over our subordinated units, which would
otherwise have continued until we had met certain distribution
and performance tests. Cause is narrowly defined to mean that a
court of competent jurisdiction has entered a final,
non-appealable judgment finding the general partner liable for
actual fraud or willful or wanton misconduct in its capacity as
our general partner. Cause does not include most cases of
charges of poor management of the business, so the removal of
the general partner because of the unitholders
dissatisfaction with our general partners performance in
managing our partnership will most likely result in the
termination of the subordination period and conversion of all
subordinated units to common units.
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We may
issue additional units without your approval, which would dilute
your existing ownership interests.
Our partnership agreement does not limit the number of
additional limited partner interests that we may issue at any
time without the approval of our unitholders. The issuance by us
of additional common units or other equity securities of equal
or senior rank will have the following effects:
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our unitholders proportionate ownership interest in us
will decrease;
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the amount of cash available for distribution on each unit may
decrease;
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because a lower percentage of total outstanding units will be
subordinated units, the risk that a shortfall in the payment of
the minimum quarterly distribution will be borne by our common
unitholders will increase;
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the ratio of taxable income to distributions may increase;
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the relative voting strength of each previously outstanding unit
may be diminished; and
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the market price of the common units may decline.
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Affiliates
of our general partner may sell common units in the public
markets, which sales could have an adverse impact on the trading
price of the common units.
After the sale of the common units offered hereby, management of
our general partner and Targa will hold no common units and
11,528,231 subordinated units. All of the subordinated units
will convert into common units at the end of the subordination
period and 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 may elect to cause us to issue Class B
units to it in connection with a resetting of the target
distribution levels related to our general partners
incentive distribution rights without the approval of the
conflicts committee of our general partner or holders of our
common units. This ability may result in lower distributions to
holders of our common units in certain situations.
Our general partner has the right, at a time when there are no
subordinated units outstanding and it has received incentive
distributions at the highest level to which it is entitled (48%)
for each of the prior four consecutive fiscal quarters, to reset
the initial cash target distribution levels at higher levels
based on the distribution at the time of the exercise of the
reset election. Following a reset election by our general
partner, the minimum quarterly distribution amount will be reset
to an amount equal to the average cash distribution amount per
common unit for the two fiscal quarters immediately preceding
the reset election (such amount is referred to as the
reset minimum quarterly distribution) and the target
distribution levels will be reset to correspondingly higher
levels based on percentage increases above the reset minimum
quarterly distribution amount.
In connection with resetting these target distribution levels,
our general partner will be entitled to receive Class B
units. The Class B units will be entitled to the same cash
distributions per unit as our common units and will be
convertible into an equal number of common units. The number of
Class B units to be issued will be equal to that number of
common units whose aggregate quarterly cash distributions
equaled the average of the distributions to our general partner
on the incentive distribution rights in the prior two quarters.
We anticipate that our general partner would exercise this reset
right in order to facilitate acquisitions or internal growth
projects that would not be sufficiently accretive to cash
distributions per common unit without such conversion; however,
it is possible that our general partner could exercise this
reset election at a time when it is experiencing, or may be
expected to experience, declines in the cash distributions it
receives related to its incentive distribution rights and may
therefore desire to be issued our Class B units, which are
entitled to receive cash distributions from us on the same
priority as our common units, rather than retain the right to
receive incentive distributions based on the initial target
distribution levels. As a result, a reset election may cause our
common unitholders to experience dilution in the amount
31
of cash distributions that they would have otherwise received
had we not issued new Class B units to our general partner
in connection with resetting the target distribution levels
related to our general partners incentive distribution
rights. Please see Provisions of Our Partnership Agreement
Related to Cash Distributions General Partner
Interest and Incentive Distribution Rights.
Increases
in interest rates could adversely impact our unit price and our
ability to issue additional equity to make acquisitions, for
expansion capital expenditures 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
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, for expansion capital expenditures or for
other purposes.
We
will incur increased costs as a result of being a
publicly-traded company.
We have no history operating as a publicly-traded company. As a
publicly-traded company, we will incur significant legal,
accounting and other expenses that we would not incur as a
private company. In addition, the Sarbanes-Oxley Act of 2002, as
well as new rules subsequently implemented by the SEC and The
NASDAQ Global Market, have required changes in corporate
governance practices of publicly-traded companies. We expect
these new rules and regulations to increase our legal and
financial compliance costs and to make activities more
time-consuming and costly. For example, as a result of becoming
a publicly-traded company, we are required to have at least
three independent directors, create additional board committees
and adopt policies regarding internal controls and disclosure
controls and procedures, including the preparation of reports on
internal controls over financial reporting. In addition, we will
incur additional costs associated with our publicly-traded
company reporting requirements. We also expect these new rules
and regulations to make it more difficult and more expensive for
our general partner to obtain director and officer liability
insurance and it may be required to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the
same or similar coverage. As a result, it may be more difficult
for our general partner to attract and retain qualified persons
to serve on its board of directors or as executive officers. We
have included $2.5 million of estimated incremental costs
per year associated with being a publicly-traded company for
purposes of our financial forecast included elsewhere in this
prospectus; however, it is possible that our actual incremental
costs of being a publicly-traded company will be higher than we
currently estimate.
Our
partnership agreement restricts the voting rights of unitholders
owning 20% or more of our common units.
Unitholders voting rights are further restricted by the
partnership agreement provision providing that any units held by
a person that owns 20% or more of any class of units then
outstanding, other than our general partner, its affiliates,
their transferees and persons who acquired such units with the
prior approval of the board of directors of our general partner,
cannot vote on any matter. Our partnership agreement also
contains provisions limiting the ability of unitholders to call
meetings or to acquire information about our operations, as well
as other provisions limiting the unitholders ability to
influence the manner or direction of management.
Control
of our general partner may be transferred to a third party
without unitholder consent.
Our general partner may transfer its general partner interest to
a third party in a merger or in a sale of all or substantially
all of its assets without the consent of the unitholders.
Furthermore, our partnership agreement does not restrict the
ability of the owners of our general partner from transferring
all or a portion of their respective 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 partner with its own
choices and thereby influence the decisions taken by the board
of directors and officers.
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Our
general partner has a limited call right that may require you to
sell your units at an undesirable time or price.
If at any time our general partner and its affiliates own more
than 80% of the common units, our general partner will have the
right, but not the obligation, which it may assign to any of its
affiliates or to us, to acquire all, but not less than all, of
the common units held by unaffiliated persons at a price not
less than their then-current market price. As a result, you may
be required to sell your common units at an undesirable time or
price and may not receive any return on your investment. You may
also incur a tax liability upon a sale of your units. At the end
of the subordination period, assuming no additional issuances of
common units, our general partner and its affiliates will own
approximately 40.7% of our aggregate outstanding common units.
For additional information about this right, please see
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 Texas. 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 see 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 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.
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.
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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, or IRS, were to treat us as a
corporation or if we were to become subject to a material amount
of entity-level taxation for state tax purposes, then our cash
available for distribution to you would be substantially
reduced.
The anticipated after-tax economic benefit of an investment in
the common units depends largely on our being treated as a
partnership for federal income tax purposes. We have not
requested, and do not plan to request, a ruling from the IRS on
this or any other tax matter affecting us.
If we were treated as a corporation for federal income tax
purposes, we would pay federal income tax on our taxable 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, treatment of us 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, margin, franchise and
other forms of taxation. For example, beginning in 2008, we will
be subject to a new entity level tax (imposed at a maximum
effective rate of 0.7%) on the portion of our income that is
generated in 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 amounts will be adjusted to reflect
the impact of that law on us.
If the
IRS contests the federal income tax positions we take, the
market for our common units may be adversely affected, and the
cost of any contest will reduce our cash available for
distribution to you.
We have not requested a ruling from the IRS with respect to our
treatment as a partnership for federal income tax purposes or
any other matter affecting us. The IRS may adopt positions that
differ from the conclusions of our counsel expressed in this
prospectus or from the positions we take. It may be necessary to
resort to administrative or court proceedings to sustain some or
all of our counsels conclusions or the positions we take.
A court may not agree with some or 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 your share of our income 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 actual tax liability that results from that
income.
Tax
gain or loss on disposition of our common units could be more or
less than expected.
If you sell your common units, you will recognize a gain or loss
equal to the difference between the amount realized and your tax
basis in those common units. Prior distributions to you in
excess of the total net taxable income you were allocated for a
common unit, which decreased your tax basis in that common
34
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 you receive 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
our 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 adopt depreciation
and amortization positions that may not conform to all aspects
of existing Treasury Regulations. A successful IRS challenge to
those positions could adversely affect the amount of tax
benefits available to you. It also could affect the timing of
these tax benefits or the amount of gain from the sale of common
units and could have a negative impact on the value of our
common units or result in audit adjustments to your tax returns.
For a further discussion of the effect of the depreciation and
amortization positions we will adopt, please see Material
Tax Consequences Tax Consequences of Unit
Ownership Section 754 Election.
The
sale or exchange of 50% or more of our capital and profits
interests during any 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 see
Material Tax Consequences Disposition of
Common Units Constructive Termination for a
discussion of the consequences of our termination for federal
income tax purposes.
You
may be subject to state and local taxes and return filing
requirements in states where you do not live as a result of
investing in our common units.
In addition to federal income taxes, you might be subject to
return filing requirements and 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, now or in
the future, even if you do not live in any of those
jurisdictions. Further, you may be subject to penalties for
failure to comply with those requirements. We will initially own
assets and conduct business in the State of Texas. Currently,
Texas does not impose a personal income tax on individuals. As
we make acquisitions or expand our business, we may own assets
or do business in states that impose a personal income tax. It
is your responsibility to file all United States federal, state
and local tax returns. Our counsel has not rendered an opinion
on the foreign, state or local tax consequences of an investment
in our common units.
35
USE OF
PROCEEDS
We expect to receive net proceeds from this offering of
approximately $315.3 million, after deducting underwriting
discounts and deducting a structuring fee of approximately
$1.3 million but before paying offering expenses. We base
this amount on an assumed initial public offering price of
$20.00 per common unit. We anticipate using the aggregate
net proceeds of this offering to:
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|
|
pay approximately $4.0 million in expenses associated with
this offering and the Formation Transactions;
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|
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|
pay approximately $4.2 million in fees and expenses related
to our new credit facility; and
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|
use the remaining proceeds to pay approximately
$307.1 million to Targa to retire a portion of our
affiliate indebtedness.
|
The structuring fee will be paid to Citigroup Global Markets
Inc., Goldman, Sachs & Co., UBS Securities LLC and Merrill
Lynch & Co. for evaluation, analysis and structuring of
our partnership. We also expect to borrow approximately
$342.5 million under our new credit facility upon the
closing of this offering and to pay that amount to Targa to
retire an additional portion of our affiliate indebtedness. The
remaining balance of our affiliate indebtedness will be retired
and treated as a capital contribution to us. Please see
Certain Relationships and Related Party
Transactions Distributions and Payments to our
General Partner and its Affiliates. The affiliate
indebtedness to be repaid with proceeds of this offering and
borrowings under our new credit facility will be contributed to
us in connection with the Formation Transactions, is due
December 31, 2007 and bears interest at a rate of
10% per annum.
We will use any net proceeds from the exercise of the
underwriters option to purchase additional common units to
reduce outstanding borrowings under our new credit facility. If
the underwriters exercise in full their option to purchase
additional common units, the ownership interest of the public
unitholders will increase to 19,320,000 common units
representing an aggregate 61.4% limited partner interest in us
and the ownership interest of our general partner will increase
to 629,555 general partner units representing a 2% general
partner interest in us.
An increase or decrease in the assumed 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
approximately $15.8 million.
36
CAPITALIZATION
The following table shows:
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the cash and capitalization of the Predecessor Business as of
September 30, 2006; and
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|
our pro forma cash and capitalization as of September 30,
2006, as adjusted to reflect this offering, the other
transactions described under Summary Formation
Transactions and Partnership Structure General
and the application of the net proceeds from this offering as
described under Use of Proceeds.
|
We derived this table from, and it should be read in conjunction
with and is qualified in its entirety by reference to, the
historical and pro forma financial statements and the
accompanying notes included elsewhere in this prospectus. You
should also read this table in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations. For a description of
the pro forma adjustments, please see our Unaudited Pro Forma
Condensed Balance Sheet.
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As of September 30,
|
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2006
|
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|
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Historical
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Pro Forma
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(in millions of dollars)
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Cash
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$
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|
|
|
$
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Long-term debt:
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Credit facility
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342.5
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Affiliate debt (including current
portion)(1)
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865.2
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|
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|
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|
|
|
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Total long-term debt
|
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|
865.2
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|
342.5
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Partners capital(2)(3):
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Predecessor Business
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194.8
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Common units public
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311.3
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Subordinated units
sponsor
|
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372.8
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General partner interest
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|
|
|
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18.7
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|
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|
|
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Total partners capital
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194.8
|
|
|
|
702.8
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|
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Total capitalization
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$
|
1,060.0
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$
|
1,045.3
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(1) |
|
Affiliate debt presented above represents indebtedness incurred
by Targa in connection with the DMS Acquisition that has been
allocated to the North Texas System. In connection with this
offering, a portion of the affiliate indebtedness will be repaid
and the remainder will be retired and treated as a capital
contribution to us. Please see Use of Proceeds. |
|
(2) |
|
Assumes a public offering price of our common units of
$20.00 per unit and reflects partner capital of common
unitholders from the net proceeds of this offering of
approximately $311.3 million, including approximately
$24.7 million of underwriters discounts, fees and
other offering expenses payable by us and the application of the
proceeds as described in Use of Proceeds. A $1.00
increase (decrease) in the assumed public offering price per
common unit would increase (decrease) the net proceeds by
$15.8 million, and would result in a corresponding increase
(decrease) in net proceeds to be used to retire indebtedness,
and therefore would not change our total partners capital,
assuming the number of common units offered by us, as set forth
on the cover page of this prospectus, remains the same. The pro
forma information discussed above is illustrative only and
following completion of this offering will be adjusted based on
the actual public offering price and other terms of this
offering determined at pricing. |
|
(3) |
|
Partners capital as presented above excludes accumulated
other comprehensive income. |
This table does not reflect the issuance of up to 2,520,000
common units that may be sold to the underwriters upon exercise
of their option to purchase additional units.
37
DILUTION
Dilution or accretion is the difference between the offering
price paid by the purchasers of common units sold in this
offering and the pro forma net tangible book value per unit
after the offering. Assuming an initial public offering price of
$20.00, which is the midpoint of the estimated initial public
offering price range per common unit in this offering, on a pro
forma basis as of September 30, 2006, after giving effect
to the offering of common units and the application of the
related net proceeds, and assuming the underwriters option
to purchase additional common units is not exercised, our net
tangible book value would be $730.3 million, or
$25.26 per common unit. Net tangible book value excludes
$4.2 million of net intangible assets. Purchasers of common
units in this offering will experience an immediate accretion in
net tangible book value per common unit for financial accounting
purposes, as illustrated in the following table:
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Assumed initial public offering
price per common unit
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$
|
20.00
|
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Net tangible book value per unit
before the offering(1)
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$
|
17.21
|
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|
|
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Increase in net tangible book
value per common unit attributable to purchasers in the offering
|
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|
8.05
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|
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|
|
|
|
|
|
|
|
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Pro forma net tangible book value
per common unit after the offering(2)
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|
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|
|
|
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25.26
|
|
|
|
|
|
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|
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Immediate dilution (accretion) in
tangible net book value per common unit to new investors(3)
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$
|
(5.26
|
)
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(1)
|
Determined by dividing the number of units (11,528,231
subordinated units and 578,127 general partner units) to be
issued to Targa for its contribution of the North Texas System
into the net tangible book value of the North Texas System
before the offering.
|
|
(2)
|
Determined by dividing the total number of limited partner units
and general partner units to be outstanding after the offering
(16,800,000 common units, 11,528,231 subordinated units and
578,127 general partner units) into our pro forma net tangible
book value, after giving effect to the application of the
expected net proceeds of the offering.
|
|
(3)
|
If the initial public offering price were to increase or
decrease by $1.00 per common unit, immediate dilution
(accretion) in tangible net book value per common unit would not
change after giving effect to the corresponding change in our
pro forma use of proceeds.
|
The following table sets forth the number of units that we will
issue and the total consideration contributed to us by Targa and
by the purchasers of common units in this offering upon
consummation of the transactions contemplated by this prospectus:
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Units Acquired
|
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|
Total Consideration
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Equity contribution by Targa(1)(2)
|
|
|
12,106,358
|
|
|
|
41.9
|
%
|
|
$
|
391,500,000
|
|
|
|
53.8
|
%
|
New investors cash contribution
|
|
|
16,800,000
|
|
|
|
58.1
|
%
|
|
|
336,000,000
|
|
|
|
46.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
28,906,358
|
|
|
|
100.0
|
%
|
|
$
|
727,500,000
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The units acquired by Targa and its affiliates consist of
11,528,231 subordinated units and 578,127 general partner units.
|
|
(2)
|
The North Texas System contributed by Targa is reflected at
Targas historical net carrying value subsequent to
recording the step up in property, plant and equipment at fair
value in connection with the DMS Acquisition. Related
acquisition indebtedness of Targa was also recognized and is
reflected in partners capital. See the historical
financial statements and related notes of the Predecessor
Business for a discussion of the DMS Acquisition.
|
38
The table below shows the net investment of Targa in us after
giving effect to this offering and the Formation Transactions.
Please see our Unaudited Pro Forma Balance Sheet on
page F-3
for a more complete presentation of the adjustments associated
with this offering and the Formation Transactions.
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|
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|
(in millions
|
|
|
|
of dollars)
|
|
|
Total partners capital
excluding accumulated other comprehensive income as of
September 30, 2006
|
|
|
|
|
|
$
|
194.8
|
|
Affiliate debt including current
portion, net of deferred issuance costs
|
|
$
|
846.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Application of net offering
proceeds, after expenses associated with this offering and the
Formation Transactions, to reduce affiliate debt
|
|
|
307.1
|
|
|
|
|
|
Application of borrowings under
our new credit facility to reduce affiliate debt
|
|
|
342.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reduction in affiliate debt
|
|
|
649.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of remaining affiliate
debt (net of unamortized debt issue cost), treated as a capital
contribution to us
|
|
|
|
|
|
|
196.7
|
|
|
|
|
|
|
|
|
|
|
Equity contribution by Targa
|
|
|
|
|
|
$
|
391.5
|
|
|
|
|
|
|
|
|
|
|
39
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 see Assumptions and
Considerations. In addition, you should read
Forward-Looking Statements and Risk
Factors for information regarding statements that do not
relate strictly to historical or current facts and certain risks
inherent in our business.
For additional information regarding our historical and pro
forma operating results, you should refer to our historical and
pro forma financial statements included elsewhere in this
prospectus.
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, including cash from borrowings, at the
end of a quarter after the payment of our expenses and the
establishment of reserves for future capital expenditures and
operational needs. We intend to fund a portion of our capital
expenditures with additional borrowings, or issuances of
additional units. We may also borrow to make distributions to
unitholders, for example, in circumstances where we believe that
the distribution level is sustainable over the long term, but
short-term factors have caused available cash from operations to
be insufficient to pay the distribution at the current level.
Our cash distribution policy reflects a basic judgment that our
unitholders will be better served by our distributing rather
than retaining our available cash.
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:
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Our cash distribution policy is subject to restrictions on
distributions under our new credit facility. Specifically, the
agreement related to our credit facility will contain material
financial tests and covenants that we must satisfy. These
financial tests and covenants are described in this prospectus
under the caption Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Reserves Description of Credit Agreement.
Should we be unable to satisfy these restrictions under our
credit facility or if we are otherwise in default under our
credit facility, we would be prohibited from making cash
distributions to you notwithstanding our stated cash
distribution policy.
|
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|
Our board of directors will have the authority to establish
reserves for the prudent conduct of our business and for future
cash distributions to our unitholders, and the establishment of
those reserves could result in a reduction in cash distributions
to you from levels we currently anticipate pursuant to our
stated distribution policy.
|
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|
While our partnership agreement requires us to distribute all of
our available cash, our partnership agreement, including
provisions requiring us to make cash distributions contained
therein, may be amended. Although during the subordination
period, with certain exceptions, our partnership agreement may
not be amended without the approval of the public common
unitholders, our partnership agreement can be amended with the
consent of our general partner and the approval of a majority of
the outstanding common units and any Class B units issued
upon the reset of incentive distribution rights, if any, voting
as a class (including common units held by Targa) after the
subordination period has ended. At the closing of this offering,
Targa will own our general partner and approximately 40.7% of
our outstanding common units and subordinated units.
|
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|
|
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|
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.
|
40
|
|
|
|
|
Under
Section 17-607
of the Delaware Revised Uniform Limited Partnership Act, we may
not make a distribution to you if the distribution would cause
our liabilities to exceed the fair value of our assets.
|
|
|
|
We may lack sufficient cash to pay distributions to our
unitholders due to increases in our operating or 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 will
distribute all of our available cash to our unitholders. As a
result, we expect that we will rely primarily upon external
financing sources, including commercial bank borrowings and the
issuance of debt and equity securities, to fund our acquisitions
and expansion capital expenditures. As a result, to the extent
we are unable to finance growth externally, our cash
distribution policy will significantly impair our ability to
grow. In addition, because we distribute all of our available
cash, our growth may not be as fast as businesses that reinvest
their available cash to expand ongoing operations. To the extent
we issue additional units in connection with any acquisitions or
expansion capital expenditures, the payment of distributions on
those additional units may increase the risk that we will be
unable to maintain or increase our per unit distribution level,
which in turn may impact the available cash that we have to
distribute on each unit. There are no limitations in our
partnership agreement or our credit facility on our ability to
issue additional units, including units ranking senior to the
common units. The incurrence of additional commercial borrowings
or other debt to finance our growth strategy would result in
increased interest expense, which in turn may impact the
available cash that we have to distribute to our unitholders.
Our
Initial Distribution Rate
Upon completion of this offering, the board of directors of our
general partner will adopt a policy pursuant to which we will
declare an initial quarterly distribution of $0.3375 per
unit per complete quarter, or $1.35 per unit per year, to
be paid no later than 45 days after the end of each fiscal
quarter through the quarter ending December 31, 2007. This
equates to an aggregate cash distribution of $9.8 million
per quarter or $39.0 million per year, in each case based
on the number of common units, subordinated units and general
partner units outstanding immediately after completion of this
offering. If the underwriters exercise in full their option to
purchase additional common units, the ownership interest of the
public unitholders will increase to 19,320,000 common units
representing an aggregate 61.4% limited partner interest in us
and our aggregate cash distribution per quarter would be $10.6
million or $42.5 million per year. Our ability to make cash
distributions at the initial distribution rate pursuant to this
policy will be subject to the factors described above under the
caption Limitations on Cash Distributions and
Our Ability to Change Our Cash Distribution Policy.
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. In the future, 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 initial 2% general partner interest. However, if the
underwriters option is exercised in the transaction, and
additional common units are issued, our general partner will
maintain its initial 2% interest and will not be required to
make a capital contribution to us. Our general partner is not
obligated to contribute a proportionate amount of capital to us
to maintain its current general partner interest.
41
The table below sets forth the assumed number of outstanding
common units (assuming no exercise and full exercise of the
underwriters option to purchase additional common units),
subordinated units and general partner units upon the closing of
this offering and the aggregate distribution amounts payable on
such units during the year following the closing of this
offering at our initial distribution rate of $0.3375 per
common unit per quarter ($1.35 per common unit on an
annualized basis).
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No Exercise of the Underwriters
|
|
|
Full Exercise of the Underwriters
|
|
|
|
Option to Purchase Additional Units
|
|
|
Option to Purchase Additional Units
|
|
|
|
Number of
|
|
|
Distributions
|
|
|
Number of
|
|
|
Distributions
|
|
|
|
Units
|
|
|
One Quarter
|
|
|
Annualized
|
|
|
Units
|
|
|
One Quarter
|
|
|
Annualized
|
|
|
Publicly held common units
|
|
|
16,800,000
|
|
|
$
|
5,670,000
|
|
|
$
|
22,680,000
|
|
|
|
19,320,000
|
|
|
$
|
6,520,500
|
|
|
$
|
26,082,000
|
|
Subordinated units held by Targa
|
|
|
11,528,231
|
|
|
|
3,890,778
|
|
|
|
15,563,112
|
|
|
|
11,528,231
|
|
|
|
3,890,778
|
|
|
|
15,563,112
|
|
General partner units held by Targa
|
|
|
578,127
|
|
|
|
195,118
|
|
|
|
780,471
|
|
|
|
629,555
|
|
|
|
212,475
|
|
|
|
849,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
28,906,358
|
|
|
$
|
9,755,896
|
|
|
$
|
39,023,583
|
|
|
|
31,477,786
|
|
|
$
|
10,623,753
|
|
|
$
|
42,495,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The subordination period generally will end if we have earned
and paid at least $1.35 on each outstanding unit and general
partner unit for any three consecutive, non-overlapping
four-quarter periods ending on or after December 31, 2009.
If we have earned and paid at least $2.025 (150% of the
annualized minimum quarterly distribution) on each outstanding
common unit, subordinated unit and general partner unit for any
four-quarter period, the subordination period will terminate
automatically and all of the subordinated units will convert
into an equal number of common units. Please see the
Provisions of Our Partnership Agreement Relating to Cash
Distributions Subordination Period.
We do not have a legal obligation to pay distributions at our
initial distribution rate or at any other rate except as
provided in our partnership agreement. Our partnership agreement
requires that we distribute all of our available cash quarterly.
Under our partnership agreement, available cash is defined to
generally mean, for each fiscal quarter, cash generated from our
business in excess of expenses and the amount of reserves our
general partner determines is necessary or appropriate to
provide for the conduct of our business, comply with applicable
law, to comply with any of our debt instruments or other
agreements or provide for future distributions to our
unitholders for any one or more of the upcoming four quarters.
Please see 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, during the subordination period to the
extent we have available cash in any future quarter 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 see 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 imposed 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. 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.
42
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
March 31, 2007 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 $0.3375 per unit each quarter through
the quarter ending December 31, 2007. In those sections, we
present two tables, consisting of:
|
|
|
|
|
Unaudited Pro Forma Available Cash, in which we
present the amount of cash we would have had available for
distribution for our fiscal year ended December 31, 2005
and the twelve months ended September 30, 2006, derived
from our unaudited pro forma financial statements that are
included in this prospectus, which unaudited pro forma financial
statements are based on the combined results of operations of
the Predecessor Business reflected in the Pre-Acquisition
Financial Statements and the Post-Acquisition Financial
Statements and on the results of operations reflected in the
unaudited historical financial statements of the Predecessor
Business for the nine months ended September 30, 2006, each
as adjusted to give pro forma effect to the offering and the
Formation Transactions; and
|
|
|
|
Statement of Minimum Estimated EBITDA for the Twelve
Months Ending December 31, 2007, in which we
demonstrate our ability to generate the minimum estimated EBITDA
necessary for us to pay distributions at the initial
distribution rate on all units for the twelve months ending
December 31, 2007.
|
Unaudited
Pro Forma Available Cash for Year Ended December 31, 2005
and the Twelve Months Ended September 30, 2006
If we had completed the transactions contemplated in this
prospectus on January 1, 2005, pro forma available cash
generated during the year ended December 31, 2005 would
have been approximately $31.0 million. Assuming the
underwriters exercise in full their option to purchase
additional common units, this amount would have been sufficient
to make a cash distribution for 2005 at the initial rate of
$0.3375 per unit per quarter ($1.35 per unit on an
annualized basis) on all of the common units and a cash
distribution of $0.0932 per unit per quarter ($0.3728 on an
annualized basis) or 28% of the minimum quarterly distribution
on all of the subordinated units. Assuming the underwriters do
not exercise their option to purchase additional common units,
this amount would have been sufficient to make the full minimum
quarterly distribution on all of the common units and a cash
distribution of $0.0968 per unit per quarter ($0.3874 on an
annualized basis) or 29% of the minimum quarterly distribution
on all of the subordinated units.
If we had completed the transactions contemplated in this
prospectus on October 1, 2005, our pro forma available cash
generated for the twelve months ended September 30, 2006
would have been approximately $42.0 million. Assuming the
underwriters exercise in full their option to purchase
additional common units, this amount would have been sufficient
to make a cash distribution for the twelve months ended
September 30, 2006 at the initial distribution rate of
$0.3375 per unit per quarter ($1.35 per unit on an
annualized basis) on all of the common units and a cash
distribution of $0.3270 per unit per quarter ($1.3079 on an
annualized basis) or 97% of the minimum quarterly distribution
on all of the subordinated units. Assuming the underwriters do
not exercise their option to purchase additional common units,
this amount would have been sufficient to make the full minimum
quarterly distribution on all of the common units and a cash
distribution of $0.3306 per unit per quarter ($1.3225 on an
annualized basis) or 98% of the minimum quarterly distribution
on all of the subordinated units. We had no hedges in place
during the year ended December 31, 2005. Pro forma
available cash for the twelve months ended September 30,
2006 includes $0.3 million in net benefit for hedge
settlements during the second and third quarters of 2006.
Unaudited pro forma available cash from operating surplus
includes direct, incremental general and administrative expenses
that will result from operating as a separate publicly held
limited partnership. These
43
direct, incremental general and administrative expenses are
expected to be approximately $2.5 million annually, are not
subject to the cap contained in the omnibus agreement and
include costs associated with annual and quarterly reports to
unitholders, tax return and
Schedule K-1
preparation and distribution, incremental independent auditor
fees, registrar and transfer agent fees and independent director
compensation. These direct, incremental general and
administrative expenditure are not reflected in the historical
financial statements of the Predecessor Business or our pro
forma financial statements.
We based the pro forma adjustments upon currently available
information and specific estimates and assumptions. The pro
forma amounts below do not purport to present our results of
operations had the transactions contemplated in this prospectus
actually been completed as of the dates indicated. In addition,
cash available to pay distributions is primarily a cash
accounting concept, while our pro forma financial statements
have been prepared on an accrual basis. As a result, you should
view the amount of pro forma available cash only as a general
indication of the amount of cash available to pay distributions
that we might have generated had we been formed in earlier
periods.
The following table illustrates, on a pro forma basis, for the
year ended December 31, 2005 and for the twelve months
ended September 30, 2006, the amount of available cash that
would have been available for distributions to our unitholders,
assuming in each case that this offering had been consummated at
the beginning of such period and that the underwriters exercised
in full their option to purchase additional common units. Each
of the pro forma adjustments presented below is explained in the
footnotes to such adjustments.
Targa
Resources Partners LP
Unaudited
Pro Forma Available Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(in millions of dollars,
|
|
|
|
except per unit data)
|
|
|
Net income
(loss)(1)
|
|
$
|
40.8
|
|
|
$
|
(32.7
|
)
|
Interest expense (including debt
issuance amortization)(2)
|
|
|
11.5
|
|
|
|
65.9
|
|
Depreciation and amortization(2)
|
|
|
20.5
|
|
|
|
52.1
|
|
Income taxes(2)
|
|
|
0.0
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
EBITDA(3)
|
|
|
72.8
|
|
|
|
87.3
|
|
Incremental general and
administrative expense of being a public company(4)
|
|
|
2.5
|
|
|
|
2.5
|
|
Pro forma net cash interest
expense(5)
|
|
|
20.7
|
|
|
|
20.7
|
|
Maintenance capital expenditures(6)
|
|
|
12.9
|
|
|
|
12.3
|
|
Expansion capital expenditures(6)
|
|
|
5.7
|
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
Pro forma available
cash
|
|
$
|
31.0
|
|
|
$
|
42.0
|
|
|
|
|
|
|
|
|
|
|
Distributions per
unit(7)
|
|
$
|
1.35
|
|
|
$
|
1.35
|
|
Pro forma cash
distributions:
|
|
|
|
|
|
|
|
|
Distributions to public common
unitholders(7)
|
|
|
26.1
|
|
|
|
26.1
|
|
Distributions to Targa(7)
|
|
|
16.4
|
|
|
|
16.4
|
|
|
|
|
|
|
|
|
|
|
Total distributions(7)
|
|
$
|
42.5
|
|
|
$
|
42.5
|
|
|
|
|
|
|
|
|
|
|
Excess (shortfall)
|
|
$
|
(11.5
|
)
|
|
$
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
Ratio of consolidated indebtedness
to consolidated EBITDA(8)
|
|
|
4.1
|
x
|
|
|
3.4
|
x
|
Ratio of consolidated EBITDA to
consolidated interest expense(8)
|
|
|
3.5
|
x
|
|
|
4.2
|
x
|
44
|
|
|
(1) |
|
Reflects actual net income of the Predecessor Business derived
from its financial statements for the periods indicated without
giving pro forma effect to the offering and the related
transactions. |
|
|
|
(2) |
|
Reflects adjustments to reconcile net income to EBITDA. |
|
(3) |
|
EBITDA. We define EBITDA as net income before
interest, income taxes, depreciation and amortization. EBITDA is
used as a supplemental financial measure by our management and
by external users of our financial statements such as investors,
commercial banks and others, to assess: |
|
|
|
|
|
the financial performance of our assets without regard to
financing methods, capital structure or historical cost basis;
|
|
|
|
our operating performance and return on capital as compared to
other companies in the midstream energy sector, without regard
to financing or capital structure; and
|
|
|
|
the viability of acquisitions and capital expenditure projects
and the overall rates of return on alternative investment
opportunities.
|
|
|
|
|
|
The economic substance behind managements use of EBITDA is
to measure the ability of our assets to generate cash sufficient
to pay interest costs, support our indebtedness, and make
distributions to our investors. |
|
|
|
The GAAP measures most directly comparable to EBITDA are net
cash provided by operating activities and net income. Our
non-GAAP financial measure of EBITDA should not be considered as
an alternative to GAAP net cash provided by operating activities
and GAAP net income. EBITDA is not a presentation made in
accordance with GAAP and has important limitations as an
analytical tool. You should not consider EBITDA in isolation or
as a substitute for analysis of our results as reported under
GAAP. Because EBITDA excludes some, but not all, items that
affect net income and net cash provided by operating activities
and is defined differently by different companies in our
industry, our definition of EBITDA may not be comparable to
similarly titled measures of other companies. |
|
|
|
Management compensates for the limitations of EBITDA as an
analytical tool by reviewing the comparable GAAP measures,
understanding the differences between the measures and
incorporating these learnings into managements
decision-making processes. |
|
(4) |
|
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, tax return and
Schedule K-1
preparation and distribution, independent auditor fees, investor
relations activities, registrar and transfer agent fees,
incremental director and officer liability insurance costs and
director compensation. |
|
(5) |
|
Reflects the interest expense related to $295.2 million in
borrowings under our new credit facility at an assumed annual
interest rate of 7.0%. This balance reflects the reduction to
our expected initial borrowings of approximately
$342.5 million through the application of the net proceeds
from the assumed exercise in full of the underwriters
option to purchase additional common units. If the interest rate
used to calculate this interest were 1% higher or lower,
our annual cash interest cost would increase or decrease,
respectively, by $3.0 million. |
|
(6) |
|
Maintenance capital expenditures are capital expenditures made
to replace partially or fully depreciated assets, to maintain
the existing operating capacity of our assets and to extend
their useful lives, or other capital expenditures that are
incurred in maintaining existing system volumes and related cash
flows. Expansion capital expenditures are made to acquire
additional assets to grow our business, to expand and upgrade
our systems and facilities and to construct or acquire similar
systems or facilities. |
|
(7) |
|
The table below assumes full exercise of the underwriters
option to purchase additional common units and sets forth the
assumed number of outstanding common units, subordinated units
and general partner units upon the closing of this offering and
the estimated per unit and aggregate distribution amounts
payable on our common units, subordinated units and general
partner units for four quarters at our initial distribution rate
of $0.3375 per common unit per quarter ($1.35 per
common unit on an annualized basis). |
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Exercise of the Underwriters Option to Purchase
Additional Units
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
One Quarter
|
|
|
Annualized
|
|
|
|
|
|
|
|
|
|
|
|
Publicly held common units
|
|
|
19,320,000
|
|
|
$
|
6,520,500
|
|
|
$
|
26,082,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated units held
by Targa
|
|
|
11,528,231
|
|
|
|
3,890,778
|
|
|
|
15,563,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner units held
by Targa
|
|
|
629,555
|
|
|
|
212,475
|
|
|
|
849,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
31,477,786
|
|
|
$
|
10,623,753
|
|
|
$
|
42,495,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8) |
|
In connection with this offering, we expect to enter into a new
credit facility which will contain covenants limiting our
ability to make distributions, incur indebtedness, grant liens,
and engage in transactions with affiliates. Furthermore, our
credit facility will contain covenants requiring us to maintain
a ratio of consolidated indebtedness to consolidated EBITDA
initially of not more than 5.75 to 1.00 and a ratio of
consolidated EBITDA to consolidated interest expense of not less
than 2.25 to 1.00. Any subsequent replacement of our credit
facility or any new indebtedness could have similar or greater
restrictions. |
Minimum
Estimated EBITDA for the Twelve Months Ending December 31,
2007
Set forth below is a Statement of Minimum Estimated EBITDA that
reflects our ability to generate sufficient cash flows to make
the minimum quarterly distribution on all of our outstanding
units for the twelve months ending December 31, 2007, based
on assumptions we believe to be reasonable. EBITDA is defined as
net income before interest, income taxes, depreciation and
amortization. Our minimum estimated EBITDA is prepared on a
basis consistent with the accounting principles used in the
historical financial statements of the Predecessor Business.
Our minimum estimated EBITDA assumes the underwriters exercise
in full their option to purchase additional common units. The
underwriters may or may not elect to exercise this option. We
have presented our ability to make distributions assuming the
issuance of an additional 2,520,000 common units and 51,428
general partner units as a result of this option. Because we
will use the proceeds from the exercise of this option to reduce
outstanding indebtedness, our cash available for distribution
will increase by $3.3 million as a result of reduced
interest expense. This increase is offset by $3.5 million
of cash required to make distributions on the additional common
and general partner units. If the option to purchase additional
units is not exercised, our interest expense will increase and
cash available for distribution will decrease by
$3.3 million. Our pro forma financial statements and other
information presented in this prospectus does not assume any
exercise of the underwriters option to purchase additional
common units.
Our minimum estimated EBITDA reflects our judgment as of the
date of this prospectus of conditions we expect to exist and the
course of action we expect to take in order to make the minimum
quarterly distribution on all our outstanding units for the
twelve months ending December 31, 2007. The assumptions
disclosed below under Assumptions and
Considerations are those that we believe are significant
to our ability to generate our minimum estimated EBITDA. We
believe our actual results of operations and cash flows will be
sufficient to generate the minimum estimated EBITDA; however, we
can give you no assurance that our minimum estimated EBITDA will
be achieved. There will likely be differences between our
minimum estimated EBITDA and our actual results and those
differences could be material. If we fail to generate the
minimum estimated EBITDA, we may not be able to pay cash
distributions on our common units at the initial distribution
rate stated in our cash distribution policy. Assuming the
underwriters exercise in full their option to purchase
additional common units, in order to fund distributions to all
of our common and subordinated unitholders at our initial rate
of $1.35 per unit for the twelve months ending December 31,
2007, our minimum estimated EBITDA for the twelve months ending
December 31, 2007 must be at least $78.3 million.
Assuming the underwriters do not exercise their option to
purchase additional common units, in order to fund distributions
to all of our common and subordinated unitholders at our initial
rate of $1.35 per unit for the twelve months ending
December 31, 2007, our minimum estimated EBITDA for the
twelve months ending December 31, 2007 must be at least
$78.1 million. The amount of our minimum estimated EBITDA
is lower if the underwriters do not exercise their option to
purchase additional units because we
46
would have fewer units outstanding and lower aggregate
distributions, offset by higher interest expense associated with
the higher level of indebtedness. As set forth in the table
below, our minimum estimated EBITDA for this period will be
approximately $78.3 million.
We do not as a matter of course make public projections as to
future operations, earnings, or other results. However,
management has prepared the minimum estimated EBITDA and related
assumptions set forth below to substantiate our belief that we
will have sufficient cash to make the minimum quarterly
distribution to all our unitholders for the twelve months ending
December 31, 2007. The accompanying prospective financial
information was not prepared with a view toward complying with
the guidelines established by the American Institute of
Certified Public Accountants with respect to prospective
financial information but, in the view of our management, the
prospective financial information has been prepared on a
reasonable basis, reflects the best currently available
estimates and judgments, and presents, to the best of
managements knowledge and belief, the assumptions on which
we base our belief that we can generate the minimum estimated
EBITDA necessary for us to have sufficient cash available for
distributions to pay the minimum quarterly distribution to all
our unitholders. 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.
The prospective financial information included in this
prospectus has been prepared by, and is the responsibility of,
our management. PricewaterhouseCoopers LLP has neither examined
nor compiled the accompanying prospective financial information
and accordingly, PricewaterhouseCoopers LLP does not express an
opinion or any other form of assurance with respect thereto. The
PricewaterhouseCoopers LLP report included in this prospectus
relates to our historical information. It does not extend to the
prospective financial information and should not be read to do
so.
When considering our minimum estimated EBITDA, you should keep
in mind the risk factors and other cautionary statements under
Risk Factors. Any of the risks discussed in this
prospectus could cause our actual results of operations to vary
significantly from those supporting our minimum estimated EBITDA.
We are providing our minimum estimated EBITDA and related
assumptions to supplement our pro forma and historical financial
statements in support of our belief that we will have sufficient
available cash to allow us to pay cash distributions on all of
our outstanding common and subordinated units for each quarter
in the four-quarter period ending December 31, 2007 at our
stated initial distribution rate. Please see below under
Assumptions and Considerations for
further information as to the assumptions we have made for the
financial forecast.
We do not undertake any obligation to release publicly the
results of any future revisions we may make to the assumptions
used in generating minimum estimated EBITDA or to update those
assumptions to reflect events or circumstances after the date of
this prospectus. Therefore, you are cautioned not to place undue
reliance on this information.
47
Targa
Resources Partners LP
Statement
of Minimum Estimated EBITDA
|
|
|
|
|
|
|
Twelve Months Ending
|
|
|
|
December 31, 2007
|
|
|
|
(in millions of dollars,
|
|
|
|
except for per unit data)
|
|
|
Operating revenues
|
|
$
|
358.5
|
|
Hedging gain (loss)
|
|
|
15.0
|
|
|
|
|
|
|
Total operating
revenues
|
|
|
373.5
|
|
Product purchases
|
|
|
256.4
|
|
Operating expense
|
|
|
23.7
|
|
General and administrative expense
|
|
|
7.5
|
|
Depreciation and amortization
expense
|
|
|
55.2
|
|
Interest expense, net
|
|
|
21.6
|
|
|
|
|
|
|
Net income
|
|
$
|
9.1
|
|
Adjustments to reconcile net income
to minimum estimated EBITDA:
|
|
|
|
|
Add:
|
|
|
|
|
Depreciation and amortization
expense
|
|
|
55.2
|
|
Interest expense, net
|
|
|
21.6
|
|
Less:
|
|
|
|
|
Cash reserves(1)
|
|
|
7.6
|
|
|
|
|
|
|
Minimum estimated
EBITDA(2)
|
|
|
78.3
|
|
Adjustments to reconcile minimum
estimated EBITDA to estimated cash available for distribution:
|
|
|
|
|
Less:
|
|
|
|
|
Cash interest expense
|
|
|
20.8
|
|
Expansion capital expenditures
|
|
|
1.8
|
|
Maintenance capital expenditures
|
|
|
15.0
|
|
Add:
|
|
|
|
|
Borrowing to fund expansion capital
expenditures
|
|
|
1.8
|
|
|
|
|
|
|
Estimated cash available for
distribution
|
|
$
|
42.5
|
|
|
|
|
|
|
Per unit minimum annual distribution
|
|
$
|
1.35
|
|
Annual distributions to:
|
|
|
|
|
Public common unitholders
|
|
$
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26.1
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Targa
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16.4
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Total minimum annual cash
distributions
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42.5
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Ratio of consolidated indebtedness
to consolidated EBITDA(3)
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3.5
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x
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Ratio of consolidated EBITDA to
consolidated interest expense(3)
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4.1
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x
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(1) |
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Represents a discretionary reserve to be used for reinvestment
and other general partnership purposes. |
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(2) |
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EBITDA. We define EBITDA as net income before
interest, income taxes, depreciation and amortization. EBITDA is
used as a supplemental financial measure by our management and
by external users of our financial statements such as investors,
commercial banks and others, to assess: |
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the financial performance of our assets without regard to
financing methods, capital structure or historical cost basis;
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our operating performance and return on capital as compared to
other companies in the midstream energy sector, without regard
to financing or capital structure; and
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the viability of acquisitions and capital expenditure projects
and the overall rates of return on alternative investment
opportunities.
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The economic substance behind managements use of EBITDA is
to measure the ability of our assets to generate cash sufficient
to pay interest costs, support our indebtedness, and make
distributions to our investors. |
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The GAAP measures most directly comparable to EBITDA are net
cash provided by operating activities and net income. Our
non-GAAP financial measure of EBITDA should not be considered as
an alternative to GAAP net cash provided by operating activities
and GAAP net income. EBITDA is not a presentation made in
accordance with GAAP and has important limitations as an
analytical tool. You should not consider EBITDA in isolation or
as a substitute for analysis of our results as reported under
GAAP. Because EBITDA excludes some, but not all, items that
affect net income and net cash provided by operating activities
and is defined differently by different companies in our
industry, our definition of EBITDA may not be comparable to
similarly titled measures of other companies. |
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Management compensates for the limitations of EBITDA as an
analytical tool by reviewing the comparable GAAP measures,
understanding the differences between the measures and
incorporating these learnings into managements
decision-making processes. |
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(3) |
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In connection with this offering, we expect to enter into a new
credit facility which will contain covenants limiting our
ability to make distributions, incur indebtedness, grant liens,
and engage in transactions with affiliates. Furthermore, our
credit facility will contain covenants requiring us to maintain
a ratio of consolidated indebtedness to consolidated EBITDA of
not more than 5.75 to 1.00 and a ratio of consolidated EBITDA to
consolidated interest expense of not less than 2.25 to 1.00. Any
subsequent replacement of our credit facility or any new
indebtedness could have similar or greater restrictions. |
Please see accompanying summary of the assumptions used to
support our minimum estimated EBITDA.
Assumptions
and Considerations
We believe the assumptions and estimates we have made to support
our ability to generate minimum estimated EBITDA, which are set
forth below, are reasonable.
General/Commodity
Price and Risk Considerations
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Our minimum estimated EBITDA includes the effect of our
commodity price hedging program under which we have hedged a
portion of the commodity price risk related to our expected
natural gas, NGL and condensate sales. Our hedging program for
the twelve months ending December 31, 2007 covers
approximately 90% of our expected natural gas, 62% of our
expected NGL and 93% of our expected condensate equity volumes.
We have the following hedging arrangements in place for 2007:
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Natural Gas
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NGL
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Condensate
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Hedged volume swaps
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13,612 MMBtu/d
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2,416 Bbls/d
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439 Bbls/d
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Weighted average price
swaps
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$8.63 per MMBtu
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$0.99 per gallon
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$72.82 per Bbl
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Hedged volume floors
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870 MMBtu/d
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25 Bbls/d
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Weighted average price
floors
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$6.55 per MMBtu
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$58.60 per Bbl
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As of January 30, 2007, the NYMEX 2007 forward prices for
natural gas and crude oil were
$7.82/MMbtu
and $58.35/Bbl, respectively. These prices are 6% above and 13%
below the forecasted prices of $7.40/MMbtu and $67.00/Bbl for
natural gas and crude oil (based on forward prices as of
September 29, 2006) used to calculate 2007 minimum
estimated EBITDA.
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Total
Operating Revenues
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Inlet Volumes. We estimate that we will
have average inlet volumes of 162.1 MMcf/d of natural gas
for the twelve months ending December 31, 2007, as compared
to 161.8 MMcf/d for the twelve months ended
September 30, 2006, 157.2 MMcf/d for the year ended
December 31, 2005, and 145.4 MMcf/d for the year ended
December 31, 2004.
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Residue Gas Sales (Volumes and
Prices). We estimate that we will sell an
average of 73.5 BBtu/d of residue gas for the twelve months
ending December 31, 2007 at an average realized price of
$6.96/MMBtu, as compared to 74.6 BBtu/d at an average price
of $6.83/MMBtu for the twelve months
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ended September 30, 2006, 69.5 BBtu/d at an average price
of $7.11/MMBtu for the year ended December 31, 2005, and
59.2 BBtu/d at an average price of $5.43/MMBtu for the year
ended December 31, 2004. These assumptions take into
account the effect of our natural gas hedges under which we have
hedged through a combination of swaps and purchased puts (or
floors) natural gas commodity price exposure related to
approximately 90% of our expected natural gas equity volumes.
Please see Managements Discussion and Analysis of
Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market
Risk Commodity Price Risk for additional
detail related to the terms of these natural gas hedges. For our
unhedged natural gas volumes, our forecasted realized price is
$6.58/MMBtu compared to average realized prices of $6.09/MMBtu
for the nine months ended September 30, 2006.
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Based on these assumptions, residue gas sales for the:
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twelve months ending December 31, 2007 compared to twelve
months ending September 30, 2006 increase approximately
$0.6 million consisting of higher revenues of
$3.3 million attributable to higher natural gas prices
offset by $2.7 million due to decreased volumes;
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twelve months ending December 31, 2007 compared to twelve
months ending December 31, 2005 increase approximately
$6.5 million consisting of higher revenues of
$10.6 million attributable to increased volumes offset by
$4.1 million due to lower natural gas prices; and
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twelve months ending December 31, 2007 compared to twelve
months ending December 31, 2004 increase approximately
$69.0 million consisting of higher revenues of
$41.0 million attributable to higher natural gas prices and
$28.0 million due to increased volumes.
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NGL Sales (Volumes and Prices). We
estimate that we will sell an average of 14.2 MBbls/d of
NGLs for the twelve months ending December 31, 2007 at an
average price of $33.34/Bbl, as compared to 15.2 MBbls/d at
an average price of $38.20/Bbl for the twelve months ended
September 30, 2006, 14.5 MBbls/d at an average price
of $33.56/Bbl for the calendar year ended December 31,
2005, and 13.2 MBbls/d at an average price of $26.71/Bbl
for the calendar year ended December 31, 2004. These
assumptions take into account the effect of our NGL hedges under
which we have hedged the NGL commodity price exposure related to
approximately 62% of our expected NGL equity volumes. Please see
Managements Discussion and Analysis of Financial
Condition and Results of Operations Quantitative and
Qualitative Disclosures about Market Risk Commodity
Price Risk for additional detail related to the terms of
these NGL hedges. For our unhedged NGL volumes, our estimated
realized price is $32.59/Bbl compared to average realized prices
of $37.80/Bbl for the nine months ended September 30, 2006.
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Based on these assumptions, NGL sales for the:
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twelve months ending December 31, 2007 compared to
twelve months ending September 30, 2006 decrease
approximately $37.4 million consisting of lower revenues of
$23.8 million attributable to lower NGL prices and
$13.6 million due to decreased volumes;
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twelve months ending December 31, 2007 compared to twelve
months ending December 31, 2005 decrease approximately
$4.1 million consisting of lower revenues of
$2.9 million attributable to decreased volumes and $1.2
million due to lower NGL prices; and
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twelve months ending December 31, 2007 compared to twelve
months ending December 31, 2004 increase approximately
$43.9 million consisting of higher revenues of
$34.4 million attributable to higher NGL prices and
$9.5 million due to increased volumes.
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Condensate Sales (Volumes and
Prices). We estimate that we will sell an
average of 0.5 MBbls/d of condensate for the twelve months
ending December 31, 2007 at an average price of $71.12/Bbl,
as compared to 0.5 MBbls/d at an average price of
$61.55/Bbl for the twelve months ended September 30, 2006,
0.5 MBbls/d at an average price of $54.03/Bbl for the
calendar year ended December 31, 2005, and 0.7 MBbls/d
at an average price of $40.56/Bbl for the calendar year ended
December 31, 2004. These assumptions take into account the
effect of the crude oil hedges under
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which we have hedged through a combination of swaps and
purchased puts (or floors) commodity price exposure related to
approximately 93% of our expected condensate equity volumes.
Please see Managements Discussion and Analysis of
Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market
Risk Commodity Price Risk for additional
detail related to the terms of these crude oil hedges. For our
unhedged condensate volumes, our estimated realized price is
$66.00/Bbl compared to average realized prices of $62.66/Bbl for
the nine months ended September 30, 2006.
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Based on these assumptions, condensate sales for the:
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twelve months ending December 31, 2007 compared to twelve
months ending September 30, 2006 increase approximately
$1.8 million due to higher condensate prices;
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twelve months ending December 31, 2007 compared to twelve
months ending December 31, 2005 increase approximately
$2.6 million consisting of higher revenues of
$3.1 million attributable to higher condensate prices
offset by $0.5 million due to decreased volumes; and
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twelve months ending December 31, 2007 compared to twelve
months ending December 31, 2004 increase approximately
$2.7 million consisting of higher revenues of
$5.5 million attributable to higher condensate prices
offset by $2.8 million due to decreased volumes.
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Impact of Volume Declines. If all other
assumptions are held constant, a 5% decline in inlet volumes
below forecasted levels would result in a $5.1 million
decline in cash available for distribution. A decline in
estimated cash flows greater than $7.6 million would result
in our generating less than the minimum cash necessary to pay
distributions. For the twelve months ended December 31,
2004, the twelve months ended December 31, 2005 and the
twelve months ended September 30, 2006, a 5% decline in
inlet volumes would have resulted in a $3.8 million,
$5.1 million and $5.4 million, respectively, decline
in cash available for distribution.
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Impact of Price Declines. A difference
in realized versus estimated commodity prices would affect our
cash flows. For the twelve months ending December 31, 2007,
approximately 10%, 38% and 7% of our forecasted natural gas, NGL
and condensate equity volumes are unhedged. If all other
assumptions are held constant, a 10% decrease in realized
natural gas, NGL and crude oil prices versus our estimated
prices for the unhedged portions of our estimated volumes of
natural gas, NGLs and condensate would result in a
$2.8 million decline in cash available for distribution. A
20% decline in these prices would result in an $5.6 million
decline in cash available for distribution.
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Hedging Gain / (Loss). We estimate hedge gains
will be $15.0 million for the twelve months ending
December 31, 2007. In 2006, we entered into certain hedges
for 2007 at prices that are materially higher than the prices
underlying our Estimated EBITDA for the year ending
December 31, 2007. For a description of our hedges, please
see Managements Discussion and Analysis of Financial
Condition and Results of Operations Quantitative and
Qualitative Disclosures about Market Risk Summary of
Our Hedges.
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Costs
and Expenses
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Product Purchases. We estimate that our
product purchases for the twelve months ending December 31,
2007 will be $256.4 million, as compared to
$291.9 million for the twelve months ended
September 30, 2006, $265.7 million for the twelve
months ended December 31, 2005, and $182.6 million for
the twelve months ended December 31, 2004.
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Based on this estimate, the product purchases for the:
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twelve months ending December 31, 2007 compared to twelve
months ending September 30, 2006 decrease approximately
$35.5 million consisting of lower costs of
$82.9 million attributable to lower commodity prices offset
by $47.4 million due to increased volumes;
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twelve months ending December 31, 2007 compared to twelve
months ending December 31, 2005 decrease approximately
$9.5 million consisting of lower costs of
$65.6 million attributable to lower commodity prices offset
by $56.1 million due to increased volumes; and
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twelve months ending December 31, 2007 compared to twelve
months ending December 31, 2004 increase approximately
$73.9 million consisting of higher costs of
$10.9 million attributable to higher commodity prices and
$63.0 million due to increased volumes.
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Operating Expense. We estimate that we
will incur operating expense of $23.7 million for the
twelve months ending December 31, 2007, as compared to
$23.6 million for the twelve months ended
September 30, 2006, $21.5 million for the twelve
months ended December 31, 2005, and $17.7 million for
the twelve months ended December 31, 2004. The expected
increase in operating expense is driven by higher costs for
labor, supplies and equipment and the expansion of our gathering
system.
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General and Administrative Expense. Our
estimated general and administrative expense will be
$7.5 million for the twelve months ending December 31,
2007 and will consist of up to a maximum of $5.0 million,
subject to adjustment, of general and administrative expense
allocated from Targa pursuant to the omnibus agreement, and
$2.5 million of estimated general and administrative
expense that relates to operating as a publicly held limited
partnership. General and administrative expense was
$6.8 million, $8.4 million and $7.2 million for
the twelve months ended September 30, 2006, the twelve
months ended December 31, 2005 and the twelve months ended
December 31, 2004, respectively. Please see Certain
Relationships and Related Party Transactions Omnibus
Agreement for additional details related to our omnibus
agreement.
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Depreciation and Amortization
Expense. Estimated depreciation and
amortization expense for the twelve months ending
December 31, 2007 is $55.2 million as compared to
$52.1 million for the twelve months ending
September 30, 2006, $20.5 million for the twelve
months ended December 31, 2005 and $12.2 million for
the twelve months ended December 31, 2004. Estimated
depreciation and amortization expense reflects managements
estimates, which are based on consistent average depreciable
asset lives and depreciation methodologies. The majority of the
increase in depreciation and amortization is attributable to the
step-up in
basis associated with the DMS Acquisition.
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Capital Expenditures. Estimated capital
expenditures for the twelve months ending December 31, 2007
are based on the following assumptions:
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Maintenance Capital Expenditures. Our
estimated maintenance capital expenditures are
$15.0 million for the twelve months ending
December 31, 2007 as compared to $12.3 million for the
twelve months ending September 30, 2006, $12.9 million
for the twelve months ended December 31, 2005 and
$10.2 million for the twelve months ended December 31,
2004. The expected increase in maintenance capital expenditures
is attributable to capital spending for additional well
connections in 2007 and the increased size of our gathering
systems compared to prior periods.
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Expansion Capital Expenditures. Our
estimated expansion capital expenditures are $1.8 million
for the twelve months ending December 31, 2007 as compared
to $9.8 million for the twelve months ending
September 30, 2006, $5.7 million for the twelve months
ended December 31, 2005 and $13.5 million for the
twelve months ended December 31, 2004. We expect to finance
our $1.8 million in expansion capital expenditures from
borrowings under our credit facility. The expected decrease in
expansion capital expenditures is primarily due to the
completion of the refurbishment of the Chico processing plant in
2006 offset by remaining expenditures for projects expected to
be completed in the year ending December 31, 2007.
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Financing. Our estimate for the twelve
months ending December 31, 2007 is based on the following
significant financing assumptions:
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Indebtedness. Our expected initial
borrowings of approximately $342.5 million under our new
credit facility will be reduced by $47.3 million through
the application of the net proceeds from the exercise in full of
the underwriters option to purchase additional units, and
increased by $1.8 million in order to fund our expansion
capital requirement.
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Interest Expense. The borrowings under
our credit facility will bear an average variable interest rate
of 7.0% through December 31, 2007. An increase or decrease
of 1% in the interest rate will result in increased or
decreased, respectively, annual interest expense of
$3.0 million.
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Covenant Compliance. We will remain in
compliance with the financial and other covenants in our new
credit facility.
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Regulatory, Industry and Economic
Factors. Our estimate for the twelve months
ending December 31, 2007 is based on the following
significant assumptions related to regulatory, industry and
economic factors:
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There will not be any new federal, state or local regulation of
portions of the energy industry in which we operate, or an
interpretation of existing regulation, that will be materially
adverse to our business.
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There will not be any major adverse change in the portions of
the energy industry or in general economic conditions.
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Market, insurance and overall economic conditions will not
change substantially.
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53
PROVISIONS
OF OUR PARTNERSHIP AGREEMENT
RELATING TO CASH DISTRIBUTIONS
Targa Resources, Inc. and certain of its affiliates hold all
of the membership interests in our general partner, and
consequently are indirectly entitled to all of the distributions
that we make to Targa Resources GP LLC, subject to the terms of
the limited liability company agreement of Targa Resources GP
LLC and relevant legal restrictions.
Set forth below is a summary of the significant provisions of
our partnership agreement that relate to cash distributions.
Distributions
of Available Cash
General. Our partnership agreement
requires that, within 45 days after the end of each
quarter, beginning with the quarter ending March 31, 2007,
we distribute all of our available cash to unitholders of record
on the applicable record date.
Definition of Available Cash. The term
available cash, for any quarter, means all cash and
cash equivalents on hand on the date of determination of
available cash for 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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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 $0.3375 per unit, or $1.35 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 see Managements Discussion and
Analysis of Financial Condition and Results of
Operations Capital Requirements
Description of Credit Agreement for a discussion of the
restrictions to be included in our credit agreement that may
restrict our ability to make distributions.
General Partner Interest and Incentive Distribution
Rights. Initially, our general partner will
be entitled to 2% of all quarterly distributions since inception
that we make prior to our liquidation. This general partner
interest will be represented by 578,127 general partner units
(or 629,555 general partner units if the underwriters exercise
their option to purchase additional common units in full). 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 $0.3881 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 subordinated units that it owns. Please see
General Partner Interest and Incentive
Distribution Rights for additional information.
54
Operating
Surplus and Capital Surplus
General. All cash distributed to
unitholders will be characterized as either operating
surplus or capital surplus. Our partnership
agreement requires that we distribute available cash from
operating surplus differently than available cash from capital
surplus.
Operating
Surplus. Operating
surplus consists of:
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an amount equal to four times the amount needed for any one
quarter for us to pay a distribution on all of our units
(including the general partner units) and the incentive
distribution rights at the same per-unit amount as was
distributed in the immediately preceding quarter; plus
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all of our cash receipts after the closing of this offering,
excluding cash from borrowings, sales of equity and debt
securities, sales or other dispositions of assets outside the
ordinary course of business, capital contributions or corporate
reorganizations or restructurings (provided that cash receipts
from the termination of a commodity hedge or interest rate swap
prior to its specified termination date shall be included in
operating surplus in equal quarterly installments over the
scheduled life of such commodity hedge or interest rate swap);
less
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all of our operating expenditures after the closing of this
offering, but excluding the repayment of borrowings, and
including maintenance capital expenditures; less
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the amount of cash reserves established by our general partner
to provide funds for future operating expenditures.
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Maintenance capital expenditures represent capital expenditures
made to replace partially or fully depreciated assets, to
maintain the existing operating capacity of our assets and to
extend their useful lives, or other capital expenditures that
are incurred in maintaining existing system volumes and related
cash flows. Expansion capital expenditures represent capital
expenditures made to expand or to increase the efficiency of the
existing operating capacity of our assets or to expand the
operating capacity or revenues of existing or new assets,
whether through construction or acquisition. Costs for repairs
and minor renewals to maintain facilities in operating condition
and that do not extend the useful life of existing assets will
be treated as operating expenses as we incur them. Our
partnership agreement provides that our general partner
determines how to allocate a capital expenditure for the
acquisition or expansion of our assets between maintenance
capital expenditures and expansion capital expenditures.
Capital
Surplus. Capital
surplus generally consists of:
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sales of our equity and debt securities;
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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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capital contributions received; and
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corporate restructurings.
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Characterization of Cash
Distributions. Our partnership agreement
requires that we treat all available cash distributed as coming
from operating surplus until the sum of all available cash
distributed since the closing of this offering equals the
operating surplus as of the most recent date of determination of
available cash. Our partnership agreement requires that we treat
any amount distributed in excess of operating surplus,
regardless of its source, as capital surplus. As reflected
above, operating surplus includes an amount equal to four times
the amount needed for any one quarter for us to pay a
distribution on all of our units (including the general partner
units) and the incentive distribution rights at the same
per-unit amount as was distributed in the immediately preceding
quarter. This amount, which initially equals approximately
$39.0 million, does not reflect actual cash on hand that is
available for distribution to our unitholders.
55
Rather, it is a provision that will enable us, if we choose, to
distribute as operating surplus up to this amount of cash we
receive in the future from non-operating sources, such as asset
sales, issuances of securities, and borrowings, that would
otherwise be distributed as capital surplus. We do not
anticipate that we will make any distributions from capital
surplus.
Subordination
Period
General. Our partnership agreement
provides that, during the subordination period (which we define
below and in Appendix B), the common units will have the
right to receive distributions of available cash from operating
surplus each quarter in an amount equal to $0.3375 per
common unit, which amount is defined in our partnership
agreement as the minimum quarterly distribution, plus any
arrearages in the payment of the minimum quarterly distribution
on the common units from prior quarters, before any
distributions of available cash from operating surplus may be
made on the subordinated units. These units are deemed
subordinated because for a period of time, referred
to as the subordination period, the subordinated units will not
be entitled to receive any distributions until the common units
have received the minimum quarterly distribution plus any
arrearages from prior quarters. Furthermore, no arrearages will
be paid on the subordinated units. The practical effect of the
subordinated units is to increase the likelihood that during the
subordination period there will be available cash to be
distributed on the common units.
Subordination Period. The subordination
period will extend until the first day of any quarter beginning
after December 31, 2009 that each of the following tests
are met:
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distributions of available cash from operating surplus on each
of the outstanding common units, subordinated units and general
partner units equaled or exceeded the minimum quarterly
distribution for each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that date;
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the adjusted operating surplus (as defined below)
generated during each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that date equaled or
exceeded the sum of the minimum quarterly distributions on all
of the outstanding common and subordinated units and general
partner units during those periods on a fully diluted basis
during those periods; and
|
|
|
|
there are no arrearages in payment of the minimum quarterly
distribution on the common units.
|
Expiration of the Subordination
Period. When the subordination period
expires, each outstanding subordinated unit will convert into
one common unit and will then participate pro rata with the
other common units in distributions of available cash. In
addition, if the unitholders remove our general partner other
than for cause and units held by the general partner and its
affiliates are not voted in favor of such removal:
|
|
|
|
|
the subordination period will end and each subordinated unit
will immediately convert into one common unit;
|
|
|
|
any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
|
|
|
|
the general partner will have the right to convert its general
partner units and its incentive distribution rights into common
units or to receive cash in exchange for those interests.
|
Early Conversion of Subordinated
Units. The subordination period will
automatically terminate and all of the subordinated units will
convert into common units on a
one-for-one
basis if each of the following occurs:
|
|
|
|
|
distributions of available cash from operating surplus on each
outstanding common unit and subordinated unit equaled or
exceeded $2.025 (150% of the annualized minimum quarterly
distribution) for any four-quarter period immediately preceding
that date;
|
56
|
|
|
|
|
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
$2.025 (150% of the annualized minimum quarterly distribution)
on all of the outstanding common units and subordinated units
and general partner units on a fully diluted basis; and
|
|
|
|
there are no arrearages in payment of the minimum quarterly
distribution on the common units.
|
Adjusted Operating Surplus. Adjusted
operating surplus is intended to reflect the cash generated from
operations during a particular period and therefore excludes net
drawdowns of reserves of cash generated in prior periods.
Adjusted operating surplus consists of:
|
|
|
|
|
operating surplus generated with respect to that period
(excluding any amounts attributable to the items described in
the first bullet point under Operating Surplus
and Capital Surplus Operating Surplus above);
plus
|
|
|
|
any net decrease made in subsequent periods in cash reserves for
operating expenditures initially established with respect to
that period to the extent such decrease results in a reduction
in adjusted operating surplus in subsequent periods pursuant to
the following bullet point; less
|
|
|
|
any net decrease in cash reserves for operating expenditures
with respect to that period not relating to an operating
expenditure made with respect to that period; plus
|
|
|
|
any net 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.
|
Distributions
of Available Cash from Operating Surplus during the
Subordination Period
Our partnership agreement requires that we make distributions of
available cash from operating surplus for any quarter during the
subordination period in the following manner:
|
|
|
|
|
first, 98% to the common unitholders, pro rata, and 2% to
the general partner, until we distribute for each outstanding
common unit an amount equal to the minimum quarterly
distribution for that quarter;
|
|
|
|
second, 98% to the common unitholders, pro rata, and 2%
to the general partner, until we distribute for each outstanding
common unit an amount equal to any arrearages in payment of the
minimum quarterly distribution on the common units for any prior
quarters during the subordination period;
|
|
|
|
third, 98% to the subordinated unitholders, pro rata, and
2% to the general partner, until we distribute for each
subordinated unit an amount equal to the minimum quarterly
distribution for that quarter; and
|
|
|
|
thereafter, in the manner described in
General Partner Interest and Incentive
Distribution Rights below.
|
The preceding discussion is based on the assumptions that our
general partner maintains its 2% general partner interest and
that we do not issue additional classes of equity securities.
Distributions
of Available Cash from Operating Surplus after the Subordination
Period
Our partnership agreement requires that we make distributions of
available cash from operating surplus for any quarter after the
subordination period in the following manner:
|
|
|
|
|
first, 98% to all unitholders, pro rata, and 2% to the
general partner, until we distribute for each outstanding unit
an amount equal to the minimum quarterly distribution for that
quarter; and
|
|
|
|
thereafter, in the manner described in
General Partner Interest and Incentive
Distribution Rights below.
|
The preceding discussion is based on the assumptions that our
general partner maintains its 2% general partner interest and
that we do not issue additional classes of equity securities.
57
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
that it may hold 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:
|
|
|
|
|
we have distributed available cash from operating surplus to the
common and subordinated unitholders in an amount equal to the
minimum quarterly distribution; and
|
|
|
|
we have distributed available cash from operating surplus on
outstanding common units in an amount necessary to eliminate any
cumulative arrearages in payment of the minimum quarterly
distribution;
|
then, our partnership agreement requires that we distribute any
additional available cash from operating surplus for that
quarter among the unitholders and the general partner in the
following manner:
|
|
|
|
|
first, 98% to all unitholders, pro rata, and 2% to the
general partner, until each unitholder receives a total of
$0.3881 per unit for that quarter (the first target
distribution);
|
|
|
|
second, 85% to all unitholders, pro rata, and 15% to the
general partner, until each unitholder receives a total of
$0.4219 per unit for that quarter (the second target
distribution);
|
|
|
|
|
|
third, 75% to all unitholders, pro rata, and 25% to the
general partner, until each unitholder receives a total of
$0.50625 per unit for that quarter (the third target
distribution); and
|
|
|
|
|
|
thereafter, 50% to all unitholders, pro rata, and 50% to
the general partner.
|
Percentage
Allocations of Available Cash from Operating Surplus
The following table illustrates the percentage allocations of
available cash from operating surplus between the unitholders
and our general partner based on the specified target
distribution levels. The amounts set forth under Marginal
Percentage Interest in Distributions are the percentage
interests of our general partner and the unitholders in any
available cash from operating surplus we distribute up to and
including the corresponding amount in the column Total
Quarterly Distribution Per Unit, until available cash from
operating surplus we distribute reaches the next target
distribution level, if any. The percentage interests shown for
the unitholders and the general partner for the minimum
quarterly distribution are also applicable 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
58
assume our general partner has contributed any additional
capital to maintain its 2% general partner interest and has not
transferred its incentive distribution rights.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Quarterly
|
|
|
Marginal Percentage
|
|
|
|
Distribution
|
|
|
Interest in
|
|
|
|
per Unit
|
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
General
|
|
|
|
Target Amount
|
|
|
Unitholders
|
|
|
Partner
|
|
|
Minimum Quarterly Distribution
|
|
|
$0.3375
|
|
|
|
98
|
%
|
|
|
2
|
%
|
First Target Distribution
|
|
|
up to $0.3881
|
|
|
|
98
|
%
|
|
|
2
|
%
|
Second Target Distribution
|
|
|
above $0.3881 up to $0.4219
|
|
|
|
85
|
%
|
|
|
15
|
%
|
Third Target Distribution
|
|
|
above $0.4219 up to $0.50625
|
|
|
|
75
|
%
|
|
|
25
|
%
|
Thereafter
|
|
|
above $0.50625
|
|
|
|
50
|
%
|
|
|
50
|
%
|
General
Partners Right to Reset Incentive Distribution
Levels
Our general partner, as the holder of our incentive distribution
rights, has the right under our partnership agreement to elect
to relinquish the right to receive incentive distribution
payments based on the initial cash target distribution levels
and to reset, at higher levels, the minimum quarterly
distribution amount and cash target distribution levels upon
which the incentive distribution payments to our general partner
would be set. Our general partners right to reset the
minimum quarterly distribution amount and the target
distribution levels upon which the incentive distributions
payable to our general partner are based may be exercised,
without approval of our unitholders or the conflicts committee
of our general partner, at any time when there are no
subordinated units outstanding and we have made cash
distributions to the holders of the incentive distribution
rights at the highest level of incentive distribution for each
of the prior four consecutive fiscal quarters. The reset minimum
quarterly distribution amount and target distribution levels
will be higher than the minimum quarterly distribution amount
and the target distribution levels prior to the reset such that
our general partner will not receive any incentive distributions
under the reset target distribution levels until cash
distributions per unit following this event increase as
described below. We anticipate that our general partner would
exercise this reset right in order to facilitate acquisitions or
internal growth projects that would otherwise not be
sufficiently accretive to cash distributions per common unit,
taking into account the existing levels of incentive
distribution payments being made to our general partner.
In connection with the resetting of the minimum quarterly
distribution amount and the target distribution levels and the
corresponding relinquishment by our general partner of incentive
distribution payments based on the target cash distributions
prior to the reset, our general partner will be entitled to
receive a number of newly issued Class B units based on a
predetermined formula described below that takes into account
the cash parity value of the average cash
distributions related to the incentive distribution rights
received by our general partner for the two quarters prior to
the reset event as compared to the average cash distributions
per common unit during this period.
The number of Class B units that our general partner would
be entitled to receive from us in connection with a resetting of
the minimum quarterly distribution amount and the target
distribution levels then in effect would be equal to
(x) the average amount of cash distributions received by
our general partner in respect of its incentive distribution
rights during the two consecutive fiscal quarters ended
immediately prior to the date of such reset election divided by
(y) the average of the amount of cash distributed per
common unit during each of these two quarters. Each Class B
unit will be convertible into one common unit at the election of
the holder of the Class B unit at any time following the
first anniversary of the issuance of these Class B units.
Following a reset election by our general partner, the minimum
quarterly distribution amount will be reset to an amount equal
to the average cash distribution amount per common unit for the
two fiscal quarters immediately preceding the reset
election (such amount is referred to as the reset
minimum
59
quarterly distribution) and the target distribution levels
will be reset to be correspondingly higher such that we would
distribute all of our available cash from operating surplus for
each quarter thereafter as follows:
|
|
|
|
|
first, 98% to all unitholders, pro rata, and 2% to the
general partner, until each unitholder receives an amount equal
to 115% of the reset minimum quarter distribution for that
quarter;
|
|
|
|
second, 85% to all unitholders, pro rata, and 15% to the
general partner, until each unitholder receives an amount per
unit equal to 125% of the reset minimum quarterly distribution
for that quarter;
|
|
|
|
third, 75% to all unitholders, pro rata, and 25% to the
general partner, until each unitholder receives an amount per
unit equal to 150% of the reset minimum quarterly distribution
for that quarter; and
|
|
|
|
thereafter, 50% to all unitholders, pro rata, and 50% to
the general partner.
|
The following table illustrates the percentage allocation of
available cash from operating surplus between the unitholders
and our general partner at various levels of cash distribution
levels pursuant to the cash distribution provision of our
partnership agreement in effect at the closing of this offering
as well as following a hypothetical reset of the minimum
quarterly distribution and target distribution levels based on
the assumption that the average quarterly cash distribution
amount per common unit during the two fiscal quarters
immediately preceding the reset election was $0.60.
|
|
|
|
|
|
|
|
|
|
|
|
|
Marginal Percentage
|
|
|
|
|
|
|
Interest in Distributions
|
|
|
|
|
Quarterly Distribution
|
|
|
|
General
|
|
Quarterly Distribution per Unit
|
|
|
per Unit Prior to Reset
|
|
Unitholders
|
|
Partner
|
|
Following Hypothetical Reset
|
|
Minimum Quarterly Distribution
|
|
$0.3375
|
|
98%
|
|
2%
|
|
$0.6000
|
First Target Distribution
|
|
up to $0.3881
|
|
98%
|
|
2%
|
|
up to $0.6900(1)
|
Second Target Distribution
|
|
above $0.3881 up to $0.4219
|
|
85%
|
|
15%
|
|
above $0.6900(1) up to $0.7500(2)
|
Third Target Distribution
|
|
above $0.4219 up to $0.50625
|
|
75%
|
|
25%
|
|
above $0.7500(2) up to $0.9000(3)
|
Thereafter
|
|
above $0.50625
|
|
50%
|
|
50%
|
|
above $0.9000(3)
|
|
|
|
(1) |
|
This amount is 115% of the hypothetical reset minimum quarterly
distribution. |
|
(2) |
|
This amount is 125% of the hypothetical reset minimum quarterly
distribution. |
|
(3) |
|
This amount is 150% of the hypothetical reset minimum quarterly
distribution. |
The following table illustrates the total amount of available
cash from operating surplus that would be distributed to the
unitholders and the general partner, including in respect of
incentive distribution rights, based on an average of the
amounts distributed per quarter for the two quarters immediately
prior to the reset. The table assumes that there are 30,848,231
common units and 629,555 general partner units outstanding and
that the average distribution to each common unit is
$0.60 for the two quarters prior to the reset. The assumed
number of outstanding units assumes the underwriters exercise in
full their option to purchase additional common units, the
conversion of all subordinated units into common units and no
additional unit issuances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
|
|
Common
|
|
|
General Partner Cash Distributions Prior to Reset
|
|
|
|
|
|
|
Distribution
|
|
Unitholders Cash
|
|
|
|
|
|
2% General
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
per Unit
|
|
Distributions
|
|
|
Class B
|
|
|
Partner
|
|
|
Distribution
|
|
|
|
|
|
Total
|
|
|
|
Prior to Reset
|
|
Prior to Reset
|
|
|
Units
|
|
|
Interest
|
|
|
Rights
|
|
|
Total
|
|
|
Distributions
|
|
|
Minimum Quarterly Distribution
|
|
$0.3375
|
|
$
|
10,411,278
|
|
|
$
|
|
|
|
$
|
212,475
|
|
|
$
|
|
|
|
$
|
212,475
|
|
|
$
|
10,623,753
|
|
First Target Distribution
|
|
up to $0.3881
|
|
|
1,560,920
|
|
|
|
|
|
|
|
31,856
|
|
|
|
|
|
|
|
31,856
|
|
|
|
1,592,776
|
|
Second Target Distribution
|
|
above $0.3881 up to $0.4219
|
|
|
1,042,670
|
|
|
|
|
|
|
|
24,533
|
|
|
|
159,467
|
|
|
|
184,001
|
|
|
|
1,226,671
|
|
Third Target Distribution
|
|
above $0.4219 up to $0.50625
|
|
|
2,603,591
|
|
|
|
|
|
|
|
69,429
|
|
|
|
798,434
|
|
|
|
867,864
|
|
|
|
3,471,454
|
|
Thereafter
|
|
above $0.50625
|
|
|
2,890,479
|
|
|
|
|
|
|
|
115,619
|
|
|
|
2,774,860
|
|
|
|
2,890,479
|
|
|
|
5,780,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,508,939
|
|
|
$
|
|
|
|
$
|
453,912
|
|
|
$
|
3,732,762
|
|
|
$
|
4,186,674
|
|
|
$
|
22,695,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
The following table illustrates the total amount of available
cash from operating surplus that would be distributed to the
unitholders and the general partner with respect to the quarter
in which the reset occurs. The table reflects that as a result
of the reset there are 30,848,231 common units, 6,221,270
Class B units and 756,520 general partner units
outstanding, and that the average distribution to each common
unit is $0.60. The number of Class B units was calculated
by dividing (x) the $3,732,762 received by the general
partner in respect of its incentive distribution rights per
quarter for the two quarters prior to the reset as shown in the
table above by (y) the $0.60 of available cash from
operating surplus distributed to each common unit per quarter
for the two quarters prior to the reset.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
|
|
Common
|
|
|
General Partner Cash Distributions After Reset
|
|
|
|
|
|
|
Distribution
|
|
Unitholders Cash
|
|
|
|
|
|
2% General
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
per Unit
|
|
Distributions
|
|
|
Class B
|
|
|
Partner
|
|
|
Distribution
|
|
|
|
|
|
Total
|
|
|
|
After Reset
|
|
After Reset
|
|
|
Units
|
|
|
Interest
|
|
|
Rights
|
|
|
Total
|
|
|
Distributions
|
|
|
Minimum Quarterly Distribution
|
|
$0.6000
|
|
$
|
18,508,939
|
|
|
$
|
3,732,762
|
|
|
$
|
453,912
|
|
|
$
|
|
|
|
$
|
4,186,674
|
|
|
$
|
22,695,613
|
|
First Target Distribution(1)
|
|
up to 0.6900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Target Distribution(2)
|
|
above $0.6900 up to $0.7500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Target Distribution(3)
|
|
above $0.7500 up to $0.9000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
above $0.9000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,508,939
|
|
|
$
|
3,732,762
|
|
|
$
|
453,912
|
|
|
$
|
|
|
|
$
|
4,186,674
|
|
|
$
|
22,695,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This amount is 115% of the hypothetical reset minimum quarterly
distribution. |
|
(2) |
|
This amount is 125% of the hypothetical reset minimum quarterly
distribution. |
|
(3) |
|
This amount is 150% of the hypothetical reset minimum quarterly
distribution. |
Our general partner will be entitled to cause the minimum
quarterly distribution amount and the target distribution levels
to be reset on more than one occasion, provided that it may not
make a reset election except at a time when it has received
incentive distributions for the prior four consecutive fiscal
quarters based on the highest level of incentive distributions
that it is entitled to receive under our partnership agreement.
Distributions
from Capital Surplus
How Distributions from Capital Surplus Will Be
Made. Our partnership agreement requires that
we make distributions of available cash from capital surplus, if
any, in the following manner:
|
|
|
|
|
first, 98% to all unitholders, pro rata, and 2% to the
general partner, until we distribute for each common unit that
was issued in this offering, an amount of available cash from
capital surplus equal to the initial public offering price;
|
|
|
|
second, 98% to the common unitholders, pro rata, and 2%
to the general partner, until we distribute for each common
unit, an amount of available cash from capital surplus equal to
any unpaid arrearages in payment of the minimum quarterly
distribution on the common units; and
|
|
|
|
thereafter, we will make all distributions of available
cash from capital surplus as if they were from operating surplus.
|
Effect of a Distribution from Capital
Surplus. Our partnership agreement treats a
distribution of capital surplus as the repayment of the initial
unit price from this initial public offering, which is a return
of capital. The initial public offering price less any
distributions of capital surplus per unit is referred to as the
unrecovered initial unit price. Each time a
distribution of capital surplus is made, the minimum quarterly
distribution and the target distribution levels will be reduced
in the same proportion as the corresponding
61
reduction in the unrecovered initial unit price. Because
distributions of capital surplus will reduce the minimum
quarterly distribution, after any of these distributions are
made, it may be easier for the general partner to receive
incentive distributions and for the subordinated units to
convert into common units. However, any distribution of capital
surplus before the unrecovered initial unit price is reduced to
zero cannot be applied to the payment of the minimum quarterly
distribution or any arrearages.
Once we distribute capital surplus on a unit issued in this
offering in an amount equal to the initial unit price, our
partnership agreement specifies that the minimum quarterly
distribution and the target distribution levels will be reduced
to zero. Our partnership agreement specifies that we then make
all future distributions from operating surplus, with 50% being
paid to the holders of units and 50% to the general partner. The
percentage interests shown for our general partner include its
2% general partner interest and assume the general partner has
not transferred the incentive distribution rights.
Adjustment
to the Minimum Quarterly Distribution and Target Distribution
Levels
In addition to adjusting the minimum quarterly distribution and
target distribution levels to reflect a distribution of capital
surplus, if we combine our units into fewer units or subdivide
our units into a greater number of units, our partnership
agreement specifies that the following items will be
proportionately adjusted:
|
|
|
|
|
the minimum quarterly distribution;
|
|
|
|
target distribution levels;
|
|
|
|
the unrecovered initial unit price; and
|
|
|
|
the number of common units into which a subordinated unit is
convertible.
|
For example, if a
two-for-one
split of the common units should occur, the minimum quarterly
distribution, the target distribution levels and the unrecovered
initial unit price would each be reduced to 50% of its initial
level, 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 general
partner may reduce the minimum quarterly distribution and the
target distribution levels for each quarter 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
62
fully recover all of these amounts, even though there may be
cash available for distribution to the holders of subordinated
units. Any further net gain recognized upon liquidation will be
allocated in a manner that takes into account the incentive
distribution rights of the general partner.
Manner of Adjustments for Gain. The
manner of the adjustment for gain is set forth in the
partnership agreement. If our liquidation occurs before the end
of the subordination period, we will allocate any gain to the
partners in the following manner:
|
|
|
|
|
first, to the general partner and the holders of units
who have negative balances in their capital accounts to the
extent of and in proportion to those negative balances;
|
|
|
|
second, 98% to the common unitholders, pro rata, and 2%
to the general partner, until the capital account for each
common unit is equal to the sum of: (1) the unrecovered
initial unit price; (2) the amount of the minimum quarterly
distribution for the quarter during which our liquidation
occurs; and (3) any unpaid arrearages in payment of the
minimum quarterly distribution;
|
|
|
|
third, 98% to the subordinated unitholders, pro rata, and
2% to the general partner until the capital account for each
subordinated unit is equal to the sum of: (1) the
unrecovered initial unit price; and (2) the amount of the
minimum quarterly distribution for the quarter during which our
liquidation occurs;
|
|
|
|
fourth, 98% to all unitholders, pro rata, and 2% to the
general partner, until we allocate under this paragraph an
amount per unit equal to: (1) the sum of the excess of the
first target distribution per unit over the minimum quarterly
distribution per unit for each quarter of our existence; less
(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the minimum
quarterly distribution per unit that we distributed 98% to the
unitholders, pro rata, and 2% to the general partner, for each
quarter of our existence;
|
|
|
|
fifth, 85% to all unitholders, pro rata, and 15% to the
general partner, until we allocate under this paragraph an
amount per unit equal to: (1) the sum of the excess of the
second target distribution per unit over the first target
distribution per unit for each quarter of our existence; less
(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the first
target distribution per unit that we distributed 85% to the
unitholders, pro rata, and 15% to the general partner for each
quarter of our existence;
|
|
|
|
sixth, 75% to all unitholders, pro rata, and 25% to the
general partner, until we allocate under this paragraph an
amount per unit equal to: (1) the sum of the excess of the
third target distribution per unit over the second target
distribution per unit for each quarter of our existence; less
(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the second
target distribution per unit that we distributed 75% to the
unitholders, pro rata, and 25% to the general partner for each
quarter of our existence; and
|
|
|
|
thereafter, 50% to all unitholders, pro rata, and 50% to
the general partner.
|
The percentage interests set forth above for our general partner
include its 2% general partner interest and assume the general
partner has not transferred the incentive distribution rights.
If the liquidation occurs after the end of the subordination
period, the distinction between common units and subordinated
units will disappear, so that clause (3) of the second
bullet point above and all of the third bullet point above will
no longer be applicable.
Manner of Adjustments for Losses. If
our liquidation occurs before the end of the subordination
period, we will generally allocate any loss to the general
partner and the unitholders in the following manner:
|
|
|
|
|
first, 98% to holders of subordinated units in proportion
to the positive balances in their capital accounts and 2% to the
general partner, until the capital accounts of the subordinated
unitholders have been reduced to zero;
|
63
|
|
|
|
|
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.
64
SELECTED
HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
The following table shows selected historical financial and
operating data of the North Texas System and pro forma financial
data of Targa Resources Partners LP for the periods and as of
the dates indicated. The historical financial statements
included in this prospectus reflect the results of operations of
the North Texas System to be contributed to us by Targa upon the
closing of this offering. We refer to the results of operations
of the North Texas System as the results of operations of the
Predecessor Business. The selected historical financial data for
the years ended December 31, 2001 and 2002 are derived from
the books and records of the Predecessor Business. The selected
historical financial data for the years ended December 31,
2003 and 2004, the ten-month period ended October 31, 2005
and the two-month period ended December 31, 2005 are
derived from the audited financial statements of the Predecessor
Business. The selected historical financial data for the nine
months ended September 30, 2005 and 2006 are derived from
the unaudited financial statements of the Predecessor Business.
The Predecessor Business was acquired by Targa as part of the
DMS Acquisition. The selected pro forma financial data for the
year ended December 31, 2005 and the nine months ended
September 30, 2006 are derived from the unaudited pro forma
financial statements of Targa Resources Partners LP included 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 September 30, 2006, in the case
of the pro forma balance sheet, or as of January 1, 2005,
in the case of the pro forma statement of operations for the
nine months ended September 30, 2006 and for the year ended
December 31, 2005. The transactions reflected in the pro
forma adjustments assume the following actions will occur:
|
|
|
|
|
Targa will contribute the North Texas System to us;
|
|
|
|
we will issue to Targa 11,528,231 subordinated units,
representing a 39.9% limited partner interest in us;
|
|
|
|
we will issue to our general partner, Targa Resources GP
LLC, 578,127 general partner units representing its initial 2%
general partner interest in us, and all of our incentive
distribution rights, which incentive distribution rights will
entitle our general partner to increasing percentages of the
cash we distribute in excess of $0.3881 per unit per quarter;
|
|
|
|
|
|
we will issue 16,800,000 common units to the public in this
offering, representing a 58.1% limited partner interest in us,
and will use the proceeds to pay expenses associated with this
offering, the Formation Transactions and our new credit facility
and to pay approximately $307.1 million to Targa to retire
a portion of our affiliate indebtedness;
|
|
|
|
|
|
we will borrow approximately $342.5 million under our new
$500 million credit facility the proceeds of which will be
paid to Targa to retire an additional portion of our affiliate
indebtedness; and
|
|
|
|
the remaining affiliate indebtedness will be retired and treated
as a capital contribution to us.
|
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
condensed financial statements and the accompanying notes
included elsewhere in this prospectus.
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Business
|
|
|
Targa Resources Partners LP
|
|
|
|
Dynegy
|
|
|
|
Targa
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
|
|
|
Ten
|
|
|
|
Two
|
|
|
Nine
|
|
|
|
|
|
Nine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
Months
|
|
|
|
Months
|
|
|
Months
|
|
|
Year
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Years Ended December 31,
|
|
|
September 30,
|
|
|
October 31,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(in millions of dollars, except per unit, operating and price
data)
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
122.9
|
|
|
$
|
112.5
|
|
|
$
|
196.8
|
|
|
$
|
258.6
|
|
|
$
|
249.7
|
|
|
$
|
293.3
|
|
|
|
$
|
75.1
|
|
|
$
|
290.9
|
|
|
$
|
368.4
|
|
|
$
|
290.9
|
|
Product purchases
|
|
|
94.0
|
|
|
|
82.7
|
|
|
|
147.3
|
|
|
|
182.6
|
|
|
|
179.0
|
|
|
|
210.8
|
|
|
|
|
54.9
|
|
|
|
205.2
|
|
|
|
265.7
|
|
|
|
205.2
|
|
Operating expense
|
|
|
15.8
|
|
|
|
14.9
|
|
|
|
15.1
|
|
|
|
17.7
|
|
|
|
15.8
|
|
|
|
18.0
|
|
|
|
|
3.5
|
|
|
|
17.9
|
|
|
|
21.5
|
|
|
|
17.9
|
|
Depreciation and amortization
expense
|
|
|
9.7
|
|
|
|
11.8
|
|
|
|
12.0
|
|
|
|
12.2
|
|
|
|
10.1
|
|
|
|
11.3
|
|
|
|
|
9.2
|
|
|
|
41.7
|
|
|
|
54.8
|
|
|
|
41.7
|
|
General and administrative expense
|
|
|
7.2
|
|
|
|
7.7
|
|
|
|
7.7
|
|
|
|
7.2
|
|
|
|
6.7
|
|
|
|
7.3
|
|
|
|
|
1.1
|
|
|
|
5.1
|
|
|
|
8.4
|
|
|
|
5.1
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.5
|
|
|
|
54.4
|
|
|
|
24.8
|
|
|
|
18.6
|
|
Deferred income taxes(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
Other, net
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3.8
|
)
|
|
$
|
(4.3
|
)
|
|
$
|
14.1
|
|
|
$
|
38.6
|
|
|
$
|
38.1
|
|
|
$
|
45.9
|
|
|
|
$
|
(5.1
|
)
|
|
$
|
(35.4
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) per
limited partner unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.24
|
)
|
|
$
|
0.01
|
|
Financial and Operating
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin(2)
|
|
$
|
13.1
|
|
|
$
|
14.9
|
|
|
$
|
34.4
|
|
|
$
|
58.3
|
|
|
$
|
54.9
|
|
|
$
|
64.5
|
|
|
|
$
|
16.7
|
|
|
$
|
67.8
|
|
|
$
|
81.2
|
|
|
$
|
67.8
|
|
EBITDA(2)
|
|
|
5.9
|
|
|
|
7.5
|
|
|
|
26.1
|
|
|
|
50.8
|
|
|
|
48.2
|
|
|
|
57.2
|
|
|
|
|
15.6
|
|
|
|
62.7
|
|
|
|
72.8
|
|
|
|
62.7
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering throughput, MMcf/d(3)
|
|
|
95.9
|
|
|
|
106.6
|
|
|
|
134.3
|
|
|
|
152.0
|
|
|
|
160.4
|
|
|
|
161.2
|
|
|
|
|
168.8
|
|
|
|
168.2
|
|
|
|
|
|
|
|
|
|
Plant natural gas inlet, MMcf/d(4)
|
|
|
85.6
|
|
|
|
104.0
|
|
|
|
128.6
|
|
|
|
145.4
|
|
|
|
155.4
|
|
|
|
156.2
|
|
|
|
|
161.9
|
|
|
|
161.6
|
|
|
|
|
|
|
|
|
|
Gross NGL production, MBbl/d
|
|
|
11.3
|
|
|
|
12.5
|
|
|
|
15.9
|
|
|
|
17.2
|
|
|
|
18.4
|
|
|
|
18.5
|
|
|
|
|
19.8
|
|
|
|
18.8
|
|
|
|
|
|
|
|
|
|
Natural gas sales, BBtu/d
|
|
|
31.5
|
|
|
|
38.2
|
|
|
|
42.0
|
|
|
|
59.2
|
|
|
|
68.4
|
|
|
|
68.9
|
|
|
|
|
72.3
|
|
|
|
75.2
|
|
|
|
|
|
|
|
|
|
NGL sales, MBbl/d
|
|
|
11.3
|
|
|
|
12.3
|
|
|
|
15.3
|
|
|
|
13.2
|
|
|
|
14.2
|
|
|
|
14.3
|
|
|
|
|
15.4
|
|
|
|
15.1
|
|
|
|
|
|
|
|
|
|
Condensate sales, MBbl/d
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
Average Realized
Prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas, $/MMBtu
|
|
|
4.00
|
|
|
|
2.84
|
|
|
|
4.97
|
|
|
|
5.43
|
|
|
|
6.39
|
|
|
|
6.79
|
|
|
|
|
8.61
|
|
|
|
6.09
|
|
|
|
|
|
|
|
|
|
NGL, $/gal
|
|
|
0.41
|
|
|
|
0.35
|
|
|
|
0.47
|
|
|
|
0.64
|
|
|
|
0.75
|
|
|
|
0.78
|
|
|
|
|
0.90
|
|
|
|
0.90
|
|
|
|
|
|
|
|
|
|
Condensate, $/Bbl
|
|
|
21.34
|
|
|
|
23.24
|
|
|
|
29.86
|
|
|
|
40.56
|
|
|
|
52.61
|
|
|
|
53.42
|
|
|
|
|
57.54
|
|
|
|
62.66
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at period
end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
159.0
|
|
|
$
|
178.2
|
|
|
$
|
180.4
|
|
|
$
|
191.2
|
|
|
|
195.4
|
|
|
$
|
196.4
|
|
|
|
$
|
1,097.0
|
|
|
$
|
1,073.0
|
|
|
|
|
|
|
$
|
1,073.0
|
|
Total assets
|
|
|
160.1
|
|
|
|
179.7
|
|
|
|
182.9
|
|
|
|
193.5
|
|
|
|
197.6
|
|
|
|
198.5
|
|
|
|
|
1,122.8
|
|
|
|
1,126.3
|
|
|
|
|
|
|
|
1,110.9
|
|
Long-term debt (including current
portion)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
868.9
|
|
|
|
865.2
|
|
|
|
|
|
|
|
342.5
|
|
Partners capital / Net parent
equity
|
|
|
151.2
|
|
|
|
167.3
|
|
|
|
164.8
|
|
|
|
168.8
|
|
|
|
161.9
|
|
|
|
158.5
|
|
|
|
|
219.5
|
|
|
|
227.2
|
|
|
|
|
|
|
|
734.5
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
2.6
|
|
|
$
|
10.2
|
|
|
$
|
31.3
|
|
|
$
|
58.0
|
|
|
$
|
59.2
|
|
|
$
|
72.7
|
|
|
|
$
|
(1.5
|
)
|
|
$
|
11.1
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
(41.2
|
)
|
|
|
(30.6
|
)
|
|
|
(14.6
|
)
|
|
|
(23.4
|
)
|
|
|
(14.2
|
)
|
|
|
(16.4
|
)
|
|
|
|
(2.1
|
)
|
|
|
(17.7
|
)
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
38.6
|
|
|
|
20.4
|
|
|
|
(16.7
|
)
|
|
|
(34.6
|
)
|
|
|
(45.0
|
)
|
|
|
(56.3
|
)
|
|
|
|
3.6
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
_
_
|
|
(1) |
In May 2006, Texas adopted a margin tax consisting of a 1% tax
on the amount by which total revenue exceeds cost of goods. The
amount presented represents our estimated liability for this tax.
|
66
|
|
(2) |
EBITDA. We define EBITDA as net income before
interest, income taxes, depreciation and amortization. EBITDA is
used as a supplemental financial measure by our management and
by external users of our financial statements such as investors,
commercial banks and others, to assess:
|
|
|
|
|
|
the financial performance of our assets without regard to
financing methods, capital structure or historical cost basis;
|
|
|
|
our operating performance and return on capital as compared to
other companies in the midstream energy sector, without regard
to financing or capital structure; and
|
|
|
|
the viability of acquisitions and capital expenditure projects
and the overall rates of return on alternative investment
opportunities.
|
The economic substance behind managements use of EBITDA is
to measure the ability of our assets to generate cash sufficient
to pay interest costs, support our indebtedness, and make
distributions to our investors.
The GAAP measures most directly comparable to EBITDA are net
cash provided by operating activities and net income. Our
non-GAAP financial measure of EBITDA should not be considered as
an alternative to GAAP net cash provided by operating activities
and GAAP net income. EBITDA is not a presentation made in
accordance with GAAP and has important limitations as an
analytical tool. You should not consider EBITDA in isolation or
as a substitute for analysis of our results as reported under
GAAP. Because EBITDA excludes some, but not all, items that
affect net income and net cash provided by operating activities
and is defined differently by different companies in our
industry, our definition of EBITDA may not be comparable to
similarly titled measures of other companies.
Management compensates for the limitations of EBITDA as an
analytical tool by reviewing the comparable GAAP measures,
understanding the differences between the measures and
incorporating these learnings into managements
decision-making processes.
Operating Margin. We define operating margin
as total operating revenues, which consist of natural gas and
NGL sales plus service fee revenues, less product purchases,
which consist primarily of producer payments and other natural
gas purchases, and operating expense. Management reviews
operating margin monthly for consistency and trend analysis.
Based on this monthly analysis, management takes appropriate
action to maintain positive trends or to reverse negative
trends. Management uses operating margin as an important
performance measure of the core profitability of our operations.
The GAAP measure most directly comparable to operating margin is
net income. Our non-GAAP financial measure of operating margin
should not be considered as an alternative to GAAP net income.
Operating margin is not a presentation made in accordance with
GAAP and has important limitations as an analytical tool. You
should not consider operating margin in isolation or as a
substitute for analysis of our results as reported under GAAP.
Because operating margin excludes some, but not all, items that
affect net income and is defined differently by different
companies in our industry, our definition of operating margin
may not be comparable to similarly titled measures of other
companies, thereby diminishing its utility.
Management compensates for the limitations of operating margin
as an analytical tool by reviewing the comparable GAAP measures,
understanding the differences between the measures and
incorporating these learnings into managements
decision-making processes.
We believe that investors benefit from having access to the same
financial measures that our management uses in evaluating our
operating results. Operating margin provides useful information
to investors because it is used as a supplemental financial
measure by our management and by external users of our financial
statements, including such investors, commercial banks and
others, to assess:
|
|
|
|
|
the financial performance of our assets without regard to
financing methods, capital structure or historical cost basis;
|
|
|
|
our operating performance and return on capital as compared to
other companies in the midstream energy sector, without regard
to financing or capital structure;
|
|
|
|
the viability of acquisitions and capital expenditure projects
and the overall rates of return on alternative investment
opportunities.
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Business
|
|
|
Targa Resources Partners LP
|
|
|
|
Dynegy
|
|
|
|
Targa
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Ten Months
|
|
|
|
Two Months
|
|
|
Nine Months
|
|
|
|
|
|
Nine Months
|
|
|
|
Years Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
October 31,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(in millions of dollars)
|
|
Reconciliation of
EBITDA to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
31.3
|
|
|
$
|
58.0
|
|
|
$
|
59.2
|
|
|
$
|
72.7
|
|
|
|
$
|
(1.5
|
)
|
|
$
|
11.1
|
|
|
|
|
|
|
|
|
|
Allocated interest expense from
parent(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.7
|
|
|
|
50.5
|
|
|
|
|
|
|
|
|
|
Changes in operating working
capital which provided (used) cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
0.7
|
|
|
|
(0.7
|
)
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
|
0.1
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(1.0
|
)
|
|
|
(2.7
|
)
|
|
|
1.1
|
|
|
|
1.3
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, including changes in
noncurrent assets and liabilities
|
|
|
(4.9
|
)
|
|
|
(3.8
|
)
|
|
|
(12.6
|
)
|
|
|
(17.1
|
)
|
|
|
|
5.5
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
26.1
|
|
|
$
|
50.8
|
|
|
$
|
48.2
|
|
|
$
|
57.2
|
|
|
|
$
|
15.6
|
|
|
$
|
62.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
EBITDA to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14.1
|
|
|
$
|
38.6
|
|
|
$
|
38.1
|
|
|
$
|
45.9
|
|
|
|
$
|
(5.1
|
)
|
|
$
|
(35.4
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
0.4
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.5
|
|
|
|
54.4
|
|
|
|
24.8
|
|
|
|
18.6
|
|
Deferred tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
Depreciation and amortization
expense
|
|
|
12.0
|
|
|
|
12.2
|
|
|
|
10.1
|
|
|
|
11.3
|
|
|
|
|
9.2
|
|
|
|
41.7
|
|
|
|
54.8
|
|
|
|
41.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
26.1
|
|
|
$
|
50.8
|
|
|
$
|
48.2
|
|
|
$
|
57.2
|
|
|
|
$
|
15.6
|
|
|
$
|
62.7
|
|
|
$
|
72.8
|
|
|
$
|
62.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
operating margin to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14.1
|
|
|
$
|
38.6
|
|
|
$
|
38.1
|
|
|
$
|
45.9
|
|
|
|
$
|
(5.1
|
)
|
|
$
|
(35.4
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
0.4
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
expense
|
|
|
12.0
|
|
|
|
12.2
|
|
|
|
10.1
|
|
|
|
11.3
|
|
|
|
|
9.2
|
|
|
|
41.7
|
|
|
|
54.8
|
|
|
|
41.7
|
|
Deferred income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
Other, net
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.5
|
|
|
|
54.4
|
|
|
|
24.8
|
|
|
|
18.6
|
|
General and administrative expense
|
|
|
7.7
|
|
|
|
7.2
|
|
|
|
6.7
|
|
|
|
7.3
|
|
|
|
|
1.1
|
|
|
|
5.1
|
|
|
|
8.4
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
$
|
34.4
|
|
|
$
|
58.3
|
|
|
$
|
54.9
|
|
|
$
|
64.5
|
|
|
|
$
|
16.7
|
|
|
$
|
67.8
|
|
|
$
|
81.2
|
|
|
$
|
67.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Excludes non-cash amortization of debt issue costs of $0.8
million for the two months ended December 31, 2005 and
$3.9 million for the nine months ended September 30, 2006.
|
|
|
(3)
|
Gathering throughput represents the volume of natural gas
gathered and passed through natural gas gathering pipelines from
connections to producing wells and central delivery points.
|
|
(4)
|
Plant natural gas inlet represents the volume of natural gas
passing through the meter located at the inlet of a natural gas
processing plant.
|
68
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The historical financial statements included in this
prospectus reflect the results of operations of the North Texas
System to be contributed to us by Targa upon the closing of this
offering. We refer to the results of operations of the North
Texas System as the results of operations of the Predecessor
Business. The Predecessor Business was acquired by Targa as part
of Targas acquisition of substantially all of
Dynegys midstream business on October 31, 2005 (the
DMS Acquisition).
The following discussion analyzes the financial condition and
results of operations of the Predecessor Business. In the
discussion, the year ended December 31, 2005 is generally
presented and evaluated on a combined basis, combining the
results of operations reflected in the audited historical
financial statements of the Predecessor Business for the
10-months
prior to the DMS Acquisition (the Pre-Acquisition
Financial Statements) and the results of operations
reflected in the audited historical financial statements of the
Predecessor Business for the two-months after the DMS
Acquisition (the Post-Acquisition Financial
Statements). In certain circumstances, our discussion
identifies distinctions in operating and financial results for
the Predecessor Business associated with the change of ownership
resulting from the DMS Acquisition. You should read the
following discussion of the financial condition and results of
operations for the Predecessor Business in conjunction with the
historical combined financial statements and notes of the
Predecessor Business and the pro forma financial statements for
Targa Resources Partners LP included elsewhere in this
prospectus.
As used in this prospectus, unless we indicate otherwise, the
terms our, we, us and
similar terms refer to Targa Resources Partners LP, together
with our subsidiaries, after giving effect to the Formation
Transactions described in this prospectus, and the term
Targa refers to Targa Resources, Inc. and its
subsidiaries and affiliates (other than us). In certain
circumstances and for ease of reading we discuss the financial
results of the Predecessor Business as being our
financial results during historic periods when this business was
owned by Dynegy or Targa, respectively.
Overview
We are a Delaware limited partnership recently formed by Targa
to own, operate, acquire and develop a diversified portfolio of
complementary midstream energy assets. Concurrent with the
closing of this offering, Targa will contribute to us the
entities holding the North Texas System. The North Texas System
consists of two wholly-owned natural gas processing plants and
an extensive network of integrated gathering pipelines that
serve a 14-county natural gas producing region in the
Fort Worth Basin in North Central Texas. This producing
region includes production from the Barnett Shale formation and
production from shallower formations including the Bend
Conglomerate, Caddo, Atoka, Marble Falls, and other
Pennsylvanian and upper Mississippian formations (referred to as
the other Fort Worth Basin formations). The
natural gas processing plants consist of the Chico processing
and fractionation facilities and the Shackelford processing
facility.
Factors
That Significantly Affect Our Results
Our results of operations are substantially impacted by changes
in commodity prices as well as increases and decreases in the
volume of natural gas that we gather and transport through our
pipeline systems, which we refer to as throughput volume.
Throughput volumes and capacity utilization rates generally are
driven by wellhead production, our competitive position on a
regional basis and more broadly by prices and demand for natural
gas and NGLs.
Our processing contract arrangements can have a significant
impact on our profitability. We process natural gas under a
combination of
percent-of-proceeds
contracts (representing approximately 96% of our gathered
natural gas volumes) and keep-whole contracts (representing
approximately 4% of our gathered natural gas volumes), each of
which exposes us to commodity price risk. We attempt to mitigate
this risk through hedging activities which can materially impact
our results of operations. Please see
Quantitative and Qualitative Disclosures about
Market Risk Commodity Price Risk.
69
Actual contract terms are based upon a variety of factors,
including natural gas quality, geographic location, the
competitive commodity and pricing environment at the time the
contract is executed and customer requirements. Our gathering
and processing contract mix and, accordingly, our exposure to
natural gas and NGL prices, may change as a result of producer
preferences, competition, changes in production as wells decline
at different rates or are added, our expansion into regions
where different types of contracts are more common as well as
other market factors. For a more complete discussion of the
types of contracts under which we process natural gas, please
see Business Midstream Industry Overview.
The historical financial statements of the Predecessor Business
include certain items that will not materially impact our future
results of operations and liquidity and do not fully reflect a
number of other items that will materially impact future results
of operations and liquidity, including the items described below:
Affiliate Indebtedness and Expected
Borrowings. Affiliate indebtedness consists
of borrowings incurred by Targa and allocated to us for
financial reporting purposes as well as intercompany debt being
contributed to us together with the North Texas System. Prior to
the DMS Acquisition, the Predecessor Business was financed
internally and reflected no indebtedness on its balance sheet or
ongoing interest expense on its income statement. A substantial
portion of the DMS Acquisition was financed through borrowings
by Targa. Following the October 31, 2005 DMS Acquisition, a
significant portion of Targas acquisition borrowings were
allocated to the Predecessor Business, resulting in
approximately $868.9 million of allocated indebtedness and
corresponding levels of interest expense. This indebtedness was
incurred by Targa in connection with the DMS Acquisition and the
entity holding the North Texas System provides a guarantee of
this indebtedness. This indebtedness is also secured by a
collateral interest in both the equity of the entity holding the
North Texas System as well as its assets. In connection with
this offering, this guarantee will be terminated, the collateral
interest will be released and the allocated indebtedness will be
retired.
Upon the closing of this offering, we expect to borrow
approximately $342.5 million under our new credit facility
and recognize associated interest expense. The proceeds from
this borrowing, together with $307.1 million of the
proceeds from this offering, will be used to repay approximately
$649.6 million of affiliate indebtedness and the remaining
balance of this indebtedness will be retired and treated as a
capital contribution to us.
Impact of Our Hedging Activities. In an
effort to reduce the variability of our cash flows, we have
hedged the commodity price associated with approximately 95-65%
of our expected natural gas, 60-50% of our expected NGL and
95-60% of our expected condensate equity volumes through 2010 by
entering into derivative financial instruments including swaps
and purchased puts (or floors). The percentages of our expected
volumes that are hedged decreases over the term of the hedges.
With these arrangements, we have attempted to mitigate our
exposure to commodity price movements with respect to our
forecasted volumes for this period. For additional information
regarding our hedging activities, please see
Quantitative and Qualitative Disclosures about
Market Risk Commodity Price Risk. These
hedging arrangements were not entered into until the second
quarter of 2006; accordingly, there is no impact of our hedging
activities in the historical financial statements for the three
year period ended December 31, 2005. In addition, the
hedges we entered into in the second quarter of 2006 were
executed at prices that are materially higher than current
market prices. Accordingly, our results of operations are
realizing a significant benefit from these positions. We expect
this benefit to decline through the life of the hedges, which
cover decreasing volumes at declining prices through 2010.
General and Administrative
Expenses. The Predecessor Business recognized
general and administrative expenses as a result of allocations
from the consolidated general and administrative expenses of
Dynegy and Targa, respectively. Allocated general and
administrative expenses ranged from $7.2 million for the
year ended December 31, 2004 to $8.4 million for the
year ended December 31, 2005. In connection with this
offering we will enter into an omnibus agreement with Targa
pursuant to which our allocated general and administrative
expenses will be capped at $5.0 million per year for the
three years following the offering, subject to adjustment. For a
more complete description of this agreement, see Certain
Relationships and
70
Related Party Transactions Omnibus Agreement.
In addition to these allocated general and administrative
expenses, we expect to incur incremental general and
administrative expenses as a result of operating as a separate
publicly held limited partnership. These direct, incremental
general and administrative expenses are expected to be
approximately $2.5 million annually, are not subject to the
cap contained in the omnibus agreement and include costs
associated with annual and quarterly reports to unitholders, tax
return and
Schedule K-1
preparation and distribution, incremental independent auditor
fees, registrar and transfer agent fees and independent director
compensation. These incremental general and administrative
expenditures are not reflected in the historical financial
statements of the Predecessor Business.
Working Capital Adjustments. In the
historical financial statements of the Predecessor Business, all
intercompany transactions, including commodity sales and expense
reimbursements, were not cash settled with the Predecessor
Business respective parent, but were recorded as an
adjustment to parent equity on the balance sheet. The primary
intercompany transactions between the respective parent and the
Predecessor Business are natural gas and NGL sales, the
provision of operations and maintenance activities and the
provision of general and administrative services. Accordingly,
the working capital of the Predecessor Business does not reflect
any affiliate accounts receivable for intercompany commodity
sales or affiliate accounts payable for the personnel and
services provided by or paid for by the applicable parent on
behalf of the Predecessor Business.
Distributions to our
Unitholders. Following the closing of this
offering, we will make cash distributions to our unitholders and
our general partner at an initial distribution rate of
$0.3375 per common unit per quarter ($1.35 per common
unit on an annualized basis). Due to our cash distribution
policy, we expect that we will distribute to our unitholders
most of the cash generated by our operations. As a result, we
will rely upon external financing sources, including commercial
bank borrowings and other debt and equity issuances, to fund our
acquisition and expansion capital expenditures, as well as our
working capital needs. Historically, the North Texas System has
largely relied on internally generated cash flows for these
purposes.
General
Trends and Outlook
We expect our business to continue to be affected by the
following key trends. Our expectations are based on assumptions
made by us and information currently available to us. To the
extent our underlying assumptions about or interpretations of
available information prove to be incorrect, our actual results
may vary materially from our expected results.
Natural Gas Supply and
Outlook. Fluctuations in energy prices can
affect production rates and investments by third parties in the
development of new natural gas reserves. Generally, drilling and
production activity will increase as natural gas prices
increase. The prices we have realized for natural gas have risen
from an average of $4.97 per MMBtu for the year ended
December 31, 2003 to $5.43 per MMBtu for 2004 and
$7.11 per MMBtu for 2005. In 2006, the prices we have
realized for natural gas have declined to $6.09 per MMBtu for
the nine months ended September 30, 2006 from the highs
experienced in 2005. In part as a result of the prevailing
prices during these periods, the Fort Worth Basin has
experienced significant levels of drilling activity, providing
us with opportunities to access newly developed natural gas
supplies. Our largest supplier of natural gas in the
Fort Worth Basin is ConocoPhillips, which represented
approximately 34% of the natural gas supplied to our system for
the first nine months of 2006 and approximately 36% of the
natural gas supplied to our system in 2005. In addition, leasing
and permitting activity in the Fort Worth Basin/Bend Arch
is continuing to increase. The number of drilling permits have
increased in the Barnett Shale from 546 for the first six months
of 2004 to 1,231 for the first six months of 2006 and in the
other Fort Worth Basin formations from 313 for the first
six months of 2004 to 449 for the first six months of 2006. We
believe that current natural gas prices will continue to cause
relatively high levels of natural gas-related drilling in the
Fort Worth Basin/Bend Arch as producers seek to increase
their level of natural gas production.
Commodity Prices. Our operating income
generally improves in an environment of higher natural gas and
NGL prices, primarily as a result of our
percent-of-proceeds
contracts, which perform better in such an
71
environment. For the nine months ended September 30, 2006,
we sold an average of 75.2 BBtu/d of residue gas at an
average price of $6.09/MMBtu, as compared to 69.5 BBtu/d at
an average price of $7.11/MMBtu for the year ended
December 31, 2005, and 59.2 BBtu/d at an average price
of $5.43/MMBtu for the year ended December 31, 2004. For
the nine months ended September 30, 2006, we sold an
average of 15.1 MBbls/d of NGLs at an average price of
$37.84/Bbl, as compared to 14.5 MBbls/d at an average price
of $33.57/Bbl for the year ended December 31, 2005, and
13.2 MBbls/d at an average price of $26.71/Bbl for the year
ended December 31, 2004. Additionally, we separately sold
condensate during these periods. Our processing profitability is
largely dependent upon pricing and market demand for natural
gas, NGLs and condensate, which are beyond our control and have
been volatile. In a declining commodity price environment,
without taking into account our hedges, we will realize a
reduction in cash flows under our
percent-of-proceeds
contracts proportionate to average price declines. We have
attempted to mitigate our exposure to commodity price movements
by entering into hedging arrangements. For additional
information regarding our hedging activities, please see
Quantitative and Qualitative Disclosures about
Market Risk Commodity Price Risk.
Rising Operating Costs. The current
high levels of natural gas exploration, development and
production activities, both in the Fort Worth Basin and
more broadly across the United States, is increasing competition
for personnel and equipment. This increased competition is
placing upward pressure on the prices we pay for labor,
supplies, property, plant and equipment. We attempt to recover
increased costs from our customers. To the extent we are unable
to procure necessary supplies or to recover higher costs, our
operating results will be negatively impacted.
Our
Operations
Our results of operations are determined primarily by the
volumes of natural gas gathered, compressed, treated, processed,
transported and sold through our gathering, processing and
pipeline systems; the volumes of NGLs and residue natural gas
sold; and the level of natural gas and NGL prices. We generate
our revenues and our operating margins principally under
percent-of-proceeds
contractual arrangements. Under these arrangements, we generally
gather natural gas from producers at the wellhead or central
delivery points, transport the wellhead natural gas through our
gathering system, treat and process the natural gas, and then
sell the resulting residue natural gas and NGLs at index prices
based on published index market prices. We remit to the
producers either an agreed upon percentage of recovered volumes
or of the actual proceeds that we receive from our sales of the
residue natural gas and NGLs or an agreed upon percentage of the
proceeds based on index related prices for the natural gas and
NGLs. Under these types of arrangements, our revenues correlate
directly with the price of natural gas and NGLs. For the nine
months ended September 30, 2006, our
percent-of-proceeds
activities accounted for approximately 96% of our natural gas
throughput volumes. The balance of our throughput volumes are
processed under wellhead purchases and keep-whole contractual
arrangements.
Our Chico facility includes an NGL fractionator with the
capacity to fractionate up to 11,500 Bbls/d of the raw NGL
mix that results from the processing of natural gas at Chico.
This fractionation capability allows Chico to deliver raw NGL
mix to Mont Belvieu primarily through Chevrons WTLPG
Pipeline or separated NGL products to local and other markets
via truck.
We sell all of our processed natural gas, NGLs and high pressure
condensate to Targa at market-based rates pursuant to natural
gas, NGL and condensate purchase agreements. Low-pressure
condensate is sold to third parties. For a more complete
description of these arrangements, see Certain
Relationships and Related Party Transactions and
Business Market Access Chico
System Market Access.
How We
Evaluate Our Operations
Our profitability is a function of the difference between the
revenues we receive from our operations, including revenues from
the natural gas, NGLs and condensate we sell, and the costs
associated with conducting our operations, including the costs
of wellhead natural gas that we purchase as well as operating
and general and administrative costs. Because commodity price
movements tend to impact both revenues
72
and costs, increases or decreases in our revenues alone are not
necessarily indicative of increases or decreases in our
profitability. Our contract portfolio, the prevailing pricing
environment for natural gas and NGLs, and the natural gas and
NGL throughput on our system are important factors in
determining our profitability. Our profitability is also
affected by the NGL content in gathered wellhead natural gas,
demand for our products and changes in our customer mix.
Our management uses a variety of financial and operational
measurements to analyze our performance. These measurements
include the following: (1) throughput volumes, facility
efficiencies and fuel consumption, (2) operating margin,
(3) operating expenses, (4) general and administrative
expenses, (5) EBITDA and (6) distributable cash flow.
Throughput Volumes, Facility Efficiencies and Fuel
Consumption. Our profitability is impacted by
our ability to add new sources of natural gas supply to offset
the natural decline of existing volumes from natural gas wells
that are connected to our systems. This is achieved by
connecting new wells as well as by capturing supplies currently
gathered by third-parties. In addition, we seek to increase
operating margins by limiting volume losses and reducing fuel
consumption by increasing compression efficiency. With our
gathering systems extensive use of remote monitoring
capabilities, we monitor the volumes of natural gas received at
the wellhead or central delivery points along our gathering
systems, the volume of natural gas received at our processing
plant inlets and the volumes of NGLs and residue natural gas
recovered by our processing plants. This information is tracked
through our processing plants to determine customer settlements
and helps us increase efficiency and reduce fuel consumption.
As part of monitoring the efficiency of our operations, we
measure the difference between the volume of natural gas
received at the wellhead or central delivery points on our
gathering systems and the volume received at the inlet of our
processing plants as an indicator of fuel consumption and line
loss. We also track the difference between the volume of natural
gas received at the inlet of the processing plant and the NGL
and residue gas produced at the outlet of such plants to monitor
the fuel consumption and recoveries of the facilities. These
volume, recovery and fuel consumption measurements are an
important part of our operational efficiency analysis.
Operating Margin. We review performance
based on the non-generally accepted accounting principle
(non-GAAP) financial measure of operating margin. We
define operating margin as total operating revenues, which
consist of natural gas and NGL sales plus service fee revenues,
less product purchases, which consist primarily of producer
payments and other natural gas purchases, and operating expense.
Natural gas and NGL sales revenue includes settlement gains and
losses on commodity hedges. Our operating margin is impacted by
volumes and commodity prices as well as by our contract mix and
hedging program, which are described in more detail below. We
view our operating margin as an important performance measure of
the core profitability of our operations. We review our
operating margin monthly for consistency and trend analysis.
Operating margin should not be considered an alternative to, or
more meaningful than, net income, operating income, cash flows
from operating activities or any other measure of financial
performance presented in accordance with GAAP. Please see
Summary Non-GAAP Financial Measures.
Operating Expenses. Operating expenses
are costs associated with the operation of a specific asset.
Direct labor, ad valorem taxes, repair and maintenance,
utilities and contract services compose the most significant
portion of our operating expenses. These expenses generally
remain relatively stable independent of the volumes through our
systems but fluctuate depending on the scope of the activities
performed during a specific period.
EBITDA. EBITDA represents net income
before interest, income taxes, depreciation and amortization.
EBITDA is not a presentation made in accordance with GAAP.
Because EBITDA excludes some, but not all, items that affect net
income and is defined differently by different companies in our
industry, our definition of EBITDA may not be comparable to
similarly titled measures of other companies.
73
EBITDA is used as a supplemental financial measure by our
management and by external users of our financial statements
such as investors, commercial banks and others, to assess:
|
|
|
|
|
the financial performance of our assets without regard to
financing methods, capital structure or historical cost basis;
|
|
|
|
the ability of our assets to generate cash sufficient to pay
interest costs and support our indebtedness;
|
|
|
|
our operating performance and return on capital as compared to
those of other companies in the midstream energy sector, without
regard to financing or capital structure; and
|
|
|
|
the viability of acquisitions and capital expenditure projects
and the overall rates of return on alternative investment
opportunities.
|
EBITDA has important limitations as an analytical tool and
should not be considered an alternative to, or more meaningful
than, net income, operating income, cash flows from operating
activities or any other measure of financial performance
presented in accordance with GAAP as measures of operating
performance, liquidity or ability to service debt obligations.
Distributable Cash Flow. We define
distributable cash flow as EBITDA, less interest expense
excluding the amortization of debt issue costs, maintenance
capital expenditures and reserves. Distributable cash flow is
not a presentation made in accordance with GAAP. Distributable
cash flow is used as a supplemental financial measure by our
management and by external users of our financial statements,
such as investors, commercial banks, research analysts and
others, to assess our ability to make cash distributions to our
unitholders and our general partner.
Contract
Mix
We generate revenue based on the contractual arrangements we
have with our producer customers. These arrangements can be in
many forms which vary in the amount of commodity price risk they
carry. Substantially all of our revenues are generated under
percent-of-proceeds
arrangements pursuant to which we receive a portion of the
natural gas
and/or NGLs
as payment for services. Please see Business
Midstream Sector Overview for a more detailed discussion
of the contractual arrangements under which we operate. Set
forth below is a table summarizing our average contract mix for
the nine-months ended September 30, 2006, including the
potential impacts of changes in commodity prices on operating
margins:
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
Contract Type
|
|
Throughput
|
|
Impact of Commodity Prices
|
|
Percent-of-Proceeds
|
|
|
96%
|
|
|
Decreases in natural gas
and/or NGL
prices generate decreases in operating margins.
|
Wellhead Purchases/Keep Whole
|
|
|
4%
|
|
|
Increases in natural gas prices
relative to NGL prices generate decreases in operating margins.
Decreases in NGL prices relative to natural gas prices generate
decreases in operating margins.
|
At times, producer preferences, competitive forces and other
factors cause us to enter into more commodity price sensitive
contracts, such as wellhead purchases and keep-whole
arrangements. We prefer to enter into contracts with less
commodity price sensitivity, including fee-based and
percent-of-proceeds
arrangements.
74
Results
of Operations
The following table and discussion is a summary of our combined
results of operations for the three years ended
December 31, 2005 and the nine months ended
September 30, 2005 and 2006.
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|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Business
|
|
|
|
Dynegy
|
|
|
|
Combined
|
|
|
|
Targa
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Ten Months
|
|
|
|
|
|
|
|
Two Months
|
|
|
Nine Months
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Year Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
October 31,
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(Unaudited)
|
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
|
(in millions of dollars, except
operating and price data)
|
|
|
|
|
Total operating revenues
|
|
$
|
196.8
|
|
|
$
|
258.6
|
|
|
$
|
249.7
|
|
|
$
|
293.3
|
|
|
|
$
|
368.4
|
|
|
|
$
|
75.1
|
|
|
$
|
290.9
|
|
Product purchases
|
|
|
147.3
|
|
|
|
182.6
|
|
|
|
179.0
|
|
|
|
210.8
|
|
|
|
|
265.7
|
|
|
|
|
54.9
|
|
|
|
205.2
|
|
Operating expense
|
|
|
15.1
|
|
|
|
17.7
|
|
|
|
15.8
|
|
|
|
18.0
|
|
|
|
|
21.5
|
|
|
|
|
3.5
|
|
|
|
17.9
|
|
Depreciation and amortization
expense
|
|
|
12.0
|
|
|
|
12.2
|
|
|
|
10.1
|
|
|
|
11.3
|
|
|
|
|
20.5
|
|
|
|
|
9.2
|
|
|
|
41.7
|
|
General and administrative expense
|
|
|
7.7
|
|
|
|
7.2
|
|
|
|
6.7
|
|
|
|
7.3
|
|
|
|
|
8.4
|
|
|
|
|
1.1
|
|
|
|
5.1
|
|
Loss on sales of assets
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
14.7
|
|
|
|
38.6
|
|
|
|
38.1
|
|
|
|
45.9
|
|
|
|
|
52.3
|
|
|
|
|
6.4
|
|
|
|
21.0
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
|
|
|
(11.5
|
)
|
|
|
(54.4
|
)
|
Deferred income taxes(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
Cumulative effect of accounting
change
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14.1
|
|
|
$
|
38.6
|
|
|
$
|
38.1
|
|
|
$
|
45.9
|
|
|
|
$
|
40.8
|
|
|
|
$
|
(5.1
|
)
|
|
$
|
(35.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin(2)
|
|
$
|
34.4
|
|
|
$
|
58.3
|
|
|
$
|
54.9
|
|
|
$
|
64.5
|
|
|
|
$
|
81.2
|
|
|
|
$
|
16.7
|
|
|
$
|
67.8
|
|
EBITDA(2)
|
|
|
26.1
|
|
|
|
50.8
|
|
|
|
48.2
|
|
|
|
57.2
|
|
|
|
|
72.8
|
|
|
|
|
15.6
|
|
|
|
62.7
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering throughput, MMcf/d(3)
|
|
|
134.3
|
|
|
|
152.0
|
|
|
|
160.4
|
|
|
|
161.2
|
|
|
|
|
162.5
|
|
|
|
|
168.8
|
|
|
|
168.2
|
|
Plant natural gas inlet, MMcf/d(4)
|
|
|
128.6
|
|
|
|
145.4
|
|
|
|
155.4
|
|
|
|
156.2
|
|
|
|
|
157.2
|
|
|
|
|
161.9
|
|
|
|
161.6
|
|
Gross NGL production, MBbls/d
|
|
|
15.9
|
|
|
|
17.2
|
|
|
|
18.4
|
|
|
|
18.5
|
|
|
|
|
18.7
|
|
|
|
|
19.8
|
|
|
|
18.8
|
|
Natural gas sales, BBtu/d
|
|
|
42.0
|
|
|
|
59.2
|
|
|
|
68.4
|
|
|
|
68.9
|
|
|
|
|
69.5
|
|
|
|
|
72.3
|
|
|
|
75.2
|
|
NGL sales, MBbl/d
|
|
|
15.3
|
|
|
|
13.2
|
|
|
|
14.2
|
|
|
|
14.3
|
|
|
|
|
14.5
|
|
|
|
|
15.4
|
|
|
|
15.1
|
|
Condensate sales, MBbl/d
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
0.5
|
|
|
|
|
0.5
|
|
|
|
0.5
|
|
Average realized prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas, $/MMBtu
|
|
|
4.97
|
|
|
|
5.43
|
|
|
|
6.39
|
|
|
|
6.79
|
|
|
|
|
7.11
|
|
|
|
|
8.61
|
|
|
|
6.09
|
|
NGL, $/gal
|
|
|
0.47
|
|
|
|
0.64
|
|
|
|
0.75
|
|
|
|
0.78
|
|
|
|
|
.80
|
|
|
|
|
0.90
|
|
|
|
0.90
|
|
Condensate, $/Bbl
|
|
|
29.86
|
|
|
|
40.56
|
|
|
|
52.61
|
|
|
|
53.42
|
|
|
|
|
54.03
|
|
|
|
|
57.54
|
|
|
|
62.66
|
|
|
|
|
(1)
|
|
In May 2006, Texas adopted a margin
tax, consisting of a 1% tax on the amount by which total revenue
exceeds cost of goods sold. The amount presented represents our
estimated liability for this tax.
|
|
(2)
|
|
EBITDA. We
define EBITDA as net income before interest, income taxes,
depreciation and amortization. EBITDA is used as a supplemental
financial measure by our management and by external users of our
financial statements such as investors, commercial banks and
others, to assess:
|
|
|
|
the financial
performance of our assets without regard to financing methods,
capital structure or historical cost basis;
|
75
|
|
|
|
|
our operating
performance and return on capital as compared to other companies
in the midstream energy sector, without regard to financing or
capital structure; and
|
|
|
|
the viability of
acquisitions and capital expenditure projects and the overall
rates of return on alternative investment opportunities.
|
|
|
|
The
economic substance behind managements use of EBITDA is to
measure the ability of our assets to generate cash sufficient to
pay interest costs, support our indebtedness, and make
distributions to our investors.
|
|
|
|
The
GAAP measures most directly comparable to EBITDA are net cash
provided by operating activities and net income. Our non-GAAP
financial measure of EBITDA should not be considered as an
alternative to GAAP net cash provided by operating activities
and GAAP net income. EBITDA is not a presentation made in
accordance with GAAP and has important limitations as an
analytical tool. You should not consider EBITDA in isolation or
as a substitute for analysis of our results as reported under
GAAP. Because EBITDA excludes some, but not all, items that
affect net income and net cash provided by operating activities
and is defined differently by different companies in our
industry, our definition of EBITDA may not be comparable to
similarly titled measures of other companies.
|
|
|
|
Management
compensates for the limitations of EBITDA as an analytical tool
by reviewing the comparable GAAP measures, understanding the
differences between the measures and incorporating these
learnings into managements decision-making processes.
|
|
|
|
Operating
Margin. We define operating margin as total
operating revenues, which consist of natural gas and NGL sales
plus service fee revenues, less product purchases, which consist
primarily of producer payments and other natural gas purchases,
and operating expense. Management reviews operating margin
monthly for consistency and trend analysis. Based on this
monthly analysis, management takes appropriate action to
maintain positive trends or to reverse negative trends.
Management uses operating margin as an important performance
measure of the core profitability of our operations.
|
|
|
|
The
GAAP measure most directly comparable to operating margin is net
income. Our non-GAAP financial measure of operating margin
should not be considered as an alternative to GAAP net income.
Operating margin is not a presentation made in accordance with
GAAP and has important limitations as an analytical tool. You
should not consider operating margin in isolation or as a
substitute for analysis of our results as reported under GAAP.
Because operating margin excludes some, but not all, items that
affect net income and is defined differently by different
companies in our industry, our definition of operating margin
may not be comparable to similarly titled measures of other
companies, thereby diminishing its utility.
|
|
|
|
Management
compensates for the limitations of operating margin as an
analytical tool by reviewing the comparable GAAP measures,
understanding the differences between the measures and
incorporating these learnings into managements
decision-making processes.
|
|
|
|
We
believe that investors benefit from having access to the same
financial measures that our management uses in evaluating our
operating results. Operating margin provides useful information
to investors because it is used as a supplemental financial
measure by our management and by external users of our financial
statements, including such investors, commercial banks and
others, to assess:
|
|
|
|
the financial
performance of our assets without regard to financing methods,
capital structure or historical cost basis;
|
|
|
|
our operating
performance and return on capital as compared to other companies
in the midstream energy sector, without regard to financing or
capital structure;
|
|
|
|
the viability of
acquisitions and capital expenditure projects and the overall
rates of return on alternative investment opportunities.
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Business
|
|
|
Targa Resources Partners LP
|
|
|
|
Dynegy
|
|
|
|
Targa
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Ten Months
|
|
|
|
Two Months
|
|
|
Nine Months
|
|
|
|
|
|
Nine Months
|
|
|
|
Years Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
October 31,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(in millions of dollars)
|
|
Reconciliation of
EBITDA to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
31.3
|
|
|
$
|
58.0
|
|
|
$
|
59.2
|
|
|
$
|
72.7
|
|
|
|
$
|
(1.5
|
)
|
|
$
|
11.1
|
|
|
|
|
|
|
|
|
|
Allocated interest expense from
parent(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.7
|
|
|
|
50.5
|
|
|
|
|
|
|
|
|
|
Changes in operating working
capital which provided (used) cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
0.7
|
|
|
|
(0.7
|
)
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
|
0.1
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(1.0
|
)
|
|
|
(2.7
|
)
|
|
|
1.1
|
|
|
|
1.3
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, including changes in
noncurrent assets and liabilities
|
|
|
(4.9
|
)
|
|
|
(3.8
|
)
|
|
|
(12.6
|
)
|
|
|
(17.1
|
)
|
|
|
|
5.5
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
26.1
|
|
|
$
|
50.8
|
|
|
$
|
48.2
|
|
|
$
|
57.2
|
|
|
|
$
|
15.6
|
|
|
$
|
62.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
EBITDA to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14.1
|
|
|
$
|
38.6
|
|
|
$
|
38.1
|
|
|
$
|
45.9
|
|
|
|
$
|
(5.1
|
)
|
|
$
|
(35.4
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
0.4
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.5
|
|
|
|
54.4
|
|
|
|
24.8
|
|
|
|
18.6
|
|
Deferred tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
Depreciation and amortization
expense
|
|
|
12.0
|
|
|
|
12.2
|
|
|
|
10.1
|
|
|
|
11.3
|
|
|
|
|
9.2
|
|
|
|
41.7
|
|
|
|
54.8
|
|
|
|
41.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
26.1
|
|
|
$
|
50.8
|
|
|
$
|
48.2
|
|
|
$
|
57.2
|
|
|
|
$
|
15.6
|
|
|
$
|
62.7
|
|
|
$
|
72.8
|
|
|
$
|
62.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
operating margin to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14.1
|
|
|
$
|
38.6
|
|
|
$
|
38.1
|
|
|
$
|
45.9
|
|
|
|
$
|
(5.1
|
)
|
|
$
|
(35.4
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
0.4
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
expense
|
|
|
12.0
|
|
|
|
12.2
|
|
|
|
10.1
|
|
|
|
11.3
|
|
|
|
|
9.2
|
|
|
|
41.7
|
|
|
|
54.8
|
|
|
|
41.7
|
|
Deferred income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
Other, net
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.5
|
|
|
|
54.4
|
|
|
|
24.8
|
|
|
|
18.6
|
|
General and administrative expense
|
|
|
7.7
|
|
|
|
7.2
|
|
|
|
6.7
|
|
|
|
7.3
|
|
|
|
|
1.1
|
|
|
|
5.1
|
|
|
|
8.4
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
$
|
34.4
|
|
|
$
|
58.3
|
|
|
$
|
54.9
|
|
|
$
|
64.5
|
|
|
|
$
|
16.7
|
|
|
$
|
67.8
|
|
|
$
|
81.2
|
|
|
$
|
67.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Excludes non-cash amortization of debt issue costs of $0.8
million for the two months ended December 31, 2005 and
$3.9 million for the nine months ended September 30, 2006.
|
|
|
(3)
|
Gathering throughput represents the volume of natural gas
gathered and passed through natural gas gathering pipelines from
connections to producing wells and central delivery points.
|
|
(4)
|
Plant natural gas inlet represents the volume of natural gas
passing through the meter located at the inlet of a natural gas
processing plant.
|
77
Nine
Months Ended September 30, 2006 Compared to Nine Months
Ended September 30, 2005
Our results of operations for the nine months ended
September 30, 2005 were prepared on the same basis as the
Pre-Acquisition Financial Statements. Our results of operations
for the nine months ended September 30, 2006 were prepared
on the same basis as the Post-Acquisition Financial Statements.
Because different bases of accounting were followed in the
preparation of these results of operations, the reported results
of operations for the nine months ended September 30, 2005
and 2006 are not necessarily comparable. The primary differences
include debt and interest expense allocations, depreciation and
amortization, and general and administrative expense
allocations. The interim period results of operations and
related analyses for the Predecessor Business for the nine
months ended September 30, 2005 do not necessarily
represent the results that would have been achieved during this
period had the business been operated by Targa.
Total Operating Revenues. Revenues
increased by $41.2 million, or 16%, to $290.9 million
for the nine months ended September 30, 2006 compared to
$249.7 million for the nine months ended September 30,
2005. This increase was primarily due to the following factors:
|
|
|
|
|
a net increase attributable to commodity prices of
$21.4 million, consisting of increases in NGL and
condensate revenue of $26.0 million and $1.5 million,
respectively, partially offset by a decrease in natural gas
revenue of $6.1 million; and
|
|
|
|
a net increase attributable to volumes of $19.8 million,
consisting of increases in natural gas and NGL revenue of
$11.8 million and $8.1 million, respectively,
partially offset by a decrease in condensate revenue of
$0.1 million.
|
Average realized prices for natural gas decreased by
$0.30 per MMBtu, or 5%, to $6.09 per MMBtu for the
nine months ended September 30, 2006 compared to
$6.39 per MMBtu for the nine months ended
September 30, 2005. The average realized price for NGLs
increased by $0.15 per gallon, or 20%, to $0.90 per
gallon for the nine months ended September 30, 2006
compared to $0.75 per gallon for the nine months ended
September 30, 2005. The average realized price for
condensate increased by $10.05 per barrel, or 19%, to
$62.66 per Bbl for the nine months ended September 30,
2006 compared to $52.61 per barrel for the nine months
ended September 30, 2005.
Natural gas sales volumes increased by 6.8 BBtu/d, or 10%, to
75.2 BBtu/d for the nine months ended September 30,
2006 compared to 68.4 BBtu/d for the nine months ended
September 30, 2005. NGL sales volumes increased by
0.9 MBbl/d, or 6%, to 15.1 MBbl/d for the nine months
ended September 30, 2006 compared to 14.2 MBbl/d for
the nine months ended September 30, 2005. Condensate
volumes were flat with no change between the periods. The
increases in both natural gas and NGL sales volumes were
primarily due to higher field production as a result of new well
connections.
Product Purchases. Product purchases
increased by $26.2 million, or 15%, to $205.2 million
for the nine months ended September 30, 2006 compared to
$179.0 million for the nine months ended September 30,
2005. Higher commodity prices accounted for $17.5 million
of this increase and increased volumes accounted for
$8.7 million of this increase.
Operating Expenses. Operating expenses
increased by $2.1 million, or 13%, to $17.9 million
for the nine months ended September 30, 2006 compared to
$15.8 million for the nine months ended September 30,
2005. The increase was driven by higher costs in 2006 compared
to 2005 for labor, supplies and equipment incurred in the
expansion of our gathering system as well as increased costs for
these services.
Depreciation and
Amortization. Depreciation and amortization
expense increased by $31.6 million, or 313%, to
$41.7 million for the nine months ended September 30,
2006 compared to $10.1 million for the nine months ended
September 30, 2005. The increase is due to the higher
carrying value of property, plant and equipment as a result of
the DMS Acquisition.
General and Administrative. General and
administrative expense decreased by $1.6 million, or 24%,
to $5.1 million for the nine months ended
September 30, 2006 compared to $6.7 million for the
nine months ended September 30, 2005. The decrease was the
result of lower allocated costs following the DMS
78
Acquisition due to lower parent costs and to adjustments to the
factors used to allocate general and administrative expense.
Interest Expense. Interest expense for
the nine months ended September 30, 2006 was
$54.4 million compared to zero for the nine months ended
September 30, 2005. Interest expense recorded for the nine
months ended September 30, 2006 reflects an allocation of
debt and related interest expense incurred by Targa in
connection with the DMS Acquisition. Prior to the DMS
Acquisition, there was no allocation of debt or interest expense
to the Predecessor Business.
Year
Ended December 31, 2005 Compared to Year Ended
December 31, 2004
Our results of operations for the year ended December 31,
2005 are derived from the combination of the results of
operations reflected in the Pre-Acquisition Financial Statements
and the results of operations reflected in the Post-Acquisition
Financial Statements. The combined results of operations for the
Predecessor Business for the year ended December 31, 2005
are unaudited and do not necessarily represent the results that
would have been achieved during this period had the business
been operated by Targa for the entire year.
Total Operating Revenues. Combined
revenues increased by $109.8 million, or 42%, to
$368.4 million for the year ended December 31, 2005
compared to $258.6 million for the year ended
December 31, 2004. This increase was primarily due to the
following factors:
|
|
|
|
|
an increase attributable to commodity prices of
$81.3 million, consisting of increases in natural gas, NGL
and condensate revenue of $42.6 million, $36.2 million
and $2.5 million, respectively;
|
|
|
|
a net increase attributable to volumes of $29.2 million,
consisting of increases in natural gas and NGL revenue of
$19.9 million and $11.8 million, respectively,
partially offset by a decrease in condensate revenue of
$2.5 million; and
|
|
|
|
partially offset by a decrease in fee and other revenues of
$0.7 million.
|
Average realized prices for natural gas increased by
$1.68 per MMBtu, or 31%, to $7.11 per MMBtu for the
year ended December 31, 2005 compared to $5.43 per MMBtu
for the year ended December 31, 2004. The average realized
price for NGL increased by $0.16 per gallon, or 25%, to
$0.80 per gallon for the year ended December 31, 2005
compared to $0.64 per gallon for the year ended
December 31, 2004. The average realized price for
condensate increased by $13.47 per barrel, or 33%, to
$54.03 per barrel for the year ended December 31, 2005
compared to $40.56 per barrel for the year ended
December 31, 2004.
Natural gas sales volume increased by 10.3 BBtu/d, or 17%,
to 69.5 BBtu/d for the year ended December 31, 2005
compared to 59.2 BBtu/d for the year ended
December 31, 2004. Net NGL production increased by
1.3 MBbl/d, or 10%, to 14.5 MBbl/d for the year ended
December 31, 2005 compared to 13.2 MBbl/d for the year
ended December 31, 2004. The volume increases were
primarily attributable to additional well connections partially
offset by the natural decline in field production. Condensate
production decreased by 0.2 MBbl/d, or 29%, to
0.5 MBbl/d for the year ended December 31, 2005
compared to 0.7 MBbl/d for the year ended December 31,
2004.
Product Purchases. Product purchases
for the two months ended December 31, 2005 was
$54.9 million which, combined with the $210.8 million
recorded for the ten months ended October 31, 2005,
increased by $83.1 million, or 46%, to $265.7 million
for the year ended December 31, 2005 compared to
$182.6 million for the year ended December 31, 2004.
Higher commodity prices accounted for $63.6 million of this
increase and increased volumes accounted for $19.5 million
of this increase.
Operating Expenses. Combined operating
expenses of $21.5 million for the year ended
December 31, 2005 is an increase of $3.8 million, or
21%, compared to $17.7 million for the year ended
December 31, 2004. The combined operating expense consisted
of $3.5 million for the two months ended December 31,
2005 and $18.0 million for the ten months ended
October 31, 2005. The increase over 2004 was attributable
primarily to the impact of processing plant and gathering system
expansions.
79
Depreciation and
Amortization. Depreciation and amortization
expense for the two months ended December 31, 2005 was
$9.2 million which, combined with the $11.3 million
recorded for the ten months ended October 31, 2005, totals
a combined $20.5 million for the year ended
December 31, 2005 compared to $12.2 million for the
year ended December 31, 2004, for an increase of
$8.3 million, or 68%. The increase is due to the higher
carrying value of property, plant and equipment as a result of
the DMS Acquisition.
General and Administrative. Combined
general and administrative expense of $8.4 million for the
year ended December 31, 2005 is an increase of
$1.2 million, or 17%, compared to $7.2 million for the
year ended December 31, 2004. The allocated combined
general and administrative expense consisting of
$1.1 million for the two months ended December 31,
2005 and $7.3 million for the ten months ended
October 31, 2005 was attributable to higher allocable
corporate overhead expenses incurred during 2005 compared to
2004.
Interest Expense. Interest expense for
the year ended December 31, 2005 was $11.5 million
compared to none for the year ended December 31, 2004.
Interest expense in 2005 consists of an allocation of a portion
of the interest expense incurred by Targa as a result of
borrowing to fund the DMS Acquisition and was recognized in the
final two months of 2005. Prior to the DMS Acquisition, there
was no allocation of Dynegy indebtedness to the Predecessor
Business.
Year
Ended December 31, 2004 Compared to Year Ended
December 31, 2003
The following discussion is based on the audited results of
operations of the Predecessor Business for the years ended
December 31, 2003 and 2004. The results of operations for
the years ended December 31, 2003 and 2004 do not
necessarily represent the results that would have been achieved
during this period had the business been operated by Targa.
Total Operating Revenues. Revenues
increased by $61.8 million, or 31%, to $258.6 million
for the year ended December 31, 2004 compared to
$196.8 million for the year ended December 31, 2003.
This increase was primarily due to the following factors:
|
|
|
|
|
an increase attributable to commodity prices of $46.8 million,
consisting of increases in natural gas, NGL and condensate
revenue of $10.1 million, $34.0 million and $2.7 million,
respectively;
|
|
|
|
a net increase attributable to volumes of $17.1 million
consisting of increases in natural gas and condensate revenue of
$31.5 million, $0.6 million, respectively, partially offset by a
decrease in NGL revenue of $15.0 million; and
|
|
|
|
partially offset by a decrease in fee and other revenues of $2.1
million.
|
Average realized prices for natural gas increased by
$0.46 per MMBtu, or 9%, to $5.43 per MMBtu for the
year ended December 31, 2004 compared to $4.97 per MMBtu
for the year ended December 31, 2003. The average realized
price for NGLs increased by $0.17 per gallon, or 36%, to
$0.64 per gallon for the year ended December 31, 2004
compared to $0.47 per gallon for the year ended
December 31, 2003. The average realized price for
condensate increased by $10.70 per barrel, or 36%, to
$40.56 per barrel for the year ended December 31, 2004
compared to $29.86 per barrel for the year ended
December 31, 2003.
Natural gas sales volume increased by 17.2 BBtu/d, or 41%,
to 59.2 BBtu/d for the year ended December 31, 2004
compared to 42.0 BBtu/d for the year ended
December 31, 2003. NGL sales volume decreased by 2.1
MBbl/d, or 14%, to 13.2 MBbl/d for the year ended
December 31, 2004 compared to 15.3 MBbl/d for the year
ended December 31, 2003. Condensate production increased by
0.1 MBbl/d, or 17%, to 0.7 MBbl/d for the year ended
December 31, 2004 compared to 0.6 MBbl/d for the year
ended December 31, 2003. The natural gas and condensate
volume increases were primarily attributable to additional well
connections partially offset by naturally declining field
production. The NGL volume decreases were primarily attributable
to a
take-in-kind
election in late 2003 by a significant producer and the natural
decline in field production, which was partially offset by
additional well connections.
80
Product Purchases. Product purchases
increased by $35.3 million, or 24%, to $182.6 million
for the year ended December 31, 2004 compared to
$147.3 million for the year ended December 31, 2003.
Higher commodity prices accounted for an increase of
$38.4 million, partially offset by $3.1 million due to
decreased volumes.
Operating Expenses. Operating expenses
increased by $2.6 million, or 17%, to $17.7 million
for the year ended December 31, 2004 compared to
$15.1 million for the year ended December 31, 2003.
The increase was primarily attributable to the impact of
processing plant expansions.
Depreciation and
Amortization. Depreciation and amortization
expenses increased by $0.2 million, or 2%, to
$12.2 million for the year ended December 31, 2004
compared to $12.0 million for the year ended
December 31, 2003.
General and Administrative. General and
administrative expense decreased $0.5 million, or 6%, to
$7.2 million for the year ended December 31, 2004
compared to $7.7 million for the year ended
December 31, 2003 as a result of lower allocable corporate
overhead expenses during 2004 compared to 2003.
Liquidity
and Capital Resources
Our ability to finance our operations, including to fund capital
expenditures and acquisitions, to meet our indebtedness
obligations, to refinance our indebtedness or to meet our
collateral requirements will depend on our ability to generate
cash in the future. Our ability to generate cash is subject to a
number of factors, some of which are beyond our control,
including commodity prices, particularly for natural gas and
NGLs, operating costs and maintenance capital expenditures.
Please see Risk Factors.
Historically, our cash generated from operations has been
sufficient to finance our operating expenditures and maintenance
and expansion capital expenditures, with remaining amounts being
distributed to Dynegy or Targa, during their respective periods
of ownership. After completion of this offering, we expect our
sources of liquidity to include:
|
|
|
|
|
cash generated from operations;
|
|
|
|
borrowings under our anticipated new 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 our minimum
quarterly cash distributions for at least the next twelve months.
Working Capital. Working capital is the
amount by which current assets exceed current liabilities. Our
working capital requirements will be primarily driven by changes
in accounts receivable and accounts payable. These changes are
impacted by changes in the prices of commodities that we buy and
sell. In general, our working capital requirements increase in
periods of rising commodity prices and decrease in periods of
declining commodity prices. However, our working capital needs
do not necessarily change at the same rate as commodity prices
because both accounts receivable and accounts payable are
impacted by the same commodity prices. In addition, the timing
of payments received by our customers or paid to our suppliers
can also cause fluctuations in working capital because we settle
with most of our larger suppliers and customers on a monthly
basis and often near the end of the month. We expect that our
future working capital requirements will be impacted by these
same factors.
On the historical financial statements of the Predecessor
Business, all intercompany transactions, including commodity
sales and expense reimbursements, were not cash settled with the
Predecessor Business parent at the time, either Dynegy or
Targa, but were recorded as an adjustment to parent equity on
the balance sheet. The primary transactions between the
applicable parent and the Predecessor Business are natural gas
and NGL sales, the provision of operations and maintenance
activities and the provision of
81
general and administrative services. As a result of this
accounting treatment, the working capital of the Predecessor
Business does not reflect any affiliate accounts receivable for
intercompany commodity sales or any affiliate accounts payable
for the personnel and services provided by or paid for by the
applicable parent on behalf of the Predecessor Business.
We had negative working capital of $18.1 million as of
September 30, 2006, compared to negative working capital of
$31.4 million as of September 30, 2005. This
increasing working capital trend was attributable to the current
portion of commodity hedges and decreased accounts payable,
partially offset by the current portion of long-term debt. The
decrease in accounts payable was due to lower commodity prices,
partially offset by increased volumes, which decreased accounts
payable to our producers without an offsetting decrease in
receivables due to the accounting treatment discussed above.
We had negative working capital of $34.4 million as of
December 31, 2005, compared to negative working capital of
$20.5 million as of December 31, 2004. This declining
working capital trend was attributable to the current portion of
long-term debt and increased accounts payable. The increase in
accounts payable was due to increased volumes and higher
commodity prices which increased accounts payable to our
producers without an offsetting increase in receivables due to
the accounting treatment discussed above.
Cash Flow. Net cash provided by or used
in operating activities, investing activities and financing
activities for the years ended December 31, 2003, 2004 and
2005, and for the nine months ended September 30, 2005 and
2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Business
|
|
|
|
Dynegy
|
|
|
|
Combined
|
|
|
|
Targa
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Ten Months
|
|
|
|
|
|
|
|
Two Months
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Year Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
October 31,
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
2005
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(Unaudited)
|
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
|
(in millions of dollars)
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
31.3
|
|
|
$
|
58.0
|
|
|
$
|
59.2
|
|
|
$
|
72.7
|
|
|
|
$
|
71.2
|
|
|
|
$
|
(1.5
|
)
|
|
$
|
11.1
|
|
Investing activities
|
|
|
(14.6
|
)
|
|
|
(23.4
|
)
|
|
|
(14.2
|
)
|
|
|
(16.4
|
)
|
|
|
|
(18.5
|
)
|
|
|
|
(2.1
|
)
|
|
|
(17.7
|
)
|
Financing activities
|
|
|
(16.7
|
)
|
|
|
(34.6
|
)
|
|
|
(45.0
|
)
|
|
|
(56.3
|
)
|
|
|
|
(52.7
|
)
|
|
|
|
3.6
|
|
|
|
6.6
|
|
The discussion of cash flows for the year ended
December 31, 2005 is derived from the sum of the cash flows
reflected in the Pre-Acquisition Financial Statements and the
cash flows reflected in the Post-Acquisition Financial
Statements. The combined financial information for the year
ended December 31, 2005 is unaudited. Because different
bases of accounting were followed in the Pre-Acquisition
Financial Statements and the Post-Acquisition Financial
Statements, the combined cash flow information for the year
ended December 31, 2005 is not prepared on the same basis
and, thus, is not in accordance with GAAP. The following
discussion based on the combined cash flows is presented for the
convenience of investors to facilitate the presentation of a
more meaningful discussion of the historical period. The
combined cash flows for the Predecessor Business for the year
ended December 31, 2005 do not necessarily represent the
cash flows that would have occurred during this period had the
business been operated by Targa for the entire year.
Cash flow information for the years ended December 31, 2003
and 2004 is based on Dynegys results of operations for the
Predecessor Business for the years ended December 31, 2003
and 2004. The results of operations for the years ended
December 31, 2003 and 2004 do not necessarily represent the
results that would have been achieved during this period had the
business been operated by Targa.
Operating Activities. Net cash provided by
operating activities decreased by $48.1 million, or 81%,
for the nine months ended September 30, 2006 compared to
the same period in the prior year. This decrease is
82
attributable to our net income, adjusted for non-cash charges,
as presented in the combined statements of cash flows and
changes in working capital as discussed above. Net cash provided
by operating activities increased by $13.2 million, or 23%,
for the year ended December 31, 2005 compared to the year
ended December 31, 2004. This increase is attributable to
our net income, adjusted for non-cash charges, as presented in
the combined statements of cash flows and changes in working
capital as discussed above.
Investing Activities. Net cash used in
investing activities was $17.7 million for the nine months
ended September 30, 2006 compared to $14.2 million for
the nine months ended September 30, 2005. The increase was
attributable to capital spending related to the refurbishment of
an additional cryogenic train at our Chico plant, the purchase
of an additional gathering system and other expansion
expenditures.
Net cash used in investing activities was $18.5 million for
the year ended December 31, 2005 compared to
$23.4 million for the year ended December 31, 2004.
The $4.9 million, or 21%, decrease is primarily due to the
completion of a major Barnett Shale gathering system expansion
project offset by an increase in major maintenance expenditures
of $1.2 million due to the increased size of our gathering
systems and the effect of higher utilization of our field
compression facilities.
Financing Activities. Net cash used in
financing activities represents the pass through of our net cash
flow to Dynegy prior to the October 31, 2005 DMS
Acquisition, and net cash provided by financing activities
represents the contribution to us by Targa of the net cash
required for principal and interest on allocated parent debt
following the DMS Acquisition.
Capital Requirements. The midstream
energy business can be capital intensive, requiring significant
investment to maintain and upgrade existing operations. A
significant portion of the cost of constructing new gathering
lines to connect to our gathering system is generally paid for
by the natural gas producer. However, we expect to make
significant expenditures during the next year for the
construction of additional natural gas gathering and processing
infrastructure.
We categorize our capital expenditures as either:
(i) maintenance expenditures or (ii) expansion
expenditures. Maintenance expenditures are those expenditures
that are necessary to maintain the service capability of our
existing assets including the replacement of system components
and equipment which is worn, obsolete or completing its useful
life, the addition of new sources of natural gas supply to our
systems to replace natural gas production declines and
expenditures to remain in compliance with environmental laws and
regulations. Expansion expenditures improve the service
capability of the existing assets, extend asset useful lives,
increase capacities from existing levels, reduce costs or
enhance revenues. Our planned capital expenditures for 2006 are
$15.0 million and $12.7 million for maintenance
expenditures and expansion expenditures, respectively. Through
September 30, 2006 we have expended $9.1 million and
$8.7 million of these amounts, respectively.
Over the three years ended December 31, 2005, our expansion
capital expenditures have averaged $8.1 million and ranged
from a high of $13.5 million to a low of $5.3 million.
We estimate that expansion capital expenditures will include
$1.8 million of remaining expenditures for projects that have
been initiated and will be completed in 2007. Given our
objective of growth through acquisitions, expansions of existing
assets and other internal growth projects, we anticipate that we
will invest significant amounts of capital to grow and acquire
assets. After the completion of this offering, expansion capital
expenditures may vary significantly based on investment
opportunities.
We expect to fund future capital expenditures with funds
generated from our operations, borrowings under our new credit
facility, the issuance of additional partnership units and debt
offerings.
Description of Credit Agreement In
connection with this offering, we will enter into a new 5-year
$500 million revolving credit facility with the option to
increase the size of the credit facility up to $750 million
in the future. We expect to borrow $342.5 million under
this new credit facility at the closing of this offering, the
proceeds of which will be paid to Targa to retire a portion of
our affiliate indebtedness. Our obligations under the revolving
credit facility will be secured at all times by substantially
all of our assets and will be guaranteed by our material,
domestic subsidiaries. We may prepay all advances at any time
without penalty. Indebtedness under the revolving credit
facility will bear interest, at our option, at
83
either (1) the higher of the lenders prime rate or
the federal funds rate plus 0.5%, plus an applicable margin
which ranges from 0% to 1.25% dependent on our total leverage
ratio, or (2) LIBOR plus an applicable margin which ranges
from 1.0% to 2.25% dependent upon our total leverage ratio. Our
credit facility will restrict our ability to make distributions
of available cash to unitholders if any default or event of
default (as defined in the credit agreement) exists. The credit
agreement will require us to maintain a leverage ratio (the
ratio of consolidated indebtedness to our consolidated EBITDA,
in each case as will be defined in the credit agreement) of not
more than 5.75 to 1.00 (stepping down to 5.00 to 1.00 within the
first three quarters after closing) and on a temporary basis for
not more than four consecutive quarters following the
consummation of certain acquisitions, not more than 0.50 more
than the leverage ratio then in effect; provided that after the
issuance of senior unsecured notes, the leverage ratio
limitation will be replaced by a requirement that we maintain a
senior secured leverage ratio of not more than 5.25 to 1.00
(stepping down to 4.50 to 1.00 within the first three quarters
after closing) and a total leverage ratio of 6.25 to 1.00
(stepping down to 5.50 to 1.00 within the first three quarters
after closing) (but still subject to automatic temporary
increases following the consummation of certain acquisitions as
described above). The credit agreement will also 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 in the credit agreement) of not
less than 2.25 to 1.00 determined as of the last day of each
quarter for the four-fiscal quarter period ending on the date of
determination. In addition, the credit agreement will contain
various covenants that may limit, among other things, our
ability to:
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be liable for other indebtedness;
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engage in a merger, consolidation or dissolution;
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enter into transactions with affiliates;
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sell or otherwise dispose of our assets, businesses and
operations;
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materially alter the character of our business; and
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make acquisitions, investments and capital expenditures.
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Any subsequent replacement of our credit facility or any new
indebtedness could have similar or greater restrictions.
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. Each of the
following could be an event of default under the credit
agreement:
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failure to pay any principal when due or any interest or fees
within five business days of the due date;
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failure to perform or otherwise comply with the covenants in the
credit agreement;
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failure of any representation or warranty to be true and correct
in any material respect;
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failure to pay debt or perform or otherwise comply with
covenants in other material debt agreements;
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a change of control of our partnership; and
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other customary defaults, including specified bankruptcy or
insolvency events, the Employee Retirement Income Security Act
of 1974, or ERISA, violations, and material judgment defaults.
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84
Contractual Obligations. A summary of
our contractual cash obligations over the next several fiscal
years, as of December 31, 2005, is as follows:
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Payments Due By Period
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Less than
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More than
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Contractual Obligations
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Total
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1 year
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1-3 years
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4-5 years
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5 Years
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(in millions of dollars)
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Debt obligations(1)
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$
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868.9
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$
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4.9
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$
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286.0
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$
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9.9
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$
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568.1
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Interest on debt obligations(2)
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322.4
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60.6
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98.3
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81.4
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82.1
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Capacity payments(3)
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7.6
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2.5
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2.9
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2.2
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Asset retirement obligations
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1.5
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1.5
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$
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1,200.4
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$
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68.0
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$
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387.2
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$
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93.5
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$
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651.7
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(1)
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Represents required future
principal repayments of debt obligations allocated from Targa.
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(2)
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Represents interest expense on debt
obligations allocated from Targa, based on interest rates as of
December 31, 2005. We used an average rate of 6.8% to
estimate our interest on variable rate debt obligations.
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(3)
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Consists of capacity payments for
natural gas pipelines.
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Debt Obligations. Our debt obligations
consisted of the following at the dates indicated:
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December 31,
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2005
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2004
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(in millions
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of dollars)
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Allocated debt, less current
portion of $4.9(1)
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$
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864.0
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$
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(1)
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Allocated debt presented above
represents indebtedness incurred by Targa in connection with the
DMS Acquisition that has been allocated to the North Texas
System. This indebtedness was incurred by Targa in connection
with the DMS Acquisition and the entity holding the North Texas
System provides a guarantee of this indebtedness. This
indebtedness is also secured by a collateral interest in both
the equity of the entity holding the North Texas System as well
as its assets. In connection with this offering, this guarantee
will be terminated, the collateral interest will be released and
the allocated indebtedness will be retired. The table above does
not reflect borrowings we expect to make at the closing of this
offering under our new credit facility.
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Available Credit. After the closing of
this offering, we anticipate having approximately
$157.5 million in borrowing capacity available under our
new credit facility.
Quantitative
and Qualitative Disclosures about Market Risk
Our principal market risks are our exposure to changes in
commodity prices, particularly to the prices of natural gas and
NGLs, as well as nonperformance by our customers.
Commodity Price Risk. Substantially all
of our revenues are derived from
percent-of-proceeds
contracts under which we receive a portion of the natural gas
and/or NGLs,
or equity volumes, as payment for services. The prices of
natural gas and NGLs are subject to fluctuations in response to
changes in supply, demand, market uncertainty and a variety of
additional factors beyond our control. We monitor these risks
and enter into hedging transactions designed to mitigate the
impact of commodity price fluctuations on our business.
The primary purpose of our commodity risk management activities
is to hedge our exposure to commodity price risk and reduce
fluctuations in our operating cash flow despite fluctuations in
commodity prices. In an effort to reduce the variability of our
cash flows, we have hedged the commodity price associated with
approximately 95-65% of our expected natural gas, 60-50% of our
expected NGL and
95-60% of
our expected condensate equity volumes through 2010 by entering
into derivative financial instruments including swaps and
purchased puts (or floors). The percentages of our expected
equity volumes that are hedged decrease over the term of the
hedges. With swaps, we typically receive an agreed fixed price
for a specified notional quantity of natural gas or NGLs, and we
pay the hedge counterparty a floating price for that same
quantity based upon published index prices. Since we receive
from our
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customers substantially the same floating index price from the
sale of the underlying physical commodity, these transactions
are designed to effectively lock-in the agreed fixed price in
advance for the volumes hedged. In order to avoid having a
greater volume hedged than our actual equity volumes, we
typically limit our use of swaps to hedge the prices of up to
approximately 90% of our expected natural gas and NGL equity
volumes. We utilize purchased puts (or floors) to hedge
additional expected equity commodity volumes without creating
volumetric risk. We intend to continue to manage our exposure to
commodity prices in the future by entering into similar hedge
transactions using swaps, collars, purchased puts (or floors) or
other hedge instruments as market conditions permit.
We have tailored our hedges to generally match the NGL product
composition and the NGL and natural gas delivery points to those
of our physical equity volumes. Our NGL hedges cover baskets of
ethane, propane, normal butane, iso-butane and natural gasoline
based upon our expected equity NGL composition. We believe this
strategy avoids uncorrelated risks resulting from employing
hedges on crude oil or other petroleum products as
proxy hedges of NGL prices. Additionally, our NGL
hedges are based on published index prices for delivery at Mont
Belvieu, and our natural gas hedges are based on published index
prices for delivery at Waha and Mid-Continent, which closely
approximate our actual NGL and natural gas delivery points. We
hedge a portion of our condensate sales using crude oil hedges
that are based on the NYMEX futures contracts for West Texas
Intermediate light, sweet crude.
In April and May 2006, we entered into hedges for the third and
fourth quarters of 2006 and for 2007 through 2010 at prices that
are materially higher than current market prices. In November
2006, we entered into additional swaps at then market prices and
purchased puts (or floors). Our results of operations are
currently realizing a significant benefit from the positions
entered into in April and May of 2006. In our minimum estimated
EBITDA for the twelve months ended December 31, 2007
included elsewhere in this prospectus, we estimate that our
hedges will generate approximately $15 million in operating
income for the forecasted period. If future realized prices
remain comparable to current prices, we expect that this benefit
will decline materially over the life of the hedges, which cover
decreasing volumes at declining prices through 2010. For the
third quarter of 2006, the hedged volumes were 2,751 Bbls/d
of NGLs, 11,633 MMBtu/d of natural gas and 366 Bbls/d of
condensate. For the nine months ended September 30, 2006,
our operating revenue was increased by net hedge settlements of
$0.3 million. For a description of our hedges, please see
Summary of Our Hedges.
Our commodity price hedging transactions are typically
documented pursuant to a standard International Swap Dealers
Association (ISDA) form with customized credit and
legal terms. Our principal counterparties (or, if applicable,
their guarantors) have investment grade credit ratings. The
payment obligations in connection with substantially all of
these hedging transactions, and any additional credit exposure
due to a rise in natural gas and NGL prices relative to the
fixed prices set forth in the hedges, are expected to be secured
by a first priority lien in the collateral securing our senior
secured indebtedness that ranks equal in right of payment with
liens granted in favor of our senior secured lenders. As long as
this first priority lien is in effect, we expect to have no
obligation to post cash, letters of credit, or other additional
collateral to secure these hedges at any time even if our
counterpartys exposure to our credit increases over the
term of the hedge as a result of higher commodity prices or
because there has been a change in our creditworthiness. For
example, a 10% increase in natural gas, crude oil and NGL prices
over the term of our swaps would increase the credit exposure
that our swap counterparties have to us by approximately
$22.3 million; however, we would expect to post no
additional collateral. A purchased put (or floor) transaction
does not create credit exposure to us for our counterparties.
86
Summary
of Our Hedges
At December 31, 2005, we had no open commodity derivative
positions. During the second and fourth quarters of 2006, we
entered into the following hedging arrangements for a portion of
our forecast of equity volumes. Floor volumes and floor pricing
are based solely on purchased puts (or floors).
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Three months
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ended
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December 31,
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2006
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2007
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2008
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2009
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2010
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NGL Hedges
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NGL volume swaps
(Bbls/d)
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2,751
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2,416
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2,160
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1,948
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1,759
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Weighted average swap price (per
gallon)
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$
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1.01
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$
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0.99
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$
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0.95
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$
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0.91
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$
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0.88
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Natural Gas Hedges
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Natural gas volume
swaps (MMBtu/d)
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11,633
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13,612
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11,621
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10,452
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9,494
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Weighted average swap price (per
MMBtu)
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$
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8.03
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$
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8.63
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$
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8.47
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$
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7.99
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$
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7.41
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Natural gas volume
floors (MMBtu/d)
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870
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1,670
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1,415
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Weighted average floor price (per
MMBtu)
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$
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$
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6.55
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$
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6.67
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$
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6.55
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$
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Condensate Hedges
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Condensate volume
swaps (Bbls/d)
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366
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439
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384
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322
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301
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Weighted average swap price (per
barrel)
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$
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76.29
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$
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72.82
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$
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70.86
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$
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69.00
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$
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68.10
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Condensate volume
floors (Bbls/d)
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25
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55
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50
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Weighted average floor price (per
barrel)
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$
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$
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58.60
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$
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60.50
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$
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60.00
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$
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These contracts may expose us to the risk of financial loss in
certain circumstances. Our hedging arrangements provide us
protection on the hedged volumes if prices decline below the
prices at which these hedges are set. If prices rise above the
prices at which we have hedged, we will receive less revenues on
the hedged volumes than we would receive in the absence of
hedges. We have entered into these transactions with Merrill
Lynch Commodities Inc., whose obligations are guaranteed by
Merrill Lynch & Co. Inc., Morgan Stanley Capital Group
Inc. and J. Aron & Company, whose obligations are
guaranteed by The Goldman Sachs Group, Inc.
Interest Rate Risk. We may enter hedges
for a portion of our floating interest rate exposure under our
anticipated new credit facility.
Credit Risk. We are subject to risk of
losses resulting from nonpayment or nonperformance by our
customers. We will continue to closely monitor the
creditworthiness of customers to whom we grant credit and
establish credit limits in accordance with our credit policy. At
the closing of this offering, we will enter into natural gas,
NGL and condensate purchase agreements with Targa pursuant to
which Targa will purchase all of our natural gas for a term of
15 years, and all of our NGLs and high-pressure condensate for a
term of 15 years. We will also enter into an omnibus
agreement with Targa which will address, among other things, the
provision of general and administrative and operating services
to us. As of January 31, 2007, Moodys and
Standard & Poors assigned Targa corporate credit
ratings of B1 and B+, respectively, which are speculative
ratings. A speculative rating signifies a higher risk that Targa
will default on its obligations, including its obligations to
us, than does an investment grade rating. Any material
nonperformance under the omnibus and purchase agreements by
Targa could materially and adversely impact our ability to
operate and make distributions to our unitholders.
Critical
Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAP
requires our management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from
these estimates. The policies and estimates discussed below are
considered by management to be critical to an understanding of
our financial
87
statements, because their application requires the most
significant judgments from management in estimating matters for
financial reporting that are inherently uncertain.
Revenue Recognition.
Our primary types of sales and service activities reported as
operating revenue include:
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sales of natural gas, NGLs and condensate; and
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natural gas processing, from which we generate revenue through
the compression, gathering, treating and processing of natural
gas.
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We recognize revenue when all of the following criteria are met:
(1) persuasive evidence of an exchange arrangement exists,
(2) delivery has occurred or services have been rendered,
(3) the price is fixed or determinable and
(4) collectibility is reasonably assured.
For processing services, we receive either fees or a percentage
of commodities as payment for these services, depending on the
type of contract. Under
percent-of-proceeds
contracts, we are paid for our services by keeping a percentage
of the NGLs extracted and the residue gas resulting from
processing natural gas. In
percent-of-proceeds
arrangements, we remit either a percentage of the proceeds
received from the sales of residue gas and NGLs or a percentage
of the residue gas or NGLs at the tailgate of the plant to the
producer. Under the terms of
percent-of-proceeds
and similar contracts, we may purchase the producers share
of the processed commodities for resale or deliver the
commodities to the producer at the tailgate of the plant.
Percent-of-value
and
percent-of-liquids
contracts are variations on this arrangement. Under keep-whole
contracts, we keep the NGLs extracted and return the processed
natural gas or value of the natural gas to the producer. Natural
gas or NGLs that we receive for services or purchase for resale
are in turn sold and recognized in accordance with the criteria
outlined above. Under fee-based contracts, we receive a fee
based on throughput volumes.
We generally report revenues gross in the combined statements of
operations, in accordance with EITF Issue
No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent. Except for fee-based contracts, we act as the
principal in these transactions where we receive natural gas or
NGLs, take title to the commodities, and incur the risks and
rewards of ownership.
Use of Estimates. The preparation of
financial statements in accordance with accounting principles
generally accepted in the United States of America requires
management to make estimates and judgments that affect our
reported financial positions and results of operations. We
review significant estimates and judgments affecting our
consolidated financial statements on a recurring basis and
record the effect of any necessary adjustments prior to their
publication. Estimates and judgments are based on information
available at the time such estimates and judgments are made.
Adjustments made with respect to the use of these estimates and
judgments often relate to information not previously available.
Uncertainties with respect to such estimates and judgments are
inherent in the preparation of financial statements. Estimates
and judgments are used in, among other things, (1) estimating
unbilled revenues and operating and general and administrative
costs, (2) developing fair value assumptions, including
estimates of future cash flows and discount rates, (3) analyzing
tangible and intangible assets for possible impairment, (4)
estimating the useful lives of our assets and (5) determining
amounts to accrue for contingencies, guarantees and
indemnifications. Actual results could differ materially from
our estimates.
Property, Plant, and
Equipment. Property, plant, and equipment is
stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated
useful lives of the assets. The estimated service lives of our
functional asset groups are as follows:
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Asset Group
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Service Life
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(Years)
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Natural gas gathering systems and
processing facilities
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15 to 25
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Office and miscellaneous equipment
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3 to 7
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Expenditures for maintenance and repairs are generally expensed
as incurred. However, expenditures to refurbish (i.e., certain
repair and maintenance expenses) assets that extend the useful
lives or prevent environmental contamination are capitalized and
depreciated over the remaining useful life of the asset.
Our determination of the useful lives of property, plant and
equipment requires us to make various assumptions, including the
supply of and demand for hydrocarbons in the markets served by
our assets, normal wear and tear of the facilities, and the
extent and frequency of maintenance programs. From time to time,
we utilize consultants and other experts to assist us in
assessing the remaining lives of the crude oil or natural gas
production in the basins we serve.
We may capitalize certain costs directly related to the
construction of assets, including internal labor costs, interest
and engineering costs. Upon disposition or retirement of
property, plant and equipment, any gain or loss is charged to
operations.
In accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, we
evaluate the recoverability of our property, plant and equipment
when events or circumstances such as economic obsolescence, the
business climate, legal and other factors indicate we may not
recover the carrying amount of the assets. We continually
monitor our businesses and the market and business environments
to identify indicators that may suggest an asset may not be
recoverable.
We evaluate an asset for recoverability by comparing the
carrying value of the asset with the assets expected
future undiscounted cash flows. These cash flow estimates
require us to make projections and assumptions for many years
into the future for pricing, demand, competition, operating cost
and other factors. We recognize an impairment loss when the
carrying amount of the asset exceeds its fair value as
determined by quoted market prices in active markets or present
value techniques if quotes are unavailable. The determination of
the fair value using present value techniques requires us to
make projections and assumptions regarding the probability of a
range of outcomes and the rates of interest used in the present
value calculations. Any changes we make to these projections and
assumptions could result in significant revisions to our
evaluation of recoverability of our property, plant and
equipment and the recognition of an impairment loss in our
Consolidated Statements of Income.
Price Risk Management (Hedging). We
account for derivative instruments in accordance with
SFAS 133 Accounting for Derivative Instruments and
Hedging Activities, as amended. Under SFAS 133,
all derivative instruments not qualifying for the normal
purchases and sales exception are recorded on the balance sheet
at fair value. If a derivative does not qualify as a hedge, or
is not designated as a hedge, the gain or loss on the derivative
is recognized currently in earnings. If a derivative qualifies
for hedge accounting and is designated as a hedge, the effective
portion of the unrealized gain or loss on the derivative is
deferred in accumulated other comprehensive income
(OCI), a component of partners capital, and
reclassified to earnings when the forecasted transaction occurs.
The relationship between the hedging instrument and the hedged
item must be highly effective in achieving the offset of changes
in cash flows attributable to the hedged risk both at the
inception of the contract and on an ongoing basis. Hedge
accounting is discontinued prospectively when a hedge instrument
becomes ineffective. Gains and losses deferred in OCI related to
cash flow hedges for which hedge accounting has been
discontinued remain deferred until the forecasted transaction
occurs. If it is probable that a hedged forecasted transaction
will not occur, deferred gains or losses on the hedging
instrument are reclassified to earnings immediately.
Our policy is to formally document all relationships between
hedging instruments and hedged items, as well as our risk
management objectives and strategy for undertaking the hedge.
This process includes specific identification of the hedging
instrument and the hedged item, the nature of the risk being
hedged and the manner in which the hedging instruments
effectiveness will be assessed. At the inception of the hedge
and on an ongoing basis, we will assess whether the derivatives
used in hedging transactions are highly effective in offsetting
changes in cash flows of hedged items. Hedge effectiveness is
measured on a quarterly basis. Any ineffective portion of the
unrealized gain or loss is reclassified to earnings in the
current period.
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Estimated Useful Lives. The estimated
useful lives of our long-lived assets are used to compute
depreciation expense, future asset retirement obligations and in
impairment testing. Estimated useful lives are based, among
other things, on the assumption that we provide an appropriate
level of maintenance capital expenditures while the assets are
still in operation. Without these continued capital
expenditures, the useful lives of these assets could decrease
significantly. Estimated lives could be impacted by such factors
as future energy prices, environmental regulations, various
legal factors and competition. If the useful lives of these
assets were found to be shorter than originally estimated,
depreciation expense may increase, liabilities for future asset
retirement obligations may be insufficient and impairments in
carrying values of tangible and intangible assets may result.
Natural Gas Imbalance
Accounting. Quantities of natural gas
over-delivered or under-delivered related to imbalance
agreements with customers, producers or pipelines are recorded
monthly as other receivables or other payables using then
current market prices or the weighted average prices of natural
gas at the plant or system. These imbalances are settled with
deliveries of natural gas or with cash.
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BUSINESS
Our
Partnership
We are a growth-oriented Delaware limited partnership recently
formed by Targa, a leading provider of midstream natural gas and
NGL services in the United States, to own, operate, acquire and
develop a diversified portfolio of complementary midstream
energy assets. We currently operate in the Fort Worth Basin
in north Texas and are engaged in the business of gathering,
compressing, treating, processing and selling natural gas and
fractionating and selling NGLs and NGL products. We intend to
leverage our relationship with Targa to acquire and construct
additional midstream energy assets and to utilize the
significant experience of Targas management team to
execute our growth strategy. At September 30, 2006, Targa
had total assets of $3.4 billion, with the North Texas
System to be contributed to us in connection with the offering
representing $1.1 billion of this amount. Targa intends,
but is not obligated, to offer us the opportunity to purchase
substantially all of its remaining businesses.
Our operations consist of an extensive network of approximately
3,950 miles of integrated gathering pipelines that gather
and compress natural gas received from approximately 2,650
receipt points in the Fort Worth Basin, two natural gas
processing plants that compress, treat and process the natural
gas and a fractionator that fractionates a portion of our raw
NGLs produced in our processing operations into NGL products. We
serve a fourteen-county natural gas producing region in the
Fort Worth Basin that includes production from the Barnett
Shale formation and other shallower formations including the
Bend Conglomerate, Caddo, Atoka, Marble Falls, and other
Pennsylvanian and upper Mississippian formations. The North
Texas System includes the following:
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the Chico system, located in the northeast part of the
Fort Worth Basin, which consists of:
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approximately 1,860 miles of natural gas gathering
pipelines with approximately 1,830 active connections to
producing wells and central delivery points;
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a cryogenic natural gas processing plant with throughput
capacity of approximately
215 MMcf/d
that can be increased by another 50 MMcf/d at a minimal
cost and in a short period of time as may be required to meet
production needs through the installation of an additional
refrigeration compressor unit that is on site (for the year
ended December 31, 2005 and the nine months ended
September 30, 2006, the average daily plant inlet volume
was 145.0 MMcf/d and 149.8 MMcf/d,
respectively); and
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an 11,500 Bbls/d fractionator located at the processing
plant that enables us, based on market conditions, to either
fractionate a portion of our raw NGL mix into separate NGL
products for sale into local and other markets or deliver raw
NGL mix to Mont Belvieu for fractionation primarily through
Chevrons WTLPG Pipeline;
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the Shackelford system, located on the western side of the
Fort Worth Basin, which consists of:
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approximately 2,090 miles of natural gas gathering
pipelines with approximately 820 active connections to producing
wells and central delivery points; and
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a cryogenic natural gas processing plant with throughput
capacity of approximately 13 MMcf/d (for the year ended
December 31, 2005 and the nine months ended
September 30, 2006, the average daily plant inlet volume
was 12.2 MMcf/d and 11.8 MMcf/d,
respectively); and
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a 32-mile,
10-inch
diameter natural gas pipeline connecting the Shackelford and
Chico systems, which we refer to as the Interconnect
Pipeline, that is used primarily to send natural gas
gathered in excess of the Shackelford systems processing
capacity to the Chico plant.
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Strategies
Our primary business objective is to increase our cash
distribution per unit over time. We intend to accomplish this
objective by executing the following strategies:
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Increasing the profitability of our existing
assets. With our extensive network of
gathering systems and two natural gas processing facilities, we
are well positioned to capitalize on the active development and
growing production from the Barnett Shale and the other
Fort Worth Basin formations. We are currently evaluating
opportunities to increase the profitability of our existing
operations by:
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Utilizing excess pipeline and plant capacity to connect and
process new supplies of natural gas at minimal incremental cost;
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Undertaking additional initiatives to improve operating
efficiencies and increase processing yields;
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Adding processing capacity by installing the refrigeration
compressor currently on site;
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Eliminating a bottleneck at our Chico fractionator to allow for
increased throughput;
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Pursuing pressure reduction projects to increase volumes of low
pressure gas to be gathered and processed;
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Continuing electronic flow measurement conversion of the
remaining 15% of our meters that do not have electronic flow
measurement; and
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Installing treating and filtration systems to decontaminate
condensate, as well as the addition of meters to allow pipeline
quality condensate to be shipped to Mont Belvieu through
Chevrons WTLPG Pipeline.
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Managing our contract mix to optimize
profitability. The majority of our operating
margin is generated pursuant to
percent-of-proceeds
or similar arrangements which, if unhedged, benefit us in
increasing commodity price environments and expose us to a
reduction in profitability in decreasing commodity price
environments. We believe that appropriately managed, our current
contract mix allows us to optimize the profitability of the
North Texas System over time. Although we expect to maintain
primarily
percent-of-proceeds
arrangements, we continually evaluate the market for attractive
fee based and other arrangements which will further reduce the
variability of our cash flows.
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Mitigating commodity price exposure through prudent
hedging arrangements. The primary purpose of
our commodity risk management activities is to hedge our
exposure to commodity price risk inherent in our contract mix
and reduce fluctuations in our operating cash flow despite
fluctuations in commodity prices. We have hedged the commodity
price associated with approximately 95-65% of our expected
natural gas, 60-50% of our expected NGL and 95-60% of our
expected condensate equity volumes through 2010. The percentages
of our expected volumes that are hedged decreases over the term
of the hedges. We have tailored our hedges to match our actual
NGL product composition and to approximate our actual NGL and
natural gas delivery points, as opposed to using crude oil
prices to try to approximate NGL prices. We intend to continue
to manage our exposure to commodity prices in the future by
entering into similar hedge transactions using swaps, collars,
purchased puts (or floors) or other hedge instruments as market
conditions permit.
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Capitalizing on organic expansion
opportunities. We continually evaluate
economically attractive organic expansion opportunities in
existing or new areas of operation that will allow us to
leverage our existing market position and leverage our core
competitiveness in the midstream energy industry. Examples of
this include the following:
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The expansion of our Chico processing facility to substantially
increase processing capacity in response to growth in production
from the Barnett Shale; and
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A potential fractionator expansion at our Chico facility to
allow us to increase our sales of NGL products into local
markets.
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Focusing on producing regions with attractive
characteristics. We seek to focus on those
regions and supplies with attractive characteristics, including:
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regions where treating or processing is required to access
end-markets;
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regions where permitting, drilling and workover activity is high;
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regions with the potential for long-term acreage dedications;
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regions with a strong base of current production and the
potential for significant future development; and
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regions that can serve as a platform to expand into adjacent
areas with existing or new production.
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Pursuing strategic and accretive
acquisitions. We plan to pursue strategic and
accretive acquisition opportunities within the midstream energy
industry, both from Targa and from third parties. We will seek
acquisition opportunities in our existing areas of operation
with the opportunity for operational efficiencies and the
potential for higher capacity utilization and expansion of those
assets, as well as acquisitions in other related lines of our
midstream business and new geographic areas of operation.
Certain factors we will consider in deciding whether to acquire
assets include, but are not limited to, the economic
characteristics of the acquisition (such as return on capital
and cash flow stability), the region in which the assets are
located (both regions contiguous to our areas of operation and
other regions with attractive characteristics) and the
availability and sources of capital to finance the acquisition.
We intend to finance our expansion through a combination of debt
and equity, including commercial debt facilities and public and
private offerings of debt and equity.
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Leveraging our relationship with
Targa. Our relationship with Targa provides
us access to its extensive pool of operational, commercial and
risk management expertise which enables all of the strategies.
In addition, we intend to pursue acquisition opportunities as
well as organic growth opportunities with Targa and with
Targas assistance. We may also acquire assets or
businesses directly from Targa, which will provide us access to
a broader array of growth opportunities than those available to
many of our competitors.
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Competitive
Strengths
We believe that we are well positioned to execute our primary
business objective and business strategies successfully because
of the following competitive strengths:
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Affiliation with Targa. We expect that
our relationship with Targa will provide us with significant
business opportunities. After this offering, Targa will continue
to be a large gatherer and processor of natural gas in the
United States. Targa owns and operates a large integrated
platform of midstream assets in oil and natural gas producing
regions, including the Permian Basin in West Texas and Southeast
New Mexico and the onshore and offshore regions of the Texas and
Louisiana Gulf Coast. These operations are integrated with
Targas NGL logistics and marketing business that extends
services to customers across the southern, southeastern and
western United States. Targa has an experienced and
knowledgeable executive management team and an experienced and
knowledgeable commercial and operations teams. We believe
Targas relationships throughout the energy industry,
including with producers of natural gas in the United States,
will help facilitate implementation of our acquisition strategy
and other strategies. Targa has indicated that it intends to use
us as a growth vehicle to pursue the acquisition and expansion
of midstream natural gas, NGL and other complementary energy
businesses and assets and we expect to have the opportunity, but
not the obligation, to acquire such businesses and assets
directly from Targa in the future.
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Strategically located assets. We own
and operate one of the largest integrated natural gas gathering,
compression, treating and processing systems in the
Fort Worth Basin, an active natural gas producing area. In
particular, the Barnett Shale region of the Fort Worth
Basin is one of the most productive natural gas-producing
regions in North America. The Barnett Shale extends over
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4,500 square miles and has generally long-lived,
predictable reserves. The other Fort Worth Basin formations
are well-established, mature plays that exhibit lower decline
rates than those of the Barnett Shale. Current high levels of
natural gas exploration, development and production activities
within both Barnett and non-Barnett areas of our operations
present significant organic growth opportunities to generate
additional throughput on our system. Increased natural gas
production in the Fort Worth Basin is likely to be driven
by natural gas prices, recent discoveries, infill drilling
opportunities and the implementation of new exploration and
production techniques. Furthermore, because infill drilling
activity is expected to take place within close proximity to our
existing infrastructure, a significant portion of incremental
volumes could be generated with limited additional capital
expenditures.
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High quality and efficient assets. Our
gathering and processing systems consist of high-quality assets
that have been well maintained, resulting in low cost, efficient
operations. We have implemented state of the art processing,
measurement and operations and maintenance technologies. These
applications have allowed us to proactively manage our
operations with fewer field personnel resulting in lower costs
and minimal downtime. As a result, we believe we have
established a reputation in the midstream business as a reliable
and cost-effective supplier of services to our customers and
have a track record of safe and efficient operation of our
facilities.
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Low maintenance capital
expenditures. Our maintenance capital
expenditures have averaged approximately $11 million over
the three years ended December 31, 2005. We believe that a
low level of maintenance capital expenditures is sufficient for
us to continue operations in a safe, prudent and cost-effective
manner.
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Prudent hedging arrangements. While our
percent-of-proceeds
gathering and processing contracts subject us to commodity price
risk, we have entered into long-term hedges covering
approximately 95-65% of our expected natural gas, 60-50% of our
expected NGL and 95-60% of our expected condensate equity
volumes through 2010. This strategy minimizes volumetric risk
while managing commodity price risk related to these
arrangements. For additional information regarding our hedging
activities, please see Managements Discussion and
Analysis of Financial Condition and Results of
Operation Quantitative and Qualitative Disclosures
about Market Risk Hedging Strategies. We
intend to continue to manage our exposure to commodity prices in
the future by entering into similar hedge transactions using
swaps, collars, purchased puts (or floors) or other hedge
instruments for existing and expected equity production as
market conditions permit.
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Strong producer customer base. We have
a strong producer customer base consisting of both major oil and
gas companies and independent producers. We believe we have a
reputation as a reliable operator by providing high quality
services and focusing on the needs of our customers. Targa also
has relationships throughout the energy industry, including with
producers of natural gas in the United States, and has
established a positive reputation in the energy business which
we believe will assist us in our primary business objectives.
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Comprehensive package of midstream
services. We provide a comprehensive package
of services to natural gas producers, including natural gas
gathering, compression, treating, processing and NGL
fractionating. These services are essential to gather, process
and treat wellhead gas to meet pipeline standards and to extract
natural gas liquids for sale into industrial and commercial
markets. We believe our ability to provide all of these services
provides us with an advantage in competing for new supplies of
natural gas because we can provide substantially all of the
services producers, marketers and others require to move natural
gas and NGLs from wellhead to market on a cost-effective basis.
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Experienced management team. Targa has
an experienced and knowledgeable executive management team with
an average of 27 years of experience in the energy industry
and that will own an 8.3% indirect ownership interest in us
following this offering. Targas executive management team
is committed to executing our business strategy and has a proven
track record of enhancing value through the acquisition,
optimization and integration of midstream assets. In addition,
Targas
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operations and commercial management team consists of
individuals with an average of 23 years of midstream
operating experience. Our relationship with Targa provides us
with access to significant operational, commercial, technical,
risk management and other expertise.
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While we have set forth our strategies and competitive strengths
above, our business involves numerous risks and uncertainties
which may prevent us from executing our strategies. These risks
include the adverse impact of changes in natural gas and NGL
prices on the amount we are able to distribute to you, our
inability to access sufficient additional production to replace
natural declines in production and our dependence on a single
natural gas producer for a significant portion of our natural
gas supply. For a more complete description of the risks
associated with an investment in us, please see Risk
Factors.
Our
Relationship with Targa Resources, Inc.
One of our principal strengths is our relationship with Targa, a
leading provider of midstream natural gas and NGL services in
the United States. Targa was formed in 2004 by its management
team, which consists of former members of senior management of
several midstream and other diversified energy companies, and
Warburg Pincus LLC, or Warburg Pincus, a private equity firm. In
April 2004, Targa purchased certain midstream natural gas
operations from ConocoPhillips Company, or ConocoPhillips, for
$247 million and, in October 2005, Targa purchased
substantially all of the midstream assets of Dynegy, Inc. and
its affiliates, or Dynegy, for approximately $2.5 billion.
These transactions formed a large-scale, integrated midstream
energy company with the ability to offer a wide range of
midstream services to a diverse group of natural gas and NGL
producers and customers. At September 30, 2006, Targa had
assets of $3.4 billion, with the North Texas System
representing $1.1 billion of this amount, and for the nine
months ended September 30, 2006 generated net cash provided
by operating activities of $202.1 million.
The assets acquired through the ConocoPhillips and Dynegy
transactions form a large-scale, integrated midstream energy
company with the ability to offer a wide range of midstream
services to a diverse group of natural gas and NGL producers and
customers. Following this offering, Targas businesses will
include:
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Natural Gas Gathering and Processing Division Targa
will continue to gather and process natural gas from the Permian
Basin in West Texas and Southeast New Mexico and the onshore and
offshore regions of the Texas and Louisiana Gulf Coast. Targa
will own approximately 6,680 miles of natural gas pipelines
with approximately 3,960 active connections to producing wells
and central delivery points, operate 14 processing plants (some
of which are jointly owned) and will have a partial interest in
six additional processing plants that are operated by others.
For the nine months ended September 30, 2006, these assets
processed an average inlet plant volume of 1,604.4 MMcf/d
of natural gas and produced an average of 78.6 MBbls/d of
NGLs, in each case, net to its ownership interests.
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NGL Logistics and Marketing Division Targa has a
significant, integrated NGL logistics and marketing business
with 13 storage, marine and transport terminals with an NGL
storage capacity of 730 MBbls, net NGL fractionation
capacity of approximately 287 MBbls/d and 43 operated
storage wells with a capacity of 103 MMBbls. This division
uses its extensive platform of integrated assets to fractionate,
store, terminal, transport, distribute and market NGLs,
typically under fee-based and margin-based arrangements. Its
assets are generally connected to and supplied, in part, by its
Natural Gas Gathering and Processing assets and are primarily
located in Southwest Louisiana and near Mont Belvieu, Texas, the
primary NGL hub in the United States. Targa will continue to
own, operate or lease assets in a number of other states,
including Alabama, Nevada, California, Florida, Mississippi,
Tennessee, New Jersey and Kentucky. The geographic diversity of
Targas assets provides it direct access to many NGL
end-users in both its geographic markets as well as markets
outside its operating regions via open-access regulated NGL
pipelines owned by third parties. Targa will also continue to
own 21 pressurized NGL barges, 80 transport tractors and 113
tank trailers and lease 897 railcars.
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Targa has indicated that it intends to use us as a growth
vehicle to pursue the acquisition and expansion of midstream
natural gas, NGL and other complementary energy businesses and
assets. We
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expect to have the opportunity to make acquisitions directly
from Targa in the future. Targa intends to offer us the
opportunity to purchase substantially all of its remaining
businesses, although it is not obligated to do so. While Targa
believes it will be in its best interest to contribute
additional assets to us given its significant ownership of
limited and general partner interests in us, Targa constantly
evaluates acquisitions and dispositions and may elect to
acquire, construct or dispose of midstream assets in the future
without offering us the opportunity to purchase or construct
those assets. Targa has retained such flexibility because it
believes it is in the best interests of its shareholders to do
so. We cannot say with any certainty which, if any,
opportunities to acquire assets from Targa may be made available
to us or if we will choose to pursue any such opportunity.
Moreover, Targa is not prohibited from competing with us and
constantly evaluates acquisitions and dispositions that do not
involve us. In addition, through our relationship with Targa, we
will have access to a significant pool of management talent,
strong commercial relationships throughout the energy industry
and access to Targas broad operational, commercial,
technical, risk management and administrative infrastructure.
Targa will retain a significant indirect interest in our
partnership through its ownership of a 39.9% limited partner
interest and a 2% general partner interest in us. We will enter
into an omnibus agreement with Targa that will govern our
relationship with them regarding certain reimbursement and
indemnification matters. Please see Certain Relationships
and Related Party Transactions Omnibus
Agreement. In addition, to carry out operations, our
general partner and its affiliates, which are indirectly owned
by Targa, employ approximately 860 people, some of whom will
provide direct support to our operations. We will not have any
employees. Please see Employees.
While our relationship with Targa is a significant advantage, it
is also a source of potential conflicts. For example, Targa is
not restricted from competing with us. Targa will retain
substantial midstream assets and may acquire, construct or
dispose of midstream or other assets in the future without any
obligation to offer us the opportunity to purchase or construct
those assets. Please see Conflicts of Interest and
Fiduciary Duties.
Midstream
Sector Overview
General. Natural gas gathering and
processing is a critical part of the natural gas value chain.
Natural gas gathering and processing systems create value by
collecting raw natural gas from the wellhead and separating dry
gas (primarily methane) from NGLs such as ethane, propane,
normal butane, isobutane and natural gasoline. Most natural gas
produced at the wellhead contains NGLs. Natural gas produced in
association with crude oil typically contains higher
concentrations of NGLs than natural gas produced from gas wells.
This rich, unprocessed, natural gas is generally not
acceptable for transportation in the nations interstate
transmission pipeline system or for commercial use. Processing
plants extract the NGLs, leaving residual dry gas that meets
interstate transmission pipeline and commercial quality
specifications. Furthermore, they produce marketable NGLs,
which, on an energy equivalent basis, usually have a greater
economic value as a raw material for petrochemicals and motor
gasolines than as a component of the natural gas stream.
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Gathering. At the initial stages of the
midstream value chain, a network of typically small diameter
pipelines known as gathering systems directly connect to
wellheads in the production area. These gathering systems
transport raw natural gas to a central location for processing
and treating. A large gathering system may involve thousands of
miles of gathering lines connected to thousands of wells.
Gathering systems are often designed to be highly flexible to
allow gathering of natural gas at different pressures, flowing
natural gas to multiple plants and quickly connecting new
producers, and most importantly scalable, to allow for
additional production without significant incremental capital
expenditures.
Compression. Since wells produce at
progressively lower field pressures as they deplete, it becomes
increasingly difficult to deliver the remaining production in
the ground against a higher pressure that exists in the
connecting gathering system. Natural gas compression is a
mechanical process in which a volume of natural gas at a given
pressure is compressed to a desired higher pressure, which
allows the natural gas to flow into a higher pressure system.
Field compression is typically used to allow a gathering system
to operate at a lower pressure or provide sufficient discharge
pressure to deliver natural gas into a higher pressure system.
If field compression is not installed, then the remaining
natural gas in the ground will not be produced because it cannot
overcome the higher gathering system pressure. In contrast, if
field compression is installed, then a well can continue
delivering natural gas that otherwise would not be produced.
Treating and Dehydration. After
gathering, the second process in the midstream value chain is
treating and dehydration. Natural gas contains various
contaminants, such as water vapor, carbon dioxide and hydrogen
sulfide, that can cause significant damage to intrastate and
interstate pipelines and therefore render the gas unacceptable
for transmission on such pipelines. In addition, end-users will
not purchase natural gas with a high level of these
contaminants. To meet downstream pipeline and end-user natural
gas quality standards, the natural gas is dehydrated to remove
the saturated water and is chemically treated to separate the
carbon dioxide and hydrogen sulfide from the gas stream.
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Processing. Once the contaminants are
removed, the next step involves the separation of pipeline
quality residue gas from NGLs, a method known as processing.
Most decontaminated rich natural gas is not suitable for
long-haul pipeline transportation or commercial use and must be
processed to remove the heavier hydrocarbon components. The
removal and separation of hydrocarbons during processing is
possible because of the differences in physical properties
between the components of the raw gas stream. There are four
basic types of natural gas processing methods, including
cryogenic expansion, lean oil absorption, straight refrigeration
and dry bed absorption. Cryogenic expansion represents the
latest generation of processing, incorporating extremely low
temperatures and high pressures to provide the best processing
and most economical extraction.
Natural gas is processed not only to remove NGLs that would
interfere with pipeline transportation or the end use of the
natural gas, but also to separate from the natural gas those
hydrocarbon liquids that could have a higher value as NGLs than
as natural gas. The principal components of residue gas are
methane and ethane but processors typically have the option
either to recover ethane from the residue gas stream for
processing into NGLs or reject ethane and leave it in the
residue gas stream, depending on whether the ethane is more
valuable being processed or left in the natural gas stream. The
residue gas is sold to industrial, commercial and residential
customers and electric utilities. The premium or discount in
value between natural gas and separated NGLs is known as the
frac spread. Because NGLs often serve as substitutes
for products derived from crude oil, NGL prices tend to move in
relation to crude prices.
Natural gas processing occurs under a contractual arrangement
between the producer or owner of the raw natural gas stream and
the processor. There are many forms of processing contracts
which vary in the amount of commodity price risk they carry. The
specific commodity exposure to natural gas or NGL prices is
highly dependent on the types of contracts. Processing contracts
can vary in length from one month to the life of the
field. Three typical processing contract types are
described below:
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Percent-of-Proceeds,
or
Percent-of-Value
or
Percent-of-Liquids. In
a percent-of-proceeds arrangement, the processor remits to the
producers a percentage of the proceeds from the sales of residue
gas and NGL products or a percentage of residue gas and NGL
products at the tailgate. The
percent-of-value
and
percent-of-liquids
are variations on this arrangement. These types of arrangements
expose the processor to some commodity price risk as the
revenues from the contracts are directly correlated with the
price of natural gas and NGLs.
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Keep-Whole. A keep-whole arrangement
allows the processor to keep 100% of the NGLs produced and
requires the return of the processed natural gas, or value of
the gas, to the producer or owner. A wellhead purchase contract
is a variation of this arrangement. Since some of the gas is
used during processing, the processor must compensate the
producer or owner for the gas shrink entailed in processing by
supplying additional gas or by paying an agreed value for the
gas utilized. These arrangements have the highest commodity
price exposure for the processor because the costs are dependent
on the price of natural gas and the revenues are based on the
price of NGLs. As a result, a processor with these types of
contracts benefits when the value of the NGLs is high relative
to the cost of the natural gas and is disadvantaged when the
cost of the natural gas is high relative to the value of the
NGLs.
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Fee-Based. Under a fee-based contract,
the processor receives a fee per gallon of NGLs produced or per
Mcf of natural gas processed. Under this arrangement, a
processor would have no commodity price risk exposure.
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Fractionation. Fractionation is the
separation of the heterogeneous mixture of extracted NGLs into
individual components for end-use sale. Fractionation is
accomplished by controlling the temperature of the stream of
mixed liquids in order to take advantage of the difference in
boiling points of separate products. As the temperature of the
stream is increased, the lightest component boils off the top of
the distillation tower as a gas where it then condenses into a
purity liquid that is routed to storage. The heavier components
98
in the mixture are routed to the next tower where the process is
repeated until all components have been separated. Described
below are the five basic NGL components and their typical uses:
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Ethane. Ethane is used primarily as
feedstock in the production of ethylene, one of the basic
building blocks for a wide range of plastics and other chemical
products.
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Propane. Propane is used as heating
fuel, engine fuel and industrial fuel, for agricultural burning
and drying and as petrochemical feedstock for production of
ethylene and propylene.
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Normal Butane. Normal butane is
principally used for motor gasoline blending and as fuel gas,
either alone or in a mixture with propane, and feedstock for the
manufacture of ethylene and butadiene, a key ingredient of
synthetic rubber. Normal butane is also used to derive isobutane.
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Isobutane. Isobutane is principally
used by refiners to enhance the octane content of motor gasoline
and in the production of MTBE, an additive in cleaner burning
motor gasoline.
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Natural Gasoline. Natural gasoline is
principally used as a motor gasoline blend stock or
petrochemical feedstock.
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A typical barrel of NGLs consists of ethane, propane, normal
butane, isobutane and natural gasoline.
Transportation and Storage. Once the
raw natural gas has been conditioned or processed and the raw
NGL mix fractionated into individual NGL components, the natural
gas and NGL components are stored, transported and marketed to
end-use markets. Both the natural gas industry and the NGL
industry have hundreds of thousands of miles of intrastate and
interstate transmission pipelines in addition to a network of
barges, rails, trucks, terminals and storage to deliver natural
gas and NGLs to market. The bulk of the NGL storage capacity is
located near the refining and petrochemical complexes of the
Texas and Louisiana Gulf Coasts, with a second major
concentration in central Kansas. Each commodity system typically
has storage capacity located both throughout the pipeline
network and at major market centers to help temper seasonal
demand and daily supply-demand shifts.
Natural Gas Demand and
Production. Natural gas is a critical
component of energy consumption in the United States. According
to the Energy Information Administration, or the EIA, total
annual domestic consumption of natural gas is expected to
increase from approximately 22.2 trillion cubic feet, or Tcf, in
2005 to approximately 23.35 Tcf in 2010. The industrial and
electricity generation sectors are the largest users of natural
gas in the United States. During the last three years, these
sectors accounted for approximately 56% of the total natural gas
consumed in the United States. In 2005, natural gas represented
approximately 36% of all end-user commercial and residential
energy requirements. During the last three years, the United
States has on average consumed approximately 22.3 Tcf per year,
with average annual domestic production of approximately 18.5
Tcf during the same period. Driven by growth in natural gas
demand and high natural gas prices, domestic natural gas
production is projected to increase from 18.1 Tcf per year to
20.4 Tcf per year between 2005 and 2015. The graph below
represents projected U.S. natural gas production versus U.S.
natural gas consumption (in Tcf) through the year 2028.
99
Our
System
Gathering
Systems
Our gathering network consists of approximately 3,950 miles
of pipelines that, in aggregate, gather wellhead natural gas
from approximately 2,650 meters for transport to the Chico and
Shackelford natural gas processing facilities. The gathering
network consists of two distinct systems: the Chico Gathering
System which gathers natural gas from Denton, Montague, Wise,
Clay, Jack, Palo Pinto and Parker counties on the eastern part
of the North Texas System; and the Shackelford Gathering System,
which gathers natural gas from Jack, Palo Pinto, Archer, Young,
Stephens, Eastland, Throckmorton, Shackelford and Haskell
counties on the western part of the North Texas System. The two
gathering systems are connected via a high-pressure
32-mile,
10-inch
diameter pipeline, or the Interconnect Pipeline. This
interconnection between the gathering systems allows us to send
natural gas in excess of the Shackelford systems
processing capacity to the Chico plant.
Chico Gathering System. The Chico
Gathering System consists of approximately 1,860 miles of
primarily low pressure gathering pipelines. The natural gas that
is gathered on the Chico Gathering System is either delivered
directly to the Chico plant, where it is compressed for
processing, or is compressed in the field at 13 compressor
stations and then transported via one of several high-pressure
pipelines to the Chico plant. For the year ended
December 31, 2005 and the nine months ended
September 30, 2006, this system gathered approximately
132.8 MMcf/d and 136.0 MMcf/d of natural gas,
respectively. As of June 30, 2006, there were approximately
1,830 active meters, both wellhead and central delivery points,
connected to the Chico Gathering System.
Shackelford Gathering System. The
Shackelford Gathering System consists of approximately
2,090 miles of natural gas gathering pipelines. The western
and southern portions of the Shackelford Gathering System gather
natural gas that is transported on intermediate-pressure
pipelines to the Shackelford plant. The approximately
18 MMcf/d of natural gas gathered from the northern and
eastern portions of the Shackelford Gathering System is
typically transported on the Interconnect Pipeline to the Chico
plant for processing. This natural gas is compressed at 18
compressor stations to achieve sufficient pressure to enter the
high pressure Interconnect Pipeline. For the year ended
December 31, 2005, and the nine months ended
September 30, 2006, this system gathered approximately
29.7 MMcf/d and 32.2 MMcf/d of natural gas,
respectively. As of June, 2006, there were approximately 820
active meters, including both wellhead and central delivery
points, connected to the Shackelford Gathering System.
Processing
Plants
Chico Processing Plant. The Chico
processing plant is located in Wise County, Texas, approximately
45 miles northwest of Fort Worth, Texas. The Chico
processing plant includes a
state-of-the-art
cryogenic processing train with a nameplate capacity of
150 MMcf/d that was installed in 2002 and that has operated
at throughputs of up to 165 MMcf/d. Plant inlet volumes
consist of separate high-pressure (830 psig),
intermediate-pressure (400 psig) and low-pressure (5 psig)
natural gas streams. The intermediate-pressure
100
stream and low pressure stream are compressed to a plant
pressure of 830 psig. The three inlet streams are then
commingled for processing. The commingled stream is treated,
dehydrated and then processed. The Chico plant also includes a
residue recompression turbine waste heat recovery system, which
increases operating efficiency. The Chico plant also includes an
NGL fractionator with the capacity to fractionate up to 11,500
Bbls/d of raw NGL mix. This fractionation capability allows the
Chico facility to deliver raw NGL mix to Mont Belvieu primarily
through Chevrons WTLPG Pipeline or separated NGL products
to local markets via truck.
To increase Chicos processing capacity, we have
refurbished a 40 gallons per minute liquid product treater and
50 MMcf/d of the previously idle 100 MMcf/d Chico
cryogenic processing train. This stage of expansion of the Chico
facility was completed in August 2006. The remaining
50 MMcf/d capacity can be activated quickly and at minimal
cost as needed to meet production increases through installation
of a refrigeration compressor unit that is currently on site.
The expanded Chico plant now has a total effective treating and
processing capacity of 215 MMcf/d, which, with the
additional refrigeration compression, can be further increased
to 265 MMcf/d. Additionally, there could be additional need
for
CO2
treating which would require an additional capital investment of
approximately $2.5 million. We believe that the current
expanded capacity and the additional 50 MMcf/d of available
expansion capacity will be able to accommodate anticipated near-
and intermediate-term throughput growth.
Shackelford Processing Plant. The
Shackelford natural gas processing plant is located in
Shackelford County, Texas near Albany, Texas which is
approximately 120 miles west of Fort Worth, Texas. The
Shackelford plant is a cryogenic plant with a nameplate capacity
of 15 MMcf/d, but effective capacity is limited to
13 MMcf/d due to capacity constraints on the residue gas
pipeline that serves the facility. Plant inlet volumes are
compressed to 720 psig by three inlet compressors before being
dehydrated and processed. The Shackelford facility also includes
two 40,000 and two 12,600 gallon NGL storage tanks, an iron
sponge for hydrogen sulfide removal and inlet scrubbers.
Market
Access
Chico System Market Access. The Chico
processing plants location in northeastern Wise County
provides us and producers with several options for both NGL and
residue gas delivery. The primary outlet for NGLs is
Chevrons WTLPG Pipeline which delivers volumes from the
Chico plant to Mont Belvieu for fractionation. NGL products
produced at the Chico processing facility can be transported via
truck to local or other markets. Currently, approximately
602,300 gallons per day of NGLs are delivered from the Chico
processing facility by pipeline and approximately 118,800
gallons per day of NGL products are delivered from the Chico
processing facility by truck.
Low pressure condensate is composed of heavy hydrocarbons which
condense in the gathering system and are collected in low
pressure separators associated with field compressors and in low
pressure separators upstream of the processing plants. This
product is collected and shipped by trucks from various
locations in the system and sold as condensate at oil related
index prices. High pressure condensate is a mix of intermediate
and heavy hydrocarbons which condense in the high pressure
gathering lines between the compressor stations and the
processing plants. This condensate is collected in high pressure
separators prior to the plant and sold as NGLs via high pressure
trucks which move the product to an injection point on the WTLPG
Pipeline at Bridgeport to be shipped to Mont Belvieu.
Occasionally, this high pressure condensate product is shipped
via truck directly to Mont Belvieu.
Our connections to multiple inter-and intrastate natural gas
pipelines give the Chico plant and its customers the ability to
maximize realized prices by accessing major trading hubs and
end-use markets throughout the Gulf Coast, Midwest and northeast
regions of the United States. Currently, residue gas is shipped
via the:
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Natural Gas Pipeline Company of America which is owned by Kinder
Morgan, Inc. and serves the Midwest, specifically the Chicago
market;
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ET Fuel System which is owned by Energy Transfer Partners, L.P.
and has access to the Waha, Carthage and Katy hubs in Texas;
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Atmos Pipeline Texas (Atmos-Texas) which
is owned by Atmos Energy Corporation and has access to the Waha,
Carthage and Katy hubs in Texas; and
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Enbridge Pipelines (North Texas) L.P. which is owned by Enbridge
Energy Partners, L.P. and has access to several local residue
gas markets.
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Shackelford System Market
Access. Residue natural gas from the
Shackelford processing plant is delivered to the Carthage and
Katy hubs on Atmos-Texas and NGLs from the plant are delivered
to Mont Belvieu on the WTLPG Pipeline. Condensate from the
Shackelford system is handled similarly to the description above
for the Chico System.
Targa Intrastate Pipeline. Targa
Intrastate Pipeline LLC, or Targa Intrastate, our wholly-owned
subsidiary, holds a
41-mile,
6-inch
diameter intrastate pipeline that transports natural gas from
the Shackelford processing plant to an interconnect with
Atmos-Texas and a 1.65 mile,
10-inch
diameter intrastate pipeline that transports natural gas through
part of the Chico system in Denton County, Texas. Targa
Intrastate is regulated by the Railroad Commission of Texas.
Overview
of Fort Worth Basin/Bend Arch
Unless indicated otherwise, the information presented below is
based on information developed by us, either through general
research or our executive management teams experience in
the energy industry.
History. The Fort Worth Basin/Bend
Arch is a mature crude oil and natural gas producing basin
located in north central Texas. Drilling in the Fort Worth
Basin/Bend Arch first began in 1912 with the discovery of crude
oil. The Fort Worth Basin/Bend Arch has recently experienced a
significant increase in drilling activity and is exhibiting
year-over-year
production growth. Information contained in reports we obtained
from W.D. Von Gonten & Company (Von Gonten)
indicates that over its history the basin has produced in
aggregate approximately 2.2 billion Bbls of oil and 11.0
Tcf of natural gas, with natural gas production increasing over
time. These reports also indicate that (i) currently,
natural gas production averages approximately 2.1 Bcf/d in
the basin and (ii) due to the Fort Worth Basin/Bend
Archs maturity and its geologic character, existing
natural gas production, without the benefit of additional
drilling in the basin, is declining at approximately 5% to
10% per year, making the basin a relatively stable,
long-lived source of production volume. This base decline is
more than offset by some of the most active drilling in North
America, both in the Barnett Shale and other Fort Worth
Basin formations. The graph below
102
represents production volumes and drilling rig activity in the
Fort Worth Basin/Bend Arch between January 2002 and June 2006.
Barnett Shale. The most significant
recent development in the Fort Worth Basin/Bend Arch has
been the increase in drilling for and production of natural gas
from the Barnett Shale. Natural gas drilling in the Barnett
Shale began in 1982 with a well drilled by Mitchell Energy and
Development Corporation or Mitchell Energy in the Newark East
Field. Over the next 15 years, very little incremental
activity occurred in the area until Mitchell Energy began to
utilize a new fracture technique in the area in 1997. With the
increase in productivity and reduction in costs associated with
this new technique, drilling activity in the Barnett Shale
increased dramatically over the past several years. Other
advances in drilling and completion techniques also contributed
to the dramatic growth in activity, wells, and production over
the last 5 years. According to Von Gonten, average natural
gas production has increased from approximately 505 MMcf/d
in January 2002 to approximately
1.875 Bcf/d
in June 2006 and the number of wells drilled per year has
increased from 430 wells to 782 wells from 2002 to
2005.
Currently, producers are attempting to delineate extensions of
the productive Barnett Shale, which traditionally has been
defined on the south by the city of Fort Worth, on the
north by a phase change to oil, on the west by the disappearance
of the Viola limestone formation (which provides a bottom
fracturing barrier to seal off water that could be introduced
into the wells) and on the east by a fault in the shale. With
new completion and horizontal drilling techniques, the
requirement to have the Viola limestone to provide a lower
fracturing barrier has been mitigated. Therefore, producers are
beginning to expand Barnett Shale drilling outside of the
traditional core areas both to the north and west into Cooke and
Montague counties and to the south and west into Parker and Palo
Pinto counties. These new drilling locations are closer to our
existing infrastructure, which should provide attractive near-
and intermediate-term growth potential. New completions and
significant leasing, permitting and drilling activity now extend
beyond the conventional wisdom boundaries of the past.
Other Production. The other
Fort Worth Basin formations have also provided large
recoverable reserves and relatively low finding and development
costs. These shallower formations include the Atoka, Bend
Conglomerate, Caddo, Marble Falls and other Pennsylvanian and
upper Mississippian formations, among others and have produced,
according to Von Gonten, an aggregate of 8.7 Tcf of natural gas
and production and averaged approximately
270 MMcf/d
as of June 2006. According to Von Gonten, these other
Fort Worth Basin formations differ geologically from, have
more mature production than, and generally exhibit lower decline
rates than the Barnett Shale.
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Drilling in these formations continues to be strong. According
to Von Gonten, approximately 1,058 wells were drilled in
2005, up from 645 wells drilled in 2002. We continue to be
diversified in our gathering strategy as we secure new well
connections from these formations.
Leasing and Permitting Activity. In
addition to the significant historical drilling activity,
leasing and permitting activity in the Fort Worth
Basin/Bend Arch has continued to increase over the past few
years. The chart below sets forth the historical permitting
activity in the Fort Worth Basin/Bend Arch.
Rig availability in the Fort Worth Basin has been and we
believe will continue to be a limiting factor on the number of
wells drilled in that area.
Leading Producers. According to Von
Gonten, Devon Energy Corporation, or Devon, ConocoPhillips and
Encana Oil & Gas (USA) Inc., or Encana, are the largest
producers in the area with 51%, 8% and 6% of the current
production in the area, respectively. We believe Devon processes
most of its own equity natural gas production and that very
little of this equity production is processed by third-parties.
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ConocoPhillips is our largest customer. The following chart sets
forth the leading producers in our areas of operation.
One of the most significant recent developments in the
Fort Worth Basin/Bend Arch is the focus on new development
by the major and large independent exploration and production
companies. Due to the substantial potential reserves in the
region, we believe the majors are targeting the Fort Worth
Basin/Bend Arch, and the Barnett Shale specifically, as an area
of future production growth in the United States. It is possible
that the financial and technical resources to be dedicated by
the majors to enhance recovery techniques for natural gas in the
region will increase production at a greater rate than is
currently contemplated.
Natural Gas Supply. We believe that
continued drilling activity within the Fort Worth
Basin/Bend Arch will result in future natural gas discoveries,
which will increase our well connection opportunities for this
area. Using historical production reports filed by producers
with the State of Texas and reported by W.D. Von Gonten and
Company, we have determined that the number of wells completed
within the Fort Worth Basin/Bend Arch for the period from
2002 through August 31, 2006 was as follows:
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Year
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Wells Drilled(1)
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2002
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645
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2003
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834
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2004
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1,005
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2005
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1,058
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2006 (through August)
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616
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(1) |
Represents the number of completions during a particular period,
and as for other Fort Worth Basin formations completions,
the wells completed are only those within the area of our
operations.
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We typically do not obtain independent evaluations of reserves
dedicated to our pipeline systems due to the lack of publicly
available producer reserve information. Accordingly, we do not
have reserve estimates of total natural gas supply dedicated to
us or the anticipated life of such producing reserves. However,
we
105
have analyzed natural gas production trends for the Bend Arch
and Fort Worth Basin, using information filed by producers
with the State of Texas. We believe this information provides a
valuable perspective of the number of producing wells and
associated production trends adjacent to our pipelines, as well
as potential drilling activity near our pipelines.
Using the data described above, Von Gonten constructed the
following chart, which illustrates natural gas production trends
from 1990 to 2005 from the wells within the Fort Worth
Basin in the following counties: Archer, Clay, Denton, Eastland,
Erath, Haskell, Hood, Jack, Johnson, Montague, Palo Pinto,
Parker, Shackelford, Somervell, Stephens, Tarrant, Throckmorton,
Wise, and Young. The chart depicts the historical levels of
natural gas production presented as average daily volume in
Bcf/year for
all wells in this area. Each band in the table reflects the
natural gas production resulting from natural gas wells
completed in the reservoir represented by such band. As a
result, each band reflects the reduction over time in natural
gas production due to the natural declines associated with
production of natural gas reserves. Collectively, the bands
represent the aggregate amount of natural gas production for
each year based on the cumulative effect of production from
wells producing from each respective reservoir.
Source: Petroleum Information/Dwight LLC (IHS Inc.)
Note: Chart reflects production reservoirs in the Bend Arch
& Fort Worth Basin
Customers
and Contracts
We gather and process natural gas for approximately
420 customers. During the nine months ended
September 30, 2006, no customer, other than ConocoPhillips
and Encana, which represented 33.5% and 6.7% of our volumes,
respectively, represented more than 3% of our volumes. This
diverse customer base enhances the stability of our volumes
while positioning us to benefit from the continued drilling
expected in the Fort Worth Basin/Bend Arch, regardless of
which producer is driving the activity. Our reputation of
providing reliable, high-quality service should allow our system
to attract a significant portion of the volumes produced by the
new entrants, including the major and large independent
exploration and production companies into the Fort Worth
Basin, in general, and in the Barnett Shale, in particular.
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We have a long-term strategic relationship with ConocoPhillips,
as a result of its recent acquisition of Burlington Resources,
which is the second largest producer in our areas of operation.
Subject to limited exceptions, all of ConocoPhillips
production from leases covering a 30,000 acre area in Wise and
Denton counties has been committed to us for gathering and
processing through a prior agreement with Burlington Resources
entities. ConocoPhillips is under no obligation to deliver
minimum volumes or to continue to develop its leasehold position
under its agreement with us. This commitment extends through
2015, with a ten year renewal, at ConocoPhillips option.
Generally, in the event a lease of the dedicated acreage should
terminate before the expiration of the primary term of the
agreement, then the agreement will be canceled with respect to
that leasehold dedication contemporaneously with such
termination. Pursuant to the agreement, we process natural gas
received under a percent-of-proceeds arrangement and also
receive a volume-based fee for the gathering services we provide.
We currently have approximately 2,650 receipt points receiving
natural gas production from individual wells or groups of wells.
Approximately 69% of these receipt points are located on our
Chico Gathering System and approximately 31% are located on our
Shackelford Gathering System. The natural gas supplied to us is
generally dedicated to us under individually negotiated term
contracts that provide for the commitment by the producer of all
natural gas produced from designated properties. Generally, the
initial term of these purchase agreements is for 3 to
10 years or, in some cases, the life of the lease.
We process natural gas under a combination of
percent-of-proceeds contracts (representing approximately 96% of
our natural gas volumes) and keep-whole contracts (representing
approximately 4% of our natural gas volumes), each of which
exposes us to commodity price risk. In an effort to reduce the
variability of our cash flows, we have hedged the commodity
price associated with approximately 95-65% of our expected
natural gas,
60-50% of
our expected NGL and 95-60% of our expected condensate equity
volumes through 2010.
Much of the natural gas gathered historically in the Fort Worth
Basin was contracted on a keep-whole basis until the
late 1990s. In the late 1990s, gatherers and processors,
including our predecessor, began to shift new contracts and
renegotiate older contracts from keep-whole to
percent-of-proceeds contracts which had relatively less
variability and risk. In addition, the equity gas and NGLs
received as fee for reprocessing under percent-of-proceeds
contracts may be hedged to provide even less price variability.
Due to local producer desires and the competitive situation in
the Fort Worth Basin, fee-based contracts have not generally
been available at attractive rates relative to available
percent-of-proceeds terms. This trend may change in the future
and we will continue to evaluate the market for attractive
fee-based contract arrangements which may further reduce the
variability of our cash flows.
Competition
Our gathering, processing and fractionation system competes with
several systems located in the Fort Worth Basin. Our
competitors include but are not limited to gathering and
processing systems owned by Devon, Enbridge,
J-W Operating,
Davis Gas Processing, Hanlon Gas Processing, and Upham Oil and
Gas. A number of the gathering and processing competitors in the
region are smaller entities with assets serving a particular
field, producer or limited area but lack a basin-wide presence.
As for the larger competitors, Devon and Enbridges
operations are the most extensive and are closest in proximity
to our area of operations, based on publicly available
information. Devons processing capacity is greater than
ours, while Enbridges is approximately the same. Devon
almost exclusively gathers and processes its own production.
Competition within the Fort Worth Basin may increase as new
ventures are formed or as existing competitors expand their
operations. Competitive factors include processing and fuel
efficiencies, operational costs, commercial terms offered to
producers and capital expenditures required for new producer
connections, along with the location and available capacity of
gathering systems and processing plants.
Safety
and Maintenance Regulation
We are subject to regulation by the United States Department of
Transportation, referred to as DOT, under the Accountable
Pipeline and Safety Partnership Act of 1996, referred to as the
Hazardous Liquid
107
Pipeline Safety Act, and comparable state statutes with respect
to design, installation, testing, construction, operation,
replacement and management of pipeline facilities. The Hazardous
Liquid Pipeline Safety Act covers petroleum and petroleum
products and requires any entity that owns or operates pipeline
facilities to comply with such regulations, to permit access to
and copying of records and to file certain reports and provide
information as required by the United States Secretary of
Transportation. These regulations include potential fines and
penalties for violations. We believe that we are in material
compliance with these Hazardous Liquid Pipeline Safety Act
regulations.
We are also subject to the Natural Gas Pipeline Safety Act of
1968, referred to as NGPSA, and the Pipeline Safety Improvement
Act of 2002. The NGPSA regulates safety requirements in the
design, construction, operation and maintenance of gas pipeline
facilities while the Pipeline Safety Improvement Act establishes
mandatory inspections for all United States oil and natural gas
transportation pipelines and some gathering lines in
high-consequence areas within 10 years. The DOT has
developed regulations implementing the Pipeline Safety
Improvement Act that will require pipeline operators to
implement integrity management programs, including more frequent
inspections and other safety protections in areas where the
consequences of potential pipeline accidents pose the greatest
risk to people and their property. We currently estimate we will
incur costs of approximately $1 million between 2006 and
2010 to implement integrity management program testing along
certain segments of our natural gas pipelines. This does not
include the costs, if any, of any repair, remediation,
preventative or mitigating actions that may be determined to be
necessary as a result of the testing program.
States are largely preempted by federal law from regulating
pipeline safety but may assume responsibility for enforcing
federal intrastate pipeline regulations and inspection of
intrastate pipelines. In practice, states vary considerably in
their authority and capacity to address pipeline safety. We do
not anticipate any significant problems in complying with
applicable state laws and regulations. Our natural gas pipelines
have continuous inspection and compliance programs designed to
keep the facilities in compliance with pipeline safety and
pollution control requirements.
In addition, we are subject to a number of federal and state
laws and regulations, including the federal Occupational Safety
and Health Act, referred to as OSHA, and comparable state
statutes, whose purpose is to protect the health and safety of
workers, both generally and within the pipeline industry. In
addition, the OSHA hazard communication standard, the EPA
community
right-to-know
regulations under Title III of the federal Superfund
Amendment and Reauthorization Act and comparable state statutes
require that information be maintained concerning hazardous
materials used or produced in our operations and that this
information be provided to employees, state and local government
authorities and citizens. We and the entities in which we own an
interest are also subject to OSHA Process Safety Management
regulations, which are designed to prevent or minimize the
consequences of catastrophic releases of toxic, reactive,
flammable or explosive chemicals. These regulations apply to any
process which involves a chemical at or above the specified
thresholds or any process which involves flammable liquid or
gas, pressurized tanks, caverns and wells in excess of 10,000
pounds at various locations. Flammable liquids stored in
atmospheric tanks below their normal boiling point without the
benefit of chilling or refrigeration are exempt. We have an
internal program of inspection designed to monitor and enforce
compliance with worker safety requirements. We believe that we
are in material compliance with all applicable laws and
regulations relating to worker health and safety.
Regulation
of Operations
Regulation of pipeline gathering and transportation services,
natural gas sales and transportation of NGLs may affect certain
aspects of our business and the market for our products and
services.
Gathering
Pipeline Regulation
Section 1(b) of the Natural Gas Act exempts natural gas
gathering facilities from the jurisdiction of FERC. We believe
that our natural gas pipelines meet the traditional tests FERC
has used to establish a pipelines status as a gatherer not
subject to FERC jurisdiction. The distinction between
FERC-regulated
108
transmission services and federally unregulated gathering
services, however, is the subject of substantial, on-going
litigation, so the classification and regulation of our
gathering facilities are subject to change based on future
determinations by FERC, the courts or Congress. State regulation
of gathering facilities generally includes various safety,
environmental and, in some circumstances, nondiscriminatory take
requirements, and complaint-based rate regulation. Natural gas
gathering may receive greater regulatory scrutiny at both the
state and federal levels now that FERC has taken a more
light-handed approach to regulation of the gathering activities
of interstate pipeline transmission companies and a number of
such companies have transferred gathering facilities to
unregulated affiliates.
The TRRC has adopted regulations that generally allow natural
gas producers and shippers to file complaints with the TRRC in
an effort to resolve grievances relating to pipeline access and
rate discrimination. Our natural gas gathering operations could
be adversely affected in the future should they become subject
to the application of state or federal regulation of rates and
services. Our gathering operations also may be or become subject
to safety and operational regulations relating to the design,
installation, testing, construction, operation, replacement and
management of gathering facilities. Additional rules and
legislation pertaining to these matters are considered and
adopted from time to time. We cannot predict what effect, if
any, such changes might have on our operations, but the industry
could be required to incur additional capital expenditures and
increased costs depending on future legislative and regulatory
changes.
Our gathering and purchasing operations are subject to ratable
take and common purchaser statutes in Texas. The Texas ratable
take statutes generally require gatherers to take, without undue
discrimination, natural gas production that may be tendered to
the gatherer for handling. Similarly, Texas common purchaser
statutes generally require gatherers to purchase without undue
discrimination as to source of supply or producer. These
statutes are designed to prohibit discrimination in favor of one
producer over another producer or one source of supply over
another source of supply. These statutes have the effect of
restricting our right as an owner of gathering facilities to
decide with whom we contract to purchase or gather natural gas.
Texas has adopted a complaint-based regulation of natural gas
gathering activities, which allows natural gas producers and
shippers to file complaints with state regulators in an effort
to resolve grievances relating to natural gas gathering access
and rate discrimination. We cannot predict whether such a
complaint will be filed against us in the future.
On October 30, 2006, the Texas Natural Gas Pipeline
Competition Study Advisory Committee submitted a Natural Gas
Pipeline Competition Study (Study) to the Governor
of Texas and the Texas Legislature. The Study recommends, among
other things, that the Legislature give the TRRC the ability to
use either a cost-of-service method or a market-based method for
setting rates for natural gas gathering
and/or
transmission in formal rate proceedings. The Study also
recommends that the Legislature give the TRRC specific authority
to enforce its statutory duty to prevent discrimination in
natural gas gathering and transportation, to enforce the
requirement that parties participate in an informal complaint
process, and to punish purchasers, transporters, and gatherers
for retaliating against shippers and sellers. We have no way of
knowing what portions of the Study, if any, will be adopted by
the Legislature and implemented by the TRRC. We cannot predict
what effect, if any, the proposed changes, if implemented, might
have on our operations.
Intrastate
Pipeline Regulation
Our subsidiary, Targa Intrastate Pipeline Company LLC, or Targa
Intrastate, owns and operates a
41-mile,
6-inch
diameter intrastate pipeline that transports natural gas from
our Shackelford processing plant to an interconnect with
Atmos Texas. Targa Intrastate also owns a
1.65 mile,
10-inch
diameter intrastate pipeline that transports natural gas from a
third party gathering system into the Chico system in Denton
County, Texas. Targa Intrastate is subject to rate regulation
under the Texas Utilities Code, as implemented by the TRRC, and
has a tariff on file with the TRRC. Generally, the TRRC is
vested with authority to ensure that rates, operations and
services of gas utilities, including intrastate pipelines, are
just and reasonable, and not discriminatory. The rates we charge
for intrastate transportation services are deemed just and
reasonable under Texas law, unless challenged in a complaint. We
cannot predict whether
109
such a complaint will be filed against us or whether the TRRC
will change its regulation of these rates. Failure to comply
with the Texas Utilities Code can result in the imposition of
administrative, civil and criminal remedies.
Sales
of Natural Gas and NGLs
The price at which we buy and sell natural gas currently is not
subject to federal regulation and, for the most part, is not
subject to state regulation. The price at which we sell NGLs is
not subject to federal or state regulation. Our sales of natural
gas and NGLs are affected by the availability, terms and cost of
pipeline transportation. As noted above, the price and terms of
access to pipeline transportation can be subject to extensive
federal and state regulation. The FERC is continually proposing
and implementing new rules and regulations affecting those
segments of the natural gas industry, most notably interstate
natural gas transmission companies that remain subject to the
FERCs jurisdiction. Any such initiatives also could affect
the intrastate transportation of natural gas under certain
circumstances. The stated purpose of many of FERCs
regulatory changes is to promote competition among the various
sectors of the natural gas industry, and these initiatives
generally reflect more light-handed regulation. We cannot
predict the ultimate impact of FERC regulatory changes to our
natural gas marketing operations, including impacts related to
the availability and reliability of transportation service on
interstate pipelines. We do not believe that we will be affected
by any such FERC action materially differently than other
natural gas marketers with whom we compete.
Environmental
Matters
General
Our operation of pipelines, plants and other facilities for
gathering, treating, transporting or processing natural gas,
NGLs and other products is subject to stringent and complex
federal, state and local laws and regulations governing the
discharge of materials into the environment or otherwise
relating to the protection of the environment.
As an owner or operator of these facilities, we must comply with
these laws and regulations at the federal, state and local
levels. These laws and regulations can restrict or impact our
business activities in many ways, such as:
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requiring the installation of pollution control equipment or
otherwise restricting the way we can handle or dispose of our
wastes;
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limiting or prohibiting construction activities in sensitive
areas such as wetlands, coastal regions or areas inhabited by
endangered species;
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requiring remedial action to mitigate pollution conditions
caused by our operations or attributable to former
operations; and
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enjoining the operations of facilities deemed in non-compliance
with permits issued pursuant to such environmental laws and
regulations.
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Failure to comply with these laws and regulations may trigger a
variety of administrative, civil and criminal enforcement
measures, including the assessment of monetary penalties, the
imposition of remedial requirements and the issuance of orders
enjoining future operations or imposing additional compliance
requirements on such operations. Certain environmental statutes
impose strict joint and several liability for costs required to
clean up and restore sites where hazardous substances have been
disposed or otherwise released. Moreover, it is not uncommon for
neighboring landowners and other third parties to file claims
for personal injury and property damage allegedly caused by the
release of hazardous substances, hydrocarbons or other waste
products into the environment.
The trend in environmental regulation is to place more
restrictions and limitations on activities that may affect the
environment, and thus there can be no assurance as to the amount
or timing of future expenditures for environmental compliance or
remediation, and actual future expenditures may be different
110
from the amounts we currently anticipate. We try to anticipate
future regulatory requirements that might be imposed and plan
accordingly to remain in compliance with changing environmental
laws and regulations and to minimize the costs of such
compliance. We also actively participate in industry groups that
help formulate recommendations for addressing existing or future
regulations.
We do not believe that compliance with federal, state or local
environmental laws and regulations will have a material adverse
effect on our business, financial position or results of
operations. In addition, we believe that the various
environmental activities in which we are presently engaged are
not expected to materially interrupt or diminish our operational
ability to gather, compress, treat, process and fractionate
natural gas. We cannot assure you, however, that future events,
such as changes in existing laws, the promulgation of new laws,
or the development or discovery of new facts or conditions will
cause us to incur significant costs. Below is a discussion of
the material environmental laws and regulations that relate to
our business. We believe that we are in substantial compliance
with all of these environmental laws and regulations.
We or the entities in which we own an interest inspect the
pipelines regularly using equipment rented from third-party
suppliers. Third parties also assist us in interpreting the
results of the inspections.
Air
Emissions
Our operations are subject to the federal Clean Air Act and
comparable state laws and regulations. These laws and
regulations regulate emissions of air pollutants from various
industrial sources, including our processing plants and
compressor stations, and also impose various monitoring and
reporting requirements. Such laws and regulations may require
that we obtain pre-approval for the construction or modification
of certain projects or facilities expected to produce or
significantly increase air emissions, obtain and strictly comply
with air permits containing various emissions and operational
limitations, and utilize specific emission control technologies
to limit emissions. Our failure to comply with these
requirements could subject us to monetary penalties,
injunctions, conditions or restrictions on operations, and
potentially criminal enforcement actions. We believe that we are
in substantial compliance with these requirements. We may be
required to incur certain capital expenditures in the future for
air pollution control equipment in connection with obtaining and
maintaining operating permits and approvals for air emissions.
We believe, however, that our operations will not be materially
adversely affected by such requirements, and the requirements
are not expected to be any more burdensome to us than to any
other similarly situated companies.
In February 2005, the Kyoto Protocol to the United Nations
Framework Convention on Climate Change entered into force.
Pursuant to the Protocol, adopting countries are required to
implement national programs to reduce emissions of certain
gases, generally referred to as greenhouse gases, which are
suspected of contributing to global warming. The Bush
administration has indicated it will not support ratification of
the Protocol, and Congress has not actively considered recent
proposed legislation directed at reducing greenhouse gas
emissions. However, there has been support in various regions of
the United States for legislation that requires reductions in
greenhouse gas emissions, and some states, although not those in
which we currently operate, have already adopted regulatory
initiatives or legislation to reduce emissions of greenhouse
gases. For example, California recently adopted the
California Global Warming Solutions Act of 2006,
which requires the California Air Resources Board to achieve a
25% reduction in emissions of greenhouse gases from sources in
California by 2020. The oil and natural gas exploration and
production industry is a direct source of certain greenhouse gas
emissions, namely carbon dioxide and methane, and future
restrictions on such emissions would likely adversely impact our
future operations, results of operations and financial
condition. Currently, our operations are not adversely impacted
by existing state and local climate change initiatives and, at
this time, it is not possible to accurately estimate how
potential future laws or regulations addressing greenhouse gas
emissions would impact our business.
111
Hazardous
Substances and Waste
Our operations are subject to environmental laws and regulations
relating to the management and release of hazardous substances
or solid and hazardous wastes (including petroleum
hydrocarbons). These laws generally regulate the generation,
storage, treatment, transportation and disposal of solid and
hazardous waste, and may impose strict, joint and several
liability for the investigation and remediation of areas, at a
facility where hazardous substances may have been released or
disposed. For instance, the Comprehensive Environmental
Response, Compensation, and Liability Act, referred to as CERCLA
or the Superfund law, and comparable state laws impose
liability, without regard to fault or the legality of the
original conduct, on certain classes of persons that contributed
to the release of a hazardous substance into the
environment. These persons include current and prior owners or
operators of the site where the release occurred and companies
that disposed or arranged for the disposal of the hazardous
substances found at the site. Under CERCLA, these persons may be
subject to joint and several strict liability for the costs of
cleaning up the hazardous substances that have been released
into the environment, for damages to natural resources and for
the costs of certain health studies. CERCLA also authorizes the
EPA and, in some instances, third parties to act in response to
threats to the public health or the environment and to seek to
recover from the responsible classes of persons the costs they
incur. It is not uncommon for neighboring landowners and other
third parties to file claims for personal injury and property
damage allegedly caused by hazardous substances or other
pollutants released into the environment. Despite the
petroleum exclusion of CERCLA Section 101(14)
that currently encompasses natural gas, we may nonetheless
handle hazardous substances within the meaning of
CERCLA, or similar state statutes, in the course of our ordinary
operations and, as a result, may be jointly and severally liable
under CERCLA for all or part of the costs required to clean up
sites at which these hazardous substances have been released
into the environment.
We also generate solid wastes, including hazardous wastes, that
are subject to the requirements of the Resource Conservation and
Recovery Act, referred to as RCRA, and comparable state
statutes. While RCRA regulates both solid and hazardous wastes,
it imposes strict requirements on the generation, storage,
treatment, transportation and disposal of hazardous wastes.
Certain petroleum production wastes are excluded from
RCRAs hazardous waste regulations. However, it is possible
that these wastes, which could include wastes currently
generated during our operations, will in the future be
designated as hazardous wastes and therefore be
subject to more rigorous and costly disposal requirements. Any
such changes in the laws and regulations could have a material
adverse effect on our maintenance capital expenditures and
operating expenses.
We currently own or lease, and our predecessor has in the past
owned or leased, properties where hydrocarbons are being or have
been handled for many years. Although we have utilized operating
and disposal practices that were standard in the industry at the
time, hydrocarbons or other wastes may have been disposed of or
released on or under the properties owned or leased by us or on
or under the other locations where these hydrocarbons and wastes
have been taken for treatment or disposal. In addition, certain
of these properties have been operated by third parties whose
treatment and disposal or release of hydrocarbons or other
wastes was not under our control. These properties and wastes
disposed thereon may be subject to CERCLA, RCRA and analogous
state laws. Under these laws, we could be required to remove or
remediate previously disposed wastes (including wastes disposed
of or released by prior owners or operators), to clean up
contaminated property (including contaminated groundwater) or to
perform remedial operations to prevent future contamination. We
are not currently aware of any facts, events or conditions
relating to such requirements that could materially impact our
operations or financial condition.
Water
The Federal Water Pollution Control Act of 1972, also referred
to as the Clean Water Act, or CWA, and analogous state laws
impose restrictions and strict controls regarding the discharge
of pollutants into navigable waters. Pursuant to the CWA and
analogous state laws, permits must be obtained to discharge
pollutants into state and federal waters. The CWA can impose
substantial civil and criminal penalties for non-compliance.
State laws for the control of water pollution may also provide
varying civil and criminal penalties and liabilities. In
addition, some states maintain groundwater protection programs
that require
112
permits for discharges or operations that may impact groundwater
conditions. The EPA has promulgated regulations that require us
to have permits in order to discharge certain storm water
run-off. The EPA has entered into agreements with certain states
in which we operate whereby the permits are issued and
administered by the respective states. These permits may require
us to monitor and sample the storm water run-off. We believe
that compliance with existing permits and compliance with
foreseeable new permit requirements will not have a material
adverse effect on our financial condition or results of
operations.
Title to
Properties and
Rights-of-Way
Our real property falls into two categories: (1) parcels
that we own in fee and (2) parcels in which our interest
derives from leases, easements,
rights-of-way,
permits or licenses from landowners or governmental authorities
permitting the use of such land for our operations. Portions of
the land on which our plants and other major facilities are
located are owned by us in fee title, and we believe that we
have satisfactory title to these lands. The remainder of the
land on which our plant sites and major facilities are located
are held by us pursuant to ground leases between us, as lessee,
and the fee owner of the lands, as lessors. We, or our
predecessors, have leased these lands for many years without any
material challenge known to us relating to the title to the land
upon which the assets are located, and we believe that we have
satisfactory leasehold estates to such lands. Other than a
dispute with respect to the validity of a lease for a compressor
station site, we have no knowledge of any challenge to the
underlying fee title of any material lease, easement,
right-of-way,
permit or license held by us or to our title to any material
lease, easement,
right-of-way,
permit or lease, and we believe that we have satisfactory title
to all of our material leases, easements,
rights-of-way,
permits and licenses.
Some of the leases, easements,
rights-of-way,
permits and licenses to be transferred to us require the consent
of the grantor of such rights, which in certain instances is a
governmental entity. Our general partner expects to obtain,
prior to the closing of this offering, sufficient third-party
consents, permits and authorizations for the transfer of the
assets necessary to enable us to operate our business in all
material respects as described in this prospectus. With respect
to any material consents, permits or authorizations that have
not been obtained prior to closing of this offering, the closing
of this offering will not occur unless reasonable basis exist
that permit our general partner to conclude that such consents,
permits or authorizations will be obtained within a reasonable
period following the closing, or the failure to obtain such
consents, permits or authorizations will have no material
adverse effect on the operation of our business.
Targa initially may continue to hold record title to portions of
certain assets until we make the appropriate filings in the
jurisdictions in which such assets are located and obtain any
consents and approvals that are not obtained prior to transfer.
Such consents and approvals would include those required by
federal and state agencies or political subdivisions. In some
cases, Targa may, where required consents or approvals have not
been obtained, temporarily hold record title to property as
nominee for our benefit and in other cases may, on the basis of
expense and difficulty associated with the conveyance of title,
cause its affiliates to retain title, as nominee for our
benefit, until a future date. We anticipate that there will be
no material change in the tax treatment of our common units
resulting from the holding by Targa of title to any part of such
assets subject to future conveyance or as our nominee.
Employees
To carry out its operations, Targa employs approximately 860
people, some of whom provide direct support for our operations.
None of these employees are covered by collective bargaining
agreements. Targa considers its employee relations to be good.
Legal
Proceedings
We are not a party to any legal proceeding other than legal
proceedings arising in the ordinary course of our business. We
are a party to various administrative and regulatory proceedings
that have arisen in the ordinary course of our business. Please
see Regulation of Operations
Intrastate Natural Gas Pipeline Regulation and
Environmental Matters.
113
MANAGEMENT
Management
of Targa Resources Partners LP
Targa Resources GP LLC, our general partner, will manage our
operations and activities. Our general partner is not elected by
our unitholders and will not be subject to re-election on a
regular basis in the future. Unitholders will not be entitled to
elect the directors of our general partner or directly or
indirectly participate in our management or operation. Our
general partner owes a fiduciary duty to our unitholders, but
our partnership agreement contains various provisions modifying
and restricting the fiduciary duty. Our general partner will be
liable, as general partner, for all of our debts (to the extent
not paid from our assets), except for indebtedness or other
obligations that are made expressly nonrecourse to it. Our
general partner therefore may cause us to incur indebtedness or
other obligations that are nonrecourse to it.
The directors of our general partner will oversee our
operations. Upon the closing of this offering, our general
partner expects to have five directors. Targa will elect all
members to the board of directors of our general partner which
will have three directors that are independent as defined under
the independence standards established by The NASDAQ Global
Market. 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.
In addition, our general partner 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 Securities Exchange Act of 1934, as amended.
Messrs. Evans, Pearl and Sullivan will serve as the initial
members of the audit committee. The audit committee will assist
the board in its oversight of the integrity of our financial
statements and our compliance with legal and regulatory
requirements and partnership 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.
Compensation decisions, including oversight of the long-term
incentive plan described below, will be made by the board of
directors of our general partner. While the board may establish
a compensation committee in the future, it has no current plans
to do so.
Three independent members of the board of directors of our
general partner will serve on a conflicts committee to review
specific matters that the board believes may involve conflicts
of interest. Messrs. Evans, Pearl and Sullivan 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, and must meet the independence and experience
standards established by The NASDAQ Global Market and the
Securities Exchange Act of 1934, as amended, to serve on an
audit committee of a board of directors, and certain other
requirements. Any matters approved by the conflicts committee in
good faith 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.
All of our executive management personnel are employees of Targa
and will devote their time as needed to conduct our business and
affairs. These officers of Targa Resources GP LLC will manage
the
day-to-day
affairs of our business. We will also utilize a significant
number of employees of Targa to operate our business and provide
us with general and administrative services. We will reimburse
Targa for allocated expenses of operational personnel who
perform services for our benefit, allocated general and
administrative expenses and certain direct expenses. Please see
Reimbursement of Expenses of Our General
Partner.
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Directors
and Executive Officers
The following table shows information regarding the current
directors and executive officers of Targa Resources GP LLC.
Directors are elected for one-year terms.
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Name
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Age(1)
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Position with Targa Resources GP LLC
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Rene R. Joyce
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58
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Chief Executive Officer and
Director
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Joe Bob Perkins
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46
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President
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James W. Whalen
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64
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President Finance and
Administration and Director Nominee
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Roy E. Johnson
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62
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Executive Vice President
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Michael A. Heim
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58
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Executive Vice President and Chief
Operating Officer
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Jeffrey J. McParland
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52
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Executive Vice President, Chief
Financial Officer, Treasurer and Director
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Paul W. Chung
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46
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Executive Vice President, General
Counsel and Secretary
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Peter R. Kagan
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38
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Director Nominee
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Chansoo Joung
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46
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Director Nominee
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Robert B. Evans
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58
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Director Nominee
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Barry R. Pearl
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57
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Director Nominee
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William D. Sullivan
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49
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Director Nominee
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(1) |
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As of November 1, 2006. |
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.
Rene R. Joyce has served as a director and Chief
Executive Officer of our general partner since October 2006 and
of Targa since its formation in February 2004 and was a
consultant for the Targa predecessor company during 2003.
Mr. Joyce has also served as a member of Targas board
of directors since February 2004. He is also a member of the
supervisory directors of Core Laboratories N.V. Mr. Joyce
served as a consultant in the energy industry from 2000 through
2003 providing advice to various energy companies and investors
regarding their operations, acquisitions and dispositions.
Mr. Joyce served as President of onshore pipeline
operations of Coral Energy, LLC, a subsidiary of Shell Oil
Company, or Shell, from 1998 through 1999, and President of
energy services of Coral Energy Holding, L.P., or Coral, a
subsidiary of Shell which was the gas and power marketing joint
venture between Shell and Tejas Gas Corporation, or Tejas,
during 1999. Mr. Joyce served as President of various
operating subsidiaries of Tejas, a natural gas pipeline company,
from 1990 until 1998 when Tejas was acquired by Shell.
Joe Bob Perkins has served as President of our general
partner since October 2006 and of Targa since February 2004 and
was a consultant for the Targa predecessor company during 2003.
Mr. Perkins also served as a consultant in the energy
industry from 2002 through 2003 and was an active partner in RTM
Media (an outdoor advertising firm) during such time period.
Mr. Perkins served as President and Chief Operating
Officer, for the Wholesale Businesses, Wholesale Group, and
Power Generation Group of Reliant Resources, Inc. and its
parent/predecessor companies, from 1998 to 2002, and Vice
President, Corporate Planning and Development, Houston
Industries from 1996 to 1998. He served as Vice President,
Business Development, of Coral from 1995 to 1996 and as
Director, Business Development, of Tejas from 1994 to 1995.
Prior to 1994, Mr. Perkins held various positions with the
consulting firm of McKinsey & Company and with an
exploration and production company.
James W. Whalen will serve as a director of our general
partner upon the closing of this offering and has served as
President-Finance and Administration of our general partner
since October 2006 and of Targa since January 2006 and as a
director of Targa since May 2004. Since November 2005
Mr. Whalen has served as President Finance and
Administration for various Targa subsidiaries. Between October
2002 and October 2005, Mr. Whalen served as the Senior Vice
President and Chief Financial Officer of Parker Drilling
Company. Between January 2002 and October 2002, he was the Chief
Financial Officer of
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Diversified Diagnostic Products, Inc. He served as Chief
Commercial Officer of Coral from February 1998 through January
2000. Previously, he served as Chief Financial Officer for Tejas
from 1992 to 1998. Mr. Whalen is also a director of
Equitable Resources, Inc.
Roy E. Johnson has served as Executive Vice President of
our general partner since October 2006 and of Targa since April
2004 and was a consultant for the Targa predecessor company
during 2003. Mr. Johnson also served as a consultant in the
energy industry from 2000 through 2003 providing advice to
various energy companies and investors regarding their
operations, acquisitions and dispositions. He served as Vice
President, Business Development and President of the
International Group, of Tejas from 1995 to 2000. In these
positions, he was responsible for acquisitions, pipeline
expansion and development projects in North and South America.
Mr. Johnson served as President of Louisiana Resources
Company, a company engaged in intrastate natural gas
transmission, from 1992 to 1995. Prior to 1992, Mr. Johnson
held various positions with a number of different companies in
the upstream and downstream energy industry.
Michael A. Heim has served as Executive Vice President
and Chief Operating Officer of our general partner since October
2006 and of Targa since April 2004 and was a consultant for the
Targa predecessor company during 2003. Mr. Heim also served
as a consultant in the energy industry from 2001 through 2003
providing advice to various energy companies and investors
regarding their operations, acquisitions and dispositions.
Mr. Heim served as Chief Operating Officer and Executive
Vice President of Coastal Field Services, a subsidiary of The
Coastal Corp., or Coastal, a diversified energy company, from
1997 to 2001 and President of Coastal States Gas Transmission
Company from 1997 to 2001. In these positions, he was
responsible for Coastals midstream gathering, processing,
and marketing businesses. Prior to 1997, he served as an officer
of several other Coastal exploration and production, marketing,
and midstream subsidiaries.
Jeffrey J. McParland has served as a director and
Executive Vice President, Chief Financial Officer and Treasurer
of our general partner since October 2006 and of Targa since
April 2004 and was a consultant for the Targa predecessor
company during 2003. Mr. McParland served as Secretary of
Targa since February 2004 until May 2004, at which time he was
elected as Assistant Secretary. Mr. McParland served as
Senior Vice President, Finance, Dynegy Inc., a company engaged
in power generation, the midstream natural gas business and
energy marketing, from 2000 to 2002. In this position, he was
responsible for corporate finance and treasury operations
activities. He served as Senior Vice President, Chief Financial
Officer and Treasurer of PG&E Gas Transmission, a midstream
natural gas and regulated natural gas pipeline company, from
1999 to 2000. Prior to 1999, he worked in various engineering
and finance positions with companies in the power generation and
engineering and construction industries.
Paul W. Chung has served as Executive Vice President,
General Counsel and Secretary of our general partner since
October 2006 and of Targa since May 2004. Mr. Chung served
as Executive Vice President and General Counsel of Coral from
1999 to April 2004; Shell Trading North America Company, a
subsidiary of Shell, from 2001 to April 2004; and Coral Energy,
LLC from 1999 to 2001. In these positions, he was responsible
for all legal and regulatory affairs. He served as Vice
President and Assistant General Counsel of Tejas from 1996 to
1999. Prior to 1996, Mr. Chung held a number of legal
positions with different companies, including the law firm of
Vinson & Elkins L.L.P.
Peter R. Kagan will serve as a director of our general
partner upon the closing of this offering and has served as a
director of Targa since February 2004. Mr. Kagan is a
Managing Director of Warburg Pincus LLC, where he has been
employed since 1997, and became a partner of Warburg
Pincus & Co. in 2002. He is also a director of Antero
Resources Corporation, Broad Oak Energy, Inc., Fairfield Energy
Limited, MEG Energy Corp. and Universal Space Network, Inc.
Chansoo Joung will serve as a director of our general
partner upon the closing of the offering and has served as a
Director of Targa since December 31, 2005. Mr. Joung
is a Member and Managing Director of Warburg Pincus LLC, where
he has been employed since 2005, and became a partner of Warburg
Pincus & Co. in 2005. Prior to joining Warburg Pincus,
Mr. Joung was head of the Americas Natural Resources Group
in the investment banking division of Goldman Sachs. He joined
Goldman Sachs in 1987 and served in the Corporate Finance and
Mergers and Acquisitions departments and also founded and led
the
116
European Energy Group. He is a director of Broad Oak Energy and
Floridian Natural Gas Storage Company.
Robert B. Evans will serve as a director of our general
partner upon the closing of the offering. Mr. Evans was the
President and Chief Executive Officer of Duke Energy Americas, a
business unit of Duke Energy Corp., from January 2004 to March
2006, after which he retired. Mr. Evans served as the
transition executive for Energy Services, a business unit of
Duke Energy, during 2003. Mr. Evans also served as
President of Duke Energy Gas Transmission beginning in 1998 and
was named President and Chief Executive Officer in 2002. Prior
to his employment at Duke Energy, Mr. Evans served as Vice
President of marketing and regulatory affairs for Texas Eastern
Transmission and Algonquin Gas Transmission from 1996 to 1998.
Barry R. Pearl will serve as a director of our general
partner upon the closing of the offering. Mr. Pearl is a
director of Seaspan Corporation and Kayne Anderson Energy
Development Company. Mr. Pearl retired in 2005 as the
President and Chief Executive Officer of TEPPCO Partners, L.P.,
one of the largest publicly traded pipeline limited partnerships
in the United States. Mr. Pearl joined TEPPCO in 2001 as
President and Chief Operating Officer and was promoted to his
most recent position in 2002. Prior to joining TEPPCO, he served
as Vice President of finance and Chief Financial Officer of
Maverick Tube Corporation. Before joining Maverick,
Mr. Pearl was Vice President of operations, senior Vice
President of business development and planning, and senior vice
president and Chief Financial Officer of Santa Fe Pacific
Pipeline Partners, L.P. from 1984 to 1998.
William D. Sullivan will serve as a director of our
general partner upon the closing of the offering.
Mr. Sullivan served as President and Chief Executive
Officer of Leor Energy LP from June 15, 2005 to
August 5, 2005. Between 1981 and August 2003,
Mr. Sullivan was employed in various capacities by Anadarko
Petroleum Corporation, including serving as Executive Vice
President, Exploration and Production between August 2001 and
August 2003. Since Mr. Sullivans departure from
Anadarko Petroleum Corporation in August 2003, he has served on
various private energy company boards. Mr. Sullivan is a
director of St. Mary Land & Exploration Company and
Legacy Reserves GP, LLC.
Reimbursement
of Expenses of our General Partner
Our general partner will not receive any management fee or other
compensation for its management of our partnership under the
omnibus agreement with Targa or otherwise. Under the terms of
the omnibus agreement, we will reimburse Targa up to
$5 million annually for the provision of various general
and administrative services for our benefit, subject to
increases in the Consumer Price Index or as a result of an
expansion of our operations. This limit on the amount of
reimbursement will expire in 2010. Our obligation to reimburse
Targa for operational expenses and certain direct expenses,
including insurance coverage expense, is not subject to this
cap. The partnership agreement provides that our general partner
will determine the expenses that are allocable to us. Please see
Certain Relationships and Related Party
Transactions Omnibus Agreement.
Executive
Compensation
Targa Resources GP LLC was formed on October 23, 2006.
Accordingly, our general partner has not accrued any obligations
with respect to management incentive or retirement benefits for
its directors and officers for the 2004 or 2005 fiscal years.
The compensation of the executive officers of Targa Resources GP
LLC will be set by Targa. The officers of our general partner
and employees of Targa providing services to us are
participating in employee benefit plans and arrangements
sponsored by Targa. Targa Resources GP LLC has not entered into
any employment agreements with any of its officers. We expect
that the Compensation Committee of Targa Resources Investments
Inc., or Targa Investments, will grant awards to Targas
key employees and the board of directors of our general partner
will grant awards to our outside directors pursuant to the
long-term incentive plans described below prior to the closing
of this offering.
117
Director
Compensation
The independent and non-management members of the board of
directors of Targa Resources GP LLC will receive an annual cash
retainer of $34,000, an additional $1,500 for each board meeting
attended and an additional $1,500 for each committee meeting
attended ($750 if not at a regularly scheduled committee meeting
held by teleconference). The chairman of Targa Resources GP
LLCs audit committee will receive an additional cash
retainer of $20,000. Payment of director fees will generally be
made twice annually, at the second regularly scheduled meeting
of the Board and the final meeting of the Board. Each member of
the Board will be reimbursed by us for
out-of-pocket
expenses in connection with attending meetings of the board or
committees thereof.
Compensation
Discussion and Analysis
We do not directly employ any of the persons responsible for
managing our business and we do not have a compensation
committee. Any compensation decisions that are required to be
made by our general partner, Targa Resources GP LLC, will be
made by its board of directors. All of our executive officers
are employees of Targa Resources LLC, a wholly-owned subsidiary
of Targa Resources, Inc., or Targa. All of the outstanding
equity of Targa is held indirectly by Targa Investments. Our
reimbursement for the compensation of executive officers will be
based on Targas methodology used for allocating general
and administration expenses during a period pursuant to the
terms of, and subject to the limitations contained in, the
omnibus agreement.
During 2006, our executive officers were not specifically
compensated for time expended with respect to our business or
assets. Accordingly, we are not presenting any compensation for
historical periods. Following the consummation of this offering,
we currently expect our Chief Executive Officer (our principal
executive officer), our Chief Financial Officer (our principal
financial officer) and three other persons
(Messrs. Perkins, Whalen and Heim) constitute our most
highly compensated executive officers for 2007 (collectively,
the named executive officers) will have
substantially less than a majority of their compensation
allocated to us. Compensation paid or awarded by us in 2007 with
respect to our named executive officers will reflect only the
portion of compensation paid by Targa Resources LLC that is
allocated to us pursuant to Targas allocation methodology
and subject to the terms of the omnibus agreement. Targa
Investments indirectly owns all of the outstanding equity of
Targa and has ultimate decision making authority with respect to
the compensation of our named executive officers. Under the
terms of Targa Investments stockholders agreement,
compensatory arrangements with our named executive officers are
required to be submitted to a vote of Targa Investments
stockholders unless such arrangements have been approved by the
Compensation Committee of Targa Investments. The elements of
compensation discussed below, and Targa Investments
decisions with respect to determinations on payments, will not
be subject to approvals by the board of directors of our general
partner. Awards under our long term incentive plan will be made
by the board of directors of our general partner with respect to
grants to our independent and non-management directors and
Targas independent directors. Awards of cash-settled
performance units to our executive officers will be made by the
Compensation Committee of Targa Investments pursuant to a
separate plan adopted by Targa Investments, as described below.
With respect to compensation objectives and decisions regarding
our named executive officers for 2007, the Compensation
Committee of Targa Investments has approved the compensation of
our named executive officers based on Targa Investments
business priorities, which have been used to develop performance
based criteria for both discretionary cash awards and long-term
incentive compensation. Targa Investments senior
management typically consults with compensation consultants and
reviews market data for determining relevant compensation levels
and compensation program elements through the review of and, in
certain cases, participation in, various relevant compensation
surveys. Senior management then submits a proposal to Peter F.
Kagan, a director and chairman of the Compensation Committee of
Targa Investments, for the compensation to be paid or awarded to
executives and employees. Mr. Kagan considers
managements proposal (which he may request management to
modify) and the resulting recommendation is then submitted to
the Compensation Committee of Targa Investments for
consideration. Targa Investments has consulted with compensation
consultants with respect to determining 2007 compensation for
the named
118
executive officers and has established compensation criteria
for the named executive officers as discussed above. All
compensation determinations are discretionary and, as noted
above, subject to Targa Investments decision-making
authority.
The elements of Targa Investments compensation program
discussed below are intended to provide a total incentive
package designed to drive performance and reward contributions
in support of the business strategies of Targa and its
affiliates at the corporate, partnership and individual levels.
The primary elements of Targa Investments compensation
program are a combination of annual cash and long-term
equity-based compensation. For 2007, elements of compensation
for our named executive officers are expected to be the
following:
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discretionary annual cash awards;
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performance awards under Targas long-term incentive plan;
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Targas contributions under its 401(k) and profit sharing
plan; and
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Targas other benefit plans on the same basis as all other
Targa employees.
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As discussed above, the portion of 2007 base salaries paid by
Targa Resources LLC allocable to us and reported as compensation
to our named executive officers by us after the consummation of
this offering will be based on Targas methodology used for
allocating general and administration expenses, subject to the
limitations in the omnibus agreement. Targa Investments has
established these salaries based on historical salaries paid to
our named executive officers for services rendered to Targa, the
extent of their equity ownership in Targa, market data and
responsibilities of our named executive officers that may or may
not be related to our business.
The discretionary cash awards for each of our named executive
officers to be paid in 2007 for services to Targa and its
affiliates during 2006, has also been determined by Targa
Investments. The cash awards, in combination with base salaries
and long-term incentive awards, are intended to yield
competitive total cash compensation levels for the executive
officers and drive performance in support of Targas
business strategies as well as our own. The portion of any
discretionary cash awards paid by Targa Resources LLC allocable
to us will be based on Targas methodology used for
allocating general and administrative expenses, subject to the
limitations in the omnibus agreement. It is Targa
Investments general policy to pay these awards during the
first quarter.
In connection with our initial public offering, Targa
Investments will issue to our executive officers cash-settled
performance unit awards linked to the performance of our common
units that will vest in August of 2010, with the amounts vesting
under such awards dependent on our performance compared to a
peer-group consisting of us and 12 other publicly traded
partnerships. These performance unit awards will be made
pursuant to a plan adopted by Targa Investments and administered
by Targa Resources LLC. The cost of such awards will be
allocated to us pursuant to Targas allocation methodology
and subject to the terms of the omnibus agreement. Targa
Investments Compensation Committee will have the ability
to modify the peer-group in the event a peer company is no
longer determined to be one of our peers. The cash settlement
value of each performance unit award will be the value of an
equivalent common unit at the time of vesting plus associated
distributions over the vesting period, which may be higher or
lower than our common unit price at the time of our initial
public offering. If our performance equals or exceeds the
performance for the median of the group, 100% of the award will
vest. If we rank tenth in the group, 50% of the award will vest,
between tenth and seventh, 50% to 100% will vest, and for a
performance ranking lower than tenth, no amounts will vest. Our
named executive officers will receive an initial award of
performance units equal to approximately 70% to 100% of their
base salary divided by the initial public offering price in this
offering, or approximately 15,000 performance units to
Mr. Joyce, 10,800 performance units to Mr. Perkins,
10,800 performance units to Mr. Whalen, 10,000 performance
units to Mr. Heim and 8,200 performance units to
Mr. McParland.
119
The equity-based awards we will make in connection with our
initial public offering to each of our non-management and
independent directors under our long-term incentive plan has
been determined by Targa Investments and are expected to be
ratified by the board of directors of our general partner. Each
of these directors will receive an initial award of 2,000
restricted units. The awards to our independent and
non-management directors will consist of restricted units and
will settle with the delivery of common units. We will make
similar grants under our long-term incentive plan to the
independent directors of Targa Resources, Inc. All of these
awards will be subject to three year vesting, without a
performance condition, and will vest ratably on each anniversary
of the grant.
The equity-based awards to both our named executive officers and
the directors of our general partner are intended to align their
long-term interests with those of our unitholders. As discussed
above, a portion of the equity-based awards to be granted to our
named executive officers will be allocated to us upon completion
of this offering, and a portion of any future awards under the
Targa plan will be allocable to us in accordance with the
allocation of general and administrative expenses pursuant to
the omnibus agreement. Initially, officers and employees of
Targa will participate in the Targa plan and the independent and
non-management directors of our general partner and the
independent directors of Targa Investments will participate in
our plan. Over time, employees of Targa may begin to participate
in our plan.
Our named executive officers are also owners of 12.9% of
the fully diluted equity of Targa Investments. This equity was
received through a combination of investment and equity grants.
Targa Resources LLC generally does not pay for perquisites for
any of our named executive officers, other than parking
subsidies, and expects this policy to continue. Targa Resources
LLC also makes contributions under its 401(k) plan for the
benefit of our named executive officers in the same manner as
for other Targa Resources LLC employees. It makes the following
contributions to its plan for the benefit of employees:
(i) 3% of the employees annual pay, (ii) an
amount equal to the employees contributions to the plan up
to 5% of the employees annual pay and (iii) a
discretionary amount depending on Targas performance
(2.25% of the employees pay for 2007).
Compensation Mix. We believe that each
of the base salary, cash awards, and equity awards fit the
overall compensation objectives of us and of Targa, as stated
above, i.e., to provide competitive compensation opportunities
to align and drive employee performance in support of
Targas business strategies as well as our own and to
attract, motivate and retain high quality talent with the skills
and competencies required by Targa and us.
Long-Term
Incentive Plan
General. Targa Resources GP LLC intends
to adopt a long-term incentive plan, or the Plan, for employees,
consultants and directors of Targa Resources GP LLC and its
affiliates who perform services for us, including officers,
directors and employees of Targa. The summary of the Plan
contained herein does not purport to be complete and is
qualified in its entirety by reference to the Plan. The Plan
provides for the grant of restricted units, phantom units, unit
options and substitute awards and, with respect to unit options
and phantom units, the grant of distribution equivalent rights,
or DERs. Subject to adjustment for certain events, an aggregate
of 1,680,000 common units may be delivered pursuant to awards
under the Plan. However, units that are cancelled, forfeited or
are withheld to satisfy Targa Resources GP LLCs tax
withholding obligations or payment of an awards exercise
price are available for delivery pursuant to other awards. The
Plan will be administered by the board of director of Targa
Resources GP LLC. Administration of the Plan may be delegated to
the compensation committee of the board of directors if one is
established.
Restricted Units and Performance
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
performance unit is a notional unit that entitles the grantee to
receive upon the vesting of the performance unit cash equal to
the fair market value of a common unit or, in the discretion of
the board of directors, a common unit. The board of directors
may make grants of restricted units and performance units under
the Plan to eligible individuals containing such terms,
consistent with the Plan, as the board of directors may
determine,
120
including the period over which restricted units and
performance units granted will vest. The board of directors 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 performance units will vest automatically upon a
change of control (as defined in the Plan) of us or our general
partner, subject to any contrary provisions in the award
agreement.
If a grantees employment, consulting or board membership
terminates for any reason, the grantees restricted units
and performance units will be automatically forfeited unless,
and to the extent, the award agreement or the board of directors
provides otherwise. Common units to be delivered with respect to
these awards may be common units acquired by Targa Resources GP
LLC in the open market, common units already owned by Targa
Resources GP LLC, common units acquired by Targa Resources GP
LLC directly from us or any other person, or any combination of
the foregoing. Targa Resources 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 board of directorss discretion, be
subject to the same vesting requirements as the restricted
units. The board of directors, in its discretion, may also grant
tandem DERs with respect to performance units on such terms as
it deems appropriate. DERs are rights that entitle the grantee
to receive, with respect to a performance unit, cash equal to
the cash distributions made by us on a common unit. However,
DERs may be credited and paid in such other manner, including
units, as the board of directors may provide.
We intend for the restricted units and performance units granted
under the Plan to serve as a means of incentive compensation for
performance and not primarily as an opportunity to participate
in the equity appreciation of the common units. Therefore,
participants will not pay any consideration for the common units
they receive with respect to these types of awards, and neither
we nor our general partner will receive remuneration for the
units delivered with respect to these awards.
Unit Options. The Plan also permits the
grant of options covering common units. Unit options may be
granted to such eligible individuals and with such terms as the
board of directors 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, Targa Resources 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. Targa
Resources GP LLC will be entitled to reimbursement by us for the
difference between the cost incurred by Targa Resources GP LLC
in acquiring the common units and the proceeds received by Targa
Resources 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 Targa Resources
GP LLC will remit the proceeds it received from the optionee
upon exercise of the unit option to us.
Replacement Awards. The board of
directors, in its discretion, may grant replacement awards to
eligible individuals who, in connection with an acquisition made
by us, Targa Resources GP LLC or an affiliate, have forfeited an
equity-based award in their former employer. A replacement 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. Targa Resources 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. Targa Resources 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 board of directors may amend any award;
provided, however, that no change in any outstanding award may
be made that would materially impair the rights of the
participant without the consent of the affected participant.
Subject to unitholder
121
approval, if required by the rules of the principal national
securities exchange upon which the common units are traded, the
board of directors of Targa Resources GP LLC may increase the
number of common units that may be delivered with respect to
awards under the Plan.
Targa
Long-Term Incentive Plan
As discussed above, Targa Investments has adopted a long term
incentive plan for employees, consultants and directors of Targa
Investments and its affiliates. The Targa plan provides for the
grant of phantom units which are cash-settled performance unit
awards linked to the performance of our common units.
122
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 of Targa Resources GP LLC;
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each named executive officer of Targa Resources GP LLC; and
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all directors and officers of Targa Resources GP LLC as a group.
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Percentage of
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Total Common
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Percentage of
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Percentage of
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and
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Common Units
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Common Units
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Subordinated
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Subordinated
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Subordinated
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to be
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to be
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Units to be
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Units to be
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Units to be
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Beneficially
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Beneficially
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Beneficially
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Beneficially
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Beneficially
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Name of Beneficial Owner(1)
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Owned(5)
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Owned
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Owned(6)
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Owned
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Owned
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Targa Resources Investments
Inc.(2)
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11,528,231
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100
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%
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40.70
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%
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Rene R. Joyce
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199,438
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1.73
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%
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*
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Joe Bob Perkins
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183,299
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1.59
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%
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*
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Michael A. Heim
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157,937
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1.37
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%
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*
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Jeffrey J. McParland
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141,797
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1.23
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%
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*
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Roy E. Johnson
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146,409
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1.27
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%
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*
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James W. Whalen
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138,339
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1.20
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%
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*
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Paul W. Chung
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138,339
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1.20
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%
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*
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Peter R. Kagan(3)
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*
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*
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Chansoo Joung(4)
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*
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*
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Robert B. Evans
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*
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*
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Barry R. Pearl
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*
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*
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William D. Sullivan
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*
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*
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All directors and executive
officers as a group (12 persons)
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1,105,558
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9.59
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%
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3.90
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%
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(1) |
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Unless otherwise indicated, the address for all beneficial
owners in this table is 1000 Louisiana, Suite 4300,
Houston, Texas 77002. The nature of the beneficial ownership for
all the shares is sole voting and investment power. |
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(2) |
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The units attributed to Targa Resources Investments Inc. are
held by two indirect wholly-owned subsidiaries, Targa
GP Inc. and Targa LP Inc. |
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(3) |
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Warburg Pincus Private Equity VIII, L.P.
(WP VIII) and Warburg Pincus Private
Equity IX, L.P. (WP IX) in the aggregate
beneficially own 73.6% of Targa Resources Investments Inc. The
general partner of WP VIII is Warburg Pincus Partners, LLC
(WP Partners LLC) and the general partner of
WP IX is Warburg Pincus IX, LLC, of which
WP Partners LLC is sole member. Warburg Pincus &
Co. (WP) is the managing member of WP Partners
LLC. WP VIII and WP IX are managed by Warburg Pincus
LLC (WP LLC). The address of the Warburg Pincus
entities is 466 Lexington Avenue, New York, New York 10017.
Peter R. Kagan, one of our directors, is a general partner
of WP and a Managing Director and member of WP LLC.
Charles R. Kaye and Joseph P. Landy are Managing
General Partners of WP and Managing Members of WP LLC and
may be deemed to control the Warburg Pincus entities.
Messrs. Kagan, Kaye and Landy disclaim beneficial ownership
of all shares held by the Warburg Pincus entities. |
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(4) |
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Warburg Pincus Private Equity VIII, L.P. (WP VIII)
and Warburg Pincus Private Equity IX, L.P. (WP IX)
in the aggregate beneficially own 73.6% of Targa Resources
Investments Inc. The general partner of WP VIII is Warburg
Pincus Partners, LLC (WP Partners LLC) and the
general partner of WP IX is Warburg Pincus IX, LLC, of which WP
Partners LLC is sole member. Warburg Pincus & Co.
(WP) is the managing member of WP Partners LLC. WP
VIII and WP IX are managed by Warburg Pincus LLC (WP
LLC). The address of the Warburg Pincus entities is 466
Lexington Avenue, New York, New York 10017. Chansoo Joung, one
of our directors, is a general partner of WP. Mr. Juong
disclaims beneficial ownership of all shares held by the Warburg
Pincus entities. Charles R. Kaye and Joseph P. Landy
are Managing General Partners of WP and Managing Members of
WP LLC and may be deemed to control the Warburg Pincus
entities. Messrs. Kagan, Kaye and Landy disclaim beneficial
ownership of all shares held by the Warburg Pincus entities. |
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Does not include common units that may be purchased in the
directed unit program. |
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The subordinated units presented as being beneficially owned by
the directors and executive officers of Targa Resources GP LLC
represent the number of units held indirectly by Targa Resources
Investments Inc. that are attributable to such directors and
officers based on their ownership of equity interests in Targa
Resources Investments Inc. |
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CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
After this offering, our general partner and its affiliates will
own 11,528,231 subordinated units representing an aggregate
39.9% 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 Targa Resources Partners LP. These distributions
and payments were determined by and among affiliated entities
and, consequently, are not the result of arms-length
negotiations.
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Formation Stage |
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The consideration received by Targa and its subsidiaries for the
contribution of the assets and liabilities to us |
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11,528,231 subordinated units;
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578,127 general partner units (629,555 general
partner units if the underwriters exercise their option to
purchase additional common units in full); |
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the incentive distribution rights; |
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approximately $307.1 million payment from the
proceeds of this offering to retire a portion of our affiliate
indebtedness; and |
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approximately $342.5 million payment from the
proceeds of borrowings under our new credit facility to retire
an additional portion of our affiliate indebtedness. |
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In connection with the DMS Acquisition on October 31, 2005,
Targa allocated approximately $1.1 billion to the North
Texas System. |
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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 limited
partner unitholders pro rata, including our general partner and
its affiliates, as the holders of 11,528,231 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
$0.8 million on their general partner units and
$15.6 million on their subordinated units. |
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Payments to our general partner and its affiliates |
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We will reimburse Targa for the payment of certain operating
expenses and for the provision of various general and
administrative services for our benefit. Please see
Omnibus |
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Agreement Reimbursement of Operating and
General and Administrative Expense. |
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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
market value of those interests. Please see 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. |
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 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 Targa, our general partner and others that will
address the reimbursement of our general partner for costs
incurred on our behalf, competition and indemnification matters.
Any or all of the provisions of the omnibus agreement, other
than the indemnification provisions described below, will be
terminable by Targa at its option if our general partner is
removed without cause and units held by our general partner and
its affiliates are not voted in favor of that removal. The
omnibus agreement will also terminate in the event of a change
of control of us or our general partner.
Reimbursement
of Operating and General and Administrative
Expense
Under the omnibus agreement, we will reimburse Targa for the
payment of certain operating expenses, including compensation
and benefits of operating personnel, and for the provision of
various general and administrative services for our benefit with
respect to the assets contributed to us at the closing of this
offering. Specifically, we will reimburse Targa for the
following expenses:
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general and administrative expenses, which are capped at
$5 million annually for three years, subject to increases
based on increases in the Consumer Price Index and subject to
further increases in connection with expansions of our
operations through the acquisition or construction of new assets
or businesses with the concurrence of our conflicts committee;
thereafter, our general partner will determine the general and
administrative expenses to be allocated to us in accordance with
our partnership agreement; and
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operations and certain direct expenses, which are not subject to
the $5 million cap for general and administrative expenses.
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Pursuant to these arrangements, Targa will perform centralized
corporate functions for us, such as legal, accounting, treasury,
insurance, risk management, health, safety and environmental,
information
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technology, human resources, credit, payroll, internal audit,
taxes, engineering and marketing. We will reimburse Targa for
the direct expenses to provide these services as well as other
direct expenses it incurs on our behalf, such as compensation of
operational personnel performing services for our benefit and
the cost of their employee benefits, including 401(k), pension
and health insurance benefits.
Competition
Targa will not be restricted, under either our partnership
agreement or the omnibus agreement, from competing with us.
Targa may acquire, construct or dispose of additional midstream
energy or other assets in the future without any obligation to
offer us the opportunity to purchase or construct those assets.
Indemnification
Under the omnibus agreement, Targa 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 the North Texas System and occurring
before the closing date of this offering that are not reserved
on the books of the Predecessor Business as of the closing date
of this offering. Targas maximum liability for this
indemnification obligation will not exceed $10.0 million
and Targa will not have any obligation under this
indemnification until our aggregate losses exceed $250,000. We
have agreed to indemnify Targa against environmental liabilities
related to the North Texas System arising or occurring after the
closing date of this offering.
Additionally, Targa will indemnify us for losses attributable to
rights-of-way,
certain consents or governmental permits, preclosing litigation
relating to the North Texas System and income taxes attributable
to pre-closing operations that are not reserved on the books of
the Predecessor Business as of the closing date of this
offering. Targa will not have any obligation under these
indemnifications until our aggregate losses exceed $250,000. We
will indemnify Targa for all losses attributable to the
postclosing operations of the North Texas System. Targas
obligations under this additional indemnification will survive
for three years after the closing of this offering, except that
the indemnification for income tax liabilities will terminate
upon the expiration of the applicable statute of limitations.
Contracts
with Affiliates
NGL and Condensate Purchase
Agreement. At or prior to the closing of this
offering, we will enter into an NGL and high pressure condensate
purchase agreement pursuant to which (i) we will be
obligated to sell all volumes of NGLs (other than high-pressure
condensate) that we own or control to Targa Liquids Marketing
and Trade and (ii) we will have the right to sell to Targa
Liquids Marketing and Trade or third parties the volumes of
high-pressure condensate that we own or control, in each case at
a price based on the prevailing market price less
transportation, fractionation and certain other fees. This
agreement will have an initial term of 15 years and will
automatically extend for a term of five years, unless the
agreement is otherwise terminated by either party. Furthermore,
either party may elect to terminate the agreement if either
party ceases to be an affiliate of Targa.
Natural Gas Purchase Agreement. At or
prior to the closing of this offering, we will enter into a
natural gas purchase agreement at a price based on TGMs
sale price for such natural gas, less TGMs costs and
expenses associated therewith. This agreement will have an
initial term of 15 years and will automatically extend for
a term of five years, unless the agreement is otherwise
terminated by either party. Furthermore, either party may elect
to terminate the agreement if either party ceases to be an
affiliate of Targa.
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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 Targa) on the one hand, and our
partnership and our limited partners, on the other hand. The
directors and officers of Targa Resources GP LLC have fiduciary
duties to manage Targa and our general partner in a manner
beneficial to its owners. At the same time, our general partner
has a fiduciary duty to manage our partnership in a manner
beneficial to us and our unitholders.
Whenever a conflict arises between our general partner or its
affiliates, on the one hand, and us or any other partner, on the
other hand, our general partner will resolve that conflict. Our
partnership agreement contains provisions that modify and limit
our general partners fiduciary duties to our unitholders.
Our partnership agreement also restricts the remedies available
to unitholders for actions taken that, without those
limitations, might constitute breaches of fiduciary duty.
Our general partner will not be in breach of its obligations
under the partnership agreement or its duties to us or our
unitholders if the resolution of the conflict is:
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approved by the conflicts committee, although our general
partner is not obligated to seek such approval;
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approved by the vote of a majority of the outstanding common
units, excluding any common units owned by our general partner
or any of its affiliates;
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on terms no less favorable to us than those generally being
provided to or available from unrelated third parties; or
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fair and reasonable to us, taking into account the totality of
the relationships among the parties involved, including other
transactions that may be particularly favorable or advantageous
to us.
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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 or 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 believe he is acting in the best interests of the partnership.
Conflicts of interest could arise in the situations described
below, among others.
Targa
is not limited in its ability to compete with us, which could
cause conflicts of interest and limit our ability to acquire
additional assets or businesses which in turn could adversely
affect our results of operations and cash available for
distribution to our unitholders.
Neither our partnership agreement nor the omnibus agreement
between us and Targa will prohibit Targa from owning assets or
engaging in businesses that compete directly or indirectly with
us. In addition, Targa may acquire, construct or dispose of
additional midstream or other assets in the future, without any
obligation to offer us the opportunity to purchase or construct
any of those assets. Targa is a large, established participant
in the midstream energy business, and has significantly greater
resources and experience than we have, which factors may make it
more difficult for us to compete with these entities with
respect to commercial activities as well as for acquisitions
candidates. As a result, competition from these entities could
adversely impact our results of operations and cash available
for distribution.
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Neither
our partnership agreement nor any other agreement requires Targa
to pursue a business strategy that favors us or utilizes our
assets or dictates what markets to pursue or grow. Targas
directors have a fiduciary duty to make these decisions in the
best interests of the owners of Targa, which may be contrary to
our interests.
Because certain of the directors of our general partner are also
directors
and/or
officers of Targa, such directors have fiduciary duties to Targa
that may cause them to pursue business strategies that
disproportionately benefit Targa 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 Targa, 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.
We
will have no employees and will rely on the employees of Targa
and its affiliates.
All of our executive management personnel will be employees of
Targa and will devote a portion of their time to our business
and affairs. We will also utilize a significant number of
employees of Targa to operate our business and provide us with
general and administrative services for which we will reimburse
Targa for allocated expenses of operational personnel who
perform services for our benefit and we will reimburse Targa for
allocated general and administrative expenses. Affiliates of our
general partner and Targa will also conduct businesses and
activities of their own in which we will have no economic
interest. If these separate activities are significantly greater
than our activities, there could be material competition for the
time and effort of the officers and employees who provide
services to Targa.
Our
partnership agreement limits our general partners
fiduciary duties to holders of our units and restricts the
remedies available to unitholders for actions taken by our
general partner that might otherwise constitute breaches of
fiduciary duty.
Although our general partner has a fiduciary duty to manage us
in a manner beneficial to us and our unitholders, the directors
and officers of our general partner have a fiduciary duty to
manage our general partner in a manner beneficial to its owner,
Targa. Our partnership agreement contains provisions that reduce
the 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 partner.
Examples include:
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the exercise of its right to reset the target distribution
levels of its incentive distribution rights at higher levels and
receive, in connection with this reset, a number of Class B
units that are convertible at any time following the first
anniversary of the issuance of these Class B units into
common units;
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its limited call right;
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its rights to vote and transfer the units it owns;
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its registration rights; and
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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 or the
conflicts committee 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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If you purchase any common units, you will agree to become bound
by the provisions in the partnership agreement, including the
provisions discussed above.
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 see 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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amount and timing of asset purchases and sales;
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cash expenditures;
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borrowings;
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the issuance of additional units; and
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the creation, reduction or increase of reserves in any quarter.
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In addition, our general partner may use an amount equal to four
times the amount needed to pay the minimum quarterly
distribution on our units, 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 see Provisions of Our Partnership
Agreement Relating to Cash Distributions.
In addition, borrowings by us and our affiliates do not
constitute a breach of any duty owed 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 permits us to borrow funds, which would enable us to
make this distribution on all outstanding units. Please see
Provisions of Our Partnership Agreement Related to Cash
Distributions Subordination Period.
Our partnership agreement provides that we and our subsidiaries
may borrow funds from our general partner and its affiliates.
Our general partner and its affiliates may not borrow funds from
us, our operating partnership, or its operating subsidiaries.
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Our
general partner determines which costs incurred by Targa are
reimbursable by us.
We will reimburse our general partner and its affiliates for
costs incurred in managing and operating us, including costs
incurred in rendering corporate staff and support services to
us. The partnership agreement provides that our general partner
will determine the expenses that are allocable to us in good
faith.
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.
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 see 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.
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Our
general partner decides whether to retain separate counsel,
accountants or others to perform services for us.
The attorneys, independent accountants and others who have
performed services for us regarding this offering have been
retained by our general partner. Attorneys, independent
accountants and others who perform services for us are selected
by our general partner or the conflicts committee and may
perform services for our general partner and its affiliates. We
may retain separate counsel for ourselves or the holders of
common units in the event of a conflict of interest between our
general partner and its affiliates, on the one hand, and us or
the holders of common units, on the other, depending on the
nature of the conflict. We do not intend to do so in most cases.
Our
general partner may elect to cause us to issue Class B
units to it in connection with a resetting of the target
distribution levels related to our general partners
incentive distribution rights without the approval of the
conflicts committee of our general partner or our unitholders.
This ability may result in lower distributions to our common
unitholders in certain situations.
Our general partner has the right, at a time when there are no
subordinated units outstanding and it has received incentive
distributions at the highest level to which it is entitled (48%)
for each of the prior four consecutive fiscal quarters, to reset
the initial cash target distribution levels at higher levels
based on the distribution at the time of the exercise of the
reset election. Following a reset election by our general
partner, the minimum quarterly distribution amount will be reset
to an amount equal to the average cash distribution amount per
common unit for the two fiscal quarters immediately preceding
the reset election (such amount is referred to as the
reset minimum quarterly distribution) and the target
distribution levels will be reset to correspondingly higher
levels based on percentage increases above the reset minimum
quarterly distribution amount. We anticipate that our general
partner would exercise this reset right in order to facilitate
acquisitions or internal growth projects that would not be
sufficiently accretive to cash distributions per common unit
without such conversion; however, it is possible that our
general partner could exercise this reset election at a time
when we are experiencing declines in our aggregate cash
distributions or at a time when our general partner expects that
we will experience declines in our aggregate cash distributions
in the foreseeable future. In such situations, our general
partner may be experiencing, or may be expected to experience,
declines in the cash distributions it receives related to its
incentive distribution rights and may therefore desire to be
issued our Class B units, which are entitled to specified
priorities with respect to our distributions and which therefore
may be more advantageous for the general partner to own in lieu
of the right to receive incentive distribution payments based on
target distribution levels that are less certain to be achieved
in the then current business environment. As a result, a reset
election may cause our common unitholders to experience dilution
in the amount of cash distributions that they would have
otherwise received had we not issued new Class B units to
our general partner in connection with resetting the target
distribution levels related to our general partners
incentive distribution rights. Please see Provisions of
Our Partnership Agreement Related to Cash
Distributions General Partner Interest and Incentive
Distribution Rights.
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
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beneficial to its owners, as well as to you. Without these
modifications, the general partners ability to make
decisions involving conflicts of interest would be restricted.
The modifications to the fiduciary standards enable the general
partner to take into consideration all parties involved in the
proposed action, so long as the resolution is fair and
reasonable to us. These modifications also enable our general
partner to attract and retain experienced and capable directors.
These modifications are detrimental to our common unitholders
because they restrict the remedies available to unitholders for
actions that, without those limitations, might constitute
breaches of fiduciary duty, as described below, and permit our
general partner to take into account the interests of third
parties in addition to our interests when resolving conflicts of
interest. The following is a summary of the material
restrictions of the fiduciary duties owed by our general partner
to the limited partners:
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State-law fiduciary duty standards |
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Fiduciary duties are generally considered to include an
obligation to act in good faith and with due care and loyalty.
The duty of care, in the absence of a provision in a partnership
agreement providing otherwise, would generally require a general
partner to act for the partnership in the same manner as a
prudent person would act on his own behalf. The duty of loyalty,
in the absence of a provision in a partnership agreement
providing otherwise, would generally prohibit a general partner
of a Delaware limited partnership from taking any action or
engaging in any transaction where a conflict of interest is
present. |
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The Delaware Act generally provides that a limited partner may
institute legal action on behalf of the partnership to recover
damages from a third party where a general partner has refused
to institute the action or where an effort to cause a general
partner to do so is not likely to succeed. In addition, the
statutory or case law of some jurisdictions may permit a limited
partner to institute legal action on behalf of himself and all
other similarly situated limited partners to recover damages
from a general partner for violations of its fiduciary duties to
the limited partners. |
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Partnership agreement modified standards |
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Our partnership agreement contains provisions that waive or
consent to conduct by our general partner and its affiliates
that might otherwise raise issues about compliance with
fiduciary duties or applicable law. For example, our partnership
agreement provides that when our general partner is acting in
its capacity as our general partner, as opposed to in its
individual capacity, it must act in good faith and
will not be subject to any other standard under applicable law.
In addition, when our general partner is acting in its
individual capacity, as opposed to in its capacity as our
general partner, it may act without any fiduciary obligation to
us or the unitholders whatsoever. These standards reduce the
obligations to which our general partner would otherwise be held. |
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In addition to the other more specific provisions limiting the
obligations of our general partner, our partnership agreement
further provides that our general partner and the officers and
directors of our general partner 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 the
officers and directors of our general partner acted in bad faith
or engaged in fraud or willful |
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misconduct or, in the case of a criminal matter, acted with
knowledge that the indemnitees conduct was unlawful. |
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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
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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 the board of directors of our general partner
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
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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 the officers,
directors, managers of our general partner 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 see 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
see 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 see 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.
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.
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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.
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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 see
Provisions of Our Partnership Agreement Relating to Cash
Distributions;
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with regard to the fiduciary duties of our general partner,
please see Conflicts of Interest and Fiduciary
Duties;
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with regard to the transfer of common units, please see
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 see Material Tax Consequences.
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Organization
and Duration
Our partnership was organized on October 23, 2006 and will
have a perpetual existence unless terminated pursuant to the
terms of our partnership agreement.
Purpose
Our purpose under the partnership agreement is limited to any
business activity that is approved by our general partner and
that lawfully may be conducted by a limited partnership
organized under Delaware law; provided, that our general partner
shall not cause us to engage, directly or indirectly, in any
business activity that the general partner determines would
cause us to be treated as an association taxable as a
corporation or otherwise taxable as an entity for federal income
tax purposes.
Although our general partner has the ability to cause us and our
subsidiaries to engage in activities other than the business of
gathering, compressing, treating, processing, transporting and
selling natural gas and the business of transporting and selling
NGLs, our general partner has no current plans to do so and may
decline to do so free of any fiduciary duty or obligation
whatsoever to us or the limited partners, including any duty to
act in good faith or in the best interests of us or the limited
partners. Our general partner is authorized in general to
perform all acts it determines to be necessary or appropriate to
carry out our purposes and to conduct our business.
Power of
Attorney
Each limited partner, and each person who acquires a unit from a
unitholder, by accepting the common unit, automatically grants
to our general partner and, if appointed, a liquidator, a power
of attorney to, among other things, execute and file documents
required for our qualification, continuance or dissolution. The
power of attorney also grants our general partner the authority
to amend, and to make consents and waivers under, our
partnership agreement.
Cash
Distributions
Our partnership agreement specifies the manner in which we will
make cash distributions to holders of our common units and other
partnership securities as well as to our general partner in
respect of its general partner interest and its incentive
distribution rights. For a description of these cash
distribution provisions, please see Provisions of Our
Partnership Agreement Relating to Cash Distributions.
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Capital
Contributions
Unitholders are not obligated to make additional capital
contributions, except as described below under
Limited Liability.
Our general partner has the right, but not the obligation, to
contribute a proportionate amount of capital to us to maintain
its 2% general partner interest if we issue additional units.
Our general partners 2% interest, and the percentage of
our cash distributions to which it is entitled, will be
proportionately reduced if we issue additional units in the
future and our general partner does not contribute a
proportionate amount of capital to us to maintain its 2% general
partner interest. Our general partner will be entitled to make a
capital contribution in order to maintain its 2% general partner
interest in the form of the contribution to us of common units
based on the current market value of the contributed common
units.
Voting
Rights
The following is a summary of the unitholder vote required for
the matters specified below. Matters requiring the approval of a
unit majority require:
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during the subordination period, the approval of a majority of
the common units, excluding those common units held by our
general partner and its affiliates, and a majority of the
subordinated units, voting as separate classes; and
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after the subordination period, the approval of a majority of
the common units and Class B units, if any, voting as a
class.
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In voting their common, Class B and subordinated units, our
general partner and its affiliates will have no fiduciary duty
or obligation whatsoever to us or the limited partners,
including any duty to act in good faith or in the best interests
of us or the limited partners.
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Issuance of additional units |
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No approval right. |
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Amendment of the partnership agreement |
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Certain amendments may be made by the general partner without
the approval of the unitholders. Other amendments generally
require the approval of a unit majority. Please see
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 see
Merger, Consolidation, Conversion, Sale or
Other Disposition of Assets. |
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Dissolution of our partnership |
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Unit majority. Please see Termination and
Dissolution. |
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Continuation of our business upon dissolution |
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Unit majority. Please see 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 December 31, 2016 in a manner that
would cause a dissolution of our partnership. Please see
Withdrawal or Removal of the General
Partner. |
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Removal of the general partner |
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Not less than
662/3%
of the outstanding units, voting as a single class, including
units held by our general partner and its affiliates. Please see
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 |
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an affiliate or another person in connection with its merger or
consolidation with or into, or sale of all or substantially all
of its assets, to such person. The approval of a majority of the
common units, excluding common units held by the general partner
and its affiliates, is required in other circumstances for a
transfer of the general partner interest to a third party prior
to December 31, 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 December 31, 2016. Please see
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 see
Transfer of Ownership Interests in the General
Partner. |
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
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the partnership, except that such person is not obligated for
liabilities unknown to him at the time he became a limited
partner and that could not be ascertained from the partnership
agreement.
Our subsidiaries conduct business in Texas, although 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 the 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 (other than the issuance of
common units upon exercise by the underwriters of the option to
purchase additional common units, the issuance of units issued
in connection with a reset of the incentive distribution target
levels relating to our general partners incentive
distribution rights or the issuance of units upon conversion of
outstanding partnership securities) 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.
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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 partners. In order to
adopt a proposed amendment, other than the amendments discussed
below, our general partner is required to seek written approval
of the holders of the number of units required to approve the
amendment or call a meeting of the limited partners to consider
and vote upon the proposed amendment. Except as described below,
an amendment must be approved by a unit majority.
Prohibited Amendments. No amendment may
be made that would:
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enlarge the obligations of any limited partner without its
consent, unless approved by at least a majority of the type or
class of limited partner interests so affected; or
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enlarge the obligations of, restrict in any way any action by or
rights of, or reduce in any way the amounts distributable,
reimbursable or otherwise payable by us to our general partner
or any of its affiliates without the consent of our general
partner, which consent may be given or withheld at its option.
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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 40.7% 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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a change in our fiscal year and related changes;
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an amendment that is necessary, in the opinion of our counsel,
to prevent us or our general partner or the directors, officers,
agents or trustees of our general partner from in any manner
being subjected to the provisions of the Investment Company Act
of 1940, the Investment Advisors Act of 1940, or plan
asset regulations adopted under the Employee Retirement
Income Security Act of 1974, or ERISA, whether or not
substantially similar to plan asset regulations currently
applied or proposed;
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an amendment that our general partner determines to be necessary
or appropriate for the authorization of additional partnership
securities or rights to acquire partnership securities,
including any amendment that our general partner determines is
necessary or appropriate in connection with:
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the adjustments of the minimum quarterly distribution, first
target distribution, second target distribution and third target
distribution in connection with the reset of our general
partners incentive distribution rights as described under
Provisions of Our Partnership Agreement
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Relating to Cash Distributions General
Partners Right to Reset Incentive Distribution
Levels;
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the implementation of the provisions relating to our general
partners right to reset its incentive distribution rights
in exchange for Class B units; or
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any modification of the incentive distribution rights made in
connection with the issuance of additional partnership
securities or rights to acquire partnership securities, provided
that, any such modifications and related issuance of partnership
securities have received approval by a majority of the members
of the conflicts committee of our general partner;
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any amendment expressly permitted in our partnership agreement
to be made by our general partner acting alone;
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an amendment effected, necessitated or contemplated by a merger
agreement that has been approved under the terms of our
partnership agreement;
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any amendment that our general partner determines to be
necessary or appropriate for the formation by us of, or our
investment in, any corporation, partnership or other entity, as
otherwise permitted by our partnership agreement;
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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. For amendments of the type not
requiring 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 association
taxable as a corporation or otherwise taxable as an entity for
federal income tax purposes in connection with any of the
amendments. No amendments to our partnership agreement other
than those described above under No Unitholder
Approval 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
143
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. Please see
Management Management of Targa Resources
Partners LP.
In addition, the partnership agreement generally prohibits our
general partner without the prior approval of the holders of a
unit majority, from causing us to, among other things, sell,
exchange or otherwise dispose of all or substantially all of our
assets in a single transaction or a series of related
transactions, including by way of merger, consolidation or other
combination, or approving on our behalf the sale, exchange or
other disposition of all or substantially all of the assets of
our subsidiaries. Our general partner may, however, mortgage,
pledge, hypothecate or grant a security interest in all or
substantially all of our assets without that approval. Our
general partner may also sell all or substantially all of our
assets under a foreclosure or other realization upon those
encumbrances without that approval. Finally, our general partner
may consummate any merger without the prior approval of our
unitholders if we are the surviving entity in the transaction,
our general partner has received an opinion of counsel regarding
limited liability and tax matters, the transaction would not
result in a material amendment to the partnership agreement,
each of our units will be an identical unit of our partnership
following the transaction, and the partnership securities to be
issued do not exceed 20% of our outstanding partnership
securities immediately prior to the transaction.
If the conditions specified in the partnership agreement are
satisfied, our general partner may convert us or any of our
subsidiaries into a new limited liability entity or merge us or
any of our subsidiaries into, or convey all of our assets to, a
newly formed entity if the sole purpose of that conversion,
merger or conveyance is to effect a mere change in our legal
form into another limited liability entity, our general partner
has received an opinion of counsel regarding limited liability
and tax matters, and the governing instruments of the new entity
provide the limited partners and the general partner with the
same rights and obligations as contained in the partnership
agreement. The unitholders are not entitled to dissenters
rights of appraisal under the partnership agreement or
applicable Delaware law in the event of a conversion, merger or
consolidation, a sale of substantially all of our assets or any
other similar transaction or event.
Termination
and Dissolution
We will continue as a limited partnership until terminated under
our partnership agreement. We will dissolve upon:
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the election of our general partner to dissolve us, if approved
by the holders of units representing a unit majority;
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there being no limited partners, unless we are continued without
dissolution in accordance with applicable Delaware law;
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the entry of a decree of judicial dissolution of our
partnership; or
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the withdrawal or removal of our general partner or any other
event that results in its ceasing to be our general partner
other than by reason of a transfer of its general partner
interest in accordance with our partnership agreement or
withdrawal or removal following approval and admission of a
successor.
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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
144
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.
Withdrawal
or Removal of the General Partner
Except as described below, our general partner has agreed not to
withdraw voluntarily as our general partner prior to
December 31, 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 December 31,
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 see 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 see
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
662/3%
of the outstanding units, voting together as a single class,
including units held by our general partner and its affiliates,
and we receive an opinion of counsel regarding limited liability
and tax matters. Any removal of our general partner is also
subject to the approval of a successor general partner by the
vote of the holders of a majority of the outstanding common
units and Class B units, if any, voting as a separate
class, and subordinated units, voting as a separate class. The
ownership of more than
331/3%
of the outstanding units by our general partner and its
affiliates would give them the practical ability to prevent our
general partners removal. At the closing of this offering,
our general partner and its affiliates will own 40.7% 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 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 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 December 31, 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
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, Targa may sell or transfer all or part of their
membership interests in our general partner to an affiliate or
third party without the approval of our unitholders.
146
Transfer
of Incentive Distribution Rights
Our general partner or its affiliates or a subsequent holder may
transfer its incentive distribution rights to an affiliate of
the holder (other than an individual) or another entity as part
of the merger or consolidation of such holder with or into
another entity, the sale of all of the ownership interest in the
holder or the sale of all or substantially all of its assets to,
that entity without the prior approval of the unitholders. Prior
to December 31, 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 December 31, 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 the management of
our general partner. If any person or group other than our
general partner and its affiliates acquires beneficial ownership
of 20% or more of any class of units, that person or group loses
voting rights on all of its units. This loss of voting rights
does not apply to any person or group that acquires the units
from our general partner or its affiliates and any transferees
of that person or group approved by our general partner or to
any person or group who acquires the units with the prior
approval of the board of directors of our general partner.
Our partnership agreement also provides that if our general
partner is removed as our general partner under circumstances
where cause does not exist and units held by our general partner
and its affiliates are not voted in favor of that removal:
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the subordination period will end and all outstanding
subordinated units will immediately convert into common units on
a
one-for-one
basis;
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
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our general partner will have the right to convert its general
partner units and its incentive distribution rights into common
units or to receive cash in exchange for those interests based
on the fair market value of those interests at that time.
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Limited
Call Right
If at any time our general partner and its affiliates own more
than 80% of the then-issued and outstanding limited partner
interests of any class, our general partner will have the right,
which it may assign in whole or in part to any of its affiliates
or to us, to acquire all, but not less than all, of the limited
partner interests of the class held by unaffiliated persons as
of a record date to be selected by our general partner, on at
least 10 but not more than 60 days notice. The purchase
price in the event of this purchase is the greater of:
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the highest 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 see Material Tax
Consequences Disposition of Common Units.
147
Meetings;
Voting
Except as described below regarding a person or group owning 20%
or more of any class of units then outstanding, record holders
of units on the record date will be entitled to notice of, and
to vote at, meetings of our limited partners and to act upon
matters for which approvals may be solicited.
Our general partner does not anticipate that any meeting of
unitholders will be called in the foreseeable future. Any action
that is required or permitted to be taken by the unitholders may
be taken either at a meeting of the unitholders or without a
meeting if consents in writing describing the action so taken
are signed by holders of the number of units necessary to
authorize or take that action at a meeting. Meetings of the
unitholders may be called by our general partner or by
unitholders owning at least 20% of the outstanding units of the
class for which a meeting is proposed. Unitholders may vote
either in person or by proxy at meetings. The holders of a
majority of the outstanding units of the class or classes for
which a meeting has been called represented in person or by
proxy will constitute a quorum unless any action by the
unitholders requires approval by holders of a greater percentage
of the units, in which case the quorum will be the greater
percentage.
Each record holder of a unit has a vote according to his
percentage interest in us, although additional limited partner
interests having special voting rights could be issued. Please
see 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 and Class B units as a single class.
Any notice, demand, request, report or proxy material required
or permitted to be given or made to record holders of common
units under our partnership agreement will be delivered to the
record holder by us or by the transfer agent.
Status as
Limited Partner
By transfer of common units in accordance with our partnership
agreement, each transferee of common units shall be admitted as
a limited partner with respect to the common units transferred
when such transfer and admission is reflected in our books and
records. Except as described under Limited
Liability, 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.
148
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, any departing general partner, an
affiliate of our general partner or an affiliate of 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 fiscal reporting purposes, our fiscal year is
the calendar year.
We will furnish or make available to record holders of common
units, within 120 days after the close of each fiscal year,
an annual report containing audited financial statements and a
report on those financial statements by our independent public
accountants. Except for our fourth quarter, we will also furnish
or make available summary financial information within
90 days after the close of each quarter.
We will furnish each record holder of a unit with information
reasonably required for tax reporting purposes within
90 days after the close of each calendar year. This
information is expected to be furnished in summary form so that
some complex calculations normally required of partners can be
avoided. Our ability to furnish this summary information to
unitholders will depend on the cooperation of unitholders in
supplying us with specific information. Every unitholder will
receive information to assist him in determining his federal and
state tax liability and filing his federal and state income tax
returns, regardless of whether he supplies us with information.
149
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 and a structuring fee. Please see
Units Eligible for Future Sale.
150
UNITS
ELIGIBLE FOR FUTURE SALE
After the sale of the common units offered hereby, Targa will
hold an aggregate of 11,528,231 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 see The Partnership
Agreement Issuance of Additional Securities.
Under our partnership agreement, our general partner and its
affiliates have the right to cause us to register under the
Securities Act and state securities laws the offer and sale of
any common units, subordinated units or other partnership
securities that they hold. Subject to the terms and conditions
of our partnership agreement, these registration rights allow
our general partner and its affiliates or their assignees
holding any units or other partnership securities to require
registration of any of these units or other partnership
securities and to include them in a registration by us of other
units, including units offered by us or by any unitholder. Our
general partner will continue to have these registration rights
for two years following its withdrawal or removal as our general
partner. In connection with any registration of this kind, we
will indemnify each unitholder participating in the registration
and its officers, directors and controlling persons from and
against any liabilities under the Securities Act or any state
securities laws arising from the registration statement or
prospectus. We will bear all costs and expenses incidental to
any registration, excluding any underwriting discounts and a
structuring fee. Except as described below, our general partner
and its affiliates may sell their units or other partnership
interests in private transactions at any time, subject to
compliance with applicable laws.
Targa, our partnership, our operating partnership, our general
partner and the directors and executive officers of our general
partner, have agreed not to sell any common units they
beneficially own for a period of 180 days from the date of
this prospectus. For a description of these
lock-up
provisions, please see Underwriting.
151
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 our
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 Targa Resources Partners LP and
our operating partnership.
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 based on the accuracy of the representations made
by us.
No ruling has been or will be requested from the IRS regarding
any matter affecting us or prospective unitholders. Instead, we
will rely on opinions of Vinson & Elkins L.L.P. Unlike
a ruling, an opinion of counsel represents only that
counsels best legal judgment and does not bind the IRS or
the courts. Accordingly, the opinions and statements made herein
may not be sustained by a court if contested by the IRS. Any
contest of this sort with the IRS may materially and adversely
impact the market for the common units and the prices at which
common units trade. In addition, the costs of any contest with
the IRS, principally legal, accounting and related fees, will
result in a reduction in cash available for distribution to our
unitholders and our general partner and thus will be borne
indirectly by our unitholders and our general partner.
Furthermore, the tax treatment of us, or of an investment in us,
may be significantly modified by future legislative or
administrative changes or court decisions. Any modifications may
or may not be retroactively applied.
For the reasons described below, Vinson & Elkins L.L.P.
has not rendered an opinion with respect to the following
specific federal income tax issues: (1) the treatment of a
unitholder whose common units are loaned to a short seller to
cover a short sale of common units (please see
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 see
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 see
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
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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 gross
income is not qualifying income; however, this estimate could
change from time to time. Based upon and subject to this
estimate, the factual representations made by us and the general
partner and a review of the applicable legal authorities,
Vinson & Elkins L.L.P. is of the opinion that at least
90% of our current gross income constitutes qualifying income.
No ruling has been or will be sought from the IRS and the IRS
has made no determination as to our status or the status of our
operating partnership 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. on such
matters. It is 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 our operating partnership will be disregarded as
an entity separate from us for federal income tax purposes.
In rendering its opinion, Vinson & Elkins L.L.P. has
relied on factual representations made by us and our 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 partnership has elected or
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 Targa Resources
Partners LP will be treated as partners of Targa Resources
Partners LP for federal income tax purposes. Also, unitholders
whose common units are held in street name or by a nominee and
who have the right to direct the nominee in the exercise of all
substantive rights attendant to the ownership of their common
units will be treated as partners of Targa Resources Partners LP
for federal income tax purposes.
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A beneficial owner of common units whose units have been
transferred to a short seller to complete a short sale would
appear to lose his status as a partner with respect to those
units for federal income tax purposes. Please see
Tax Consequences of Unit Ownership
Treatment of Short Sales.
Income, gain, deductions or losses would not appear to 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
Targa Resources Partners LP.
The references to unitholders in the discussion that
follows are to persons who are treated as partners in Targa
Resources Partners LP for federal income tax purposes.
Tax
Consequences of Unit Ownership
Flow-Through of Taxable Income. We will
not pay any federal income tax. Instead, each unitholder will be
required to report on his income tax return his share of our
income, gains, losses and deductions without regard to whether
corresponding cash distributions are received by him.
Consequently, we may allocate income to a unitholder even if he
has not received a cash distribution. Each unitholder will be
required to include in income his allocable share of our income,
gains, losses and deductions for our taxable year ending with or
within his taxable year. Our taxable year ends on
December 31.
Treatment of
Distributions. Distributions by us to a
unitholder generally will not be taxable to the unitholder for
federal income tax purposes, except to the extent the amount of
any such cash distribution exceeds his tax basis in his common
units immediately before the distribution. Our cash
distributions in excess of a unitholders tax basis
generally will be considered to be gain from the sale or
exchange of the common units, taxable in accordance with the
rules described under Disposition of Common
Units. 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 see
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, on a cumulative basis, an amount of
federal taxable income for that period that will be 20% or less
of the cash distributed with respect to that period. Thereafter,
we anticipate that 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
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percentage of distributions that will constitute taxable income
could be higher or lower than our estimate 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 our estimate 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 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 our general partner, but will have
a share, generally based on his share of profits, of our
nonrecourse liabilities. Please see
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 or for 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 trade or business 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 loss
limitations are applied after other applicable limitations on
deductions, including the at risk rules and the basis limitation.
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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 our 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 our 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 our 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 our 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 our 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 the event we issue additional common units
or engage in certain other transactions in the future
reverse Section 704(c) allocations, similar to
the Section 704(c) allocations described above, will be
made to all holders of partnership interests, including
purchasers of common units in this offering, to account for the
difference between the book basis for purposes of
maintaining capital accounts and the fair market value of all
property held by us at the time of the future transaction. 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
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negative capital accounts nevertheless result, items of our
income and gain will be allocated in an 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. In any other case, a
partners share of an item will be determined on the basis
of his interest in us, which will be determined by taking into
account all the facts and circumstances, including:
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his relative contributions to us;
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the interests of all the partners in profits and losses;
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the interest of all the partners in cash flow; and
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the rights of all the partners to distributions of capital upon
liquidation.
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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
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
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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.
Where the remedial allocation method is adopted (which we will
adopt as to property other than certain goodwill properties),
the Treasury Regulations under Section 743 of the Internal
Revenue Code require a portion of the Section 743(b)
adjustment that is 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 property, 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
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 see
Uniformity of Units.
Although Vinson & Elkins L.L.P. is unable to opine as
to the validity of this approach because there is no direct or
indirect controlling authority on this issue, we intend to
depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of
Contributed Property, to the extent of any unamortized Book-Tax
Disparity, using a rate of depreciation or amortization derived
from the depreciation or amortization method and useful life
applied to the common basis of the property, or treat that
portion as
non-amortizable
to the extent attributable to property the common basis of which
is not amortizable. This method is consistent with the methods
employed by other publicly traded partnerships but is arguably
inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets, 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 see
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 see 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
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may be affected either favorably or unfavorably by the election.
A basis adjustment is required regardless of whether a
Section 754 election is made in the case of a transfer of
an interest in us if we have a substantial built-in loss
immediately after the transfer, or if we distribute property and
have a substantial basis reduction. Generally a built-in loss or
a basis reduction is substantial if it exceeds $250,000.
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.
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 see Disposition of
Common Units Allocations Between Transferors and
Transferees.
Initial Tax Basis, Depreciation and
Amortization. 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 our general partner. Please see
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 conveyed to us on formation or held by us at the
time of any future offering. Please see
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 see
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
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not be amortized by us. The underwriting discounts and
commissions we incur will be treated as syndication expenses.
Valuation and Tax Basis of Our
Properties. The federal income tax
consequences of the ownership and disposition of units will
depend in part on our estimates of the relative fair market
values, and the initial tax bases, of our assets. Although we
may from time to time consult with professional appraisers
regarding valuation matters, we will make many of the relative
fair market value estimates ourselves. These estimates and
determinations of basis are subject to challenge and will not be
binding on the IRS or the courts. If the estimates of fair
market value or basis are later found to be incorrect, the
character and amount of items of income, gain, loss or
deductions previously reported by unitholders might change, and
unitholders might be required to adjust their tax liability for
prior years and incur interest and penalties with respect to
those adjustments.
Disposition
of Common Units
Recognition of Gain or Loss. Gain or
loss will be recognized on a sale of units equal to the
difference between the amount realized and the unitholders
tax basis for the units sold. A unitholders amount
realized will be measured by the sum of the cash or the fair
market value of other property received by him plus his share of
our nonrecourse liabilities. Because the amount realized
includes a unitholders share of our nonrecourse
liabilities, the gain recognized on the sale of units could
result in a tax liability in excess of any cash received from
the sale.
Prior distributions from us in excess of cumulative net taxable
income for a common unit that decreased a unitholders tax
basis in that common unit will, in effect, become taxable income
if the common unit is sold at a price greater than the
unitholders tax basis in that common unit, even if the
price received is less than his original cost.
Except as noted below, gain or loss recognized by a unitholder,
other than a dealer in units, on the sale or
exchange of a unit held for more than one year will generally be
taxable as capital gain or loss. Capital gain recognized by an
individual on the sale of units held more than 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.
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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 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. Accordingly, Vinson & Elkins
L.L.P. is unable to opine on the validity of this method of
allocating income and deductions between unitholders. 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 unitholder
who sells any of his units is generally required to notify us in
writing of that sale within 30 days after the sale (or, if
earlier, January 15 of the year following the sale). A purchaser
of units who purchases units from another unitholder is also
generally required to notify us in writing of that purchase
within 30 days after the purchase. Upon receiving such
notifications, 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, in some cases, 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 who will
satisfy such requirements.
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.
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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 see 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, using a rate of depreciation or amortization
derived from the depreciation or amortization method and useful
life applied to the common basis of that property, or treat that
portion as nonamortizable, to the extent attributable to
property the common basis of which is not amortizable,
consistent with the regulations under Section 743 of the
Internal Revenue Code, even though that position may be
inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets, and Treasury Regulation
Section 1.197-2(g)(3).
Please see 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 position under which all purchasers acquiring
units in the same month would receive depreciation and
amortization 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 deductions than would
otherwise be allowable to some unitholders and risk the loss of
depreciation and amortization 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 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 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 see
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.
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In addition, because a foreign corporation that owns units will
be treated as engaged in a United States trade or business, that
corporation may be subject to the United States branch profits
tax at a rate of 30%, in addition to regular federal income tax,
on its share of our income and gain, as adjusted for changes in
the foreign corporations U.S. net equity,
which are effectively connected with the conduct of a United
States trade or business. That tax may be reduced or eliminated
by an income tax treaty between the United States and the
country in which the foreign corporate unitholder is a
qualified resident. In addition, this type of
unitholder is subject to special information reporting
requirements under Section 6038C of the Internal Revenue
Code.
Under a ruling of the IRS, a foreign unitholder who sells or
otherwise disposes of a unit will be subject to federal income
tax on gain realized on the sale or disposition of that unit to
the extent that this gain is effectively connected with a United
States trade or business of the foreign unitholder. Because a
foreign unitholder is considered to be engaged in business in
the United States by virtue of the ownership of units, under
this ruling a foreign unitholder who sells or otherwise disposes
of a unit generally will be subject to federal income tax on
gain realized on the sale or disposition of units. Apart from
the ruling, a foreign unitholder will not be taxed or subject to
withholding upon the sale or disposition of a unit if he has
owned less than 5% in value of the units during the five-year
period ending on the date of the disposition and if the units
are regularly traded on an established securities market at the
time of the sale or disposition.
Administrative
Matters
Information Returns and Audit
Procedures. We intend to furnish to each
unitholder, within 90 days after the close of each calendar
year, specific tax information, including a
Schedule K-1,
which describes his share of our income, gain, loss and
deduction for our preceding taxable year. In preparing this
information, which will not be reviewed by counsel, we will take
various accounting and reporting positions, some of which have
been mentioned earlier, to determine each unitholders
share of income, gain, loss and deduction. We cannot assure you
that those positions will in all cases yield a result that
conforms to the requirements of the Internal Revenue Code,
Treasury Regulations or administrative interpretations of the
IRS. Neither we nor Vinson & Elkins L.L.P. can assure
prospective unitholders that the IRS will not successfully
contend in court that those positions are impermissible. Any
challenge by the IRS could negatively affect the value of the
units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each
unitholder to adjust a prior years tax liability, and
possibly may result in an audit of his return. Any audit of a
unitholders return could result in adjustments not related
to our returns as well as those related to our returns.
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. Our partnership agreement names our general partner 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.
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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;
(b) whether the beneficial owner is:
1. a person that is not a United States person;
2. a foreign government, an international organization or
any wholly owned agency or instrumentality of either of the
foregoing; or
3. a tax-exempt entity;
(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.
For individuals, 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 apply
to tax shelters, which we do not believe includes us.
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
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kinds of losses for partnerships, individuals,
S corporations, and trusts in excess of $2 million in
any single year, or $4 million in any combination of tax
years. 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 see Information Returns and Audit
Procedures.
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 may 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 Texas. Currently, Texas
does not impose a personal income tax on individuals. However,
current law may change. Moreover, 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 might be required
to file income tax returns and to pay income taxes in other
jurisdictions in which we do business or own property, now or in
the future, 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 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 see 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.
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INVESTMENT
IN TARGA RESOURCES PARTNERS LP BY EMPLOYEE BENEFIT
PLANS
An investment in us by an employee benefit plan is subject to
additional considerations because the investments of these plans
are subject to the fiduciary responsibility and prohibited
transaction provisions of ERISA and restrictions imposed by
Section 4975 of the Internal Revenue Code. For these
purposes the term employee benefit plan includes,
but is not limited to, qualified pension, profit-sharing and
stock bonus plans, Keogh plans, simplified employee pension
plans and tax deferred annuities or IRAs established or
maintained by an employer or employee organization. Among other
things, consideration should be given to:
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whether the investment is prudent under
Section 404(a)(1)(B) of ERISA;
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whether in making the investment, that plan will satisfy the
diversification requirements of Section 404(a)(1)(C) of
ERISA; and
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whether the investment will result in recognition of unrelated
business taxable income by the plan and, if so, the potential
after-tax investment return. Please see 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.
166
UNDERWRITING
Citigroup Global Markets Inc., Goldman, Sachs & Co.,
UBS Securities LLC and Merrill Lynch, Pierce, Fenner &
Smith Incorporated are acting as joint bookrunning managers of
the offering and representatives of the underwriters named
below. Subject to the terms and conditions stated in the
underwriting agreement dated the date of this prospectus, each
underwriter named below has severally agreed to purchase, and we
have agreed to sell to that underwriter, the number of units set
forth opposite the underwriters name.
|
|
|
|
|
|
|
Number of
|
|
Underwriter
|
|
Common Units
|
|
|
Citigroup Global Markets Inc.
|
|
|
|
|
Goldman, Sachs & Co.
|
|
|
|
|
UBS Securities LLC
|
|
|
|
|
Merrill Lynch, Pierce,
Fenner & Smith
Incorporated
|
|
|
|
|
A.G. Edwards & Sons, Inc.
|
|
|
|
|
Credit Suisse Securities (USA) LLC
|
|
|
|
|
Lehman Brothers Inc.
|
|
|
|
|
Wachovia Capital Markets, LLC
|
|
|
|
|
Raymond James & Associates,
Inc.
|
|
|
|
|
RBC Capital Markets Corporation
|
|
|
|
|
Sanders Morris Harris Inc.
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,800,000
|
|
|
|
|
|
|
The underwriting agreement provides that the obligations of the
underwriters to purchase the units included in this offering are
subject to approval of legal matters by counsel and to other
conditions. The underwriters are obligated to purchase all the
units (other than those covered by their option to purchase
additional units described below) if they purchase any of the
units.
The underwriters propose to offer some of the units directly to
the public at the public offering price set forth on the cover
page of the prospectus and some of the units to dealers at the
public offering price less a concession not to exceed
$ per unit. If all of the units
are not sold at the initial offering price, the representatives
may change the public offering price and the other selling
terms. The representatives have advised us that the underwriters
do not intend sales to discretionary accounts to exceed five
percent of the total number of our units offered by them.
We have granted to the underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase up to
2,520,000 additional common units at the public offering price
less the underwriting discount. The underwriters may exercise
the option solely for the purpose of covering over-allotments,
if any, in connection with this offering. To the extent the
option is exercised, each underwriter must purchase a number of
additional units approximately proportionate to that
underwriters initial purchase commitment.
We, our general partner, all of the officers and directors of
our general partner and our principal beneficial unitholders
have agreed that, for a period of 180 days from the date of
this prospectus, we and they will not, without the prior written
consent of Citigroup Global Markets Inc., dispose of or hedge
any of our common units or any securities convertible into or
exchangeable for our common units. Notwithstanding the
foregoing, if (1) during the last 17 days of the
180-day
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 during the
16-day
period beginning on the last day of the
180-day
period, the restrictions described above shall 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.
167
Citigroup Global Markets Inc. in its sole discretion may release
any of the securities subject to these
lock-up
agreements at any time without notice. Citigroup Global Markets
Inc. has no present intent or arrangement to release any of the
securities subject to these lock-up agreements. The release of
any lock-up is considered on a case by case basis. Factors in
deciding whether to release common units may include the length
of time before the lock-up expires, the number of units
involved, the reason for the requested release, market
conditions, the trading price of our common units, historical
trading volumes of our common units and whether the person
seeking the release is an officer, director or affiliate
of us.
At our request, the underwriters have reserved up to 5% of the
common units for sale at the initial offering price to persons
who are directors, officers and employees of our general
partner, or who are otherwise associated with us through a
directed unit program. The number of common units available for
sale to the general public will be reduced by the number of
directed units purchased by participants in the program. Any
directed units not purchased will be offered by the underwriters
to the general public on the same basis as all other common
units offered. We have agreed to indemnify the underwriters
against certain liabilities and expenses, including liabilities
under the Securities Act, in connection with the sales of the
directed units. Participants in the directed unit program who
purchase more than $100,000 worth of directed units will be
subject to a 180 day lock-up agreement following this
offering.
Prior to this offering, there has been no public market for our
common units. Consequently, the initial public offering price
for the units will be determined by negotiations between our
general partner and the representatives. Among the factors
considered in determining the initial public offering price will
be our record of operations, our current financial condition,
our future prospects, our markets, the economic conditions in
and future prospects for the industry in which we compete, our
management, and currently prevailing general conditions in the
equity securities markets, including current market valuations
of publicly traded partnerships considered comparable to our
partnership. We cannot assure you, however, that the prices at
which the units will sell in the public market after this
offering will not be lower than the initial public offering
price or that an active trading market in our common units will
develop and continue after this offering.
Our common units have been approved for listing on The NASDAQ
Global Market under the symbol NGLS.
The following table shows the underwriting discounts and
commissions that we are to pay to the underwriters in connection
with this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters option to
purchase additional common units.
|
|
|
|
|
|
|
|
|
|
|
No Exercise
|
|
|
Full Exercise
|
|
|
Per unit
|
|
$
|
|
|
|
$
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
We will pay a structuring fee equal to an aggregate of 0.40% of
the gross proceeds from this offering, or approximately
$1.3 million, to Citigroup Global Markets Inc., Goldman,
Sachs & Co., UBS Securities LLC and Merrill Lynch &
Co. for evaluation, analysis and structuring of our partnership.
We estimate that our portion of the total expenses of this
offering, excluding underwriting discounts and commissions and
structuring fees, will be approximately $4.0 million.
In connection with the offering, the representatives on behalf
of the underwriters, may purchase and sell common units in the
open market. These transactions may include short sales,
syndicate covering transactions and stabilizing transactions.
Short sales involve syndicate sales of common units in excess of
the number of units to be purchased by the underwriters in the
offering, which creates a syndicate short position.
Covered short sales are sales of units made in an
amount up to the number of units represented by the
underwriters option to purchase additional common units.
In determining the source of units to close out the covered
syndicate short position, the underwriters will consider, among
other things, the price of units available for purchase in the
open market as compared to the price at which they may purchase
units through their option to purchase additional common units.
Transactions to close out the covered syndicate short position
involve either purchases of the common units in the open market
after the distribution has
168
been completed or the exercise of their option to purchase
additional common units. The underwriters may also make
naked short sales of units in excess of their option
to purchase additional common units. The underwriters must close
out any naked short position by purchasing common units in the
open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward
pressure on the price of the units in the open market after
pricing that could adversely affect investors who purchase in
the offering. Stabilizing transactions consist of bids for or
purchases of units in the open market while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids
permit the underwriters to reclaim a selling concession from a
syndicate member when an underwriter repurchases units
originally sold by that syndicate member in order to cover
syndicate short positions or make stabilizing purchases.
Any of these activities, as well as purchases by the
underwriters for their own accounts, may have the effect of
preventing or retarding a decline in the market price of the
units. They may also cause the price of the units to be higher
than the price that would otherwise exist in the open market in
the absence of these transactions. The underwriters may conduct
these transactions on The NASDAQ Global Market or otherwise. If
the underwriters commence any of these transactions, they may
discontinue them at any time.
The underwriters have performed from time to time and are
performing investment banking and advisory services for Targa
for which they have received and will receive customary fees and
expenses. In addition, affiliates of Merrill Lynch, Pierce,
Fenner & Smith Incorporated own an approximate 6.6% fully
diluted, indirect ownership interest in Targa. Affiliates of
Citigroup Global Markets Inc., Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Lehman Brothers Inc., Wachovia Capital Markets, LLC and Credit
Suisse Securities (USA) LLC are lenders under Targas
credit facility, a portion of which will be repaid using the net
proceeds from this offering that are paid to Targa. In addition,
affiliates of some of the underwriters are lenders under our new
credit facility.
We have entered into swap transactions with affiliates of
Goldman, Sachs, & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Wachovia Capital Markets,
LLC and Credit Suisse Securities (USA) LLC. For a description of
these transactions, see Managements Discussion and
Analysis of Financial Condition and Results of
Operations Quantitative and Qualitative Disclosure
about Market Risk Commodity Price Risk. We
have agreed to pay these counterparties a fee in an amount we
believe to be customary in connection with these transactions.
In addition, the underwriters or their affiliates may, from time
to time, engage in other transactions with and perform other
services for Targa or us in the ordinary course of their
business.
A prospectus in electronic format may be made available by one
or more of the underwriters. The representatives may agree to
allocate a number of units to underwriters for sale to their
online brokerage account holders. The representatives will
allocate units to underwriters that may make Internet
distributions on the same basis as other allocations. In
addition, units may be sold by the underwriters to securities
dealers who resell units to online brokerage account holders.
Other than the prospectus in electronic format, the information
on any underwriters web site and any information contained
in any other web site maintained by an underwriter is not part
of the prospectus or the registration statement of which this
prospectus forms a part, has not been approved and/or endorsed
by us or any underwriter in its capacity as an underwriter and
should not be relied upon by investors.
We, our general partner and Targa have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act, and to contribute to payments the
underwriters may be required to make because of any of those
liabilities.
Because the National Association of Securities Dealers views the
units offered by this prospectus 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 units should be judged similarly
to the suitability with respect to other securities that are
listed for trading on a national securities exchange.
169
VALIDITY
OF THE COMMON UNITS
The validity of the common units will be passed upon for us by
Vinson & Elkins L.L.P., Houston, Texas. Certain legal
matters in connection with the common units offered hereby will
be passed upon for the underwriters by Baker Botts L.L.P.,
Houston, Texas.
EXPERTS
The financial statements of Targa North Texas LP as of
December 31, 2005 and for the two months then ended,
included in this prospectus have been so included in reliance on
the report (which contains an explanatory paragraph relating to
significant transactions with related parties described in
Note 9 to the financial statements) of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts
in auditing and accounting.
The financial statements of the North Texas System as of
December 31, 2004 and for the ten months ended
October 31, 2005, and the years ended December 31,
2004 and 2003 included in this prospectus have been so included
in reliance on the report (which contains an explanatory
paragraph relating to significant transactions with related
parties described in Note 9 to the financial statements) of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts
in auditing and accounting.
The financial statements of Targa Resources Partners, LP as of
October 23, 2006 and Targa Resources GP, LLC as of
October 23, 2006 included in this prospectus have been so
included in reliance on the reports of PricewaterhouseCoopers
LLP, an independent registered public accounting firm, given on
the authority of said firm as experts in auditing and accounting.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, or
the SEC, a registration statement on
Form S-1
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.
170
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
TARGA RESOURCES PARTNERS LP
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
|
|
TARGA NORTH TEXAS LP AUDITED
COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-9
|
|
|
|
|
F-11
|
|
|
|
|
F-12
|
|
|
|
|
F-13
|
|
|
|
|
F-14
|
|
|
|
|
F-15
|
|
|
|
|
|
|
TARGA NORTH TEXAS LP UNAUDITED
COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-29
|
|
|
|
|
F-30
|
|
|
|
|
F-31
|
|
|
|
|
F-32
|
|
|
|
|
F-33
|
|
|
|
|
|
|
TARGA RESOURCES PARTNERS LP
AUDITED BALANCE SHEET
|
|
|
|
|
|
|
|
F-40
|
|
|
|
|
F-41
|
|
|
|
|
F-42
|
|
|
|
|
|
|
TARGA RESOURCES GP LLC AUDITED
BALANCE SHEET
|
|
|
|
|
Report of Independent Registered
Public Accounting Firm
|
|
|
F-43
|
|
|
|
|
F-44
|
|
|
|
|
F-45
|
|
F-1
TARGA
RESOURCES PARTNERS LP
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
Introduction
The unaudited pro forma condensed financial information has been
prepared by applying pro forma adjustments to give effect to the
Formation Transactions described elsewhere in this prospectus to
the historical audited and unaudited financial statements of
Targa North Texas LP, which owns the North Texas System. We
refer to the results of operation of the North Texas System as
results of operation of the Predecessor Business. Targa
Resources Partners LP (the Partnership) will own and
operate the Predecessor Business effective with the closing of
this initial public offering. The unaudited pro forma combined
financial statements for the Partnership have been derived from
the historical combined financial statements of the Predecessor
Business and are qualified in their entirety by reference to
such historical combined financial statements and the related
notes contained therein. The Unaudited Pro Forma Combined Income
Statement for the year ended December 31, 2005 combines the
results of operations reflected in the audited financial
statements of the Predecessor Business for the ten months ended
October 31, 2005 with the results of operations for the two
months ended December 31, 2005. The unaudited pro forma
combined financial statements should be read in conjunction with
the notes accompanying these pro forma combined financial
statements and with the historical combined financial statements
and related notes of Predecessor Business set forth elsewhere in
this prospectus.
The unaudited pro forma condensed combined balance sheet and the
unaudited pro forma condensed combined income statement and
comprehensive income were derived by adjusting the historical
combined financial statements of the Predecessor Business. The
adjustments were based upon currently available information and
certain estimates and assumptions; therefore, actual adjustments
will differ from the pro forma adjustments. However, management
believes that the assumptions provide a reasonable basis for
presenting the significant effects of the transactions as
contemplated and that the pro forma adjustments give appropriate
effect to those assumptions and are properly applied in the
unaudited pro forma combined financial statements.
The unaudited pro forma condensed combined financial statements
are not necessarily indicative of the results that actually
would have occurred if the Partnership had assumed the
operations of the Predecessor Business on the dates indicated or
which would be obtained in the future.
F-2
TARGA
RESOURCES PARTNERS LP
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Formation
|
|
|
|
|
|
|
Business
|
|
|
Transaction
|
|
|
Partnership
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(in millions of dollars)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
|
|
|
$
|
336.0
|
(a)
|
|
$
|
|
|
|
|
|
|
|
|
|
(20.7
|
)(b)
|
|
|
|
|
|
|
|
|
|
|
|
(4.0
|
)(c)
|
|
|
|
|
|
|
|
|
|
|
|
342.5
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
(4.2
|
)(e)
|
|
|
|
|
|
|
|
|
|
|
|
(649.6
|
)(f)
|
|
|
|
|
Trade receivables
|
|
|
1.2
|
|
|
|
|
|
|
|
1.2
|
|
Inventory
|
|
|
0.6
|
|
|
|
|
|
|
|
0.6
|
|
Assets from risk management
activities
|
|
|
15.1
|
|
|
|
(0.7
|
)(g)
|
|
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
16.9
|
|
|
$
|
(0.7
|
)
|
|
$
|
16.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
1,073.0
|
|
|
|
|
|
|
$
|
1,073.0
|
|
Intangible assets, net and deferred
charges
|
|
|
18.9
|
|
|
|
4.2
|
(e)
|
|
|
4.2
|
|
|
|
|
|
|
|
|
(18.9
|
)(g)
|
|
|
|
|
Long-term assets from risk
management activities
|
|
|
17.5
|
|
|
|
|
|
|
|
17.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,126.3
|
|
|
$
|
(15.4
|
)
|
|
$
|
1,110.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS
CAPITAL
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2.1
|
|
|
$
|
|
|
|
$
|
2.1
|
|
Accrued liabilities
|
|
|
27.9
|
|
|
|
|
|
|
|
27.9
|
|
Current maturities of long term debt
|
|
|
4.9
|
|
|
|
(4.9
|
)(g)
|
|
|
|
|
Liabilities from risk management
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
$
|
34.9
|
|
|
$
|
(4.9
|
)
|
|
$
|
30.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
860.3
|
|
|
$
|
(649.6
|
)(f)
|
|
$
|
342.5
|
|
|
|
|
|
|
|
|
(210.7
|
)(g)
|
|
|
|
|
|
|
|
|
|
|
|
342.5
|
(d)
|
|
|
|
|
Deferred income tax
|
|
|
2.3
|
|
|
|
|
|
|
|
2.3
|
|
Other long-term liabilities
|
|
|
1.6
|
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long term
liabilities
|
|
$
|
864.2
|
|
|
$
|
(517.8
|
)
|
|
$
|
346.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital excluding
accumulated other comprehensive income
|
|
|
194.8
|
|
|
|
(194.8
|
)(g)
|
|
|
|
|
Common unitholders
|
|
|
|
|
|
|
336.0
|
(a)
|
|
|
311.3
|
|
|
|
|
|
|
|
|
(20.7
|
)(b)
|
|
|
|
|
|
|
|
|
|
|
|
(4.0
|
)(c)
|
|
|
|
|
Subordinated unitholders
|
|
|
|
|
|
|
372.8
|
(g)
|
|
|
372.8
|
|
General partner interest
|
|
|
|
|
|
|
18.7
|
(g)
|
|
|
18.7
|
|
Accumulated other comprehensive
income
|
|
|
32.4
|
|
|
|
(0.7
|
)(g)
|
|
|
31.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
partners capital
|
|
$
|
1,126.3
|
|
|
$
|
(15.4
|
)
|
|
$
|
1,110.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed
financial statements
F-3
TARGA
RESOURCES PARTNERS LP
Year
ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Business Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten Months
|
|
|
Two Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
Formation
|
|
|
|
|
|
|
October 31,
|
|
|
December 31,
|
|
|
Basis
|
|
|
|
|
|
Transaction
|
|
|
Partnership
|
|
|
|
2005
|
|
|
2005
|
|
|
Adjustment
|
|
|
Combined
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(in millions of dollars, except units and per unit data)
|
|
|
Operating revenues:
|
|
$
|
293.3
|
|
|
$
|
75.1
|
|
|
$
|
|
|
|
$
|
368.4
|
|
|
$
|
|
|
|
$
|
368.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product purchases
|
|
|
210.8
|
|
|
|
54.9
|
|
|
|
|
|
|
|
265.7
|
|
|
|
|
|
|
|
265.7
|
|
Operating expenses
|
|
|
18.0
|
|
|
|
3.5
|
|
|
|
|
|
|
|
21.5
|
|
|
|
|
|
|
|
21.5
|
|
Depreciation and amortization
expense
|
|
|
11.3
|
|
|
|
9.2
|
|
|
|
34.3
|
(h)
|
|
|
54.8
|
|
|
|
|
|
|
|
54.8
|
|
General and administrative expense
|
|
|
7.3
|
|
|
|
1.1
|
|
|
|
|
|
|
|
8.4
|
|
|
|
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
247.4
|
|
|
|
68.7
|
|
|
|
34.3
|
|
|
|
350.4
|
|
|
|
|
|
|
|
350.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
45.9
|
|
|
|
6.4
|
|
|
|
(34.3
|
)
|
|
|
18.0
|
|
|
|
|
|
|
|
18.0
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense allocated from
parent
|
|
|
|
|
|
|
11.5
|
|
|
|
|
|
|
|
11.5
|
|
|
|
(11.5
|
)(i)
|
|
|
|
|
Other interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.8
|
(i)
|
|
|
24.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
45.9
|
|
|
$
|
(5.1
|
)
|
|
$
|
(34.3
|
)
|
|
$
|
6.5
|
|
|
$
|
(13.3
|
)
|
|
$
|
(6.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partners interest in
net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in
net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(6.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per limited
partner unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of limited
partner units outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,328,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed
financial statements
F-4
TARGA
RESOURCES PARTNERS LP
UNAUDITED
PRO FORMA CONDENSED INCOME STATEMENT
Nine
months ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Formation
|
|
|
|
|
|
|
Business
|
|
|
Transaction
|
|
|
Partnership
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(in millions of dollars, except units and per unit data)
|
|
|
Operating revenues
|
|
$
|
290.9
|
|
|
|
|
|
|
$
|
290.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product purchases
|
|
|
205.2
|
|
|
|
|
|
|
|
205.2
|
|
Operating expense
|
|
|
17.9
|
|
|
|
|
|
|
|
17.9
|
|
Depreciation and amortization
expense
|
|
|
41.7
|
|
|
|
|
|
|
|
41.7
|
|
General and administrative expense
|
|
|
5.1
|
|
|
|
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
269.9
|
|
|
|
|
|
|
|
269.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
21.0
|
|
|
|
|
|
|
|
21.0
|
|
Other (income) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense allocated from
parent
|
|
|
54.4
|
|
|
|
(54.4
|
)(i)
|
|
|
|
|
Other interest expense
|
|
|
|
|
|
|
18.6
|
(i)
|
|
|
18.6
|
|
Deferred income tax expense
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(35.4
|
)
|
|
$
|
35.8
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partners interest in
net income
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in
net income
|
|
|
|
|
|
|
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partner unit
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of limited
partner units outstanding
|
|
|
|
|
|
|
|
|
|
|
28,328,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed
financial statements
F-5
TARGA
RESOURCES PARTNERS LP
NOTES TO
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
|
|
1.
|
Basis of
Presentation, the Offering and Formation Transactions
|
The historical financial information is derived from the
historical combined financial statements of the Predecessor
Business. The unaudited pro forma condensed financial
information has been prepared by applying pro forma adjustments
to the historical audited and unaudited financial statements of
Targa North Texas LP. The pro forma adjustments have been
prepared as if the transactions to be effected at the closing of
this offering had taken place on September 30, 2006, in the
case of the pro forma balance sheet, or as of January 1,
2005, in the case of the pro forma income statement for the year
ended December 31, 2005 and the nine months ended
September 30, 2006.
The pro forma financial statements reflect certain of the
Formation Transactions that are discussed elsewhere in this
prospectus as follows:
|
|
|
|
|
Targa will contribute the North Texas System to us;
|
|
|
|
we will issue to Targa 11,528,231 subordinated units,
representing a 39.9% limited partner interest in us;
|
|
|
|
we will issue to our general partner, Targa Resources GP LLC,
578,127 general partner units representing its initial 2%
general partner interest in us, and all of our incentive
distribution rights, which incentive distribution rights will
entitle our general partner to increasing percentages of the
cash we distribute in excess of $0.3881 per unit per
quarter;
|
|
|
|
|
|
we will issue 16,800,000 common units to the public in this
offering, representing a 58.1% limited partner interest in us,
and will use the proceeds to pay expenses associated with this
offering, the Formation Transactions, and our new credit
facility and to pay $307.1 million to Targa to retire a
portion of our affiliate indebtedness;
|
|
|
|
|
|
we will borrow approximately $342.5 million under our new
$500 million credit facility, the proceeds of which will be
paid to Targa to retire an additional portion of our affiliate
indebtedness; and
|
|
|
|
the remaining affiliate indebtedness will be retired and treated
as a capital contribution to us.
|
Our affiliate indebtedness consists of borrowings incurred by
Targa and allocated to us for financial reporting purposes as
well as intercompany indebtedness to be contributed to us
together with the North Texas System.
Upon completion of this offering, we anticipate incurring
incremental general and administrative expenses of approximately
$2.5 million per year. These estimated incremental expenses
relate to being a publicly traded limited partnership and
include compensation and benefit expenses of our executive
management personnel, costs associated with annual and quarterly
reports to unitholders, tax return and
Schedule K-1
preparation and distribution, investor relations activities,
registrar and transfer agent fees, incremental director and
officer liability insurance costs and director compensation. The
unaudited pro forma financial statements do not reflect this
anticipated incremental general and administrative expense.
|
|
2.
|
Pro Forma
Adjustments and Assumptions
|
(a) Reflects the gross proceeds to us of
$336.0 million from the issuance and sale of
16,800,000 common units at an assumed initial public
offering price of $20.00 per unit.
(b) Reflects payment of estimated underwriting discounts
and structuring fees of $20.7 million, which will be
allocated to the common units.
(c) Reflects payment of $4.0 million in estimated
expenses associated with this offering and the other Formation
Transactions, which will be allocated to the common units.
(d) Reflects approximately $342.5 million of
borrowings by us under our new credit facility.
(e) Reflects estimated fees and expenses of
$4.2 million associated with our new credit facility.
F-6
TARGA
RESOURCES PARTNERS LP
NOTES TO
UNAUDITED PRO FORMA CONDENSED FINANCIAL
STATEMENTS (Continued)
(f) Reflects the payment to Targa of the net proceeds from
the offering and borrowings under our new credit facility to
retire affiliate indebtedness as follows (in millions):
|
|
|
|
|
Gross proceeds from sale of common
units
|
|
$
|
336.0
|
|
Borrowings under our new credit
facility
|
|
|
342.5
|
|
Discounts, fees and other offering
expenses
|
|
|
(24.7
|
)
|
Estimated fees and expenses of new
credit facility
|
|
|
4.2
|
|
|
|
|
|
|
Total reduction in affiliate
indebtedness
|
|
$
|
649.6
|
|
|
|
|
|
|
(g) Reflects the retirement of the remaining affiliate
indebtedness and the corresponding increase in Targas
capital contribution to us. Also reflects the contribution to us
by Targa of the Predecessor Business in exchange for our general
partner units and subordinated limited partner units.
|
|
|
|
|
Calculation of Targas equity
contribution (in millions):
|
|
|
|
|
Affiliate indebtedness
|
|
$
|
865.2
|
|
Total reduction in affiliate
indebtedness
|
|
|
(649.6
|
)
|
Remaining affiliate indebtedness
(including current portion) retired and contributed to us
|
|
|
215.6
|
|
Total partner capital excluding
accumulated other comprehensive income
|
|
|
194.8
|
|
Unamortized allocated debt issue
costs
|
|
|
(18.9
|
)
|
|
|
|
|
|
Equity contribution of Targa
|
|
$
|
391.5
|
|
|
|
|
|
|
|
|
|
|
|
Targas capital is allocated
as follows (in millions):
|
|
|
|
|
$372.8 million for 11,528,231
subordinated units
|
|
|
|
|
$18.7 million for 578,127
general partner units
|
|
|
|
|
(h) Reflects on a net basis the depreciation expense
adjustment to give effect as of January 1, 2005 to the
increase in carrying value of our property, plant and equipment
due to the purchase price allocation of the DMS Acquisition
calculated as follows (in millions):
|
|
|
|
|
Depreciation on stepped-up basis
|
|
$
|
54.8
|
|
Depreciation recorded
|
|
|
(20.5
|
)
|
|
|
|
|
|
Pro forma adjustment for
additional depreciation
|
|
$
|
34.3
|
|
|
|
|
|
|
(i) Reflects the reversal of interest associated with
allocated debt and interest expense under the new credit
facility discussed in (d) as though the borrowing occurred
effective January 1, 2005. Interest expense is calculated
assuming an estimated annual interest rate of 7%. A
one percentage point change in the interest rate would
change pro forma interest expense by $3.4 million for the
year ended December 31, 2005 and $2.6 million for the
nine months ended September 30, 2006.
F-7
TARGA
RESOURCES PARTNERS LP
NOTES TO
UNAUDITED PRO FORMA CONDENSED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Pro Forma
Net Income Per Unit
|
Pro forma net income per unit is determined by dividing the pro
forma net income that would have been allocated to the common
and subordinated unitholders, which is 98% of the pro forma net
income, by the number of common and subordinated units expected
to be outstanding (28,328,231). All units were assumed to have
been outstanding since January 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 offering. Pursuant
to the partnership agreement, to the extent that the quarterly
distributions exceed certain targets, the general partner is
entitled to receive certain incentive distributions that will
result in more net income proportionately being allocated to the
general partner than to the holders of common and subordinated
units. The pro forma net income per unit calculations assume
that no incentive distributions were made to the general partner
because no such distribution would have been paid based upon the
pro forma available cash from operating surplus for the periods.
F-8
Report of
Independent Registered Public Accounting Firm
To the
Partners of Targa North Texas LP:
In our opinion, the accompanying combined balance sheet and the
related combined statements of operations and comprehensive
income (loss), of changes in partners capital/net parent
equity, and of cash flows present fairly, in all material
respects, the financial position of Targa North Texas LP (the
Partnership) at December 31, 2005 and the
results of its operations and its cash flows for the
two months ended December 31, 2005 in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Partnerships management. Our responsibility is to
express an opinion on these financial statements based on our
audit. We conducted our audits of these statements 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. An
audit 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, and evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
As discussed in Note 9 to the financial statements, the
Partnership has engaged in significant transactions with other
subsidiaries of its parent company, Targa Resources Inc., a
related party.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
November 13, 2006
F-9
Report of
Independent Registered Public Accounting Firm
To the
Partners of Targa North Texas LP:
In our opinion, the accompanying combined balance sheets and the
related combined statements of operations and comprehensive
income (loss), of changes in partners capital/net parent
equity, and of cash flows present fairly, in all material
respects, the financial position of the North Texas System
(TNT LP Predecessor) at December 31, 2004 and
2003, and the results of its operations and its cash flows for
the ten months ended October 31, 2005, and the years
ended December 31, 2004 and 2003 in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our
audits of these statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note 9 to the financial statements, the
North Texas System has engaged in significant transactions with
other subsidiaries of its parent company, Dynegy Inc., a related
party.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
November 13, 2006
F-10
TARGA
NORTH TEXAS LP
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
|
2004
|
|
|
|
(in thousands of dollars)
|
|
ASSETS (Collateral for Parent
debt See
Note 6)
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Trade receivables, net of
allowances of $0 and $15
|
|
$
|
1,525
|
|
|
|
$
|
1,185
|
|
Inventory
|
|
|
1,155
|
|
|
|
|
423
|
|
Assets from risk management
activities
|
|
|
34
|
|
|
|
|
|
|
Deposits
|
|
|
630
|
|
|
|
|
691
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,344
|
|
|
|
|
2,299
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, at
cost
|
|
|
1,106,107
|
|
|
|
|
337,046
|
|
Accumulated depreciation
|
|
|
(9,126
|
)
|
|
|
|
(145,856
|
)
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, net
|
|
|
1,096,981
|
|
|
|
|
191,190
|
|
|
|
|
|
|
|
|
|
|
|
Debt issue costs allocated from
Parent
|
|
|
22,494
|
|
|
|
|
|
|
Long-term assets from risk
management activities
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (collateral for
Parent debt See Note 6)
|
|
$
|
1,122,843
|
|
|
|
$
|
193,489
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS
CAPITAL/NET PARENT EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,145
|
|
|
|
$
|
4,324
|
|
Accrued liabilities
|
|
|
30,595
|
|
|
|
|
18,458
|
|
Current maturities of debt
allocated from Parent
|
|
|
4,932
|
|
|
|
|
|
|
Liabilities from risk management
activities
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
37,725
|
|
|
|
|
22,782
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt allocated from
Parent
|
|
|
863,960
|
|
|
|
|
|
|
Long-term liabilities from risk
management activities
|
|
|
72
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
1,541
|
|
|
|
|
1,897
|
|
Commitments and contingencies (see
Note 7)
|
|
|
|
|
|
|
|
|
|
Partners capital/net parent
equity:
|
|
|
|
|
|
|
|
|
|
General partner
|
|
|
109,772
|
|
|
|
|
|
|
Limited partner
|
|
|
109,773
|
|
|
|
|
|
|
Net parent equity
|
|
|
|
|
|
|
|
168,810
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital/net
parent equity
|
|
|
219,545
|
|
|
|
|
168,810
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
partners capital/net parent equity
|
|
$
|
1,122,843
|
|
|
|
$
|
193,489
|
|
|
|
|
|
|
|
|
|
|
|
See notes to combined financial statements
F-11
TARGA
NORTH TEXAS LP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TNT LP
|
|
|
|
TNT LP
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
Ten
|
|
|
|
|
|
|
Two Months
|
|
|
|
Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 31,
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands of dollars)
|
|
Revenues from third parties
|
|
$
|
22,192
|
|
|
|
$
|
8,732
|
|
|
$
|
12,039
|
|
|
$
|
10,736
|
|
Revenues from affiliates
|
|
|
52,952
|
|
|
|
|
284,603
|
|
|
|
246,516
|
|
|
|
186,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
75,144
|
|
|
|
|
293,335
|
|
|
|
258,555
|
|
|
|
196,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product purchases from third
parties
|
|
|
54,981
|
|
|
|
|
209,835
|
|
|
|
182,234
|
|
|
|
147,074
|
|
Product purchases from affiliates
|
|
|
11
|
|
|
|
|
1,024
|
|
|
|
278
|
|
|
|
266
|
|
Operating expense
|
|
|
3,494
|
|
|
|
|
18,035
|
|
|
|
17,702
|
|
|
|
15,084
|
|
Depreciation and amortization
expense
|
|
|
9,150
|
|
|
|
|
11,262
|
|
|
|
12,201
|
|
|
|
11,992
|
|
General and administrative expense
|
|
|
1,063
|
|
|
|
|
7,273
|
|
|
|
7,230
|
|
|
|
7,652
|
|
Loss (gain) on sale of assets
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
329
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,699
|
|
|
|
|
247,397
|
|
|
|
219,974
|
|
|
|
182,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
6,445
|
|
|
|
|
45,938
|
|
|
|
38,581
|
|
|
|
14,698
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense allocated from
parent
|
|
|
(11,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
change in accounting principle
|
|
|
(5,097
|
)
|
|
|
|
45,938
|
|
|
|
38,581
|
|
|
|
14,698
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(5,097
|
)
|
|
|
|
45,938
|
|
|
|
38,581
|
|
|
|
14,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest
rate swaps
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for
settled periods
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(5,164
|
)
|
|
|
$
|
45,938
|
|
|
$
|
38,581
|
|
|
$
|
14,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to combined financial statements
F-12
TARGA
NORTH TEXAS LP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Targa North
|
|
|
|
|
|
|
Targa North Texas LP
|
|
|
Texas LP
|
|
|
|
|
|
|
General
|
|
|
Limited
|
|
|
Predecessor
|
|
|
|
|
|
|
Partner
|
|
|
Partner
|
|
|
Equity
|
|
|
Total
|
|
|
|
(in thousands of dollars)
|
|
|
Balance, December 31,
2002
|
|
$
|
|
|
|
$
|
|
|
|
$
|
167,345
|
|
|
$
|
167,345
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
(16,674
|
)
|
|
|
(16,674
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
14,131
|
|
|
|
14,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2003
|
|
|
|
|
|
|
|
|
|
$
|
164,802
|
|
|
$
|
164,802
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
(34,573
|
)
|
|
|
(34,573
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
38,581
|
|
|
|
38,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2004
|
|
|
|
|
|
|
|
|
|
|
168,810
|
|
|
|
168,810
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
(56,268
|
)
|
|
|
(56,268
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
45,938
|
|
|
|
45,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31,
2005
|
|
|
|
|
|
|
|
|
|
|
158,480
|
|
|
|
158,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial contribution
|
|
|
109,939
|
|
|
|
109,940
|
|
|
|
|
|
|
|
219,879
|
|
Other contributions
|
|
|
2,415
|
|
|
|
2,415
|
|
|
|
|
|
|
|
4,830
|
|
Other comprehensive loss
|
|
|
(34
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
(67
|
)
|
Net loss
|
|
|
(2,548
|
)
|
|
|
(2,549
|
)
|
|
|
|
|
|
|
(5,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2005
|
|
$
|
109,772
|
|
|
$
|
109,773
|
|
|
$
|
|
|
|
$
|
219,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to combined financial statements
F-13
TARGA
NORTH TEXAS LP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TNT LP
|
|
|
|
TNT LP Predecessor
|
|
|
|
Two Months
|
|
|
|
Ten Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
October 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands of dollars)
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5,097
|
)
|
|
|
$
|
45,938
|
|
|
$
|
38,581
|
|
|
$
|
14,131
|
|
Adjustments to reconcile net
income (loss) to cash flows provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
9,150
|
|
|
|
|
11,262
|
|
|
|
12,201
|
|
|
|
11,992
|
|
Accretion
|
|
|
35
|
|
|
|
|
187
|
|
|
|
204
|
|
|
|
197
|
|
Noncash amortization of debt issue
costs allocated from Parent
|
|
|
848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sale of assets
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
329
|
|
|
|
(5
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
567
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(60
|
)
|
|
|
|
(280
|
)
|
|
|
683
|
|
|
|
(688
|
)
|
Inventory
|
|
|
(1,155
|
)
|
|
|
|
423
|
|
|
|
87
|
|
|
|
(331
|
)
|
Other assets
|
|
|
10
|
|
|
|
|
51
|
|
|
|
(574
|
)
|
|
|
18
|
|
Accounts payable
|
|
|
(845
|
)
|
|
|
|
(1,334
|
)
|
|
|
2,658
|
|
|
|
963
|
|
Other liabilities
|
|
|
(4,357
|
)
|
|
|
|
16,490
|
|
|
|
3,850
|
|
|
|
4,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
(1,471
|
)
|
|
|
|
72,705
|
|
|
|
58,019
|
|
|
|
31,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and
equipment
|
|
|
(2,134
|
)
|
|
|
|
(16,469
|
)
|
|
|
(23,664
|
)
|
|
|
(14,748
|
)
|
Proceeds from asset sales
|
|
|
8
|
|
|
|
|
32
|
|
|
|
218
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(2,126
|
)
|
|
|
|
(16,437
|
)
|
|
|
(23,446
|
)
|
|
|
(14,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions (distributions)
|
|
|
3,597
|
|
|
|
|
(56,268
|
)
|
|
|
(34,573
|
)
|
|
|
(16,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
3,597
|
|
|
|
|
(56,268
|
)
|
|
|
(34,573
|
)
|
|
|
(16,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents,
beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment
allocated from Parent
|
|
$
|
907,634
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Debt issue costs allocated from
Parent
|
|
|
23,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt allocated from
Parent
|
|
|
870,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to combined financial statements
F-14
Targa
North Texas LP
Note 1
Organization and Operations
Targa North Texas LP (TNT LP) is a Delaware limited
partnership formed on November 28, 2005 to control, manage
and operate Targa Resources Inc. (Targa
Resources)s North Texas System. TNT LP is owned 50%
by its general partner, Targa North Texas GP LLC, a Delaware
limited liability company, and 50% by its sole limited partner,
Targa LP Inc., a Delaware corporation. The partnership agreement
requires all items of income and expense, and all distributions
to be allocated among the partners in accordance with their
ownership ratios. The general partner and limited partner are
indirect wholly-owned subsidiaries of Targa Resources.
Targa Resources acquired the North Texas System on
October 31, 2005 as part of its acquisition of
substantially all of Dynegy Inc. (Dynegy)s
midstream natural gas business (the DMS
acquisition). On December 1, 2005, in a series of
transactions, Targa Resources conveyed the North Texas System to
TNT LP.
Prior to October 31, 2005, the North Texas System was owned
by an indirect wholly-owned subsidiary of Dynegy, and is
presented in these financial statements as TNT LP
Predecessor.
The North Texas System consists of two wholly-owned natural gas
processing plants and an extensive network of integrated
gathering pipelines that serve a 14 county natural gas producing
region in the Fort Worth Basin in North Central Texas. The
natural gas processing facilities comprised the Chico processing
and fractionation facilities and the Shackelford processing
facility.
Note 2
Basis of Presentation
Targa Resources conveyance of the North Texas System to
TNT LP has been accounted for as a transfer of assets between
entities under common control in accordance with Statement of
Financial Accounting Standards (SFAS) 141,
Business Combinations. Therefore, Targa
Resources results of the North Texas System from
November 1, 2005 to December 1, 2005 have been
combined with TNT LPs results subsequent to
December 1, 2005 as TNT LPs combined results for the
two months ended December 31, 2005. Additionally, TNT
LPs financial position, results of operations and cash
flows as of and for the two months ended December 31, 2005
reflect Targa Resources allocation of the fair value of
the North Texas Assets and indebtedness related to the DMS
acquisition (See Note 4 and Note 6).
The accompanying financial statements and related notes present
TNT LPs financial position as of December 31, 2005;
TNT LPs results of operations, cash flows and changes in
partners capital for the two months ended
December 31, 2005; the combined financial position of TNT
LP Predecessor as of December 31, 2004; and the combined
results of operations, cash flows and changes in net equity of
parent of TNT LP Predecessor for the ten months ended
October 31, 2005 and the years ended December 31, 2004
and 2003. TNT LPs financial data has been separated from
the TNT LP Predecessor financial data by a bold black line.
In the accompanying financial statements and related notes,
references to the Parent are to Dynegy as of and
prior to October 31, 2005, and to Targa Resources
subsequent to October 31, 2005.
Throughout the periods covered by the combined financial
statements, the Parent has provided cash management services to
TNT LP and TNT LP Predecessor through a centralized treasury
system. As a result, all of TNT LP and TNT LP Predecessors
charges and cost allocations covered by the centralized treasury
system were deemed to have been paid to the Parent in cash,
during the period in which the cost was recorded in the combined
financial statements. In addition, cash receipts advanced by the
Parent in excess/deficit of charges and cash allocations are
reflected as contributions from/distributions to the Parent in
the combined statements of partners capital/net parent
equity. As a result of this accounting treatment, TNT LPs
working capital does not reflect any affiliate accounts
receivable for intercompany commodity
F-15
Targa
North Texas LP
Notes to
Combined Financial
Statements (Continued)
sales or any affiliate accounts payable for personnel and
services and for intercompany product purchases. Consequently,
TNT LP had a negative working capital balance of
$34.4 million at December 31, 2005. Despite the
negative working capital balance, on a combined basis,
TNT LP and TNT LP Predecessor generated operating cash
flow of $71.2 million for the twelve months ended
December 31, 2005. Such cash flow was sufficient to fund
investing cash flow of $18.6 million and distributions to
the Parent of $52.7 million during the period.
TNT LP and TNT LP Predecessor have been allocated general and
administrative expenses incurred by the Parent in order to
present financial statements on a stand-alone basis. See
Note 9 for a discussion of the amounts and method of
allocation. All of the allocations are not necessarily
indicative of the costs and expenses that would have resulted
had TNT LP and TNT LP Predecessor been operated as stand-alone
entities.
Note 3
Significant Accounting Policies
Cash and Cash Equivalents. See
centralized cash management in Note 9 Related
Party Transactions.
Asset Retirement Obligations. TNT LP
and TNT LP Predecessor account for asset retirement obligations
(AROs) using SFAS 143, Accounting for
Asset Retirement Obligations, as interpreted by
FIN 47, Accounting for Conditional Asset
Retirement Obligations. Asset retirement obligations
are legal obligations associated with the retirement of a
tangible long-lived asset that result from the assets
acquisition, construction, development
and/or
normal operation. An ARO is initially measured at its estimated
fair value. Upon initial recognition of an ARO, an entity
records an increase to the carrying amount of the related
long-lived asset and an offsetting ARO liability. The combined
cost of the asset and the capitalized asset retirement
obligation is depreciated using a systematic and rational
allocation method over the period during which the long-lived
asset is expected to provide benefits. After the initial period
of ARO recognition, the ARO will change as a result of either
the passage of time or revisions to the original estimates of
either the amounts of estimated cash flows or their timing.
Changes due to the passage of time increase the carrying amount
of the liability because there are fewer periods remaining from
the initial measurement date until the settlement date;
therefore, the present value of the discounted future settlement
amount increases. These changes are recorded as a period cost
called accretion expense. Upon settlement, AROs will be
extinguished by the entity at either the recorded amount or the
entity will incur a gain or loss on the difference between the
recorded amount and the actual settlement cost. TNT LP
Predecessor adopted SFAS 143 on January 1, 2003. See
Note 7 for information regarding TNT LP and TNT LP
Predecessors AROs.
Segment Information. SFAS 131,
Disclosures about Segments of an Enterprise and Related
Information, establishes standards for reporting
information about operating segments. TNT LP operates in one
segment only, the natural gas gathering and processing segment,
as did TNT LP Predecessor.
Comprehensive Income. Comprehensive
income includes net income and other comprehensive income, which
includes unrealized gains and losses on derivative instruments
that are designated as hedges.
Debt Issue Costs. Costs incurred in
connection with the issuance of long-term debt are capitalized
and charged to interest expense over the term of the related
debt.
Environmental Liabilities. Liabilities
for loss contingencies, including environmental remediation
costs, arising from claims, assessments, litigation, fines, and
penalties and other sources are charged to expense when it is
probable that a liability has been incurred and the amount of
the assessment
and/or
remediation can be reasonably estimated.
F-16
Targa
North Texas LP
Notes to
Combined Financial
Statements (Continued)
Income Taxes. TNT LP and TNT LP
Predecessor are not subject to federal income taxes. As a
result, their earnings or losses for federal income tax purposes
have been included in the tax returns of their individual
partners or owners.
Natural Gas Imbalances. Quantities of
natural gas over-delivered or under-delivered related to
operational balancing agreements are recorded monthly as
inventory using weighted average prices at the time the
imbalance was created. Monthly, gas imbalances receivable are
valued at the lower of cost or market, gas imbalances payable
are valued at replacement cost. These imbalances are typically
settled in the following month with deliveries or receipts of
natural gas. Certain contracts require cash settlement of
imbalances on a current basis. Under these contracts, imbalance
cash-outs are recorded as a sale or purchase of natural gas, as
appropriate.
Price Risk Management (Hedging). TNT LP
accounts for derivative instruments in accordance with
SFAS 133, Accounting for Derivative Instruments
and Hedging Activities, as amended. Under
SFAS 133, all derivative instruments not qualifying for the
normal purchases and sales exception are recorded on the balance
sheet at fair value. If a derivative does not qualify as a
hedge, or is not designated as a hedge, the gain or loss on the
derivative is recognized currently in earnings. If a derivative
qualifies for hedge accounting and is designated as a hedge, the
effective portion of the unrealized gain or loss on the
derivative is deferred in accumulated other comprehensive income
(OCI), a component of partners capital, and
reclassified to earnings when the forecasted transaction occurs.
The relationship between the hedging instrument and the hedged
item must be highly effective in achieving the offset of changes
in cash flows attributable to the hedged risk both at the
inception of the contract and on an ongoing basis. Hedge
accounting is discontinued prospectively when a hedge instrument
becomes ineffective. Gains and losses deferred in OCI related to
cash flow hedges for which hedge accounting has been
discontinued remain deferred until the forecasted transaction
occurs. If it is probable that a hedged forecasted transaction
will not occur, deferred gains or losses on the hedging
instrument are reclassified to earnings immediately.
TNT LPs policy is to formally document all relationships
between hedging instruments and hedged items, as well as its
risk management objectives and strategy for undertaking the
hedge. This process includes specific identification of the
hedging instrument and the hedged item, the nature of the risk
being hedged and the manner in which the hedging
instruments effectiveness will be assessed. At the
inception of the hedge and on an ongoing basis, TNT LP will
assess whether the derivatives used in hedging transactions are
highly effective in offsetting changes in cash flows of hedged
items. Hedge effectiveness is measured on a quarterly basis. Any
ineffective portion of the unrealized gain or loss is
reclassified to earnings in the current period.
TNT LP Predecessor did not engage in hedging activities.
Property, Plant and
Equipment. Property, plant, and equipment is
stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated
useful lives of the assets. The estimated service lives of TNT
LP and TNT LP Predecessors functional asset groups are as
follows:
|
|
|
|
|
|
|
Range of
|
|
Asset Group
|
|
Years
|
|
|
Natural gas gathering systems and
processing facilities
|
|
|
15 to 25
|
|
Office and miscellaneous equipment
|
|
|
3 to 7
|
|
Expenditures for maintenance and repairs are expensed as
incurred. Expenditures to refurbish assets that extend the
useful lives or prevent environmental contamination are
capitalized and depreciated over the
F-17
Targa
North Texas LP
Notes to
Combined Financial
Statements (Continued)
remaining useful life of the asset. Upon disposition or
retirement of property, plant, and equipment, any gain or loss
is charged to operations.
Impairment of Long-Lived
Assets. Management reviews property, plant
and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets
may not be recoverable. The carrying amount is not recoverable
if it exceeds the undiscounted sum of the cash flows expected to
result from the use and eventual disposition of the asset.
Estimates of expected future cash flows represent
managements best estimate based on reasonable and
supportable assumptions. If the carrying amount is not
recoverable, the impairment loss is measured as the excess of
the assets carrying value over its fair value. Management
assesses the fair value of long-lived assets using commonly
accepted techniques, and may use more than one method,
including, but not limited to, recent third party comparable
sales, internally developed discounted cash flow analysis and
analysis from outside advisors. There were no indicators of
asset impairments as of December 31, 2005 and 2004.
Revenue Recognition. TNT LP and TNT LP
Predecessors primary types of sales and service activities
reported as operating revenue include:
|
|
|
|
|
sales of natural gas, NGLs and condensate; and
|
|
|
|
natural gas processing, from which we generate revenue through
the compression, gathering, treating, and processing of natural
gas.
|
TNT LP and TNT LP Predecessor recognize revenue associated when
all of the following criteria are met: (1) persuasive
evidence of an exchange arrangement exists, (2) delivery
has occurred or services have been rendered, (3) the price
is fixed or determinable and (4) collectibility is
reasonably assured.
For processing services, TNT LP and TNT LP Predecessor receive
either fees or a percentage of commodities as payment for these
services, depending on the type of contract. Under
percent-of-proceeds
contracts, TNT LP and TNT LP Predecessor are paid for their
services by keeping a percentage of the NGLs extracted and the
residue gas resulting from processing natural gas. In
percent-of-proceeds
arrangements, TNT LP and TNT LP Predecessor remit either a
percentage of the proceeds received from the sales of residue
gas and NGLs or a percentage of the residue gas or NGLs at the
tailgate of the plant to the producer. Under the terms of
percent-of-proceeds
and similar contracts, TNT LP and TNT LP Predecessor may
purchase the producers share of the processed commodities
for resale or deliver the commodities to the producer at the
tailgate of the plant.
Percent-of-value
and
percent-of-liquids
contracts are variations on this arrangement. Under keep-whole
contracts, TNT LP and TNT LP Predecessor keep the NGLs extracted
and return the processed natural gas or value of the natural gas
to the producer. Natural gas or NGLs that TNT LP and TNT LP
Predecessor receive for services or purchase for resale are in
turn sold and recognized in accordance with the criteria
outlined above. Under fee based contracts, TNT LP and TNT LP
Predecessor receive a fee-based on throughput volumes.
TNT LP and TNT LP Predecessor generally report revenues gross in
the combined statements of operations, in accordance with EITF
Issue
No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent. Except for fee-based contracts, TNT LP and TNT LP
Predecessor act as the principal in these transactions where we
receive commodities, take title to the natural gas and NGLs, and
incur the risks and rewards of ownership.
Use of Estimates. TNT LP and TNT LP
Predecessors preparation of financial statements in
accordance with accounting principles generally accepted in the
United States of America requires management to make estimates
and judgments that affect their reported financial position and
results of operations. Management reviews significant estimates
and judgments affecting the combined financial statements on a
recurring basis and records the effect of any necessary
adjustments prior to their publication. Estimates and judgments
are based on information available at the time such estimates
and
F-18
Targa
North Texas LP
Notes to
Combined Financial
Statements (Continued)
judgments are made. Adjustments made with respect to the use of
these estimates and judgments often relate to information not
previously available. Uncertainties with respect to such
estimates and judgments are inherent in the preparation of
financial statements. Estimates and judgments are used in, among
other things, (1) estimating unbilled revenues and
operating and general and administrative costs
(2) developing fair value assumptions, including estimates
of future cash flows and discount rates, (3) analyzing
tangible and intangible assets for possible impairment,
(4) estimating the useful lives of assets and
(5) determining amounts to accrue for contingencies,
guarantees and indemnifications. Actual results could differ
materially from estimated amounts.
Recent Accounting Pronouncements. In
November 2004, the FASB issued SFAS 151, Inventory
Costs, an amendment of ARB No. 43,
Chapter 4, which clarifies the types of costs
that should be expensed rather than capitalized as inventory.
SFAS 151 also clarifies the circumstances under which fixed
overhead costs associated with operating facilities involved in
inventory processing should be capitalized. The provisions of
SFAS 151 are effective for fiscal years beginning after
June 15, 2005. TNT LPs adoption of SFAS 151 will
have no effect on its financial statements.
In December 2004, the FASB released its final revised standard
entitled SFAS No. 123(R), Share-Based
Payment, which will significantly change accounting
practice with respect to employee stock options and other stock
based compensation. SFAS 123(R) requires companies to
recognize, as an operating expense, the estimated fair value of
share-based payments to employees, including grants of employee
stock options. Because TNT LP does not have any employees, its
adoption of SFAS 123(R) on January 1, 2006 will only
be affected by the allocation of stock-based compensation cost
by the Parent. Such allocation is not expected to have a
material effect on TNT LPs financial statements.
In May 2005, the FASB issued SFAS 154, Accounting
Changes and Error Corrections, which changes the
requirements for the accounting for and reporting of a change in
accounting principle by requiring voluntary changes in
accounting principles to be reported using retrospective
application, unless impracticable to do so. It also applies to
changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific
transition provisions. Application is effective for accounting
changes and correction of errors made in fiscal years beginning
after December 15, 2005. Early adoption is permitted. TNT
LPs financial statements will not be impacted by
SFAS 154.
In September 2005, the FASB ratified the consensus on Emerging
Issues Task Force (EITF)
No. 04-13,
Accounting for Purchases and Sale of Inventory With the
Same Counterparty.
EITF 04-13
relates to an entity that may sell inventory to another entity
in the same line of business from which it also purchases
inventory. This guidance is effective for new (including
renegotiated or modified) inventory arrangements entered into in
the first interim or annual reporting period beginning after
March 15, 2006. TNT LPs adoption of
EITF 04-13
on April 1, 2006 will have no effect on its financial
statements.
In September 2006, FASB issued SFAS 157 Fair Value
Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. SFAS 157 applies
under other accounting pronouncements that require or permit
fair value measurements, the Board having previously concluded
in these accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, SFAS 157 does
not require any new fair value measurements. However, for some
entities, the application of SFAS 157 will change current
practice. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. TNT LP has not
yet determined the impact this interpretation will have on its
financial statements.
In September 2006, the Securities and Exchange Commission
(SEC) issued Staff Accounting
Bulletin No. 108 (SAB 108). Due to
diversity in practice among registrants, SAB 108 expresses
SEC staff views regarding the process by which misstatements in
financial statements are evaluated for purposes
F-19
Targa
North Texas LP
Notes to
Combined Financial
Statements (Continued)
of determining whether financial statement restatement is
necessary. SAB 108 is effective for fiscal years ending
after November 15, 2006, and early application is
encouraged. SAB 108 will have no effect on TNT LPs
results of operations or financial position.
Note 4
Change of Control
On October 31, 2005, Targa Resources completed the DMS
acquisition for $2,452 million in cash. Approximately
$1,067 million of the total purchase price was allocated to
the net assets of the North Texas System. Additionally,
$870.1 million of Targa Resources acquisition-related
long-term debt (see Note 6) and $23.3 million in
associated debt issue costs were allocated to the North Texas
System. The following presents the portion of the purchase price
and related long-term debt and debt issue costs allocated to the
North Texas System based on the estimated fair values of the
assets acquired and liabilities assumed (in thousands):
|
|
|
|
|
Current assets
|
|
$
|
2,105
|
|
Property, plant, and equipment
|
|
|
1,104,000
|
|
Debt issue costs
|
|
|
23,342
|
|
Current liabilities
|
|
|
(37,937
|
)
|
Long-term debt
|
|
|
(870,125
|
)
|
Asset retirement obligations
|
|
|
(1,506
|
)
|
|
|
|
|
|
Initial contribution
|
|
$
|
219,879
|
|
|
|
|
|
|
The following unaudited pro forma financial information presents
the combined results of operations of the North Texas System as
if the DMS acquisition had been completed on January 1 of the
years presented, after including certain pro forma adjustments
for interest expense on long-term debt allocated from the
Parent, and depreciation and amortization. The pro forma
information is not necessarily indicative of the results of
operations had the acquisition occurred on January 1, 2004
or the results of operations that may be obtained in the future.
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(in thousands)
|
|
|
Revenue
|
|
$
|
368,479
|
|
|
$
|
258,555
|
|
Product purchases
|
|
|
(265,851
|
)
|
|
|
(182,512
|
)
|
Depreciation and amortization
|
|
|
(54,876
|
)
|
|
|
(54,876
|
)
|
Gain (loss) on sale of assets
|
|
|
32
|
|
|
|
(329
|
)
|
Other operating expense
|
|
|
(29,865
|
)
|
|
|
(24,932
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
17,919
|
|
|
|
(4,094
|
)
|
Interest expense
|
|
|
(69,252
|
)
|
|
|
(69,252
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(51,333
|
)
|
|
$
|
(73,346
|
)
|
|
|
|
|
|
|
|
|
|
F-20
Targa
North Texas LP
Notes to
Combined Financial
Statements (Continued)
Note 5
Property, Plant, and Equipment
Property, plant and equipment and accumulated depreciation were
as follows at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
TNT LP
|
|
|
|
TNT LP Predecessor
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
|
2004
|
|
|
|
(in thousands)
|
|
Gathering and processing systems
|
|
$
|
1,078,402
|
|
|
|
$
|
322,749
|
|
Other property and equipment
|
|
|
27,705
|
|
|
|
|
14,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,106,107
|
|
|
|
|
337,046
|
|
Accumulated depreciation
|
|
|
(9,126
|
)
|
|
|
|
(145,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,096,981
|
|
|
|
$
|
191,190
|
|
|
|
|
|
|
|
|
|
|
|
Note 6
Long-Term Debt
TNT LPs long-term debt, all of which has been allocated
from the Parent, consisted of the following at the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
TNT LP
|
|
|
|
TNT LP Predecessor
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
|
2004
|
|
|
|
(in thousands)
|
|
Outstanding debt
|
|
$
|
868,892
|
|
|
|
$
|
|
|
Current maturities of debt
|
|
|
(4,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
863,960
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation
of Long-Term Debt from the Parent
The Parent debt was allocated to identifiable assets groups
which collateralize the debt based on the value of the acquired
assets. The collateralization base includes all the
Parents assets and equity interests. The senior unsecured
notes were allocated to identifiable tangible asset groups that
are guarantors of the notes.
The following table presents the components of Parents
acquisition-related debt that have been allocated to TNT LP, as
of December 31, 2005 (in thousands).
|
|
|
|
|
|
|
Allocated to
|
|
|
|
TNT LP
|
|
|
Senior secured term loan facility,
variable rate, due October 2011
|
|
$
|
491,894
|
|
Senior secured asset sale bridge
loan facility, variable rate, due October 2007
|
|
|
276,151
|
|
Senior unsecured notes,
81/2%
fixed rate, due November 2013
|
|
|
100,847
|
|
|
|
|
|
|
Total principal amount
|
|
|
868,892
|
|
Less current maturities of debt
|
|
|
(4,932
|
)
|
|
|
|
|
|
Long-term debt
|
|
$
|
863,960
|
|
|
|
|
|
|
F-21
Targa
North Texas LP
Notes to
Combined Financial
Statements (Continued)
The following table presents information regarding variable
interest rates paid on the Parent debt for the two months ended
December 31, 2005.
|
|
|
|
|
|
|
Range of
|
|
Weighted average
|
|
|
interest rates paid
|
|
interest rate paid
|
|
Senior secured term loan facility
|
|
6.34% to 6.64%
|
|
6.49%
|
Senior secured asset sale bridge
loan facility
|
|
6.34% to 6.83%
|
|
6.59%
|
Interest expense on long-term debt allocated to TNT LP is
settled through an adjustment to partners capital (see
Note 9 Related Party Transactions).
Debt
Maturity Table
The following table presents the scheduled maturities of
principal amounts of the Parents long-term debt allocated
to TNT LP (in thousands).
|
|
|
|
|
|
|
Allocated to
|
|
|
|
TNT LP
|
|
|
2006
|
|
$
|
4,932
|
|
2007
|
|
|
281,083
|
|
2008
|
|
|
4,932
|
|
2009
|
|
|
4,932
|
|
2010
|
|
|
4,932
|
|
Thereafter
|
|
|
568,081
|
|
|
|
|
|
|
|
|
$
|
868,892
|
|
|
|
|
|
|
Critical
Terms of Parent Debt Obligations
Senior
Secured Credit Facility
On October 31, 2005, the Parent entered into a
$2,500 million senior secured credit agreement with a
syndicate of financial institutions and other institutional
lenders. The credit agreement includes a
$300 million
senior secured letter of credit facility.
Borrowings under the senior secured credit agreement, other than
the senior secured synthetic letter of credit facility, bear
interest at a rate equal to an applicable margin plus, at the
Parents option, either (a) a base rate determined by
reference to the higher of (1) the prime rate of Credit
Suisse and (2) the federal funds rate plus
1/2
of 1% or (b) LIBOR as determined by reference to the costs
of funds for dollar deposits for the interest period relevant to
such borrowing adjusted for certain statutory reserves. The
initial applicable margin for borrowings under the senior
secured revolving credit facility is 1.25% with respect to base
rate borrowings and 2.25% with respect to LIBOR borrowings. Upon
repayment of the senior secured asset sale bridge loan facility,
the margin for borrowings under the senior secured revolving
credit facility will be 1.00% with respect to base rate
borrowings and 2.00% with respect to LIBOR borrowings. The
applicable margin for borrowings under the senior secured
revolving credit facility may fluctuate based upon the
Parents leverage ratio as defined in the credit agreement.
The Parent is required to pay a facility fee, quarterly in
arrears, to the lenders under the senior secured synthetic
letter of credit facility equal to (i) 2.25% of the amount
on deposit in the designated deposit account plus (ii) the
administrative cost incurred by the deposit account agent for
such quarterly period.
In addition to paying interest on outstanding principal under
the senior secured credit facilities, the Parent is required to
pay a commitment fee equal to 0.50% of the currently unutilized
commitments thereunder. The commitment fee rate may fluctuate
based upon the Parents leverage ratios.
F-22
Targa
North Texas LP
Notes to
Combined Financial
Statements (Continued)
All obligations under the Parents senior secured credit
agreement and certain secured hedging arrangements are
unconditionally guaranteed, subject to certain exceptions, by
each of its existing and future domestic restricted
subsidiaries, including TNT LP.
All obligations under the senior secured credit facilities and
certain secured hedging arrangements, and the guarantees of
those obligations, are secured by substantially all of the
following assets, subject to certain exceptions:
|
|
|
|
|
a pledge of TNT LPs general partner and limited partner
interests; and
|
|
|
|
a security interest in, and mortgages on, TNT LPs tangible
and intangible assets.
|
81/2% Senior
Notes due 2013
On October 31, 2005 the Parent completed the private
placement of $250 million in aggregate principal amount of
senior unsecured notes (the Notes).
Interest on the Notes accrues at the rate of
81/2% per
annum and is payable in arrears on May 1 and
November 1. Interest is computed on the basis of a
360-day year
comprising twelve
30-day
months. Additional interest may accrue on the Notes in certain
circumstances pursuant to a registration rights agreement.
The Notes are the Parents unsecured senior obligations,
and are guaranteed by TNT LP, subordinate to its guarantee of
the Parents borrowings under its senior secured credit
facility.
Interest
Rate Swaps
In connection with its Senior Secured Credit Facility, the
Parent entered into interest rate swaps with a notional amount
of $350 million. The interest rate swaps effectively fix
the interest rate on $350 million in borrowings under the
Senior Secured Credit Facility to a rate of 4.8% plus the
applicable LIBOR margin (2.25% at December 31,
2005) through November 2007.
The change in fair value of the interest rate swaps, together
with the related accumulated other comprehensive income and
interest expense has been allocated to TNT LP in the same
proportion as the allocation of the Parents borrowings
under its Senior Secured Credit Facility.
Note 7
Asset Retirement Obligations
As part of adopting SFAS 143 on January 1, 2003, TNT
LP Predecessor reversed its existing environmental liabilities
in the amount of $1.5 million. Because these liabilities
were originally recorded in connection with an asset purchase
transaction, the reversal resulted in a corresponding reduction
in property, plant, and equipment.
At January 1, 2003, TNT LP Predecessors future ARO
for property, plant, and equipment was $1.6 million. Its
adoption of SFAS 143 resulted in a cumulative effect charge
of $0.6 million, reflecting a $0.3 million decrease in
accumulated depreciation offset by $0.9 million in
accretion expense. Net of the reduction related to its
previously existing environmental liabilities, TNT LP
Predecessors adoption of SFAS 143 resulted in a
$0.8 million decrease in property, plant, and equipment.
Adopting SFAS No. 143 did not impact TNT LP
Predecessors cash flows.
F-23
Targa
North Texas LP
Notes to
Combined Financial
Statements (Continued)
The following table reflects the changes in TNT LP and TNT LP
Predecessors AROs during the periods shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TNT LP
|
|
|
|
TNT LP Predecessor
|
|
|
|
Two Months Ended
|
|
|
|
Ten Months Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
October 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
2,054
|
|
|
|
$
|
1,897
|
|
|
$
|
1,838
|
|
|
$
|
1,641
|
|
Liabilities incurred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in estimate
|
|
|
(548
|
)
|
|
|
|
(30
|
)
|
|
|
(145
|
)
|
|
|
|
|
Accretion expense
|
|
|
35
|
|
|
|
|
187
|
|
|
|
204
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
1,541
|
|
|
|
$
|
2,054
|
|
|
$
|
1,897
|
|
|
$
|
1,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the purchase price allocation for the DMS
Acquisition, management revised the estimated remaining lives of
TNT LPs long-lived assets, which together with the revised
discount rate as of the acquisition date, resulted in a
$0.5 million downward revision in its ARO as of
October 31, 2005.
Note 8
Commitments and Contingencies
Contractual obligations pertain to a natural gas pipeline
capacity agreement on certain interstate pipelines entered into
during 2005 and AROs. Future non-cancelable commitments related
to these obligations are presented below (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011+
|
|
|
Capacity payments
|
|
$
|
2.5
|
|
|
$
|
1.5
|
|
|
$
|
1.4
|
|
|
$
|
1.4
|
|
|
$
|
0.8
|
|
|
$
|
|
|
AROs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.5
|
|
|
$
|
1.5
|
|
|
$
|
1.4
|
|
|
$
|
1.4
|
|
|
$
|
0.8
|
|
|
$
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses related to capacity payments were
$0.1 million and $0.4 million for the two months ended
December 31, 2005 and the ten months ended October 31,
2005, respectively.
Environmental
For environmental matters, TNT LP and TNT LP Predecessor record
liabilities when remedial efforts are probable and the costs can
be reasonably estimated in accordance with the American
Institute of Certified Public Accountants Statement of Position
96-1, Environmental Remediation Liabilities.
Environmental reserves do not reflect managements
assessment of the insurance coverage that may be applicable to
the matters at issue. Management has assessed each of the
matters based on current information and made a judgment
concerning its potential outcome, considering the nature of the
claim, the amount and nature of damages sought and the
probability of success.
TNT LPs environmental liability at December 31, 2005
was $0.1 million, primarily for ground water assessment and
remediation.
Litigation
Summary
TNT LP is not a party to any legal proceeding other than legal
proceedings arising in the ordinary course of its business. TNT
LP is a party to various administrative and regulatory
proceedings that have arisen in the ordinary course of its
business.
F-24
Targa
North Texas LP
Notes to
Combined Financial
Statements (Continued)
Note 9
Related-Party Transactions
Sales to and purchases from
affiliates. TNT LP and TNT LP Predecessor
routinely conduct business with other subsidiaries of the
Parent. The related transactions result primarily from purchases
and sales of natural gas and natural gas liquids. In addition,
all of TNT LP and TNT LP Predecessors expenditures are
paid through the Parent, resulting in inter-company
transactions. Unlike sales transactions with third parties that
settle in cash, settlement of these sales transactions occurs
through adjustment to partners capital/net parent equity.
Allocation of costs. The employees
supporting TNT LP and TNT LP Predecessors operations are
employees of the Parent. TNT LP and TNT LP Predecessors
financial statements include costs allocated to them by the
Parent for centralized general and administrative services
performed by the Parent, as well as depreciation of assets
utilized by the Parents centralized general and
administrative functions. Costs were allocated to TNT LP
Predecessor based on its proportionate share of the
Parents assets, revenues and employees. Costs allocated to
TNT LP were based on identification of the Parents
resources which directly benefit TNT LP and its proportionate
share of costs based on TNT LPs estimated usage of shared
resources and functions. All of the allocations are based on
assumptions that management believes are reasonable; however,
these allocations are not necessarily indicative of the costs
and expenses that would have resulted if TNT LP and TNT LP
Predecessor had been operated as stand-alone entities. These
allocations are not settled in cash. Settlement of these
allocations occurs through adjustment to partners
capital/net parent equity.
Allocations of long-term debt, debt issue costs, interest
rate swaps and interest expense. TNT
LPs financial statements include long-term debt, debt
issue costs, interest rate swaps and interest expense allocated
from the Parent. The allocations were calculated in a manner
similar to the acquisition purchase price allocation, and based
on the fair value of acquired tangible assets plus related net
working capital and unconsolidated equity interests. These
allocations are not settled in cash. Settlement of these
allocations occurs through adjustment to partners capital.
F-25
Targa
North Texas LP
Notes to
Combined Financial
Statements (Continued)
The following table summarizes the sales to and purchases from
affiliates of the Parent, payments made or received by the
Parent on behalf of TNT LP and TNT LP Predecessor, and
allocations of costs from the Parent which are settled through
adjustment to partners capital/net parent equity.
Management believes these transactions are executed on terms
that are fair and reasonable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TNT LP
|
|
|
|
TNT LP Predecessor
|
|
|
|
Two Months
|
|
|
|
Ten Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 31,
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to affiliates
|
|
$
|
(52,952
|
)
|
|
|
$
|
(284,603
|
)
|
|
$
|
(246,516
|
)
|
|
$
|
(186,025
|
)
|
Purchases from affiliates
|
|
|
11
|
|
|
|
|
1,024
|
|
|
|
278
|
|
|
|
266
|
|
Payments made/received by the
Parent
|
|
|
44,781
|
|
|
|
|
220,038
|
|
|
|
204,435
|
|
|
|
161,433
|
|
Parent allocation of interest
expense
|
|
|
10,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent allocation of general and
administrative expense
|
|
|
1,063
|
|
|
|
|
7,273
|
|
|
|
7,230
|
|
|
|
7,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,597
|
|
|
|
|
(56,268
|
)
|
|
|
(34,573
|
)
|
|
|
(16,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial contribution by Parent
(see Note 4)
|
|
|
219,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent allocation of debt
repayments
|
|
|
1,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions settled through
adjustments to partners capital/net parent equity
|
|
$
|
224,709
|
|
|
|
$
|
(56,268
|
)
|
|
$
|
(34,573
|
)
|
|
$
|
(16,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centralized Cash Management. The Parent
operates a cash management system whereby excess cash from most
of their various subsidiaries, held in separate bank accounts,
is swept to a centralized account. Cash distributions are deemed
to have occurred through partners capital/net parent
equity, and are reflected as an adjustment to partners
capital/net parent equity. Deemed net contributions of cash by
TNT LPs parent were $3.6 million for the two months
ended December 31, 2005. Net cash distributions to TNT LP
Predecessors parent were $56.3 million,
$34.6 million and $16.7 million for the ten months
ended October 31, 2005, and the years ended
December 31, 2004 and 2003, respectively.
Note 10
Significant Risks and Uncertainties
Nature
of Operations in Midstream Energy Industry
TNT LP operates in the midstream energy industry. Its business
activities include gathering, transporting and processing of
natural gas, NGL and crude oil. As such, its results of
operations, cash flows and financial condition may be affected
by (i) changes in the commodity prices of these hydrocarbon
products and (ii) changes in the relative price levels
among these hydrocarbon products. In general, the prices of
natural gas, NGL, crude oil and other hydrocarbon products are
subject to fluctuations in response to changes in supply, market
uncertainty and a variety of additional factors that are beyond
our control.
TNT LPs profitability could be impacted by a decline in
the volume of natural gas, NGL and crude oil transported,
gathered or processed at its facilities. A material decrease in
natural gas or crude oil production or crude oil refining, as a
result of depressed commodity prices, a decrease in exploration
and
F-26
Targa
North Texas LP
Notes to
Combined Financial
Statements (Continued)
development activities or otherwise, could result in a decline
in the volume of natural gas, NGL and crude oil handled by TNT
LPs facilities.
A reduction in demand for NGL products by the petrochemical,
refining or heating industries, whether because of
(i) general economic conditions, (ii) reduced demand
by consumers for the end products made with NGL products,
(iii) increased competition from petroleum-based products
due to the pricing differences, (iv) adverse weather
conditions, (v) government regulations affecting commodity
prices and production levels of hydrocarbons or the content of
motor gasoline or (vi) other reasons, could also adversely
affect TNT LPs results of operations, cash flows and
financial position.
Counterparty
Risk with Respect to Financial Instruments
Where TNT LP is exposed to credit risk in its financial
instrument transactions, management analyzes the
counterpartys financial condition prior to entering into
an agreement, establishes credit
and/or
margin limits and monitors the appropriateness of these limits
on an ongoing basis. Generally, management does not require
collateral and does not anticipate nonperformance by TNT
LPs counterparties.
Casualties
or Other Risks
The Parent maintains coverage in various insurance programs on
TNT LPs behalf, which provides it with property damage,
business interruption and other coverages which are customary
for the nature and scope of its operations.
Management believes that the Parent has adequate insurance
coverage, although insurance will not cover every type of
interruption that might occur. As a result of insurance market
conditions, premiums and deductibles for certain insurance
policies have increased substantially, and in some instances,
certain insurance may become unavailable, or available for only
reduced amounts of coverage. As a result, the Parent may not be
able to renew existing insurance policies or procure other
desirable insurance on commercially reasonable terms, if at all.
If TNT LP were to incur a significant liability for which it was
not fully insured, it could have a material impact on its
combined financial position and results of operations. In
addition, the proceeds of any such insurance may not be paid in
a timely manner and may be insufficient if such an event were to
occur. Any event that interrupts the revenues generated by TNT
LPs combined operations, or which causes TNT LP to make
significant expenditures not covered by insurance, could reduce
its ability to meet its financial obligations.
F-27
Targa
North Texas LP
Notes to
Combined Financial
Statements (Continued)
Note 11
Subsequent Events
Hedging
During 2006, TNT LP entered into the following hedging
arrangements for a portion of its production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Commodity
|
|
Type
|
|
Daily Volume
|
|
Average Price
|
|
Index
|
|
Jul 06 Dec
10
|
|
Natural gas
|
|
Swap
|
|
|
3,832
|
|
|
MMBtu
|
|
$
|
8.27
|
|
|
per MMBtu
|
|
IF-WAHA
|
Jan 07 Dec
10
|
|
Natural gas
|
|
Swap
|
|
|
520
|
|
|
MMbtu
|
|
|
7.32
|
|
|
per MMBtu
|
|
IF-WAHA
|
Jan 07 Dec
09
|
|
Natural gas
|
|
Swap
|
|
|
383
|
|
|
MMbtu
|
|
|
7.45
|
|
|
per MMBtu
|
|
IF-WAHA
|
Jan 07 Dec
09
|
|
Natural gas
|
|
Floor
|
|
|
528
|
|
|
MMbtu
|
|
|
6.71
|
|
|
per MMBtu
|
|
IF-WAHA
|
Jul 06 Dec
10
|
|
Natural gas
|
|
Swap
|
|
|
5,711
|
|
|
MMBtu
|
|
|
8.23
|
|
|
per MMBtu
|
|
IF-NGPL MC
|
Jan 07 Dec
10
|
|
Natural gas
|
|
Swap
|
|
|
780
|
|
|
MMbtu
|
|
|
7.18
|
|
|
per MMBtu
|
|
IF-NGPL MC
|
Jan 07 Dec
09
|
|
Natural gas
|
|
Swap
|
|
|
570
|
|
|
MMbtu
|
|
|
7.20
|
|
|
per MMBtu
|
|
IF-NGPL MC
|
Jan 07 Dec
09
|
|
Natural gas
|
|
Floor
|
|
|
790
|
|
|
MMbtu
|
|
|
6.53
|
|
|
per MMBtu
|
|
IF-NGPL MC
|
Jul 06 Dec
10
|
|
NGL
|
|
Swap
|
|
|
2,147
|
|
|
Bbls
|
|
|
0.95
|
|
|
per gallon
|
|
MB-OPIS
|
Jul 06 Dec
10
|
|
Condensate
|
|
Swap
|
|
|
255
|
|
|
Bbls
|
|
|
73.05
|
|
|
per barrel
|
|
NY-WTI
|
Jan 07 Dec
10
|
|
Condensate
|
|
Swap
|
|
|
120
|
|
|
Bbls
|
|
|
66.31
|
|
|
per Bbl
|
|
NY-WTI
|
Jan 07 Dec
09
|
|
Condensate
|
|
Swap
|
|
|
43
|
|
|
Bbls
|
|
|
59.94
|
|
|
per Bbl
|
|
NY-WTI
|
These contracts may expose TNT LP to the risk of financial loss
in certain circumstances. These hedging arrangements provide TNT
LP with protection on the hedged volumes if prices decline below
the prices at which these hedges were set but, if prices
increased, the fixed price nature of the swap-related hedges
will cause TNT LP to receive less revenue on the hedged volumes
than it would receive in the absence of hedges.
Income
Taxes
On May 18, 2006, the Governor of Texas signed into law
House Bill 3 (HB-3) which modifies the existing
Texas franchise tax law. The modified franchise tax will be
computed by subtracting either costs of goods sold or
compensation expense, as defined in HB-3, from gross revenue to
arrive at a gross margin. The resulting gross margin will be
taxed at a one percent tax rate. HB-3 has also expanded the
definition of tax paying entities to include limited
partnerships thereby now subjecting TNT LP to a new state tax
expense. HB-3 becomes effective for activities occurring on or
after January 1, 2007. TNT LP believes that this tax should
still be accounted for as an income tax, following the
provisions of SFAS 109, because it has the characteristics
of an income tax.
During 2006, TNT LP will record a charge to deferred income tax
expense equal to one percent of the difference between the book
value and tax value of its property, plant, and equipment.
F-28
TARGA
NORTH TEXAS LP
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
(in thousands of dollars)
|
|
|
ASSETS (collateral for Parent
debt See Note 4)
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
$
|
1,156
|
|
|
$
|
1,525
|
|
Inventory
|
|
|
571
|
|
|
|
1,155
|
|
Assets from risk management
activities
|
|
|
15,144
|
|
|
|
34
|
|
Deposits
|
|
|
|
|
|
|
630
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
16,871
|
|
|
|
3,344
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment
|
|
|
1,123,862
|
|
|
|
1,106,107
|
|
Accumulated depreciation
|
|
|
(50,857
|
)
|
|
|
(9,126
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, net
|
|
|
1,073,005
|
|
|
|
1,096,981
|
|
Debt issue costs allocated from
parent
|
|
|
18,886
|
|
|
|
22,494
|
|
Long-term assets from risk
management activities
|
|
|
17,558
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total assets (collateral for
Parent debt see Note 4)
|
|
$
|
1,126,320
|
|
|
$
|
1,122,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS
CAPITAL
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
2,135
|
|
|
|
2,145
|
|
Accrued liabilities
|
|
|
27,919
|
|
|
|
30,595
|
|
Current maturities of debt
allocated from parent
|
|
|
4,932
|
|
|
|
4,932
|
|
Liabilities from risk management
activities
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
34,986
|
|
|
|
37,725
|
|
|
|
|
|
|
|
|
|
|
Long-term debt allocated from
parent
|
|
|
860,261
|
|
|
|
863,960
|
|
Deferred income taxes
|
|
|
2,262
|
|
|
|
|
|
Long-term liabilities from risk
management activities
|
|
|
|
|
|
|
72
|
|
Other long-term liabilities
|
|
|
1,649
|
|
|
|
1,541
|
|
Commitments and contingencies (see
Note 6)
|
|
|
|
|
|
|
|
|
Partners capital:
|
|
|
|
|
|
|
|
|
General partner
|
|
|
113,581
|
|
|
|
109,772
|
|
Limited partner
|
|
|
113,581
|
|
|
|
109,773
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
227,162
|
|
|
|
219,545
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
partners capital
|
|
$
|
1,126,320
|
|
|
$
|
1,122,843
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited combined financial statements
F-29
TARGA
NORTH TEXAS LP
COMBINED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
TNT LP
|
|
|
|
TNT LP Predecessor
|
|
|
|
Nine Months
|
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
(in thousands of dollars)
|
|
Revenues from third parties
|
|
$
|
8,233
|
|
|
|
$
|
7,369
|
|
Revenues from affiliates
|
|
|
282,657
|
|
|
|
|
242,370
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
290,890
|
|
|
|
|
249,739
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Product purchases from third
parties
|
|
|
204,532
|
|
|
|
|
178,174
|
|
Product purchases from affiliates
|
|
|
670
|
|
|
|
|
909
|
|
Operating expense
|
|
|
17,905
|
|
|
|
|
15,823
|
|
Depreciation and amortization
expense
|
|
|
41,713
|
|
|
|
|
10,059
|
|
General and administrative expense
|
|
|
5,137
|
|
|
|
|
6,723
|
|
Gain on sale of assets
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269,957
|
|
|
|
|
211,657
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
20,933
|
|
|
|
|
38,082
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
Interest expense allocated from
Parent
|
|
|
(54,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(33,436
|
)
|
|
|
|
38,082
|
|
Deferred income tax expense
|
|
|
(1,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(35,424
|
)
|
|
|
|
38,082
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Change in fair value of commodity
hedges
|
|
|
32,370
|
|
|
|
|
|
|
Reclassification adjustment for
settled periods
|
|
|
(343
|
)
|
|
|
|
|
|
Related income taxes
|
|
|
(274
|
)
|
|
|
|
|
|
Change in fair value of interest
rate swaps
|
|
|
921
|
|
|
|
|
|
|
Reclassification adjustment for
settled periods
|
|
|
(179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(2,929
|
)
|
|
|
$
|
38,082
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited combined financial statements
F-30
TARGA
NORTH TEXAS LP
STATEMENT
OF PARTNERS CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Partner
|
|
|
Limited Partner
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
|
(in thousands of dollars)
|
|
|
Balance, December 31,
2005
|
|
$
|
109,772
|
|
|
$
|
109,773
|
|
|
$
|
219,545
|
|
Contributions
|
|
|
5,273
|
|
|
|
5,272
|
|
|
|
10,545
|
|
Other comprehensive income
|
|
|
16,248
|
|
|
|
16,248
|
|
|
|
32,496
|
|
Net loss
|
|
|
(17,712
|
)
|
|
|
(17,712
|
)
|
|
|
(35,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30,
2006
|
|
$
|
113,581
|
|
|
$
|
113,581
|
|
|
$
|
227,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited combined financial statements
F-31
TARGA
NORTH TEXAS LP
COMBINED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TNT LP
|
|
|
|
TNT LP
|
|
|
|
Predecessor
|
|
|
|
Nine Months
|
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
(in thousands of dollars)
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(35,424
|
)
|
|
|
$
|
38,082
|
|
Adjustments to reconcile net
income (loss) to cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
41,713
|
|
|
|
|
10,059
|
|
Accretion
|
|
|
108
|
|
|
|
|
168
|
|
Deferred income taxes
|
|
|
1,988
|
|
|
|
|
|
|
Amortization of debt issue costs
allocated from Parent
|
|
|
3,864
|
|
|
|
|
|
|
Gain on sale of assets
|
|
|
|
|
|
|
|
(31
|
)
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
369
|
|
|
|
|
(461
|
)
|
Inventory
|
|
|
584
|
|
|
|
|
423
|
|
Other assets
|
|
|
630
|
|
|
|
|
46
|
|
Accounts payable
|
|
|
(10
|
)
|
|
|
|
(1,075
|
)
|
Other liabilities
|
|
|
(2,675
|
)
|
|
|
|
11,972
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
11,147
|
|
|
|
|
59,183
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and
equipment
|
|
|
(17,769
|
)
|
|
|
|
(14,252
|
)
|
Proceeds from asset sales
|
|
|
32
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(17,737
|
)
|
|
|
|
(14,221
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
|
Contributions (distributions)
|
|
|
6,590
|
|
|
|
|
(44,962
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) in
financing activities
|
|
|
6,590
|
|
|
|
|
(44,962
|
)
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents,
beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Debt issue cost allocated from
Parent
|
|
$
|
256
|
|
|
|
$
|
|
|
Repayment of long-term debt
allocated from Parent
|
|
|
3,699
|
|
|
|
|
|
|
See notes to unaudited combined financial statements
F-32
TARGA
NORTH TEXAS LP
(unaudited)
Note 1
Organization and Basis of Presentation
Targa North Texas LP (TNT LP) is a Delaware limited
partnership formed on November 28, 2005 to control, manage
and operate Targa Resources Inc. (Targa
Resources)s North Texas System. TNT LP is owned 50%
by its general partner, Targa North Texas GP LLC, a Delaware
limited liability company, and 50% by its sole limited partner,
Targa LP Inc., a Delaware corporation. The partnership agreement
requires all items of income and expense, and all distributions
to be allocated among the partners in accordance with their
ownership ratios. The general partner and limited partner are
indirect wholly-owned subsidiaries of Targa Resources.
Targa Resources acquired the North Texas System on
October 31, 2005 as part of its acquisition of
substantially all of the midstream natural gas business of
Dynegy Inc. (Dynegy). On December 1, 2005, in a
series of transactions, Targa Resources conveyed the North Texas
System to TNT LP.
Prior to October 31, 2005, the North Texas System was owned
by an indirect wholly-owned subsidiary of Dynegy, and is
presented in these financial statements as TNT LP
Predecessor.
The North Texas System consists of two wholly-owned natural gas
processing plants and an extensive network of integrated
gathering pipelines that serve a 14 county natural gas producing
region in the Fort Worth Basin in North Central Texas. The
natural gas processing facilities comprised the Chico processing
and fractionation facilities and the Shackelford processing
facility.
The accompanying unaudited combined financial statements include
the results of operations and cash flows of Targa North Texas LP
for the nine months ended September 30, 2006, and the
results of operations and cash flows of the North Texas System
derived from the accounts of the TNT LP Predecessor for the nine
months ended September 30, 2005.
The accompanying unaudited interim combined financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim
combined financial information. Accordingly, they do not include
all the information and footnotes required by accounting
principles generally accepted in the United States of America
for complete combined financial statements. In the opinion of
management, they contain all adjustments, consisting only of
normal recurring adjustments, which management considers
necessary to present fairly the financial position as of
September 30, 2006 and December 31, 2005; and the
results of operations and cash flows for the nine month periods
ended September 30, 2006 and 2005. The results of
operations for the nine months ended September 30, 2006
should not be taken as indicative of the results to be expected
for the full year due to seasonality of portions of TNT
LPs business and maintenance activities. The interim
combined financial statements should be read in conjunction with
TNT LPs combined financial statements and notes for the
year ended December 31, 2005.
In the accompanying financial statements and related notes,
references to Parent are to Dynegy as of and prior
to October 31, 2005, and to Targa Resources subsequent to
October 31, 2005.
Throughout the periods covered by the combined financial
statements, the Parent has provided cash management services to
TNT LP and TNT LP Predecessor through a centralized treasury
system. As a result, all of TNT LP and TNT LP Predecessors
charges and cost allocations covered by the centralized treasury
system were deemed to have been paid to the Parent in cash,
during the period in which the cost was recorded in the combined
financial statements. In addition, cash receipts advanced by the
Parent in excess/deficit of charges and cash allocations are
reflected as contributions from/distributions to the Parent in
the combined statements of partners capital/net parent
equity. As a result of this accounting treatment, TNT LPs
working capital does not reflect any affiliate accounts
receivable for intercompany commodity sales or any affiliate
accounts payable for personnel and services and for intercompany
product purchases.
F-33
TARGA
NORTH TEXAS LP
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Consequently, TNT LP had a negative working capital balance of
$18.1 million at September 30, 2006. Despite the
negative working capital balance, TNT LP generated sufficient
operating cash flow to fund its working capital and allocated
debt service requirements.
TNT LP and TNT LP Predecessor have been allocated general and
administrative expenses incurred by the Parent in order to
present financial statements on a stand-alone basis. See
Note 7 for a discussion of the amounts and method of
allocation. All of the allocations are not necessarily
indicative of the costs and expenses that would have resulted
had TNT LP and TNT LP Predecessor been operated as stand-alone
entities.
Note 2
Recent Accounting Pronouncements
TNT LP adopted Statement of Financial Accounting Standards
(SFAS) 154, Accounting Changes and Error
Corrections, on January 1, 2006. SFAS 154
provides guidance on the accounting for and reporting of
accounting changes and error corrections. TNT LPs adoption
of SFAS 154 had no effect on its financial statements.
On April 1, 2006 TNT LP adopted the consensus on Financial
Accounting Standards Board (FASB) Emerging Issues
Task Force (EITF) 04-13, Accounting for
Purchases and Sale of Inventory With the Same
Counterparty.
EITF 04-13
requires that two or more inventory transactions with the same
counterparty should be viewed as a single non-monetary
transaction, if the transactions were entered into in
contemplation of one another. Exchanges of inventory between
entities in the same line of business should be accounted for at
fair value or recorded at carrying amounts, depending on the
classification of such inventory. TNT LPs adoption of
EITF 04-13
had no effect on its financial statements.
In July 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
an interpretation of FASB Statement No. 109
(FIN 48) which clarifies the
accounting and disclosure for uncertainty in tax positions, as
defined. FIN 48 seeks to reduce the diversity in practice
associated with certain aspects of the recognition and
measurement related to accounting for income taxes. This
interpretation is effective for fiscal years beginning after
December 15, 2006. TNT LP has not yet determined the impact
this interpretation will have on its financial statements.
In September 2006, the FASB issued SFAS 157 Fair
Value Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. SFAS 157 applies
under other accounting pronouncements that require or permit
fair value measurements, the FASB having previously concluded in
these accounting pronouncements that fair value is the relevant
measurement attribute. Accordingly, SFAS 157 does not
require any new fair value measurements. However, for some
entities, the application of SFAS 157 will change current
practice. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. TNT LP has not
yet determined the impact this interpretation will have on its
financial statements.
In September 2006, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin 108
(SAB 108). Due to diversity in practice among
registrants, SAB 108 expresses SEC staff views regarding
the process by which misstatements in financial statements are
evaluated for purposes of determining whether financial
statement restatement is necessary. SAB 108 is effective
for fiscal years ending after November 15, 2006, and early
application is encouraged. SAB 108 will have no effect on
TNT LPs financial statements.
Note 3
Change of Control
On October 31, 2005, Targa Resources completed the DMS
acquisition for $2,452 million in cash. Approximately
$1,067 million of the total purchase price was allocated to
the net assets of the North Texas
F-34
TARGA
NORTH TEXAS LP
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
System. Additionally, $870.1 million of Targa
Resources acquisition-related long-term debt (see
Note 4) and $23.3 million in associated debt
issue costs were allocated to the North Texas System. The
following presents the portion of the purchase price and related
long-term debt and debt issue costs allocated to the North Texas
System based on the estimated fair values of the assets acquired
and liabilities assumed (in thousands):
|
|
|
|
|
Current assets
|
|
$
|
2,105
|
|
Property, plant, and equipment
|
|
|
1,104,000
|
|
Debt issue costs
|
|
|
23,342
|
|
Current liabilities
|
|
|
(37,937
|
)
|
Long-term debt
|
|
|
(870,125
|
)
|
Asset retirement obligations
|
|
|
(1,506
|
)
|
|
|
|
|
|
Initial contribution
|
|
$
|
219,879
|
|
|
|
|
|
|
The following unaudited pro forma financial information presents
the combined results of operations of the North Texas System for
the nine months ended September 30, 2005, as if the
acquisition from Dynegy had occurred on January 1, 2005,
after including certain pro forma adjustments for interest
expense on long-term debt allocated from Targa Resources and
depreciation and amortization. The pro forma information is not
necessarily indicative of the results of operations had the
acquisition occurred on January 1, 2005 or the results of
operations that may be obtained in the future.
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
2005
|
|
|
|
(in thousands)
|
|
|
Revenue
|
|
$
|
249,739
|
|
Product purchases
|
|
|
(179,083
|
)
|
Depreciation and amortization
|
|
|
(41,157
|
)
|
Gain (loss) on sale of assets
|
|
|
31
|
|
Other operating expense
|
|
|
(22,198
|
)
|
|
|
|
|
|
Income from operations
|
|
|
7,332
|
|
Interest expense
|
|
|
(51,939
|
)
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(44,607
|
)
|
|
|
|
|
|
F-35
TARGA
NORTH TEXAS LP
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Note 4
Long-Term Debt
The following table presents the components of Targa
Resources long-term debt that have been allocated to TNT
LP at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006
|
|
|
December 31, 2005
|
|
|
|
Allocated
|
|
|
Allocated
|
|
|
|
to TNT LP
|
|
|
to TNT LP
|
|
|
Senior secured term loan facility,
variable rate
|
|
$
|
488,195
|
|
|
$
|
491,894
|
|
Senior secured asset sale bridge
loan facility, variable rate
|
|
|
276,151
|
|
|
|
276,151
|
|
Senior unsecured notes,
81/2%
fixed rate
|
|
|
100,847
|
|
|
|
100,847
|
|
|
|
|
|
|
|
|
|
|
Subtotal debt
|
|
|
865,193
|
|
|
|
868,892
|
|
Current maturities of debt
|
|
|
(4,932
|
)
|
|
|
(4,932
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
860,261
|
|
|
$
|
863,960
|
|
|
|
|
|
|
|
|
|
|
The following table presents information regarding variable
interest rates paid on the Parent debt for the nine months ended
September 30, 2006.
|
|
|
|
|
|
|
Range of
|
|
Weighted average
|
|
|
interest rates paid
|
|
interest rate paid
|
|
Senior secured term loan facility
|
|
6.6% 7.7%
|
|
7.0%
|
Senior secured asset sale bridge
loan facility
|
|
6.8% 7.6%
|
|
7.1%
|
Note 5
Derivative Instruments and Hedging Activities
At September 30, 2006, TNT LPs accumulated other
comprehensive income (OCI) included unrealized gains
of $32.7 million ($32.4 million, net of tax) on its
open commodity hedges. OCI also included unrealized gains of
$0.7 million on interest rate swaps allocated from Targa
Resources.
At December 31, 2005, TNT LPs OCI included unrealized
losses of $0.1 million on interest rate swaps allocated
from Targa Resources.
During the nine months ended September 30, 2006, deferred
gains of $0.5 million on commodity hedges and
$0.2 million on interest rate swaps were reclassified from
OCI and credited to income.
Based on quoted market prices and rates for future periods as of
September 30, 2006, during the next twelve months TNT LP
expects to reclassify to earnings deferred net gains of
$15.0 million associated with commodity derivatives and
$0.6 million associated with interest rate swaps. The
amounts ultimately reclassified to earnings will vary depending
on the actual realized value upon settlement.
TNT LP had the following open derivatives at September 30,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Commodity
|
|
Type
|
|
Notional Amount
|
|
Average Price
|
|
Index
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Oct 06Dec 10
|
|
Natural gas
|
|
Swap
|
|
|
5,871,551
|
|
MMBtu
|
|
$8.37
per MMBtu
|
|
IF-WAHA
|
|
$
|
7,561
|
|
Oct 06Dec 10
|
|
Natural gas
|
|
Swap
|
|
|
8,756,711
|
|
MMBtu
|
|
8.35 per MMBtu
|
|
IF-NGPL MC
|
|
|
12,031
|
|
Oct 06Dec 10
|
|
NGL
|
|
Swap
|
|
|
3,278,547
|
|
Bbls
|
|
0.95 per gallon
|
|
MB-OPIS
|
|
|
10,404
|
|
Oct 06Dec 10
|
|
Condensate
|
|
Swap
|
|
|
386,526
|
|
Bbls
|
|
73.04 per barrel
|
|
NY-WTI
|
|
|
2,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,028
|
|
Oct-06Nov-07
|
|
Interest rates
|
|
Swap
|
|
$
|
138 million
|
|
|
|
|
|
3m USD LIBOR
|
|
|
674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-36
TARGA
NORTH TEXAS LP
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table shows the balance sheet classification of
the fair value of TNT LPs open commodity derivatives and
allocated interest rate swaps at September 30, 2006.
|
|
|
|
|
|
|
(in thousands)
|
|
|
Current assets
|
|
$
|
15,144
|
|
Noncurrent assets
|
|
|
17,558
|
|
Current liabilities
|
|
|
|
|
Noncurrent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,702
|
|
|
|
|
|
|
Note 6
Commitments and Contingencies
Environmental
TNT LPs environmental liability at September 30, 2006
was $0.1 million, primarily for ground water assessment and
remediation.
Litigation
Summary
TNT LP is a party to various legal proceedings
and/or
regulatory proceedings, and certain claims, suits and complaints
arising in the ordinary course of business have been filed or
are pending against it. Management believes, all such matters
are without merit or involve amounts, which, if resolved
unfavorably, would not have a material effect on TNT LPs
financial position, results of operations, or cash flows.
Note 7
Related-Party Transactions
Sales to and purchases from Parent. TNT
LP and TNT LP Predecessor routinely conduct business with other
subsidiaries of the Parent. Transactions with such subsidiaries
result primarily from purchases and sales of natural gas and
natural gas liquids. In addition, all expenditures of TNT LP and
TNT LP Predecessor were paid through the Parent, resulting in
inter-company transactions. Unlike purchase and sales
transactions with third parties that settle in cash, settlement
of these sales and purchases occurs through adjustment to
partners capital (net parent equity of TNT LP Predecessor
for the nine months ended September 30, 2005).
Allocation of Parent long-term debt, debt issue costs,
interest rate swaps and interest expense. TNT
LPs financial statements include long-term debt, debt
issue costs, interest rate swaps and interest expense allocated
from the Parent. These allocations are not settled in cash.
Settlement of these allocations occurs through adjustment to
partners capital (net parent equity of TNT LP Predecessor
for the nine months ended September 30, 2005). See
Note 4 and Note 6 to our combined financial statements
and notes for the year ended December 31, 2005.
Allocation of Parent costs. The
employees supporting TNT LP and TNT LP Predecessors
operations are employees of the Parent. TNT LP and TNT LP
Predecessors financial statements include costs allocated
to them by the Parent for centralized general and administrative
services performed by the Parent, as well as depreciation of
assets utilized by the Parents centralized general and
administrative functions. Costs were allocated to TNT LP
Predecessor based on its proportionate share of the
Parents assets, revenues and employees. Costs allocated to
TNT LP were based on identification of the Parents
resources which directly benefit TNT LP and its proportionate
share of costs based on TNT LPs estimated usage of shared
resources and functions. All of the allocations are based on
assumptions that management believes are reasonable; however,
these allocations are not necessarily indicative of the costs
and expenses that would have resulted if TNT LP and TNT LP
Predecessor had been operated as stand-alone entities. These
F-37
TARGA
NORTH TEXAS LP
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
allocations are not settled in cash. Settlement of these
allocations occurs through adjustment to partners capital
(net parent equity of TNT LP Predecessor for the nine months
ended September 30, 2005).
The following table summarizes the sales to the Parent, payments
made or received by the Parent on behalf of TNT LP and TNT LP
Predecessor, and allocations of costs from the Parent, settled
through adjustment to partners capital/parent company
investment and not included in operating cash flows of TNT LP
and TNT LP Predecessor. Management believes these transactions
are executed on terms that are fair and reasonable.
|
|
|
|
|
|
|
|
|
|
|
|
TNT LP
|
|
|
|
TNT LP Predecessor
|
|
|
|
Nine Months
|
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
(in thousands)
|
|
Deemed cash
|
|
|
|
|
|
|
|
|
|
Sales to affiliates
|
|
$
|
(282,657
|
)
|
|
|
$
|
(242,370
|
)
|
Purchases from affiliates
|
|
|
670
|
|
|
|
|
909
|
|
Payments made/received by Parent
|
|
|
232,936
|
|
|
|
|
189,776
|
|
Parent allocation of general and
administrative expense
|
|
|
5,137
|
|
|
|
|
6,723
|
|
Parent allocation of interest
expense
|
|
|
50,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,590
|
|
|
|
|
(44,962
|
)
|
Noncash
|
|
|
|
|
|
|
|
|
|
Parent allocation of long-term
debt and debt issue costs
|
|
|
3,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions settled through
adjustments to partners capital/net parent equity
|
|
$
|
10,545
|
|
|
|
$
|
(44,962
|
)
|
|
|
|
|
|
|
|
|
|
|
Centralized Cash Management. The Parent
operates a cash management system whereby excess cash from most
of its various subsidiaries, held in separate bank accounts, is
swept to a centralized account managed by the Parent. Cash
contributions and distributions are deemed to have occurred
through the Parent, and are reflected as an adjustment to
partners capital/net parent equity. Deemed net
contributions of cash by the Parent were $6.6 million for
the nine months ended September 30, 2006. Deemed net
distributions of cash to the Parent were $45.0 million for
the nine months ended September 30, 2005.
Hedging Arrangements. An affiliate of Merrill
Lynch, Pierce, Fenner & Smith Incorporated
(Merrill Lynch is an equity investor in the holding
company that owns Targa Resources. During the nine months ended
September 30, 2006, TNT LP entered into commodity
derivative transactions with Merrill Lynch Commodities Inc., an
affiliate of Merrill Lynch. The transactions are shown in the
following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Underlying
|
|
Type
|
|
Daily Volume
|
|
Average Price
|
|
Index
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jul 06 Dec
10
|
|
Natural gas
|
|
Swap
|
|
|
3,832
|
|
|
MMBtu
|
|
$
|
8.27
|
|
|
per MMBtu
|
|
IF-WA
|
Jul 06 Dec
10
|
|
Condensate
|
|
Swap
|
|
|
255
|
|
|
barrels
|
|
|
73.04
|
|
|
per barrel
|
|
NY-WTI
|
During the nine months ended September 30, 2006, Merrill
Lynch paid TNT LP $0.6 million to settle certain of these
hedge transactions.
Note 8
Income Taxes
On May 18, 2006, the Governor of Texas signed into law
House Bill 3 (HB-3) which modifies the existing
Texas franchise tax law. The modified franchise tax will be
computed by subtracting either costs of
F-38
TARGA
NORTH TEXAS LP
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
goods sold or compensation expense, as defined in HB-3, from
gross revenue to arrive at a gross margin. The resulting gross
margin will be taxed at a one percent tax rate. HB-3 has also
expanded the definition of tax paying entities to include
limited partnerships thereby now subjecting TNT LP to a new
state tax expense. HB-3 becomes effective for activities
occurring on or after January 1, 2007. Management believes
that this tax should still be accounted for as an income tax,
following the provisions of SFAS 109, because it has the
characteristics of an income tax.
During the nine months ended September 30, 2006, TNT LP
recorded a deferred income tax liability of $2.3 million
related to the new tax, consisting of deferred income tax
expense of $2.0 million related to the difference between
the book basis and tax basis of its property, plant, and
equipment, and a $0.3 million reduction to OCI.
Note 9
Subsequent Event
During November 2006, management entered into the following
hedging arrangements for a portion of TNT LPs production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Commodity
|
|
Type
|
|
Daily Volume
|
|
Average Price
|
|
Index
|
|
Jan. 07 Dec.
10
|
|
Natural gas
|
|
Swap
|
|
520
|
|
MMbtu
|
|
$
|
7.32
|
|
|
per MMBtu
|
|
IF-WAHA
|
Jan. 07 Dec.
09
|
|
Natural gas
|
|
Swap
|
|
383
|
|
MMbtu
|
|
|
7.45
|
|
|
per MMBtu
|
|
IF-WAHA
|
Jan. 07 Dec.
09
|
|
Natural gas
|
|
Floor
|
|
528
|
|
MMbtu
|
|
|
6.71
|
|
|
per MMBtu
|
|
IF-WAHA
|
Jan. 07 Dec.
10
|
|
Natural gas
|
|
Swap
|
|
780
|
|
MMbtu
|
|
|
7.18
|
|
|
per MMBtu
|
|
IF-NGPL MC
|
Jan. 07 Dec.
09
|
|
Natural gas
|
|
Swap
|
|
570
|
|
MMbtu
|
|
|
7.20
|
|
|
per MMBtu
|
|
IF-NGPL MC
|
Jan. 07 Dec.
09
|
|
Natural gas
|
|
Floor
|
|
790
|
|
MMbtu
|
|
|
6.53
|
|
|
per MMBtu
|
|
IF-NGPL MC
|
Jan. 07 Dec.
10
|
|
Condensate
|
|
Swap
|
|
120
|
|
Bbls
|
|
|
66.31
|
|
|
per Bbl
|
|
NY-WTI
|
Jan. 07 Dec.
09
|
|
Condensate
|
|
Swap
|
|
43
|
|
Bbls
|
|
|
59.94
|
|
|
per Bbl
|
|
NY-WTI
|
These contracts may expose TNT LP to the risk of financial loss
in certain circumstances. These hedging arrangements provide TNT
LP with protection on the hedged volumes if prices decline below
the prices at which these hedges were set but, if prices
increased, the fixed price nature of the swap-related hedges
will cause TNT LP to receive less revenue on the hedged volumes
than it would receive in the absence of hedges.
F-39
Report of
Independent Registered Public Accounting Firm
To the Partners of Targa Resources Partners LP:
In our opinion, the accompanying balance sheet presents fairly,
in all material respects, the financial position of Targa
Resources Partners LP (the Partnership) at
October 23, 2006 in conformity with accounting principles
generally accepted in the United States of America. 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 of this statement 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. 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, and evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
November 13, 2006
F-40
TARGA
RESOURCES PARTNERS LP
Targa Resources Partners LP (the Partnership) is a
Delaware limited partnership formed in October 2006, to acquire
the assets of Targa Resources Partners Predecessor.
The Partnership intends to offer 16,800,000 common units,
representing limited partner interests, pursuant to a public
offering and to concurrently issue 11,528,231 subordinated
units, representing additional limited partner interests, to
subsidiaries of Targa Resources, Inc. and 528,127 units
representing a 2% general partner interest to Targa Resources GP
LLC.
Targa Resources GP LLC, as general partner, contributed $20 and
Targa Resources, Inc., on behalf of Targa GP Inc. and Targa LP
Inc. for their limited partner shares, contributed $980 to the
Partnership on October 23, 2006. There have been no other
transactions involving the Partnership as of November 13,
2006.
F-42
Report of
Independent Registered Public Accounting Firm
To the Member of Targa Resources GP LLC:
In our opinion, the accompanying balance sheet presents fairly,
in all material respects, the financial position of Targa
Resources GP LLC (the Company) at October 23,
2006 in conformity with accounting principles generally accepted
in the United States of America. This financial statement is the
responsibility of the Companys management. Our
responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this
statement in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance
sheet, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall balance
sheet presentation. We believe that our audit of the balance
sheet provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
November 13, 2006
F-43
TARGA
RESOURCES GP LLC
BALANCE
SHEET
October 23,
2006
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ASSETS
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Current assets
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Cash
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$
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980
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Investment in Targa Resources
Partners LP
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20
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Total assets
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$
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1,000
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MEMBERS EQUITY
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Members equity
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$
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1,000
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Total members
equity
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$
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1,000
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See accompanying note to balance sheet
F-44
TARGA
RESOURCES GP LLC
NOTE TO BALANCE SHEET
Targa Resources GP LLC (General Partner) is a
Delaware company, and a single member limited liability company,
formed in October 2006, to become the general partner of Targa
Resources Partners LP (Partnership). The General
Partner is an indirect wholly-owned subsidiary of Targa
Resources, Inc. The General Partner owns a 2% general partner
interest in the Partnership.
On October 23, 2006, Targa Resources, Inc. and its
subsidiaries contributed $1,000 to the General Partner 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 November 13, 2006.
F-45
FIRST
AMENDED AND RESTATED
AGREEMENT
OF LIMITED PARTNERSHIP
OF
TARGA
RESOURCES PARTNERS LP
A-1
TABLE OF
CONTENTS
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ARTICLE I
DEFINITIONS
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Section 1.1
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Definitions
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1
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Section 1.2
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Construction
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15
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ARTICLE II
ORGANIZATION
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Section 2.1
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Formation
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16
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Section 2.2
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Name
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16
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Section 2.3
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Registered Office; Registered
Agent; Principal Office; Other Offices
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16
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Section 2.4
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Purpose and Business
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16
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Section 2.5
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Powers
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17
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Section 2.6
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Power of Attorney
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17
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Section 2.7
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Term
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18
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Section 2.8
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Title to Partnership Assets
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18
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ARTICLE III
RIGHTS OF LIMITED PARTNERS
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Section 3.1
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Limitation of Liability
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18
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Section 3.2
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Management of Business
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18
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Section 3.3
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Outside Activities of the Limited
Partners
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19
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Section 3.4
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Rights of Limited Partners
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19
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ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF PARTNERSHIP INTERESTS
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Section 4.1
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Certificates
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20
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Section 4.2
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Mutilated, Destroyed, Lost or
Stolen Certificates
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20
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Section 4.3
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Record Holders
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21
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Section 4.4
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Transfer Generally
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21
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Section 4.5
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Registration and Transfer of
Limited Partner Interests
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21
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Section 4.6
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Transfer of the General
Partners General Partner Interest
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22
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Section 4.7
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Transfer of Incentive Distribution
Rights
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22
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Section 4.8
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Restrictions on Transfers
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23
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Section 4.9
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Citizenship Certificates;
Non-citizen Assignees
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24
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Section 4.10
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Redemption of
Partnership Interests of Non-citizen Assignees
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24
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i
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ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
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Section 5.1
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Organizational Contributions
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25
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Section 5.2
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Contributions by the General
Partner and its Affiliates
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26
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Section 5.3
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Contributions by Initial Limited
Partners
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26
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Section 5.4
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Interest and Withdrawal
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27
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Section 5.5
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Capital Accounts
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27
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Section 5.6
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Issuances of Additional
Partnership Securities
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29
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Section 5.7
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Conversion of Subordinated Units
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30
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Section 5.8
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Limited Preemptive Right
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30
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Section 5.9
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Splits and Combinations
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30
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Section 5.10
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Fully Paid and Non-Assessable
Nature of Limited Partner Interests
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31
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Section 5.11
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Issuance of Class B Units in
Connection with Reset of Incentive Distribution Rights
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31
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ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
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Section 6.1
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Allocations for Capital Account
Purposes
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32
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Section 6.2
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Allocations for Tax Purposes
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39
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Section 6.3
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Requirement and Characterization
of Distributions; Distributions to Record Holders
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40
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Section 6.4
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Distributions of Available Cash
from Operating Surplus
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41
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Section 6.5
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Distributions of Available Cash
from Capital Surplus
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42
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Section 6.6
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Adjustment of Minimum Quarterly
Distribution and Target Distribution Levels
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43
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Section 6.7
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Special Provisions Relating to the
Holders of Subordinated Units and Class B Units
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43
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Section 6.8
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Special Provisions Relating to the
Holders of Incentive Distribution Rights
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44
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Section 6.9
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Entity-Level Taxation
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44
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ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
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Section 7.1
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Management
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45
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Section 7.2
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Certificate of Limited Partnership
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46
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Section 7.3
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Restrictions on the General
Partners Authority
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47
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Section 7.4
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Reimbursement of the General
Partner
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47
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Section 7.5
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Outside Activities
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48
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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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48
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Section 7.7
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Indemnification
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49
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Section 7.8
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Liability of Indemnitees
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50
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Section 7.9
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Resolution of Conflicts of
Interest; Standards of Conduct and Modification of Duties
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51
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Section 7.10
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Other Matters Concerning the
General Partner
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52
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Section 7.11
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Purchase or Sale of Partnership
Securities
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52
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Section 7.12
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Registration Rights of the General
Partner and its Affiliates
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53
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Section 7.13
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Reliance by Third Parties
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55
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ii
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ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
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Section 8.1
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Records and Accounting
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56
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Section 8.2
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Fiscal Year
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56
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Section 8.3
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Reports
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56
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ARTICLE IX
TAX MATTERS
|
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Section 9.1
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Tax Returns and Information
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56
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Section 9.2
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Tax Elections
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57
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Section 9.3
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Tax Controversies
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|
|
57
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Section 9.4
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Withholding
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57
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ARTICLE X
ADMISSION OF PARTNERS
|
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Section 10.1
|
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Admission of Limited Partners
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57
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Section 10.2
|
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Admission of Successor General
Partner
|
|
|
58
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Section 10.3
|
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Amendment of Agreement and
Certificate of Limited Partnership
|
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58
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ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
|
|
Section 11.1
|
|
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Withdrawal of the General Partner
|
|
|
58
|
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Section 11.2
|
|
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Removal of the General Partner
|
|
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60
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|
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Section 11.3
|
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Interest of Departing General
Partner and Successor General Partner
|
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60
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Section 11.4
|
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Termination of Subordination
Period, Conversion of Subordinated Units and Extinguishment of
Cumulative Common Unit Arrearages
|
|
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61
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|
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Section 11.5
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Withdrawal of Limited Partners
|
|
|
62
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|
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ARTICLE XII
DISSOLUTION AND LIQUIDATION
|
|
Section 12.1
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|
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Dissolution
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62
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Section 12.2
|
|
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Continuation of the Business of
the Partnership After Dissolution
|
|
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62
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|
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Section 12.3
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|
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Liquidator
|
|
|
63
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Section 12.4
|
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Liquidation
|
|
|
63
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|
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Section 12.5
|
|
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Cancellation of Certificate of
Limited Partnership
|
|
|
64
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Section 12.6
|
|
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Return of Contributions
|
|
|
64
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|
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Section 12.7
|
|
|
Waiver of Partition
|
|
|
64
|
|
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Section 12.8
|
|
|
Capital Account Restoration
|
|
|
64
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|
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|
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|
|
iii
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|
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|
|
|
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|
|
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
|
|
Section 13.1
|
|
|
Amendments to be Adopted Solely by
the General Partner
|
|
|
64
|
|
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Section 13.2
|
|
|
Amendment Procedures
|
|
|
65
|
|
|
Section 13.3
|
|
|
Amendment Requirements
|
|
|
66
|
|
|
Section 13.4
|
|
|
Special Meetings
|
|
|
66
|
|
|
Section 13.5
|
|
|
Notice of a Meeting
|
|
|
67
|
|
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Section 13.6
|
|
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Record Date
|
|
|
67
|
|
|
Section 13.7
|
|
|
Adjournment
|
|
|
67
|
|
|
Section 13.8
|
|
|
Waiver of Notice; Approval of
Meeting
|
|
|
67
|
|
|
Section 13.9
|
|
|
Quorum and Voting
|
|
|
67
|
|
|
Section 13.10
|
|
|
Conduct of a Meeting
|
|
|
68
|
|
|
Section 13.11
|
|
|
Action Without a Meeting
|
|
|
68
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|
|
Section 13.12
|
|
|
Right to Vote and Related Matters
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE XIV
MERGER, CONSOLIDATION OR CONVERSION
|
|
Section 14.1
|
|
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Authority
|
|
|
69
|
|
|
Section 14.2
|
|
|
Procedure for Merger,
Consolidation or Conversion
|
|
|
69
|
|
|
Section 14.3
|
|
|
Approval by Limited Partners
|
|
|
70
|
|
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Section 14.4
|
|
|
Certificate of Merger
|
|
|
71
|
|
|
Section 14.5
|
|
|
Effect of Merger, Consolidation or
Conversion
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
|
|
Section 15.1
|
|
|
Right to Acquire Limited Partner
Interests
|
|
|
72
|
|
|
|
|
|
|
|
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|
|
|
ARTICLE XVI
GENERAL PROVISIONS
|
|
Section 16.1
|
|
|
Addresses and Notices; Written
Communications
|
|
|
74
|
|
|
Section 16.2
|
|
|
Further Action
|
|
|
74
|
|
|
Section 16.3
|
|
|
Binding Effect
|
|
|
74
|
|
|
Section 16.4
|
|
|
Integration
|
|
|
74
|
|
|
Section 16.5
|
|
|
Creditors
|
|
|
75
|
|
|
Section 16.6
|
|
|
Waiver
|
|
|
75
|
|
|
Section 16.7
|
|
|
Third-Party Beneficiaries
|
|
|
75
|
|
|
Section 16.8
|
|
|
Counterparts
|
|
|
75
|
|
|
Section 16.9
|
|
|
Applicable Law
|
|
|
75
|
|
|
Section 16.10
|
|
|
Invalidity of Provisions
|
|
|
75
|
|
|
Section 16.11
|
|
|
Consent of Partners
|
|
|
75
|
|
|
Section 16.12
|
|
|
Facsimile Signatures
|
|
|
75
|
|
iv
FIRST
AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF TARGA RESOURCES PARTNERS LP
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF TARGA RESOURCES PARTNERS LP dated as of February
[ ], 2007, is entered into by and between Targa
Resources GP LLC, a Delaware limited liability company, as the
General Partner, and Targa GP Inc., a Delaware corporation
(Targa GP), and Targa LP Inc., a Delaware
corporation (Targa LP, and together with Targa GP,
the Organizational Limited Partners), together with
any other Persons who become Partners in the Partnership or
parties hereto as provided herein. In consideration of the
covenants, conditions and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the
terms used in this Agreement.
Acquisition means any transaction in which
any Group Member acquires (through an asset acquisition, merger,
stock acquisition or other form of investment) control over all
or a portion of the assets, properties or business of another
Person for the purpose of increasing the long-term operating
capacity or earnings 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:
(a) Any negative adjustment made to the Carrying Value of
an Adjusted Property as a result of either a Book-Down Event or
a Book-Up
Event shall first be deemed to offset or decrease that portion
of the Carrying Value of such Adjusted Property that is
attributable to any prior positive adjustments made thereto
pursuant to a
Book-Up
Event or Book-Down Event.
(b) If Carrying Value that constitutes Additional Book
Basis is reduced as a result of a Book-Down Event and the
Carrying Value of other property is increased as a result of
such Book-Down Event, an allocable portion of any such increase
in Carrying Value shall be treated as Additional Book Basis;
provided, that the amount treated as Additional Book
Basis pursuant hereto as a result of such Book-Down Event shall
not exceed the amount by which the Aggregate Remaining Net
Positive Adjustments after such Book-Down Event exceeds the
remaining Additional Book Basis attributable to all of the
Partnerships Adjusted Property after such Book-Down Event
(determined without regard to the application of this
clause (b) to such Book-Down Event).
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 Code and Treasury
Regulation Section 1.751-1(b)(2)(ii),
and (ii) the amount of all distributions that, as of the
end of such fiscal year, are reasonably expected to be made to
such Partner in subsequent years in accordance with the terms of
this Agreement or otherwise to the extent they exceed offsetting
increases to such Partners Capital Account that are
reasonably expected to occur during (or prior to) the year in
which such distributions are reasonably expected to be made
(other than increases as a result of a minimum gain chargeback
pursuant to Section 6.1(d)(i) or 6.1(d)(ii)). The foregoing
definition of Adjusted Capital Account is intended to comply
with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith. The
Adjusted Capital Account of a Partner in respect of
a General Partner Unit, a Common Unit, a Subordinated Unit, a
Class B Unit or an Incentive Distribution Right or any
other Partnership Interest shall be the amount that such
Adjusted Capital Account would be if such General Partner Unit,
Common Unit, Subordinated Unit, Class B Unit, Incentive
Distribution Right or other Partnership Interest were the
only interest in the Partnership held by such Partner from and
after the date on which such General Partner Unit, Common Unit,
Class B 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 to the extent
such decrease results in a reduction in Adjusted Operating
Surplus in subsequent periods pursuant to clause (a) above and
(ii) any net increase in cash reserves for Operating
Expenditures with respect to such period required by any debt
instrument for the repayment of principal, interest or premium.
Adjusted Operating Surplus does not include that portion of
Operating Surplus included in clause (a)(i) of the
definition of Operating Surplus.
Adjusted Property means any property the
Carrying Value of which has been adjusted pursuant to
Section 5.5(d)(i) or 5.5(d)(ii).
Affiliate means, with respect to any Person,
any other Person that directly or indirectly through one or more
intermediaries controls, is controlled by or is under common
control with, the Person in question. 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 Quantity of Class B Units has
the meaning assigned to such term in Section 5.11.
Aggregate Remaining Net Positive Adjustments
means, as of the end of any taxable period, the sum of the
Remaining Net Positive Adjustments of all the Partners.
Agreed Allocation means any allocation, other
than a Required Allocation, of an item of income, gain, loss or
deduction pursuant to the provisions of Section 6.1,
including a Curative Allocation (if appropriate to the context
in which the term Agreed Allocation is used).
Agreed Value of any Contributed Property
means the fair market value of such property or other
consideration at the time of contribution as determined by the
General Partner. The General Partner shall use such method as it
determines to be appropriate to allocate the aggregate Agreed
Value of Contributed Properties contributed to the Partnership
in a single or integrated transaction among each separate
property on a basis proportional to the fair market value of
each Contributed Property.
Agreement means this First Amended and
Restated Agreement of Limited Partnership of Targa Resources
Partners LP, as it may be amended, supplemented or restated from
time to time.
Associate means, when used to indicate a
relationship with any Person, (a) any corporation or
organization of which such Person is a director, officer or
partner or is, directly or indirectly, the owner of 20% or more
of any class of voting stock or other voting interest;
(b) any trust or other estate in which such
2
Person has at least a 20% beneficial interest or as to which
such Person serves as trustee or in a similar fiduciary
capacity; and (c) any relative or spouse of such Person, or
any relative of such spouse, who has the same principal
residence as such Person.
Available Cash means, with respect to any
Quarter ending prior to the Liquidation Date:
(a) all cash and cash equivalents of the Partnership Group
on hand on the date of determination of Available Cash with
respect to such Quarter, less
(b) the amount of any cash reserves established by the
General Partner to (i) provide for the proper conduct of
the business of the Partnership Group (including reserves for
future capital expenditures and for anticipated future credit
needs of the Partnership Group) subsequent to such Quarter,
(ii) comply with applicable law or any loan agreement,
security agreement, mortgage, debt instrument or other agreement
or obligation to which any Group Member is a party or by which
it is bound or its assets are subject or (iii) provide
funds for distributions under Section 6.4 or 6.5 in respect
of any one or more of the next four Quarters; provided,
however, that the General Partner may not establish cash
reserves pursuant to (iii) above if the effect of such
reserves would be that the Partnership is unable to distribute
the Minimum Quarterly Distribution on all Common Units, plus any
Cumulative Common Unit Arrearage on all Common Units, with
respect to such Quarter; and, provided further, that
disbursements made by a Group Member or cash reserves
established, increased or reduced after the end of such Quarter
but on or before the date of determination of Available Cash
with respect to such Quarter shall be deemed to have been made,
established, increased or reduced, for purposes of determining
Available Cash, within such Quarter if the General Partner so
determines.
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 the board of
directors or managers of a corporation or limited liability
company or the board of directors or board of managers of the
general partner of a limited partnership, as applicable.
Book Basis Derivative Items means any item of
income, deduction, gain or loss included in the determination of
Net Income or Net Loss that is computed with reference to the
Carrying Value of an Adjusted Property (e.g., depreciation,
depletion, or gain or loss with respect to an Adjusted Property).
Book-Down Event means an event that triggers
a negative adjustment to the Capital Accounts of the Partners
pursuant to Section 5.5(d).
Book-Tax Disparity means with respect to any
item of Contributed Property or Adjusted Property, as of the
date of any determination, the difference between the Carrying
Value of such Contributed Property or Adjusted Property and the
adjusted basis thereof for federal income tax purposes as of
such date. A Partners share of the Partnerships
Book-Tax Disparities in all of its Contributed Property and
Adjusted Property will be reflected by the difference between
such Partners Capital Account balance as maintained
pursuant to Section 5.5 and the hypothetical balance of
such Partners Capital Account computed as if it had been
maintained strictly in accordance with federal income tax
accounting principles.
Book-Up
Event means an event that triggers a positive
adjustment to the Capital Accounts of the Partners pursuant to
Section 5.5(d).
Business Day means Monday through Friday of
each week, except that a legal holiday recognized as such by the
government of the United States of America or the State of 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, a
Class B Unit, an Incentive Distribution Right or any
Partnership Interest shall be the amount that such Capital
Account would be if such General Partner Unit, Common Unit,
Subordinated Unit, Class B Unit, Incentive Distribution
Right or other Partnership Interest were the only interest
in the Partnership
3
held by such Partner from and after the date on which such
General Partner Unit, Common Unit, Class B 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, (b) acquisition of existing, or the
construction of new, capital assets (including, without
limitation, gathering lines, treating facilities, processing
plants, fractionation facilities, pipelines, terminals, docks,
truck racks, tankage and other storage, distribution or
transportation facilities and related or similar midstream
assets or other assets that produce qualifying
income as defined by Section 7704 of the Code) or
(c) capital contributions by a Group Member to a Person in
which a Group Member has an equity interest to fund such Group
Members pro rata share of the cost of the acquisition of
existing, or the construction of new, capital assets (including,
without limitation, gathering lines, treating facilities,
processing plants, fractionation facilities, pipelines,
terminals, docks, truck racks, tankage and other storage,
distribution or transportation facilities and related or similar
midstream assets or other assets that produce qualifying
income as defined by Section 7704 of the Code) by
such Person, in each case if such addition, improvement,
acquisition or construction is made to increase the long-term
operating capacity or earnings of the Partnership Group, in the
case of clauses (a) and (b), or such Person, in the case of
clause (c), from the operating capacity or revenues of the
Partnership Group or such Person, as the case may be, existing
immediately prior to such addition, improvement, acquisition or
construction.
Capital Surplus has the meaning assigned to
such term in Section 6.3(a).
Carrying Value means (a) with respect to
a Contributed Property, the Agreed Value of such property
reduced (but not below zero) by all depreciation, amortization
and cost recovery deductions charged to the Partners
Capital Accounts in respect of such Contributed Property, and
(b) with respect to any other Partnership property, the
adjusted basis of such property for federal income tax purposes,
all as of the time of determination. The Carrying Value of any
property shall be adjusted from time to time in accordance with
Sections 5.5(d)(i) and 5.5(d)(ii) and to reflect changes,
additions or other adjustments to the Carrying Value for
dispositions and acquisitions of Partnership properties, as
deemed appropriate by the General Partner.
Cause means a court of competent jurisdiction
has entered a final, non-appealable judgment finding the General
Partner liable for actual fraud or willful misconduct in its
capacity as a general partner of the Partnership.
Certificate means (a) a certificate
(i) substantially in the form of Exhibit A to this
Agreement, (ii) issued in global form in accordance with
the rules and regulations of the Depositary or (iii) in
such other form as may be adopted by the General Partner, issued
by the Partnership evidencing ownership of one or more Common
Units or (b) a certificate, in such form as may be adopted
by the General Partner, issued by the Partnership evidencing
ownership of one or more other Partnership Securities.
Certificate of Limited Partnership means the
Certificate of Limited Partnership of the Partnership filed with
the Secretary of State of the State of Delaware as referenced in
Section 7.2, as such Certificate of Limited Partnership may
be amended, supplemented or restated from time to time.
Citizenship Certification means a properly
completed certificate in such form as may be specified by the
General Partner by which a Limited Partner certifies that he
(and if he is a nominee holding for the account of another
Person, that to the best of his knowledge such other Person) is
an Eligible Citizen.
claim (as used in Section 7.12(d)) has
the meaning assigned to such term in Section 7.12(d).
Class B Units means a Partnership
Security representing a fractional part of the
Partnership Interests of all Limited Partners, and having
the rights and obligations specified with respect to
Class B Units in this Agreement.
4
Closing Date means the first date on which
Common Units are sold by the Partnership to the Underwriters
pursuant to the provisions of the Underwriting Agreement.
Closing Price has the meaning assigned to
such term in Section 15.1(a).
Code means the Internal Revenue Code of 1986,
as amended and in effect from time to time. Any reference herein
to a specific section or sections of the Code shall be deemed to
include a reference to any corresponding provision of any
successor law.
Combined Interest has the meaning assigned to
such term in Section 11.3(a).
Commission means the United States Securities
and Exchange Commission.
Commodity Hedge Contract means any commodity
exchange, swap, forward, cap, floor, collar or other similar
agreement or arrangement entered into for the purpose of hedging
the Partnership Groups exposure to fluctuations in the
price of hydrocarbons.
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 or Class B Unit prior to its conversion into a Common
Unit pursuant to the terms hereof.
Common Unit Arrearage means, with respect to
any Common Unit, whenever issued, as to any Quarter within the
Subordination Period, the excess, if any, of (a) the
Minimum Quarterly Distribution with respect to a Common Unit in
respect of such Quarter over (b) the sum of all Available
Cash distributed with respect to a Common Unit in respect of
such Quarter pursuant to Section 6.4(a)(i).
Conflicts Committee means a committee of the
Board of Directors of the General Partner composed entirely of
two or more directors, each of whom (a) is not a security
holder, officer or employee of the General Partner, (b) is
not an officer, director or employee of any Affiliate of the
General Partner, (c) is not a holder of any ownership
interest in the Partnership Group other than Common Units and
(d) meets the independence standards required of directors
who serve on an audit committee of a board of directors
established by the Securities Exchange Act and the rules and
regulations of the Commission thereunder and by the National
Securities Exchange on which the Common Units are listed or
admitted to trading.
Contributed Property means each property or
other asset, in such form as may be permitted by the Delaware
Act, but excluding cash, contributed to the Partnership. Once
the Carrying Value of a Contributed Property is adjusted
pursuant to Section 5.5(d), such property shall no longer
constitute a Contributed Property, but shall be deemed an
Adjusted Property.
Contribution Agreement means that certain
Contribution and Conveyance Agreement, dated as of the Closing
Date, among the General Partner, the Partnership, the Operating
Partnership and certain other parties, together with the
additional conveyance documents and instruments contemplated or
referenced thereunder, as such may be amended, supplemented or
restated from time to time.
Converted Common Units has the meaning
assigned to such term in Section 6.1(d)(x)(B).
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).
5
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.
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)(E).
First Target Distribution means
$0.3881 per Unit per Quarter (or, with respect to the
period commencing on the Closing Date and ending on
March 31, 2007, it means the product of $0.3881 multiplied
by a fraction of which the numerator is the number of days in
such period, and of which the denominator is 90), subject to
adjustment in accordance with Sections 5.11, 6.6 and 6.9.
Fully Diluted Basis means, when calculating
the number of Outstanding Units for any period, a basis that
includes, in addition to the Outstanding Units, all Partnership
Securities and options, rights, warrants and appreciation rights
relating to an equity interest in the Partnership (a) that
are convertible into or exercisable or exchangeable for Units
that are senior to or pari passu with the Subordinated Units,
(b) whose conversion, exercise or exchange price is less
than the Current Market Price on the date of such calculation,
(c) that may be converted into or exercised or exchanged
for such Units prior to or during the Quarter immediately
following the end of the period for which the calculation is
being made without the satisfaction of any contingency beyond
the control of the holder other than the payment of
consideration and the compliance with administrative mechanics
applicable to such conversion, exercise or exchange and
(d) that were not converted into or exercised or exchanged
for such Units during the period for which the calculation is
being made; provided, however, that for purposes of
determining the number of Outstanding Units on a Fully Diluted
Basis when calculating whether the Subordination Period has
ended or Subordinated Units are entitled to convert into Common
Units pursuant to Section 5.7, such Partnership Securities,
options, rights, warrants and appreciation rights shall be
deemed to have been Outstanding Units only for the four Quarters
that comprise the last four Quarters of the measurement period;
provided, further, that if consideration will be paid to
any Group Member in connection with such conversion, exercise or
exchange, the number of Units to be included in such calculation
shall be that number equal to the difference between
(i) the number of Units issuable upon such conversion,
exercise or exchange and (ii) the number of Units that such
consideration would purchase at the Current Market Price.
General Partner means Targa Resources GP LLC,
a Delaware limited liability company, and its successors and
permitted assigns that are admitted to the Partnership as
general partner of the Partnership, in its capacity as general
partner of the Partnership (except as the context otherwise
requires).
General Partner Interest means the 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
6
evidenced by General Partner Units, and includes any and all
benefits to which the General Partner is entitled as provided in
this Agreement, together with all obligations of the General
Partner to comply with the terms and provisions of this
Agreement.
General Partner Unit means a fractional part
of the General Partner Interest having the rights and
obligations specified with respect to the General Partner
Interest. A General Partner Unit is not a Unit.
Group means a Person that with or through any
of its Affiliates or Associates has any contract, arrangement,
understanding or relationship for the purpose of acquiring,
holding, voting (except voting pursuant to a revocable proxy or
consent given to such Person in response to a proxy or consent
solicitation 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).
IDR Reset Election has the meaning assigned
to such term in Section 5.11.
Incentive Distribution Right means a
non-voting Limited Partner Interest issued to the General
Partner, which Limited Partner Interest will confer upon the
holder thereof only the rights and obligations specifically
provided in this Agreement with respect to Incentive
Distribution Rights (and no other rights otherwise available to
or other obligations of a holder of a Partnership Interest).
Notwithstanding anything in this Agreement to the contrary, the
holder of an Incentive Distribution Right shall not be entitled
to vote such Incentive Distribution Right on any Partnership
matter except as may otherwise be required by law.
Incentive Distributions means any amount of
cash distributed to the holders of the Incentive Distribution
Rights pursuant to Sections 6.4(a)(v), (vi) and
(vii) and 6.4(b)(iii), (iv) and (v).
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 a Person shall not be an Indemnitee
by reason of providing, on a
fee-for-services
basis, trustee, fiduciary or custodial services, and
(f) any Person the General Partner designates as an
Indemnitee for purposes of this Agreement.
Initial Common Units means the Common Units
sold in the Initial Offering.
Initial Limited Partner means the
Organizational Limited Partners and the General Partner (with
respect to the Subordinated Units and Incentive Distribution
Rights received by them pursuant to
7
Section 5.2) and the Underwriters upon the issuance by the
Partnership of Common Units as described in Section 5.3 in
connection with the Initial Offering.
Initial Offering means the initial offering
and sale of Common Units to the public, as described in the
Registration Statement.
Initial Unit Price means (a) with
respect to the Common Units 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; (d) capital
contributions received; or (e) corporate reorganizations or
restructurings.
Issue Price means the price at which a Unit
is purchased from the Partnership, net of any sales commission
or underwriting discount charged to the Partnership.
Limited Partner means, unless the context
otherwise requires, the Organizational Limited Partners prior to
their withdrawal from the Partnership, each Initial Limited
Partner, each additional Person that becomes a Limited Partner
pursuant to the terms of this Agreement and any Departing
General Partner upon the change of its status from General
Partner to Limited Partner pursuant to Section 11.3, in
each case, in such Persons capacity as limited partner of
the Partnership; provided, however, that when the term
Limited Partner is used herein in the context of any
vote or other approval, including Articles XIII and XIV,
such term shall not, solely for such purpose, include any holder
of an Incentive Distribution Right (solely with respect to its
Incentive Distribution Rights and not with respect to any other
Limited Partner Interest held by such Person) except as may
otherwise be required by law.
Limited Partner Interest means the ownership
interest of a Limited Partner in the Partnership, which may be
evidenced by Common Units, Class B Units, Subordinated
Units, Incentive Distribution Rights or other Partnership
Securities or a combination thereof or interest therein, and
includes any and all benefits to which such Limited Partner is
entitled as provided in this Agreement, together with all
obligations of such Limited Partner to comply with the terms and
provisions of this Agreement; provided, however, that
when the term Limited Partner Interest is used
herein in the context of any vote or other approval, including
Articles XIII and XIV, such term shall not, solely for such
purpose, include any Incentive Distribution Right except as may
otherwise be required by law.
Liquidation Date means (a) in the case
of an event giving rise to the dissolution of the Partnership of
the type described in clauses (a) and (b) of the first
sentence of Section 12.2, the date on which the applicable
time period during which the holders of Outstanding Units have
the right to elect to continue the business of the Partnership
has expired without such an election being made, and (b) in
the case of any other event giving rise to the dissolution of
the Partnership, the date on which such event occurs.
Liquidator means one or more Persons selected
by the General Partner to perform the functions described in
Section 12.4 as liquidating trustee of the Partnership
within the meaning of the Delaware Act.
Maintenance Capital Expenditures means cash
expenditures (including expenditures for the addition or
improvement to the capital assets owned by any Group Member or
for the acquisition of existing, or the
8
construction of new, capital assets) if such expenditures are
made to maintain, including over the long term, the operating
capacity or revenues of the Partnership Group.
Merger Agreement has the meaning assigned to
such term in Section 14.1.
Minimum Quarterly Distribution means
$0.3375 per Unit per Quarter (or with respect to the period
commencing on the Closing Date and ending on March 31,
2007, it means the product of $0.3375 multiplied by a fraction
of which the numerator is the number of days in such period and
of which the denominator is 90), subject to adjustment in
accordance with Sections 5.11, 6.6 and 6.9.
National Securities Exchange means an
exchange registered with the Commission under Section 6(a)
of the Securities Exchange Act.
Net Agreed Value means, (a) in the case
of any Contributed Property, the Agreed Value of such property
reduced by any liabilities either assumed by the Partnership
upon such contribution or to which such property is subject when
contributed, (b) in the case of any property distributed to
a Partner by the Partnership, the Partnerships Carrying
Value of such property (as adjusted pursuant to
Section 5.5(d)(ii)) at the time such property is
distributed, reduced by any indebtedness either assumed by such
Partner or Assignee upon such distribution or to which such
property is subject at the time of distribution, in either case,
as determined under Section 752 of the Code, and
(c) in the case of a contribution of Common Units by the
General Partner 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).
9
Non-citizen Assignee means a Person whom the
General Partner has determined does not constitute an Eligible
Citizen and as to whose Partnership Interest the General Partner
has become the substituted limited partner, pursuant to
Section 4.9.
Nonrecourse Built-in Gain means with respect
to any Contributed Properties or Adjusted Properties that are
subject to a mortgage or pledge securing a Nonrecourse
Liability, the amount of any taxable gain that would be
allocated to the Partners pursuant to
Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and 6.2(b)(iii) if
such properties were disposed of in a taxable transaction in
full satisfaction of such liabilities and for no other
consideration.
Nonrecourse Deductions means any and all
items of loss, deduction or expenditure (including any
expenditure described in Section 705(a)(2)(B) of the Code)
that, in accordance with the principles of Treasury
Regulation Section 1.704-2(b),
are attributable to a Nonrecourse Liability.
Nonrecourse Liability has the meaning set
forth in Treasury
Regulation Section 1.752-1(a)(2).
Notice of Election to Purchase has the
meaning assigned to such term in Section 15.1(b).
Omnibus Agreement means that certain Omnibus
Agreement, dated as of the Closing Date, among Targa Resources,
Inc., Targa Resources, LLC, the General Partner and the
Partnership, 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,
non-Pro Rata repurchases of Units (other than those made with
the proceeds of an Interim Capital Transaction), subject to the
following:
(a) payments (including prepayments and prepayment
penalties) of principal of and premium on indebtedness shall not
constitute Operating Expenditures; and
(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.
Operating Partnership means Targa Resources
Operating LP, a Delaware limited partnership, and any successors
thereto.
Operating Surplus means, with respect to any
period ending prior to the Liquidation Date, on a cumulative
basis and without duplication,
(a) the sum of (i) an amount equal to four times the
amount needed for any one Quarter for the Partnership to pay a
distribution on all Units, the General Partner Units and the
Incentive Distribution Rights at the same per Unit amount as was
distributed immediately preceding the date of determination (or
with respect to the period commencing on the Closing Date and
ending on March 31, 2007, it means the product of
(x) $1.35 multiplied by (y) a fraction of which the
numerator is the number of days in such period and the
denominator is 90 multiplied by (z) 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 and provided that cash receipts
from the termination of a Commodity Hedge Contract or interest
rate swap prior to its specified termination date shall be
included in Operating Surplus in equal quarterly installments
over the remaining scheduled life of such Commodity Hedge
Contract or interest rate swap), less
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(b) the sum of (i) Operating Expenditures for the
period beginning on the Closing Date and ending on the last day
of such period and (ii) the amount of cash reserves
established by the General Partner to provide funds for future
Operating Expenditures; provided, however, that
disbursements made (including contributions to a Group Member or
disbursements on behalf of a Group Member) or cash reserves
established, increased or reduced after the end of such period
but on or before the date of determination of Available Cash
with respect to such period shall be deemed to have been made,
established, increased or reduced, for purposes of determining
Operating Surplus, within such period if the General Partner so
determines.
Notwithstanding the foregoing, Operating
Surplus with respect to the Quarter in which the
Liquidation Date occurs and any subsequent Quarter shall equal
zero.
Opinion of Counsel means a written opinion of
counsel (who may be regular counsel to the Partnership or the
General Partner or any of its Affiliates) acceptable to the
General Partner.
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 Partners means Targa
GP Inc. and Targa LP Inc. in their capacities as the
organizational limited partners of the Partnership pursuant to
this Agreement.
Outstanding means, with respect to
Partnership Securities, all Partnership Securities that are
issued by the Partnership and reflected as outstanding on the
Partnerships books and records as of the date of
determination; provided, however, that if at any time any
Person or Group (other than the General Partner or its
Affiliates) beneficially owns 20% or more of the Outstanding
Partnership Securities of any class then Outstanding, all
Partnership Securities owned by such Person or Group shall not
be voted on any matter and shall not be considered to be
Outstanding when sending notices of a meeting of Limited
Partners to vote on any matter (unless otherwise required by
law), calculating required votes, determining the presence of a
quorum or for other similar purposes under this Agreement,
except that Units so owned shall be considered to be Outstanding
for purposes of Section 11.1(b)(iv) (such Units shall not,
however, be treated as a separate class of Partnership
Securities for purposes of this Agreement); provided,
further, that the foregoing limitation shall not apply to
(i) any Person or Group who acquired 20% or more of the
Outstanding Partnership Securities of any class then Outstanding
directly from the General Partner or its Affiliates,
(ii) any Person or Group who acquired 20% or more of the
Outstanding Partnership Securities of any class then Outstanding
directly or indirectly from a Person or Group described in
clause (i) provided that the General Partner shall
have notified such Person or Group in writing that such
limitation shall not apply, or (iii) any Person or Group
who acquired 20% or more of any Partnership Securities issued by
the Partnership with the prior approval of the Board of
Directors of the General Partner.
Over-Allotment Option means the
over-allotment option granted to the Underwriters by the
Partnership pursuant to the Underwriting Agreement.
Partner Nonrecourse Debt has the meaning set
forth in Treasury
Regulation Section 1.704-2(b)(4).
Partner Nonrecourse Debt Minimum Gain has the
meaning set forth in Treasury
Regulation Section 1.704-2(i)(2).
Partner Nonrecourse Deductions means any and
all items of loss, deduction or expenditure (including any
expenditure described in Section 705(a)(2)(B) of the Code)
that, in accordance with the principles of Treasury
Regulation Section 1.704-2(i),
are attributable to a Partner Nonrecourse Debt.
Partners means the General Partner and the
Limited Partners.
Partnership means Targa Resources Partners
LP, a Delaware limited partnership.
Partnership Group means the Partnership and
its Subsidiaries treated as a single consolidated entity.
Partnership Interest means an interest
in the Partnership, which shall include the General Partner
Interest and Limited Partner Interests.
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Partnership Minimum Gain means that amount
determined in accordance with the principles of Treasury
Regulation Section 1.704-2(d).
Partnership Security means any class or
series of equity interest in the Partnership (but excluding any
options, rights, warrants and appreciation rights relating to an
equity interest in the Partnership), including Common Units,
Class B Units, Subordinated Units, General Partner Units
and Incentive Distribution Rights.
Per Unit Capital Amount means, as of any date
of determination, the Capital Account, stated on a per Unit
basis, underlying any Unit held by a Person other than the
General Partner or any Affiliate of the General Partner who
holds Units.
Percentage Interest means as of any date of
determination (a) as to the General Partner with respect to
General Partner Units and as to any Unitholder with respect to
Units, the product obtained by multiplying (i) 100% less
the percentage applicable to clause (b) below by
(ii) the quotient obtained by dividing (A) the number
of General Partner Units held by the General Partner or the
number of Units held by such Unitholder, as the case may be, by
(B) the total number of Outstanding Units and General
Partner Units, and (b) as to the holders of other
Partnership Securities issued by the Partnership in accordance
with Section 5.6, the percentage established as a part of
such issuance. The Percentage Interest with respect to an
Incentive Distribution Right shall at all times be zero.
Person means an individual or a corporation,
firm, limited liability company, partnership, joint venture,
trust, unincorporated organization, association, government
agency or political subdivision thereof or other entity.
Pro Rata means (a) when used with
respect to Units or any class thereof, apportioned equally among
all designated Units in accordance with their relative
Percentage Interests, (b) when used with respect to
Partners and Assignees or Record Holders, apportioned among all
Partners and Assignees or Record Holders in accordance with
their relative Percentage Interests and (c) when used with
respect to holders of Incentive Distribution Rights, apportioned
equally among all holders of Incentive Distribution Rights in
accordance with the relative number or percentage of Incentive
Distribution Rights held by each such holder.
Purchase Date means the date determined by
the General Partner as the date for purchase of all Outstanding
Limited Partner Interests of a certain class (other than Limited
Partner Interests owned by the General Partner and its
Affiliates) pursuant to Article XV.
Quarter means, unless the context requires
otherwise, a fiscal quarter of the Partnership, or, with respect
to the first fiscal quarter of the Partnership after the Closing
Date, the portion of such fiscal quarter after the Closing Date.
Recapture Income means any gain recognized by
the Partnership (computed without regard to any adjustment
required by Section 734 or Section 743 of the Code)
upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income
because it represents the recapture of deductions previously
taken with respect to such property or asset.
Record Date means the date established by the
General Partner or otherwise in accordance with this Agreement
for determining (a) the identity of the Record Holders
entitled to notice of, or to vote at, any meeting of Limited
Partners or entitled to vote by ballot or give approval of
Partnership action in writing without a meeting or entitled to
exercise rights in respect of any lawful action of Limited
Partners or (b) the identity of Record Holders entitled to
receive any report or distribution or to participate in any
offer.
Record Holder means the Person in whose name
a Common Unit is registered on the books of the Transfer Agent
as of the opening of business on a particular Business Day, or
with respect to other Partnership Interests, the Person in
whose name any such other Partnership Interest is
registered on the books that the General Partner has caused to
be kept as of the opening of business on such Business Day.
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Redeemable Interests means any
Partnership Interests for which a redemption notice has
been given, and has not been withdrawn, pursuant to
Section 4.10.
Registration Statement means the Registration
Statement on
Form S-1
as it has been or as it may be amended or supplemented from time
to time, filed by the Partnership with the Commission under the
Securities Act to register the offering and sale of the Common
Units in the Initial Offering.
Remaining Net Positive Adjustments means as
of the end of any taxable period, (i) with respect to the
Unitholders holding Common Units, Class B Units or
Subordinated Units, the excess of (a) the Net Positive
Adjustments of the Unitholders holding Common Units,
Class B Units or Subordinated Units as of the end of such
period over (b) the sum of those Partners Share of
Additional Book Basis Derivative Items for each prior taxable
period, (ii) with respect to the General Partner (as holder
of the General Partner Units), the excess of (a) the Net
Positive Adjustments of the General Partner as of the end of
such period over (b) the sum of the General Partners
Share of Additional Book Basis Derivative Items with respect to
the General Partner Units for each prior taxable period, and
(iii) with respect to the holders of Incentive Distribution
Rights, the excess of (a) the Net Positive Adjustments of
the holders of Incentive Distribution Rights as of the end of
such period over (b) the sum of the Share of Additional
Book Basis Derivative Items of the holders of the Incentive
Distribution Rights for each prior taxable period.
Required Allocations means (a) any
limitation imposed on any allocation of Net Losses or Net
Termination Losses under Section 6.1(b) or
Section 6.1(c)(ii) and (b) any allocation of an item
of income, gain, loss or deduction pursuant to
Section 6.1(d)(i), Section 6.1(d)(ii),
Section 6.1(d)(iv), Section 6.1(d)(vii) or
Section 6.1(d)(ix).
Residual Gain or Residual
Loss means any item of gain or loss, as the case may
be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of
a Contributed Property or Adjusted Property, to the extent such
item of gain or loss is not allocated pursuant to
Section 6.2(b)(i)(A) or Section 6.2(b)(ii)(A),
respectively, to eliminate Book-Tax Disparities.
Reset MQD has the meaning assigned to such
term in Section 5.11.
Reset Notice has the meaning assigned to such
term in Section 5.11.
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)(F).
Second Target Distribution means
$0.4219 per Unit per Quarter (or, with respect to the
period commencing on the Closing Date and ending on
March 31, 2007, it means the product of $0.4129 multiplied
by a fraction of which the numerator is equal to the number of
days in such period and of which the denominator is 90), subject
to adjustment in accordance with Section 5.11,
Section 6.6 and Section 6.9.
Securities Act means the Securities Act of
1933, as amended, supplemented or restated from time to time and
any successor to such statute.
Securities Exchange Act means the Securities
Exchange Act of 1934, as amended, supplemented or restated from
time to time and any successor to such statute.
Share of Additional Book Basis Derivative
Items means in connection with any allocation of
Additional Book Basis Derivative Items for any taxable period,
(i) with respect to the Unitholders holding Common Units,
Class B Units or Subordinated Units, the amount that bears
the same ratio to such Additional Book Basis Derivative Items as
the Unitholders Remaining Net Positive Adjustments as of
the end of such period bears to the Aggregate Remaining Net
Positive Adjustments as of that time, (ii) with respect to
the General Partner (as holder of the General Partner Units),
the amount that bears the same ratio to such Additional Book
Basis Derivative Items as the General Partners Remaining
Net Positive Adjustments as of the end of such period bears to
the Aggregate Remaining Net Positive Adjustment as of that time,
and (iii) with respect to the Partners holding Incentive
Distribution Rights, the amount that bears the same ratio to
such Additional Book Basis Derivative Items as the Remaining Net
Positive
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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 Assignees
and having the rights and obligations specified with respect to
Subordinated Units in this Agreement. The term
Subordinated Unit does not include a Common Unit or
Class B Unit. A Subordinated Unit that is convertible into
a Common Unit shall not constitute a Common Unit until such
conversion occurs.
Subordination Period means the period
commencing on the Closing Date and ending on the first to occur
of:
(a) the first day of any Quarter beginning after
December 31, 2009 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 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 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 (ii) there are no Cumulative
Common Unit Arrearages;
(b) the first date on which there are no longer outstanding
any Subordinated Units due to the conversion of Subordinated
Units into Common Units pursuant to Section 5.7 or
otherwise; and
(c) the date on which the General Partner is removed as
general partner of the Partnership upon the requisite vote by
holders of Outstanding Units under circumstances where Cause
does not exist and Units held by the General Partner and its
Affiliates are not voted in favor of such removal.
Subsidiary means, with respect to any Person,
(a) a corporation of which more than 50% of the voting
power of shares entitled (without regard to the occurrence of
any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or
indirectly, at the date of determination, by such Person, by one
or more Subsidiaries of such Person or a combination thereof,
(b) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership,
but only if more than 50% of the partnership interests of such
partnership (considering all of the partnership interests of the
partnership as a single class) is owned, directly or indirectly,
at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof, or
(c) any other Person (other than a corporation or a
partnership) in which such Person, one or more Subsidiaries of
such Person, or a combination thereof, directly or indirectly,
at the date of determination, has (i) at least a majority
ownership interest or (ii) the power to elect or direct the
election of a majority of the directors or other governing body
of such Person.
Surviving Business Entity has the meaning
assigned to such term in Section 14.2(b).
Target Distribution means, collectively, the
First Target Distribution, Second Target Distribution and Third
Target Distribution.
Third Liquidation Target Amount has the
meaning assigned to such term in Section 6.1(c)(i)(G).
Third Target Distribution means $0.50625 per
Unit per Quarter (or, with respect to the period commencing on
the Closing Date and ending on March 31, 2007, it means the
product of $0.50625
14
multiplied by a fraction of which the numerator is equal to the
number of days in such period and of which the denominator is
90), subject to adjustment in accordance with
Sections 5.11, 6.6 and 6.9.
Trading Day has the meaning assigned to such
term in Section 15.1(a).
transfer has the meaning assigned to such
term in Section 4.4(a).
Transfer Agent means such bank, trust company
or other Person (including the General Partner or one of its
Affiliates) as shall be appointed from time to time by the
General Partner to act as registrar and transfer agent for the
Common Units; provided, that if no Transfer Agent is
specifically designated for any other Partnership Securities,
the General Partner shall act in such capacity.
Underwriter means each Person named as an
underwriter in Schedule I to the Underwriting Agreement who
purchases Common Units pursuant thereto.
Underwriting Agreement means that certain
Underwriting Agreement dated as of February, 2007 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.
Unit means a Partnership Security that is
designated as a Unit and shall include Common Units,
Class B Units and Subordinated Units but shall not include
(i) General Partner Units (or the General Partner Interest
represented thereby) or (ii) Incentive Distribution Rights.
Unit Majority means (i) during the
Subordination Period, at least a majority of the Outstanding
Common Units (excluding Common Units owned by the General
Partner and its Affiliates), voting as a class, and at least a
majority of the Outstanding Subordinated Units, voting as a
class, and (ii) after the end of the Subordination Period,
at least a majority of the Outstanding Common Units and
Class B Units, if any, voting as a single class.
Unitholders means the holders of Units.
Unpaid MQD has the meaning assigned to such
term in Section 6.1(c)(i)(B).
Unrealized Gain attributable to any item of
Partnership property means, as of any date of determination, the
excess, if any, of (a) the fair market value of such
property as of such date (as determined under
Section 5.5(d)) over (b) the Carrying Value of such
property as of such date (prior to any adjustment to be made
pursuant to Section 5.5(d) as of such date).
Unrealized Loss attributable to any item of
Partnership property means, as of any date of determination, the
excess, if any, of (a) the Carrying Value of such property
as of such date (prior to any adjustment to be made pursuant to
Section 5.5(d) as of such date) over (b) the fair
market value of such property as of such date (as determined
under Section 5.5(d)).
Unrecovered Initial Unit Price means at any
time, with respect to a Unit, the Initial Unit Price less the
sum of all distributions constituting Capital Surplus
theretofore made in respect of an Initial Common Unit and any
distributions of cash (or the Net Agreed Value of any
distributions in kind) in connection with the dissolution and
liquidation of the Partnership theretofore made in respect of an
Initial Common Unit, adjusted as the General Partner determines
to be appropriate to give effect to any distribution,
subdivision or combination of such Units.
U.S. GAAP means United States generally
accepted accounting principles consistently applied.
Withdrawal Opinion of Counsel has the meaning
assigned to such term in Section 11.1(b).
Section 1.2 Construction.
Unless the context requires otherwise: (a) any
pronoun used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular form of
nouns, pronouns and verbs shall include the plural and vice
versa; (b) references to Articles and Sections refer to
Articles and Sections of this Agreement; (c) the terms
include, includes, including
or words of like import shall be deemed
15
to be followed by the words without limitation; and
(d) the terms hereof, herein or
hereunder refer to this Agreement as a whole and not
to any particular provision of this Agreement. The table of
contents and headings contained in this Agreement are for
reference purposes only, and shall not affect in any way the
meaning or interpretation of this Agreement.
ARTICLE II
ORGANIZATION
Section 2.1 Formation.
The General Partner and the Organizational Limited Partners 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
Targa Resources Partners LP in its entirety. This amendment and
restatement shall become effective on the date of this
Agreement. Except as expressly provided to the contrary in this
Agreement, the rights, duties (including fiduciary duties),
liabilities and obligations of the Partners and the
administration, dissolution and termination of the Partnership
shall be governed by the Delaware Act. All
Partnership Interests shall constitute personal property of
the owner thereof for all purposes.
Section 2.2 Name.
The name of the Partnership shall be Targa Resources
Partners LP. The Partnerships business may be
conducted under any other name or names as determined by the
General Partner, including the name of the General Partner. The
words Limited Partnership, LP,
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 The Corporation Trust
Company. The principal office of the Partnership shall be
located at 1000 Louisiana, Suite 4300, Houston,
Texas 77002, or such other place as the General Partner may
from time to time designate by notice to the Limited Partners.
The Partnership may maintain offices at such other place or
places within or outside the State of Delaware as the General
Partner shall determine necessary or appropriate. The address of
the General Partner shall be 1000 Louisiana,
Suite 4300, Houston, Texas 77002, or such other place as
the General Partner may from time to time designate by notice to
the Limited Partners.
Section 2.4 Purpose
and Business.
The purpose and nature of the business to be conducted by the
Partnership shall be to (a) engage directly in, or enter
into or form, hold and dispose of any corporation, partnership,
joint venture, limited liability company or other arrangement to
engage indirectly in, any business activity that is approved by
the General Partner and that lawfully may be conducted by a
limited partnership organized pursuant to the Delaware Act and,
in connection therewith, to exercise all of the rights and
powers conferred upon the Partnership pursuant to the agreements
relating to such business activity, and (b) do anything
necessary or appropriate to the foregoing, including the making
of capital contributions or loans to a Group Member;
provided, however, that the General Partner shall not
cause the Partnership to engage, directly or indirectly, in any
business activity that the General Partner determines would
cause the Partnership to be treated as an association taxable as
a corporation or otherwise taxable as an entity for federal
income tax purposes. To the
16
fullest extent permitted by law, the General Partner shall have
no duty or obligation to propose or approve, and may decline to
propose or approve, the conduct by the Partnership of any
business free of any fiduciary duty or obligation whatsoever to
the Partnership or any Limited Partner and, in declining to so
propose or approve, shall not be required to act in good faith
or pursuant to any other standard imposed by this Agreement, any
Group Member Agreement, any other agreement contemplated hereby
or under the Delaware Act or any other law, rule or regulation
or at equity.
Section 2.5 Powers.
The Partnership shall be empowered to do any and all acts and
things necessary or appropriate for the furtherance and
accomplishment of the purposes and business described in
Section 2.4 and for the protection and benefit of the
Partnership.
Section 2.6 Power
of Attorney.
(a) Each Limited Partner hereby constitutes and appoints
the General Partner and, if a Liquidator shall have been
selected pursuant to Section 12.3, the Liquidator (and any
successor to the Liquidator by merger, transfer, assignment,
election or otherwise) and each of their authorized officers and
attorneys-in-fact,
as the case may be, with full power of substitution, as his true
and lawful agent and
attorney-in-fact,
with full power and authority in his name, place and stead, to:
(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
(ii) execute, swear to, acknowledge, deliver, file and
record all ballots, consents, approvals, waivers, certificates,
documents and other instruments that the General Partner or the
Liquidator determines to be necessary or appropriate to
(A) make, evidence, give, confirm or ratify any vote,
consent, approval, agreement or other action that is made or
given by the Partners hereunder or is consistent with the terms
of this Agreement or (B) effectuate the terms or intent of
this Agreement; provided, that when required by
Section 13.3 or any other provision of this Agreement that
establishes a percentage of the Limited Partners or of the
Limited Partners of any class or series required to take any
action, the General Partner and the Liquidator may exercise the
power of attorney made in this Section 2.6(a)(ii) only
after the necessary vote, consent or approval of the Limited
Partners or of the Limited Partners of such class or series, as
applicable.
Nothing contained in this Section 2.6(a) shall be construed
as authorizing the General Partner to amend this Agreement
except in accordance with Article XIII or as may be
otherwise expressly provided for in this Agreement.
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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 and 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
18
Partnerships name or have the power to sign documents for
or otherwise bind the Partnership. Any action taken by any
Affiliate of the General Partner or any officer, director,
employee, manager, member, general partner, agent or trustee of
the General Partner or any of its Affiliates, or any officer,
director, employee, manager, member, general partner, agent or
trustee of a Group Member, in its capacity as such, shall not be
deemed to be participation in the control of the business of the
Partnership by a limited partner of the Partnership (within the
meaning of
Section 17-303(a)
of the Delaware Act) and shall not affect, impair or eliminate
the limitations on the liability of the Limited Partners under
this Agreement.
Section 3.3 Outside
Activities of the Limited Partners.
Subject to the provisions of Section 7.5, which shall
continue to be applicable to the Persons referred to therein,
regardless of whether such Persons shall also be Limited
Partners, any Limited Partner shall be entitled to and may have
business interests and engage in business activities in addition
to those relating to the Partnership, including business
interests and activities in direct competition with the
Partnership Group. Neither the Partnership nor any of the other
Partners shall have any rights by virtue of this Agreement in
any business ventures of any Limited Partner.
Section 3.4 Rights
of Limited Partners.
(a) In addition to other rights provided by this Agreement
or by applicable law, and except as limited by
Section 3.4(b), each Limited Partner shall have the right,
for a purpose reasonably related to such Limited Partners
interest as a Limited Partner in the Partnership, upon
reasonable written demand stating the purpose of such demand,
and at such Limited Partners own expense:
(i) to obtain true and full information regarding the
status of the business and financial condition of the
Partnership;
(ii) promptly after its becoming available, to obtain a
copy of the Partnerships federal, state and local income
tax returns for each year;
(iii) to obtain a current list of the name and last known
business, residence or mailing address of each Partner;
(iv) to obtain a copy of this Agreement and the Certificate
of Limited Partnership and all amendments thereto, together with
copies of the executed copies of all powers of attorney pursuant
to which this Agreement, the Certificate of Limited Partnership
and all amendments thereto have been executed;
(v) to obtain true and full information regarding the
amount of cash and a description and statement of the Net Agreed
Value of any other Capital Contribution by each Partner and that
each Partner has agreed to contribute in the future, and the
date on which each became a Partner; and
(vi) to obtain such other information regarding the affairs
of the Partnership as is just and reasonable.
(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).
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ARTICLE IV
CERTIFICATES;
RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF
PARTNERSHIP INTERESTS
Section 4.1 Certificates.
Upon the Partnerships issuance of Common Units,
Subordinated Units or Class B Units to any Person, the
Partnership shall issue, upon the request of such Person, one or
more Certificates in the name of such Person evidencing the
number of such Units being so issued. In addition, (a) upon
the General Partners request, the Partnership shall issue
to it one or more Certificates in the name of the General
Partner evidencing its General Partner Units and (b) upon
the request of any Person owning Incentive Distribution Rights
or any other Partnership Securities other than Common Units,
Subordinated Units or Class B Units, the Partnership shall
issue to such Person one or more certificates evidencing such
Incentive Distribution Rights or other Partnership Securities
other than Common Units, Subordinated Units or Class B
Units. Certificates shall be executed on behalf of the
Partnership by the Chairman of the Board, President or any
Executive Vice President, Senior Vice President or Vice
President and the Secretary or any Assistant Secretary of the
General Partner. No Common Unit Certificate shall be valid for
any purpose until it has been countersigned by the Transfer
Agent; provided, however, that if the General Partner
elects to issue Common Units in global form, the Common Unit
Certificates shall be valid upon receipt of a certificate from
the Transfer Agent certifying that the Common Units have been
duly registered in accordance with the directions of the
Partnership. Subject to the requirements of Section 6.7(c)
and Section 6.7(e), the Partners holding Certificates
evidencing Subordinated Units may exchange such Certificates for
Certificates evidencing Common Units on or after the date on
which such Subordinated Units are converted into Common Units
pursuant to the terms of Section 5.7. Subject to the
requirements of Section 6.7(e), the Partners holding
Certificates evidencing Class B Units may exchange such
Certificates for Certificates evidencing Common Units on or
after the period set forth in Section 5.11(f) pursuant to
the terms of Section 5.11.
Section 4.2 Mutilated,
Destroyed, Lost or Stolen Certificates.
(a) If any mutilated Certificate is surrendered to the
Transfer Agent (for Common Units) or the General Partner (for
Partnership Securities other than Common Units), the appropriate
officers of the General Partner on behalf of the Partnership
shall execute, and the Transfer Agent (for Common Units) or the
General Partner (for Partnership Securities other than Common
Units) shall countersign and deliver in exchange therefor, a new
Certificate evidencing the same number and type of Partnership
Securities as the Certificate so surrendered.
(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:
(i) makes proof by affidavit, in form and substance
satisfactory to the General Partner, that a previously issued
Certificate has been lost, destroyed or stolen;
(ii) requests the issuance of a new Certificate before the
General Partner has notice that the Certificate has been
acquired by a purchaser for value in good faith and without
notice of an adverse claim;
(iii) if requested by the General Partner, delivers to the
General Partner a bond, in form and substance satisfactory to
the General Partner, with surety or sureties and with fixed or
open penalty as the General Partner may direct to indemnify the
Partnership, the Partners, the General Partner and the Transfer
Agent against any claim that may be made on account of the
alleged loss, destruction or theft of the Certificate; and
(iv) satisfies any other reasonable requirements imposed by
the General Partner.
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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 Exchange on which such
Partnership Interests are listed or admitted to trading.
Without limiting the foregoing, when a Person (such as a broker,
dealer, bank, trust company or clearing corporation or an agent
of any of the foregoing) is acting as nominee, agent or in some
other representative capacity for another Person in acquiring
and/or
holding Partnership Interests, as between the Partnership
on the one hand, and such other Persons on the other, such
representative Person shall be the Record Holder of such
Partnership Interest.
Section 4.4 Transfer
Generally.
(a) The term transfer, when used in this
Agreement with respect to a Partnership Interest, shall be
deemed to refer to a transaction (i) by which the General
Partner assigns its General Partner Units to another Person or
by which a holder of Incentive Distribution Rights assigns its
Incentive Distribution Rights to another Person, and includes a
sale, assignment, gift, pledge, encumbrance, hypothecation,
mortgage, exchange or any other disposition by law or otherwise
or (ii) by which the holder of a Limited Partner Interest
(other than an Incentive Distribution Right) assigns such
Limited Partner Interest to another Person who is or becomes a
Limited Partner, and includes a sale, assignment, gift, exchange
or any other disposition by law or otherwise, including any
transfer upon foreclosure of any pledge, encumbrance,
hypothecation or mortgage.
(b) No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and
conditions set forth in this Article IV. Any transfer or
purported transfer of a Partnership Interest not made in
accordance with this Article IV shall be null and void.
(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
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designated transferee or transferees, as required pursuant to
the holders instructions, one or more new Certificates
evidencing the same aggregate number and type of Limited Partner
Interests as was evidenced by the Certificate so surrendered.
(b) Except as otherwise provided in Section 4.9, the
General Partner shall not recognize any transfer of Limited
Partner Interests until the Certificates evidencing such Limited
Partner Interests are surrendered for registration of transfer.
No charge shall be imposed by the General Partner for such
transfer; provided, that as a condition to the issuance
of any new Certificate under this Section 4.5, the General
Partner may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed with
respect thereto.
(c) Subject to (i) the foregoing provisions of this
Section 4.5, (ii) Section 4.3,
(iii) Section 4.8, (iv) with respect to any class
or series of Limited Partner Interests, the provisions of any
statement of designations or an amendment to this Agreement
establishing such class or series, (v) any contractual
provisions binding on any Limited Partner and
(vi) provisions of applicable law including the Securities
Act, Limited Partner Interests (other than the Incentive
Distribution Rights) shall be freely transferable.
(d) The General Partner and its Affiliates shall have the
right at any time to transfer their Subordinated Units,
Class B Units and Common Units (whether issued upon
conversion of the Subordinated Units or otherwise) to one or
more Persons.
Section 4.6 Transfer
of the General Partners General Partner Interest.
(a) Subject to Section 4.6(c) below, prior to
December 31, 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
December 31, 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 December 31, 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
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(iii) the sale of all the ownership interests in such
holder. Any other transfer of the Incentive Distribution Rights
prior to December 31, 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 December 31, 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, (i) the transfer of Class B Units issued
pursuant to Section 5.11, or the transfer of Common Units
issued upon conversion of the Class B Units, shall not be
treated as a transfer of all or any part of the Incentive
Distribution Rights and (ii) no transfer of Incentive
Distribution Rights to another Person shall be permitted unless
the transferee agrees to be bound by the provisions of this
Agreement.
Section 4.8 Restrictions
on Transfers.
(a) Except as provided in Section 4.8(d) below, and
notwithstanding the other provisions of this Article IV, no
transfer of any Partnership Interests shall be made if such
transfer would (i) violate the then applicable federal or
state securities laws or rules and regulations of the
Commission, any state securities commission or any other
governmental authority with jurisdiction over such transfer,
(ii) terminate the existence or qualification of the
Partnership under the laws of the jurisdiction of its formation,
or (iii) cause the Partnership to be treated as an
association taxable as a corporation or otherwise to be taxed as
an entity for federal income tax purposes (to the extent not
already so treated or taxed).
(b) The General Partner may impose restrictions on the
transfer of Partnership Interests if it receives an Opinion
of Counsel that such restrictions are necessary to avoid a
significant risk of the Partnership becoming taxable as a
corporation or otherwise becoming taxable as an entity for
federal income tax purposes. The General Partner may impose such
restrictions by amending this Agreement; provided,
however, that any amendment that would result in the
delisting or suspension of trading of any class of Limited
Partner Interests on the principal National Securities Exchange
on which such class of Limited Partner Interests is then listed
or admitted to trading must be approved, prior to such amendment
being effected, by the holders of at least a majority of the
Outstanding Limited Partner Interests of such class.
(c) The transfer of a Subordinated Unit that has converted
into a Common Unit shall be subject to the restrictions imposed
by Section 6.7(c).
(d) The transfer of a Class B Unit that has converted
into a Common Unit shall be subject to the restrictions imposed
by Section 6.7(e).
(e) Nothing contained in this Article IV, or elsewhere
in this Agreement, shall preclude the settlement of any
transactions involving Partnership Interests entered into
through the facilities of any National Securities Exchange on
which such Partnership Interests are listed or admitted to
trading.
(f) Each certificate evidencing Partnership Interests
shall bear a conspicuous legend in substantially the following
form:
THE HOLDER OF THIS SECURITY ACKNOWLEDGES FOR THE BENEFIT OF
TARGA RESOURCES PARTNERS LP THAT THIS SECURITY MAY NOT BE
SOLD, OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IF SUCH
TRANSFER WOULD (A) VIOLATE THE THEN APPLICABLE FEDERAL OR
STATE SECURITIES LAWS OR RULES AND REGULATIONS OF THE SECURITIES
AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY
OTHER GOVERNMENTAL AUTHORITY WITH JURISDICTION OVER SUCH
TRANSFER, (B) TERMINATE THE EXISTENCE OR QUALIFICATION OF
TARGA RESOURCES PARTNERS LP UNDER THE LAWS OF THE STATE OF
DELAWARE, OR (C) CAUSE TARGA RESOURCES PARTNERS LP TO
BE TREATED AS AN ASSOCIATION TAXABLE AS A CORPORATION OR
OTHERWISE TO BE TAXED AS AN ENTITY FOR FEDERAL INCOME TAX
PURPOSES (TO THE EXTENT NOT ALREADY SO TREATED OR TAXED). TARGA
RESOURCES GP LLC, THE GENERAL PARTNER OF TARGA RESOURCES
PARTNERS LP, MAY IMPOSE ADDITIONAL
23
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 TARGA RESOURCES PARTNERS LP BECOMING
TAXABLE AS A CORPORATION OR OTHERWISE BECOMING TAXABLE AS AN
ENTITY FOR FEDERAL INCOME TAX PURPOSES. THE RESTRICTIONS SET
FORTH ABOVE SHALL NOT PRECLUDE THE SETTLEMENT OF ANY
TRANSACTIONS INVOLVING THIS SECURITY ENTERED INTO THROUGH THE
FACILITIES OF ANY NATIONAL SECURITIES EXCHANGE ON WHICH THIS
SECURITY IS LISTED OR ADMITTED TO TRADING.
Section 4.9 Citizenship
Certificates; Non-citizen Assignees.
(a) If any Group Member is or becomes subject to any
federal, state or local law or regulation that the General
Partner determines would create a substantial risk of
cancellation or forfeiture of any property in which the Group
Member has an interest based on the nationality, citizenship or
other related status of a Limited Partner, the General Partner
may request any Limited Partner to furnish to the General
Partner, within 30 days after receipt of such request, an
executed Citizenship Certification or such other information
concerning his nationality, citizenship or other related status
(or, if the Limited Partner is a nominee holding for the account
of another Person, the nationality, citizenship or other related
status of such Person) as the General Partner may request. If a
Limited Partner fails to furnish to the General Partner within
the aforementioned
30-day
period such Citizenship Certification or other requested
information or if upon receipt of such Citizenship Certification
or other requested information the General Partner determines
that a Limited Partner is not an Eligible Citizen, the Limited
Partner Interests owned by such Limited Partner shall be subject
to redemption in accordance with the provisions of
Section 4.10. In addition, the General Partner may require
that the status of any such Limited Partner be changed to that
of a Non-citizen Assignee and, thereupon, the General Partner
shall be substituted for such Non-citizen Assignee as the
Limited Partner in respect of the Non-citizen Assignees
Limited Partner Interests.
(b) The General Partner shall, in exercising voting rights
in respect of Limited Partner Interests held by it on behalf of
Non-citizen Assignees, distribute the votes in the same ratios
as the votes of Partners (including the General Partner) in
respect of Limited Partner Interests other than those of
Non-citizen Assignees are cast, either for, against or
abstaining as to the matter.
(c) Upon dissolution of the Partnership, a Non-citizen
Assignee shall have no right to receive a distribution in kind
pursuant to Section 12.4 but shall be entitled to the cash
equivalent thereof, and the Partnership shall provide cash in
exchange for an assignment of the Non-citizen Assignees
share of any distribution in kind. Such payment and assignment
shall be treated for Partnership purposes as a purchase by the
Partnership from the Non-citizen Assignee of his Limited Partner
Interest (representing his right to receive his share of such
distribution in kind).
(d) At any time after he can and does certify that he has
become an Eligible Citizen, a Non-citizen Assignee may, upon
application to the General Partner, request that with respect to
any Limited Partner 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
24
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:
(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.
(ii) The aggregate redemption price for Redeemable
Interests shall be an amount equal to the Current Market Price
(the date of determination of which shall be the date fixed for
redemption) of Limited Partner Interests of the class to be so
redeemed multiplied by the number of Limited Partner Interests
of each such class included among the Redeemable Interests. The
redemption price shall be paid, as determined by the General
Partner, in cash or by delivery of a promissory note of the
Partnership in the principal amount of the redemption price,
bearing interest at the rate of 5% annually and payable in
three equal annual installments of principal together with
accrued interest, commencing one year after the redemption date.
(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.
(iv) After the redemption date, Redeemable Interests shall
no longer constitute issued and Outstanding Limited Partner
Interests.
(b) The provisions of this Section 4.10 shall also be
applicable to Limited Partner Interests held by a Limited
Partner as nominee of a Person determined to be other than an
Eligible Citizen.
(c) Nothing in this Section 4.10 shall prevent the
recipient of a notice of redemption from transferring his
Limited Partner Interest before the redemption date if such
transfer is otherwise permitted under this Agreement. Upon
receipt of notice of such a transfer, the General Partner shall
withdraw the notice of redemption, provided the
transferee of such Limited Partner Interest certifies to the
satisfaction of the General Partner that he is an Eligible
Citizen. If the transferee fails to make such certification,
such redemption shall be effected from the transferee on the
original redemption date.
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 each of
the Organizational Limited Partners made an initial Capital
Contribution to the Partnership in the amount of $490.00 for a
49% Limited Partner Interest in the Partnership and have been
admitted as Limited Partners of the Partnership. As of the
Closing Date, the interest of the Organizational Limited
Partners shall be redeemed as provided in the Contribution
Agreement; and the initial Capital Contribution of the
Organizational Limited Partners 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 Partners, and the balance thereof shall
be allocated and distributed to the General Partner.
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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, [a
[ ]% interest in Targa North Texas
GP LLC, a Delaware limited liability company (North
Texas GP)], in exchange for (A) [578,127]
General Partner Units representing a continuation of its
2% General Partner Interest, subject to all of the rights,
privileges and duties of the General Partner under this
Agreement and (B) the Incentive Distribution Rights;
(ii) Targa GP Inc. shall contribute to the Partnership, as
a Capital Contribution,
[a % interest in North
Texas GP, in exchange for
Subordinated Units, and (iii) Targa LP Inc. shall
contribute to the Partnership, as a Capital Contribution, all of
its interest in Targa North Texas LP, a Delaware limited
partnership, in exchange for
Subordinated Units.
(b) Upon the issuance of additional Common Units pursuant
to the Over-Allotment Option, the Partnership will issue to the
General Partner that number of additional General Partner Units
equal to
2/98ths of
the number of Common Units so issued pursuant to the
Over-Allotment Option, and the General Partner shall not be
obligated to make any additional Capital Contribution to the
Partnership in exchange for such issuance.
(c) Upon the issuance of any additional Limited Partner
Interests by the Partnership (other than the Common Units issued
in the Initial Offering, the Common Units issued pursuant to the
Over-Allotment Option, the Subordinated Units issued pursuant to
Section 5.2(a), any Class B Units issued pursuant to
Section 5.11 and any Common Units issued upon conversion of
Class B Units), the General Partner may, in exchange for a
proportionate number of General Partner Units, make additional
Capital Contributions in an amount equal to the product obtained
by multiplying (i) the quotient determined by dividing
(A) the General Partners Percentage Interest by
(B) 100 less the General Partners Percentage Interest
times (ii) the amount contributed to the Partnership by the
Limited Partners in exchange for such additional Limited Partner
Interests. Except as set forth in Article XII, the General
Partner shall not be obligated to make any additional Capital
Contributions to the Partnership.
Section 5.3 Contributions
by Initial Limited Partners.
(a) On the Closing Date and pursuant to the Underwriting
Agreement, each Underwriter shall contribute to the Partnership
cash in an amount equal to the Issue Price per Initial Common
Unit, multiplied by the number of Common Units specified in the
Underwriting Agreement to be purchased by such Underwriter at
the Closing Date. In exchange for such Capital Contributions by
the Underwriters, the Partnership shall issue Common Units to
each Underwriter on whose behalf such Capital Contribution is
made in an amount equal to the quotient obtained by dividing
(i) the cash contribution to the Partnership by or on
behalf of such Underwriter by (ii) the Issue Price per
Initial Common Unit.
(b) Upon the exercise of the Over-Allotment Option, each
Underwriter shall contribute to the Partnership cash in an
amount equal to the Issue Price per Initial Common Unit,
multiplied by the number of Common Units to be purchased by such
Underwriter at the Option Closing Date. In exchange for such
Capital 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.
(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 16,800,000, (ii) the Option
Units as such term is used in the Underwriting Agreement
in an aggregate number up to 2,520,000 issuable upon exercise of
the Over-Allotment Option pursuant to
subparagraph (b) hereof, (iii) the 11,528,231
Subordinated Units issuable to Targa GP Inc. and Targa LP Inc.
pursuant to Section 5.2 hereof and (iv) the Incentive
Distribution Rights.
26
Section 5.4 Interest
and Withdrawal.
No interest shall be paid by the Partnership on Capital
Contributions. No Partner or Assignee shall be entitled to the
withdrawal or return of its Capital Contribution, except to the
extent, if any, that distributions made pursuant to this
Agreement or upon termination of the Partnership may be
considered as such by law and then only to the extent provided
for in this Agreement. Except to the extent expressly provided
in this Agreement, no Partner shall have priority over any other
Partner or Assignee either as to the return of Capital
Contributions or as to profits, losses or distributions. Any
such return shall be a compromise to which all Partners agree
within the meaning of
Section 17-502(b)
of the Delaware Act.
Section 5.5 Capital
Accounts.
(a) The Partnership shall maintain for each Partner (or a
beneficial owner of Partnership Interests held by a nominee
in any case in which the nominee has furnished the identity of
such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable
to the General Partner) owning a Partnership Interest a
separate Capital Account with respect to such
Partnership Interest in accordance with the rules of
Treasury
Regulation Section 1.704-1(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount
of all Capital Contributions made to the Partnership with
respect to such Partnership Interest and (ii) all
items of Partnership income and gain (including income and gain
exempt from tax) computed in accordance with Section 5.5(b)
and allocated with respect to such Partnership Interest
pursuant to Section 6.1, and decreased by (x) the
amount of cash or Net Agreed Value of all actual and deemed
distributions of cash or property made with respect to such
Partnership Interest and (y) all items of Partnership
deduction and loss computed in accordance with
Section 5.5(b) and allocated with respect to such
Partnership Interest pursuant to Section 6.1.
(b) For purposes of computing the amount of any item of
income, gain, loss or deduction which is to be allocated
pursuant to Article VI and is to be reflected in the
Partners Capital Accounts, the determination, recognition
and classification of any such item shall be the same as its
determination, recognition and classification for federal income
tax purposes (including any method of depreciation, cost
recovery or amortization used for that purpose),
provided, that:
(i) Solely for purposes of this Section 5.5, the
Partnership shall be treated as owning directly its
proportionate share (as determined by the General Partner based
upon the provisions of the applicable Group Member Agreement or
governing, organizational or similar documents) of all property
owned by any other Group Member that is classified as a
partnership for federal income tax purposes and (y) any
other partnership, limited liability company, unincorporated
business or other entity classified as a partnership for federal
income tax purposes of which a Group Member is, directly or
indirectly, a partner.
(ii) All fees and other expenses incurred by the
Partnership to promote the sale of (or to sell) a
Partnership Interest that can neither be deducted nor
amortized under Section 709 of the Code, if any, shall, for
purposes of Capital Account maintenance, be treated as an item
of deduction at the time such fees and other expenses are
incurred and shall be allocated among the Partners pursuant to
Section 6.1.
(iii) Except as otherwise provided in Treasury
Regulation Section 1.704-1(b)(2)(iv)(m),
the computation of all items of income, gain, loss and deduction
shall be made without regard to any election under
Section 754 of the Code which may be made by the
Partnership and, as to those items described in
Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without
regard to the fact that such items are not includable in gross
income or are neither currently deductible nor capitalized for
federal income tax purposes. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to
Section 734(b) or 743(b) of the Code is required, pursuant
to Treasury
Regulation Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the
amount of such adjustment in the Capital Accounts shall be
treated as an item of gain or loss.
27
(iv) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as
if the adjusted basis of such property as of such date of
disposition were equal in amount to the Partnerships
Carrying Value with respect to such property as of such date.
(v) In accordance with the requirements of
Section 704(b) of the Code, any deductions for
depreciation, cost recovery or amortization attributable to any
Contributed Property shall be determined as if the adjusted
basis of such property on the date it was acquired by the
Partnership were equal to the Agreed Value of such property.
Upon an adjustment pursuant to Section 5.5(d) to the
Carrying Value of any Partnership property subject to
depreciation, cost recovery or amortization, any further
deductions for such depreciation, cost recovery or amortization
attributable to such property shall be determined as if the
adjusted basis of such property were equal to the Carrying Value
of such property immediately following such adjustment.
(vi) If the Partnerships adjusted basis in a
depreciable or cost recovery property is reduced for federal
income tax purposes pursuant to Section 48(q)(1) or
48(q)(3) of the Code, the amount of such reduction shall, solely
for purposes hereof, be deemed to be an additional depreciation
or cost recovery deduction in the year such property is placed
in service and shall be allocated among the Partners pursuant to
Section 6.1. Any restoration of such basis pursuant to
Section 48(q)(2) of the Code shall, to the extent possible,
be allocated in the same manner to the Partners to whom such
deemed deduction was allocated.
(c) (i) A transferee of a Partnership Interest
shall succeed to a pro rata portion of the Capital Account of
the transferor relating to the Partnership Interest so
transferred.
(ii) Subject to Section 6.7(c), immediately prior to
the transfer of a Subordinated Unit or of a Subordinated Unit
that has converted into a Common Unit pursuant to
Section 5.7 by a holder thereof (other than a transfer to
an Affiliate unless the General Partner elects to have this
subparagraph 5.5(c)(ii) apply), the Capital Account
maintained for such Person with respect to its Subordinated
Units or converted Subordinated Units will (A) first, be
allocated to the Subordinated Units or converted Subordinated
Units to be transferred in an amount equal to the product of
(x) the number of such Subordinated Units or converted
Subordinated Units to be transferred and (y) the Per Unit
Capital Amount for a Common Unit, and (B) second, any
remaining balance in such Capital Account will be retained by
the transferor, regardless of whether it has retained any
Subordinated Units or converted Subordinated Units
(Retained Converted Subordinated
Units). Following any such allocation, the
transferors Capital Account, if any, maintained with
respect to the retained Subordinated Units or Retained Converted
Subordinated Units, if any, will have a balance equal to the
amount allocated under clause (B) hereinabove, and the
transferees Capital Account established with respect to
the transferred Subordinated Units or converted Subordinated
Units will have a balance equal to the amount allocated under
clause (A) hereinabove.
(d) (i) In accordance with Treasury
Regulation Section 1.704-1(b)(2)(iv)(f),
on an issuance of additional Partnership Interests for cash
or Contributed Property, the issuance of
Partnership Interests as consideration for the provision of
services or the conversion of the General Partners
Combined Interest to Common Units pursuant to
Section 11.3(b), the Capital Account of all Partners and
the Carrying Value of each Partnership property immediately
prior to such issuance shall be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to
such Partnership property, as if such Unrealized Gain or
Unrealized Loss had been recognized on an actual sale of each
such property immediately prior to such issuance and had been
allocated to the Partners at such time pursuant to
Section 6.1 in the same manner as any item of gain or loss
actually recognized during such period would have been
allocated. In determining such Unrealized Gain or Unrealized
Loss, the aggregate cash amount and fair market value of all
Partnership assets (including cash or cash equivalents)
immediately prior to the issuance of additional
Partnership Interests shall be determined by the General
Partner using such method of valuation as it may adopt;
provided, however, that the General Partner, in arriving
at such valuation, must take fully into account the fair market
value of the Partnership Interests of all Partners at such
time. The General Partner shall allocate such aggregate
28
value among the assets of the Partnership (in such manner as it
determines) to arrive at a fair market value for individual
properties.
(ii) In accordance with Treasury
Regulation Section 1.704-1(b)(2)(iv)(f),
immediately prior to any actual or deemed distribution to a
Partner of any Partnership property (other than a distribution
of cash that is not in redemption or retirement of a
Partnership Interest), the Capital Accounts of all Partners
and the Carrying Value of all Partnership property shall be
adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as if
such Unrealized Gain or Unrealized Loss had been recognized in a
sale of such property immediately prior to such distribution for
an amount equal to its fair market value, and had been allocated
to the Partners, at such time, pursuant to Section 6.1 in
the same manner as any item of gain or loss actually recognized
during such period would have been allocated. In determining
such Unrealized Gain or Unrealized Loss the aggregate cash
amount and fair market value of all Partnership assets
(including cash or cash equivalents) immediately prior to a
distribution shall (A) in the case of an actual
distribution that is not made pursuant to Section 12.4 or
in the case of a deemed distribution, be determined and
allocated in the same manner as that provided in
Section 5.5(d)(i) or (B) in the case of a liquidating
distribution pursuant to Section 12.4, be determined and
allocated by the Liquidator using such method of valuation as it
may adopt.
Section 5.6 Issuances
of Additional Partnership Securities.
(a) The Partnership may issue additional Partnership
Securities and options, rights, warrants and appreciation rights
relating to the Partnership Securities for any Partnership
purpose at any time and from time to time to such Persons for
such consideration and on such terms and conditions as the
General Partner shall determine, all without the approval of any
Limited Partners.
(b) Each additional Partnership Security authorized to be
issued by the Partnership pursuant to Section 5.6(a) may be
issued in one or more classes, or one or more series of any such
classes, with such designations, preferences, rights, powers and
duties (which may be senior to existing classes and series of
Partnership Securities), as shall be fixed by the General
Partner, including (i) the right to share in Partnership
profits and losses or items thereof; (ii) the right to
share in Partnership distributions; (iii) the rights upon
dissolution and liquidation of the Partnership;
(iv) whether, and the terms and conditions upon which, the
Partnership may redeem the Partnership Security;
(v) whether such Partnership Security is issued with the
privilege of conversion or exchange and, if so, the terms and
conditions of such conversion or exchange; (vi) the terms
and conditions upon which each Partnership Security will be
issued, evidenced by certificates and assigned or transferred;
(vii) the method for determining the Percentage Interest as
to such Partnership Security; and (viii) the right, if any,
of each such Partnership Security to vote on Partnership
matters, including matters relating to the relative rights,
preferences and privileges of such Partnership Security.
(c) The General Partner shall take all actions that it
determines to be necessary or appropriate in connection with
(i) each issuance of Partnership Securities and options,
rights, warrants and appreciation rights relating to Partnership
Securities pursuant to this Section 5.6, (ii) the
conversion of the General Partner Interest (represented by
General Partner Units) or any Incentive Distribution Rights into
Units pursuant to the terms of this Agreement, (iii) the
issuance of Class B Units pursuant to Section 5.11 and
the conversion of Class B Units into Common Units pursuant
to the terms of this Agreement, (iv) reflecting admission
of such additional Limited Partners in the books and records of
the Partnership as the Record Holder of such Limited Partner
Interest and (v) all additional issuances of Partnership
Securities. The General Partner shall determine the relative
rights, powers and duties of the holders of the Units or other
Partnership Securities being so issued. The General Partner
shall do all things necessary to comply with the Delaware Act
and is authorized and directed to do all things that it
determines to be necessary or appropriate in connection with any
future issuance of Partnership Securities or in connection with
the conversion of the General Partner Interest or any Incentive
Distribution Rights into Units pursuant to the terms of this
Agreement, including compliance with any statute, rule,
regulation or guideline of any federal,
29
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) All of the 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 the final Quarter of the Subordination Period.
(b) Notwithstanding Section 5.7(a) 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 March 31, 2008 in
respect of which:
(i) distributions of Available Cash from Operating Surplus
under Section 6.4 in respect of 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 with respect to the
four-Quarter period immediately preceding such date equaled or
exceeded the sum of the Third Target 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;
(ii) the Adjusted Operating Surplus generated during the
four-Quarter period immediately preceding such date equaled or
exceeded the sum of the Third Target 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
(iii) there are no Cumulative Common Unit Arrearages.
(c) 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.
(d) A Subordinated Unit that has converted into a Common
Unit shall be subject to the provisions of Section 6.7(b)
and Section 6.7(c).
Section 5.8 Limited
Preemptive Right.
Except as provided in this Section 5.8 and in
Section 5.2, no Person shall have any preemptive,
preferential or other similar right with respect to the issuance
of any Partnership Security, whether unissued, held in the
treasury or hereafter created. The General Partner shall have
the right, which it may from time to time assign in whole or in
part to any of its Affiliates, to purchase Partnership
Securities from the Partnership whenever, and on the same terms
that, the Partnership issues Partnership Securities to Persons
other than the General Partner and its Affiliates, to the extent
necessary to maintain the Percentage Interests of the General
Partner and its Affiliates equal to that which existed
immediately prior to the issuance of such Partnership Securities.
Section 5.9 Splits
and Combinations.
(a) Subject to Section 5.9(d), Section 6.6 and
Section 6.9 (dealing with adjustments of distribution
levels), the Partnership may make a Pro Rata distribution of
Partnership Securities to all Record Holders or may effect a
subdivision or combination of Partnership Securities so long as,
after any such event, each Partner shall have the same
Percentage Interest in the Partnership as before such event, and
any amounts calculated on a per Unit basis (including any Common
Unit Arrearage or Cumulative Common Unit
30
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.
Section 5.11 Issuance
of Class B Units in Connection with Reset of Incentive
Distribution Rights.
(a) Subject to the provisions of this Section 5.11,
the holder of the Incentive Distribution Rights (or, if there is
more than one holder of the Incentive Distribution Rights, the
holders of a majority in interest of the Incentive Distribution
Rights) shall have the right, at any time when there are no
Subordinated Units outstanding and the Partnership has made a
distribution pursuant to Section 6.4(b)(v) for each of the
four most recently completed Quarters and the amount of each
such distribution did not exceed Adjusted Operating Surplus for
such Quarter, to make an election (the IDR
Reset Election) to cause the Minimum Quarterly
Distribution and the Target Distributions to be reset in
accordance with the provisions of Section 5.11(e) and, in
connection therewith, the holder or holders of the Incentive
Distribution Rights will become entitled to receive their
respective proportionate share of a number of Class B Units
derived by dividing (i) the average amount of cash
distributions made by the Partnership for the two full Quarters
immediately preceding the giving of the Reset Notice (as defined
in Section 5.11(b)) in respect of the Incentive
Distribution Rights by (ii) the average of the cash
distributions made by the Partnership in respect of each Common
Unit for the two full Quarters immediately preceding the giving
of the Reset Notice (the number of Class B Units determined
by such quotient is referred to herein as the
Aggregate Quantity of Class B
Units). The making of the IDR Reset Election in
the manner specified in Section 5.11(b) shall cause the
Minimum Quarterly Distribution and the Target Distributions to
be reset in accordance with the provisions of
Section 5.11(e) and, in connection therewith, the holder or
holders of the Incentive Distribution Rights will become
entitled to receive Class B Units on the basis specified
above, without any further approval required by the General
Partner or the Unitholders, at the time specified in
Section 5.11(c) unless the IDR Reset Election is rescinded
pursuant to Section 5.11(d).
(b) To exercise the right specified in
Section 5.11(a), the holder of the Incentive Distribution
Rights (or, if there is more than one holder of the Incentive
Distribution Rights, the holders of a majority in
31
interest of the Incentive Distribution Rights) shall deliver a
written notice (the Reset Notice) to
the Partnership. Within 10 Business Days after the receipt
by the Partnership of such Reset Notice, as the case may be, the
Partnership shall deliver a written notice to the holder or
holders of the Incentive Distribution Rights of the
Partnerships determination of the aggregate number of
Class B Units that each holder of Incentive Distribution
Rights will be entitled to receive.
(c) The holder or holders of the Incentive Distribution
Rights will be entitled to receive the Aggregate Quantity of
Class B Units on the fifteenth Business Day after receipt
by the Partnership of the Reset Notice, and the Partnership
shall issue Certificates for the Class B Units to the
holder or holders of the Incentive Distribution Rights;
provided, however, that the issuance of Class B
Units to the holder or holders of the Incentive Distribution
Rights shall not occur prior to the approval of the listing or
admission for trading of the Common Units into which the
Class B Units are convertible pursuant to
Section 5.11(f) by the principal National Securities
Exchange upon which the Common Units are then listed or admitted
for trading if any such approval is required pursuant to the
rules and regulations of such National Securities Exchange.
(d) If the principal National Securities Exchange upon
which the Common Units are then traded have not approved the
listing or admission for trading of the Common Units into which
the Class B Units are convertible pursuant to
Section 5.11(f) on or before the 30th calendar day
following the Partnerships receipt of the Reset Notice and
such approval is required by the rules and regulations of such
National Securities Exchange, then the holder of the Incentive
Distribution Rights (or, if there is more than one holder of the
Incentive Distribution Rights, the holders of a majority in
interest of the Incentive Distribution Rights) shall have the
right to either rescind the IDR Reset Election or elect to
receive other Partnership Securities having such terms as the
General Partner may approve, with the approval of the Conflicts
Committee, that will provide (i) the same economic value,
in the aggregate, as the Aggregate Quantity of Class B
Units would have had at the time of the Partnerships
receipt of the Reset Notice, as determined by the General
Partner, and (ii) for the subsequent conversion of such
Partnership Securities into Common Units within not more than
12 months following the Partnerships receipt of the
Reset Notice upon the satisfaction of one or more conditions
that are reasonably acceptable to the holder of the Incentive
Distribution Rights (or, if there is more than one holder of the
Incentive Distribution Rights, the holders of a majority in
interest of the Incentive Distribution Rights).
(e) The Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target
Distribution shall be adjusted at the time of the issuance of
Common Units or other Partnership Securities pursuant to this
Section 5.11 such that (i) the Minimum Quarterly
Distribution shall be reset to equal to the average cash
distribution amount per Common Unit for the two Quarters
immediately prior to the Partnerships receipt of the Reset
Notice (the Reset MQD), (ii) the
First Target Distribution shall be reset to equal 115% of the
Reset MQD, (iii) the Second Target Distribution shall be
reset to equal to 125% of the Reset MQD and (iv) the Third
Target Distribution shall be reset to equal 150% of the Reset
MQD.
(f) Any holder of Class B Units shall have the right
to elect, by giving written notice to the General Partner, to
convert all or a portion of the Class B Units held by such
holder, at any time following the first anniversary of the
issuance of such Class B Units, into Common Units on a
one-for-one
basis, such conversion to be effective on the second Business
Day following the General Partners receipt of such written
notice.
ARTICLE VI
ALLOCATIONS
AND DISTRIBUTIONS
Section 6.1 Allocations
for Capital Account Purposes.
For purposes of maintaining the Capital Accounts and in
determining the rights of the Partners among themselves, the
Partnerships items of income, gain, loss and deduction
(computed in accordance with
32
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:
(i) First, 100% to the General Partner, in an amount equal
to the aggregate Net Losses allocated to the General Partner
pursuant to
Section 6.1(b)(iii)
for all previous taxable years until the aggregate Net Income
allocated to the General Partner pursuant to this
Section 6.1(a)(i)
for the current taxable year and all previous taxable years is
equal to the aggregate Net Losses allocated to the General
Partner pursuant to
Section 6.1(b)(iii)
for all previous taxable years;
(ii) Second, 100% to the General Partner and the
Unitholders, in accordance with their respective Percentage
Interests, until the aggregate Net Income allocated to such
Partners pursuant to this
Section 6.1(a)(ii)
for the current taxable year and all previous taxable years is
equal to the aggregate Net Losses allocated to such Partners
pursuant to
Section 6.1(b)(ii)
for all previous taxable years; and
(iii) Third, the balance, if any, 100% to the General
Partner and the Unitholders, in accordance with their respective
Percentage Interests.
(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:
(i) First, 100% to the General Partner and the Unitholders,
in accordance with their respective Percentage Interests, until
the aggregate Net Losses allocated pursuant to this
Section 6.1(b)(i)
for the current taxable year and all previous taxable years is
equal to the aggregate Net Income allocated to such Partners
pursuant to
Section 6.1(a)(iii)
for all previous taxable years, provided that the Net
Losses shall not be allocated pursuant to this
Section 6.1(b)(i)
to the extent that such allocation would cause any Unitholder to
have a deficit balance in its Adjusted Capital Account at the
end of such taxable year (or increase any existing deficit
balance in its Adjusted Capital Account);
(ii) Second, 100% to the General Partner and the
Unitholders, in accordance with their respective Percentage
Interests; provided, that Net Losses shall not be
allocated pursuant to this
Section 6.1(b)(ii)
to the extent that such allocation would cause any Unitholder to
have a deficit balance in its Adjusted Capital Account at the
end of such taxable year (or increase any existing deficit
balance in its Adjusted Capital Account); and
(iii) Third, the balance, if any, 100% to the General
Partner.
(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.
(i) If a Net Termination Gain is recognized (or deemed
recognized pursuant to
Section 5.5(d)),
such Net Termination Gain shall be allocated among the Partners
in the following manner (and the Capital Accounts of the
Partners shall be increased by the amount so allocated in each
of the following subclauses, in the order listed, before an
allocation is made pursuant to the next succeeding subclause):
(A) First, to each Partner having a deficit balance in its
Capital Account, in the proportion that such deficit balance
bears to the total deficit balances in the Capital Accounts of
all Partners, until
33
each such Partner has been allocated Net Termination Gain equal
to any such deficit balance in its Capital Account;
(B) Second, (x) to the General Partner in accordance
with its Percentage Interest and (y) to all Unitholders
holding Common Units, Pro Rata, a percentage equal to 100% less
the percentage applicable to subclause (x) of this
clause (B), until the Capital Account in respect of each
Common Unit then Outstanding is equal to the sum of (1) its
Unrecovered Initial Unit Price, (2) the Minimum Quarterly
Distribution for the Quarter during which the Liquidation Date
occurs, reduced by any distribution pursuant to
Section 6.4(a)(i)
or Section 6.4(b)(i) with respect to such Common Unit for
such Quarter (the amount determined pursuant to this
clause (2) is hereinafter defined as the Unpaid
MQD) and (3) any then existing Cumulative
Common Unit Arrearage;
(C) Third, if such Net Termination Gain is recognized (or
is deemed to be recognized) prior to the conversion of the last
Outstanding Class B Unit, (x) to the General Partner
in accordance with its Percentage Interest and (y) to all
Unitholders holding Class B Units, Pro Rata, a percentage
equal to 100% less the percentage applicable to
subclause (x) of this clause (C), until the
Capital Account in respect of each Class B Unit then
Outstanding equals the sum of (1) its Unrecovered Initial
Unit Price, and (2) the Minimum Quarterly Distribution for
the Quarter during which the Liquidation Date occurs, reduced by
any distribution pursuant to
Section 6.4(b)(i)
with respect to such Class B Unit for such Quarter;
(D) Fourth, if such Net Termination Gain is recognized (or
is deemed to be recognized) prior to the conversion of the last
Outstanding Subordinated Unit, (x) to the General Partner
in accordance with its Percentage Interest and (y) to all
Unitholders holding Subordinated Units, Pro Rata, a percentage
equal to 100% less the percentage applicable to
subclause (x) of this clause (D), until the
Capital Account in respect of each Subordinated Unit then
Outstanding equals the sum of (1) its Unrecovered Initial
Unit Price, determined for the taxable year (or portion thereof)
to which this allocation of gain relates, and (2) the
Minimum Quarterly Distribution for the Quarter during which the
Liquidation Date occurs, reduced by any distribution pursuant to
Section 6.4(a)(iii)
with respect to such Subordinated Unit for such Quarter;
(E) Fifth, 100% to the General Partner and all Unitholders
in accordance with their respective Percentage Interests, until
the Capital Account in respect of each Common Unit then
Outstanding is equal to the sum of (1) its Unrecovered
Initial Unit Price, (2) the Unpaid MQD, (3) any then
existing Cumulative Common Unit Arrearage, and (4) the
excess of (aa) the First Target Distribution less the
Minimum Quarterly Distribution for each Quarter of the
Partnerships existence over (bb) the cumulative per
Unit amount of any distributions of Available Cash that is
deemed to be Operating Surplus made pursuant to
Section 6.4(a)(iv)
and
Section 6.4(b)(ii)
(the sum of (1), (2), (3) and (4) is hereinafter
defined as the First Liquidation Target
Amount);
(F) Sixth, (x) to the General Partner in accordance
with its Percentage Interest, (y) 13% to the holders of the
Incentive Distribution Rights, Pro Rata, and (z) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclause (x) and
(y) of this clause (F), until the Capital Account in
respect of each Common Unit then Outstanding is equal to the sum
of (1) the First Liquidation Target Amount, and
(2) the excess of (aa) the Second Target Distribution
less the First Target Distribution for each Quarter of the
Partnerships existence over (bb) the cumulative per
Unit amount of any distributions of Available Cash that is
deemed to be Operating Surplus made pursuant to
Section 6.4(a)(v)
and
Section 6.4(b)(iii)
(the sum of (1) and (2) is hereinafter defined as the
Second Liquidation Target Amount);
(G) Seventh, (x) to the General Partner in accordance
with its Percentage Interest, (y) 23% to the holders of the
Incentive Distribution Rights, Pro Rata, and (z) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclause (x) and
(y) of this clause (G), until the Capital Account in
respect of each Common Unit then Outstanding is equal to the sum
of (1) the Second Liquidation Target Amount, and
(2) the excess of (aa) the Third Target Distribution
less the Second Target Distribution for each Quarter of the
Partnerships existence over
34
(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
(H) Finally, (x) to the General Partner in accordance
with its Percentage Interest, (y) 48% to the holders of the
Incentive Distribution Rights, Pro Rata, and (z) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclause (x) and
(y) of this clause (H).
(ii) If a Net Termination Loss is recognized (or deemed
recognized pursuant to
Section 5.5(d)),
such Net Termination Loss shall be allocated among the Partners
in the following manner:
(A) First, if such Net Termination Loss is recognized (or
is deemed to be recognized) prior to the conversion of the last
Outstanding Subordinated Unit, (x) to the General Partner
in accordance with its Percentage Interest and (y) to all
Unitholders holding Subordinated Units, 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;
(B) Second, (x) to the General Partner in accordance
with its Percentage Interest and (y) to the Class B
Unitholders, Pro Rata, a percentage equal to 100% less the
percentage applicable to subclause (x) of this
clause (B) until the Capital Account in respect of
each Class B Unit then Outstanding has been reduced to zero;
(C) Third, (x) to the General Partner in accordance
with its Percentage Interest and (y) to all Unitholders,
Pro Rata, a percentage equal to 100% less the percentage
applicable to subclause (x) of this
clause (B) until the Capital Account in respect of
each Unit then Outstanding has been reduced to zero; and
(D) Fourth, the balance, if any, 100% to the General
Partner.
(d) Special Allocations. Notwithstanding
any other provision of this Section 6.1, the following
special allocations shall be made for such taxable period:
(i) Partnership Minimum Gain
Chargeback. Notwithstanding any other provision
of this Section 6.1, if there is a net decrease in
Partnership Minimum Gain during any Partnership taxable period,
each Partner shall be allocated items of Partnership income and
gain for such period (and, if necessary, subsequent periods) in
the manner and amounts provided in Treasury
Regulation Sections 1.704-2(f)(6),
1.704-2(g)(2)
and
1.704-2(j)(2)(i),
or any successor provision. For purposes of this
Section 6.1(d),
each 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.
(ii) Chargeback of Partner Nonrecourse Debt Minimum
Gain. Notwithstanding the other provisions of
this Section 6.1 (other than Section 6.1(d)(i)),
except as provided in Treasury
Regulation Section 1.704-2(i)(4),
if there is a net decrease in Partner Nonrecourse Debt Minimum
Gain during any Partnership taxable period, any Partner with a
share of Partner Nonrecourse Debt Minimum Gain at the beginning
of such taxable period shall be allocated items of Partnership
income and gain for such period (and, if necessary, subsequent
periods) in the manner and amounts provided in Treasury
Regulation Sections 1.704-2(i)(4)
and
1.704-2(j)(2)(ii),
or any successor provisions. For purposes of this
Section 6.1(d),
each Partners Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required
hereunder shall be effected, prior to the application of any
other allocations pursuant to this
Section 6.1(d),
other than
Section 6.1(d)(i)
and other than an allocation pursuant to
Section 6.1(d)(vi)
and
Section 6.1(d)(vii),
with respect to such taxable period. This
35
Section 6.1(d)(ii)
is intended to comply with the chargeback of items of income and
gain requirement in Treasury
Regulation Section 1.704-2(i)(4)
and shall be interpreted consistently therewith.
(iii) Priority Allocations.
(A) If the amount of cash or the Net Agreed Value of any
property distributed (except cash or property distributed
pursuant to Section 12.4) to any Unitholder with respect to
its Units for a taxable year is greater (on a per Unit basis)
than the amount of cash or the Net Agreed Value of property
distributed to the other Unitholders with respect to their Units
(on a per Unit basis), then (1) there shall be allocated
income and gain to each Unitholder receiving such greater cash
or property distribution until the aggregate amount of such
items allocated pursuant to this
Section 6.1(d)(iii)(A)
for the current taxable year and all previous taxable years is
equal to the product of (aa) the amount by which the
distribution (on a per Unit basis) to such Unitholder exceeds
the distribution (on a per Unit basis) to the Unitholders
receiving the smallest distribution and (bb) the number of Units
owned by the Unitholder receiving the greater distribution; and
(2) the General Partner shall be allocated income and gain
in an aggregate amount equal to the product obtained by
multiplying (aa) the quotient determined by dividing
(x) the General Partners Percentage Interest at the
time in which the greater cash or property distribution occurs
by (y) the sum of 100 less the General Partners
Percentage Interest at the time in which the greater cash or
property distribution occurs times (bb) the sum of the amounts
allocated in clause (1) above.
(B) After the application of
Section 6.1(d)(iii)(A),
all or any portion of the remaining items of Partnership 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.
(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).
(v) Gross Income Allocations. In the
event any Partner has a deficit balance in its Capital Account
at the end of any Partnership taxable period in excess of the
sum of (A) the amount such Partner is required to restore
pursuant to the provisions of this Agreement and (B) the
amount such Partner is deemed obligated to restore pursuant to
Treasury
Regulation Sections 1.704-2(g)
and
1.704-2(i)(5),
such Partner shall be specially allocated items of Partnership
income and gain in the amount of such excess as quickly as
possible; provided, that an allocation pursuant to this
Section 6.1(d)(v)
shall be made only if and to the extent that such Partner would
have a deficit balance in its Capital Account as adjusted after
all other allocations provided for in this Section 6.1 have
been tentatively made as if this
Section 6.1(d)(v)
were not in this Agreement.
(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
36
the Code, the General Partner is authorized, upon notice to the
other Partners, to revise the prescribed ratio to the
numerically closest ratio that does satisfy such requirements.
(vii) Partner Nonrecourse
Deductions. Partner Nonrecourse Deductions for
any taxable period shall be allocated 100% to the Partner that
bears the Economic Risk of Loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions
are attributable in accordance with Treasury
Regulation Section 1.704-2(i).
If more than one Partner bears the Economic Risk of Loss with
respect to a Partner Nonrecourse Debt, such Partner Nonrecourse
Deductions attributable thereto shall be allocated between or
among such Partners in accordance with the ratios in which they
share such Economic Risk of Loss.
(viii) Nonrecourse Liabilities. For
purposes of Treasury
Regulation Section 1.752-3(a)(3),
the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (A) the amount of
Partnership Minimum Gain and (B) the total amount of
Nonrecourse Built-in Gain shall be allocated among the Partners
in accordance with their respective Percentage Interests.
(ix) Code Section 754
Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to
Section 734(b)
or 743(b) of
the Code is required, pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the
amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such
basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner
in which their Capital Accounts are required to be adjusted
pursuant to such Section of the Treasury Regulations.
(x) Economic Uniformity.
(A) At the election of the General Partner with respect to
any taxable period ending upon, or after, the termination of the
Subordination Period, all or a portion of the remaining items of
Partnership income or gain for such taxable period, after taking
into account allocations pursuant to
Section 6.1(d)(iii),
shall be allocated 100% to each Partner holding Subordinated
Units that are Outstanding as of the termination of the
Subordination Period (Final Subordinated
Units) in the proportion of the number of Final
Subordinated Units held by such Partner to the total number of
Final Subordinated Units then Outstanding, until each such
Partner has been allocated an amount of income or gain that
increases the Capital Account maintained with respect to such
Final Subordinated Units to an amount equal to the product of
(A) the number of Final Subordinated Units held by such
Partner and (B) the Per Unit Capital Amount for a Common
Unit. The purpose of this allocation is to establish uniformity
between the Capital Accounts underlying Final Subordinated Units
and the Capital Accounts underlying Common Units held by Persons
other than the General Partner and its Affiliates immediately
prior to the conversion of such Final Subordinated Units into
Common Units. This allocation method for establishing such
economic uniformity will be available to the General Partner
only if the method for allocating the Capital Account maintained
with respect to the Subordinated Units between the transferred
and retained Subordinated Units pursuant to
Section 5.5(c)(ii)
does not otherwise provide such economic uniformity to the Final
Subordinated Units.
(B) At the election of the General Partner with respect to
any taxable period ending upon, or after, the conversion of the
Class B Units pursuant to
Section 5.11(f),
all or a portion of the remaining items of Partnership income or
gain for such taxable period, after taking into account
allocations pursuant to
Section 6.1(d)(iii)
and
Section 6.1(d)(x)(A),
shall be allocated 100% to the holder or holders of the Common
Units resulting from the conversion pursuant to
Section 5.11(f) (Converted Common Units)
in the proportion of the number of the Converted Common
Units held by such holder or holders to the total number of
Converted Common Units then Outstanding, until each such holder
has been allocated an amount of income or gain that increases
the Capital Account maintained with respect to such Converted
Common Units to an amount equal to the product of (A) the
number of Converted Common Units held by such holder and
(B) the Per Unit Capital Amount for a Common Unit. The
purpose of this allocation is to establish uniformity between
the Capital Accounts
37
underlying Converted Common Units and the Capital Accounts
underlying Common Units held by Persons other than the General
Partner and its Affiliates immediately prior to the receipt of
Common Units pursuant to
Section 5.11(f).
(xi) Curative Allocation.
(A) Notwithstanding any other provision of this
Section 6.1, other than the Required Allocations, the
Required Allocations shall be taken into account in making the
Agreed Allocations so that, to the extent possible, the net
amount of items of income, gain, loss and deduction allocated to
each Partner pursuant to the Required Allocations and the Agreed
Allocations, together, shall be equal to the net amount of such
items that would have been allocated to each such Partner under
the Agreed Allocations had the Required Allocations and the
related Curative Allocation not otherwise been provided in this
Section 6.1. Notwithstanding the preceding sentence,
Required Allocations relating to (1) Nonrecourse Deductions
shall not be taken into account except to the extent that there
has been a decrease in Partnership Minimum Gain and
(2) Partner Nonrecourse Deductions shall not be taken into
account except to the extent that there has been a decrease in
Partner Nonrecourse Debt Minimum Gain. Allocations pursuant to
this
Section 6.1(d)(xi)(A)
shall only be made with respect to Required Allocations to the
extent the General Partner determines that such allocations will
otherwise be inconsistent with the economic agreement among the
Partners. Further, allocations pursuant to this
Section 6.1(d)(xi)(A)
shall be deferred with respect to allocations pursuant to
clauses (1) and (2) hereof to the extent the General
Partner determines that such allocations are likely to be offset
by subsequent Required Allocations.
(B) The General Partner shall, with respect to each taxable
period, (1) apply the provisions of
Section 6.1(d)(xi)(A)
in whatever order is most likely to minimize the economic
distortions that might otherwise result from the Required
Allocations, and (2) divide all allocations pursuant to
Section 6.1(d)(xi)(A)
among the Partners in a manner that is likely to minimize such
economic distortions.
(xii) Corrective Allocations. In the
event of any allocation of Additional Book Basis Derivative
Items or any Book-Down Event or any recognition of a Net
Termination Loss, the following rules shall apply:
(A) In the case of any allocation of Additional Book Basis
Derivative Items (other than an allocation of Unrealized Gain or
Unrealized Loss under Section 5.5(d) hereof), the General
Partner shall allocate additional items of income and gain away
from the holders of Incentive Distribution Rights to the
Unitholders and the General Partner, or additional items of
deduction and loss away from the Unitholders and the General
Partner to the holders of Incentive Distribution Rights, to the
extent that the Additional Book Basis Derivative Items allocated
to the Unitholders or the General Partner exceed their Share of
Additional Book Basis Derivative Items. For this purpose, the
Unitholders and the General Partner shall be treated as being
allocated Additional Book Basis Derivative Items to the extent
that such Additional Book Basis Derivative Items have reduced
the amount of income that would otherwise have been allocated to
the Unitholders or the General Partner under the Partnership
Agreement (e.g., Additional Book Basis Derivative Items taken
into account in computing cost of goods sold would reduce the
amount of book income otherwise available for allocation among
the Partners). Any allocation made pursuant to this
Section 6.1(d)(xii)(A)
shall be made after all of the other Agreed Allocations have
been made as if this
Section 6.1(d)(xii)
were not in this Agreement and, to the extent necessary, shall
require the reallocation of items that have been allocated
pursuant to such other Agreed Allocations.
(B) In the case of any negative adjustments to the Capital
Accounts of the Partners resulting from a Book-Down Event or
from the recognition of a Net Termination Loss, such negative
adjustment (1) shall first be allocated, to the extent of
the Aggregate Remaining Net Positive Adjustments, in such a
manner, as determined by the General Partner, that to the extent
possible the aggregate Capital Accounts of the Partners will
equal the 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
38
the Aggregate Remaining Net Positive Adjustments shall be
allocated pursuant to
Section 6.1(c)
hereof.
(C) In making the allocations required under this
Section 6.1(d)(xii),
the General Partner may apply whatever conventions or other
methodology it determines will satisfy the purpose of this
Section 6.1(d)(xii).
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:
(i)(A) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners in
the manner provided under
Section 704(c)
of the Code that takes into account the variation between the
Agreed Value of such property and its adjusted basis at the time
of contribution; and (B) any item of Residual Gain or
Residual Loss attributable to a Contributed Property shall be
allocated among the Partners in the same manner as its
correlative item of book gain or loss is allocated
pursuant to Section 6.1.
(ii)(A) In the case of an Adjusted Property, such items
shall (1) first, be allocated among the Partners in a
manner consistent with the principles of
Section 704(c)
of the Code to take into account the Unrealized Gain or
Unrealized Loss attributable to such property and the
allocations thereof pursuant to
Section 5.5(d)(i)
or
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.
(iii) The General Partner shall apply the principles of
Treasury
Regulation Section 1.704-3(d)
to eliminate Book-Tax Disparities, except with respect to
goodwill contributed to the Partnership upon formation.
(c) For the proper administration of the Partnership and
for the preservation of uniformity of the Limited Partner
Interests (or any class or classes thereof), the General Partner
shall (i) adopt such conventions as it deems appropriate in
determining the amount of depreciation, amortization and cost
recovery deductions; (ii) make special allocations for
federal income tax purposes of income (including gross income)
or deductions; and (iii) amend the provisions of this
Agreement as appropriate (x) to reflect the proposal or
promulgation of Treasury Regulations under
Section 704(b)
or
Section 704(c)
of the Code or (y) otherwise to preserve or achieve
uniformity of the Limited Partner Interests (or any class or
classes thereof). The General Partner may adopt such
conventions, make such allocations and make such amendments to
this Agreement as provided in this
Section 6.2(c)
only if such conventions, allocations or amendments would not
have a material adverse effect on the Partners, the holders of
any class or classes of Limited Partner Interests issued and
Outstanding or the Partnership, and if such allocations are
consistent with the principles of Section 704 of the Code.
(d) The General Partner may determine to depreciate or
amortize the portion of an adjustment under
Section 743(b)
of the Code attributable to unrealized appreciation in any
Adjusted Property (to the extent of the unamortized Book-Tax
Disparity) using a predetermined rate derived from the
depreciation or amortization method and useful life applied to
the Partnerships common basis of such property, despite
any inconsistency of such approach with Treasury
Regulation Section 1.167(c)-l(a)(6)
or any successor regulations thereto. If the General Partner
determines that such reporting position cannot reasonably be
taken, the General Partner may adopt depreciation and
amortization conventions under which all purchasers
39
acquiring Limited Partner Interests in the same month would
receive depreciation and amortization deductions, based upon the
same applicable rate as if they had purchased a direct interest
in the Partnerships property. If the General Partner
chooses not to utilize such aggregate method, the General
Partner may use any other depreciation and amortization
conventions to preserve the uniformity of the intrinsic tax
characteristics of any Limited Partner Interests, so long as
such conventions would not have a material adverse effect on the
Limited Partners or the Record Holders of any class or classes
of Limited Partner Interests.
(e) In accordance with Treasury
Regulation Section 1.1245-1(e),
any gain allocated to the Partners upon the sale or other
taxable disposition of any Partnership asset shall, to the
extent possible, after taking into account other required
allocations of gain pursuant to this Section 6.2, be
characterized as Recapture Income in the same proportions and to
the same extent as such Partners (or their predecessors in
interest) have been allocated any deductions directly or
indirectly giving rise to the treatment of such gains as
Recapture Income.
(f) All items of income, gain, loss, deduction and credit
recognized by the Partnership for federal income tax purposes
and allocated to the Partners in accordance with the provisions
hereof shall be determined without regard to any election under
Section 754 of the Code that may be made by the
Partnership; provided, however, that such allocations,
once made, shall be adjusted (in the manner determined by the
General Partner) to take into account those adjustments
permitted or required by Sections 734 and 743 of the Code.
(g) Each item of Partnership income, gain, loss and
deduction, for federal income tax purposes, shall be determined
on an annual basis and prorated on a monthly basis and shall be
allocated to the Partners as of the opening of the National
Securities Exchange on which the Partnership Interests are
listed or admitted to trading 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 Partnership Interests are listed or admitted to trading
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
Partnership Interests are listed or admitted to trading on
the first Business Day of the month in which such gain or loss
is recognized for federal income tax purposes. The General
Partner may revise, alter or otherwise modify such methods of
allocation to the extent permitted or required by
Section 706 of the Code and the regulations or rulings
promulgated thereunder.
(h) Allocations that would otherwise be made to a Limited
Partner under the provisions of this Article VI shall
instead be made to the beneficial owner of Limited Partner
Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Partnership in
accordance with
Section 6031(c)
of the Code or any other method determined by the General
Partner.
Section 6.3 Requirement
and Characterization of Distributions; Distributions to Record
Holders.
(a) Within 45 days following the end of each Quarter
commencing with the Quarter ending on March 31, 2007, 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
40
distributions required to be made under this Agreement shall be
made subject to
Section 17-607
of the Delaware Act.
(b) Notwithstanding Section 6.3(a), in the event of
the dissolution and liquidation of the Partnership, all receipts
received during or after the Quarter in which the Liquidation
Date occurs shall be applied and distributed solely in
accordance with, and subject to the terms and conditions of,
Section 12.4.
(c) The General Partner may treat taxes paid by the
Partnership on behalf of, or amounts withheld with respect to,
all or less than all of the Partners, as a distribution of
Available Cash to such Partners.
(d) Each distribution in respect of a
Partnership Interest shall be paid by the Partnership,
directly or through the Transfer Agent or through any other
Person or agent, only to the Record Holder of such
Partnership Interest as of the Record Date set for such
distribution. Such payment shall constitute full payment and
satisfaction of the Partnerships liability in respect of
such payment, regardless of any claim of any Person who may have
an interest in such payment by reason of an assignment or
otherwise.
Section 6.4 Distributions
of Available Cash from Operating Surplus.
(a) During Subordination
Period. Available Cash with respect to any
Quarter within the Subordination Period that is deemed to be
Operating Surplus pursuant to the provisions of Section 6.3
or 6.5 shall, subject to
Section 17-607
of the Delaware Act, be distributed as follows, except as
otherwise contemplated by Section 5.6 in respect of other
Partnership Securities issued pursuant thereto:
(i) First, to the General Partner and the Unitholders
holding Common Units, in accordance with their respective
Percentage Interests, until there has been distributed in
respect of each Common Unit then Outstanding an amount equal to
the Minimum Quarterly Distribution for such Quarter;
(ii) Second, to the General Partner and the Unitholders
holding Common Units, in accordance with their respective
Percentage Interests, until there has been distributed in
respect of each Common Unit then Outstanding an amount equal to
the Cumulative Common Unit Arrearage existing with respect to
such Quarter;
(iii) Third, to the General Partner and the Unitholders
holding Subordinated Units, in accordance with their respective
Percentage Interests, until there has been distributed in
respect of each Subordinated Unit then Outstanding an amount
equal to the Minimum Quarterly Distribution for such Quarter;
(iv) Fourth, to the General Partner and all Unitholders, in
accordance with their respective Percentage Interests, until
there has been distributed in respect of each Unit then
Outstanding an amount equal to the excess of the First Target
Distribution over the Minimum Quarterly Distribution for such
Quarter;
(v) Fifth, (A) to the General Partner in accordance
with its Percentage Interest; (B) 13% to the holders of the
Incentive Distribution Rights, Pro Rata; and (C) to all
Unitholders, 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;
(vi) Sixth, (A) to the General Partner in accordance
with its Percentage Interest, (B) 23% to the holders of the
Incentive Distribution Rights, Pro Rata; and (C) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclauses (A) and
(B) of this subclause (vi), until there has been
distributed in respect of each Unit then Outstanding an amount
equal to the excess of the Third Target Distribution over the
Second Target Distribution for such Quarter; and
(vii) Thereafter, (A) to the General Partner in
accordance with its Percentage Interest; (B) 48% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a
41
percentage equal to 100% less the sum of the percentages
applicable to subclauses (A) and (B) of this
clause (vii);
provided, however, if the Minimum Quarterly Distribution,
the First Target Distribution, the Second Target Distribution
and the Third Target Distribution have been reduced to zero
pursuant to the second sentence of
Section 6.6(a),
the distribution of Available Cash that is deemed to be
Operating Surplus with respect to any Quarter will be made
solely in accordance with
Section 6.4(a)(vii).
(b) After Subordination Period. Available
Cash with respect to any Quarter after the Subordination Period
that is deemed to be Operating Surplus pursuant to the
provisions of Section 6.3 or Section 6.5, subject to
Section 17-607
of the Delaware Act, shall be distributed as follows, except as
otherwise required by Section 5.6(b) in respect of
additional Partnership Securities issued pursuant thereto:
(i) First, 100% to the General Partner and the Unitholders
in accordance with their respective Percentage Interests, until
there has been distributed in respect of each Unit then
Outstanding an amount equal to the Minimum Quarterly
Distribution for such Quarter;
(ii) Second, 100% to the General Partner and the
Unitholders in accordance with their respective Percentage
Interests, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the excess of the First
Target Distribution over the Minimum Quarterly Distribution for
such Quarter;
(iii) Third, (A) to the General Partner in accordance
with its Percentage Interest; (B) 13% to the holders of the
Incentive Distribution Rights, Pro Rata; and (C) to all
Unitholders, 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;
(iv) Fourth, (A) to the General Partner in accordance
with its Percentage Interest; (B) 23% to the holders of the
Incentive Distribution Rights, Pro Rata; and (C) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclause (A) and
(B) of this clause (iv), until there has been
distributed in respect of each Unit then Outstanding an amount
equal to the excess of the Third Target Distribution over the
Second Target Distribution for such Quarter; and
(v) Thereafter, (A) to the General Partner in
accordance with its Percentage Interest; (B) 48% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclauses (A) and (B) of this clause (v);
provided, however, if the Minimum Quarterly Distribution,
the First Target Distribution, the Second Target Distribution
and the Third Target Distribution have been reduced to zero
pursuant to the second sentence of
Section 6.6(a),
the distribution of Available Cash that is deemed to be
Operating Surplus with respect to any Quarter will be made
solely in accordance with
Section 6.4(b)(v).
Section 6.5 Distributions
of Available Cash from Capital Surplus.
Available Cash that is deemed to be Capital Surplus pursuant to
the provisions of
Section 6.3(a)
shall, subject to
Section 17-607
of the Delaware Act, be distributed, unless the provisions of
Section 6.3 require otherwise, 100% to the General Partner
and the Unitholders in accordance with their respective
Percentage Interests, until a hypothetical holder of a Common
Unit acquired on the Closing Date has received with respect to
such Common Unit, during the period since the Closing Date
through such date, distributions of Available Cash that are
deemed to be Capital Surplus in an aggregate amount equal to the
Initial Unit Price. Available Cash that is deemed to be Capital
Surplus shall then be distributed to the General Partner and all
Unitholders holding Common Units, in accordance with their
respective Percentage Interests, until there has been
distributed in respect of each Common Unit then Outstanding an
amount equal to the
42
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 Initial
Unit Price of the Common Units immediately after giving effect
to such distribution and of which the denominator is the
Unrecovered Initial Unit Price of the Common Units immediately
prior to giving effect to such distribution.
(b) The Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target
Distribution, shall also be subject to adjustment pursuant to
Section 5.11 and Section 6.9.
Section 6.7 Special
Provisions Relating to the Holders of Subordinated Units and
Class B Units.
(a) Except with respect to the right to vote on or approve
matters requiring the vote or approval of a percentage of the
holders of Outstanding Common Units and the right to participate
in allocations of income, gain, loss and deduction and
distributions made with respect to Common Units, the holder of a
Subordinated Unit shall have all of the rights and obligations
of a Unitholder holding Common Units hereunder; provided,
however, that immediately upon the conversion of
Subordinated Units into Common Units pursuant to
Section 5.7, the Unitholder holding a Subordinated Unit
shall possess all of the rights and obligations of a Unitholder
holding Common Units hereunder, including the right to vote as a
Common Unitholder and the right to participate in allocations of
income, gain, loss and deduction and distributions made with
respect to Common Units; provided, however, that such
converted Subordinated Units shall remain subject to the
provisions of
Sections 5.5(c)(ii),
6.1(d)(x)(A),
6.7(b) and
6.7(c).
(b) A Unitholder shall not be permitted to transfer a
Subordinated Unit or a Subordinated Unit that has converted into
a Common Unit pursuant to Section 5.7 (other than a
transfer to an Affiliate) if the remaining balance in the
transferring Unitholders Capital Account with respect to
the retained Subordinated Units or Retained Converted
Subordinated Units would be negative after giving effect to the
allocation under
Section 5.5(c)(ii)(B).
(c) The Unitholder holding a Common Unit that has resulted
from the conversion of a Subordinated Unit pursuant to
Section 5.7 shall not be issued a Common Unit Certificate
pursuant to Section 4.1, and shall not be permitted to
transfer such Common Units to a Person that is not an Affiliate
of the holder until such time as the General Partner determines,
based on advice of counsel, that each such Common Unit should
have, as a substantive matter, like intrinsic economic and
federal income tax characteristics, in all material respects, to
the intrinsic economic and federal income tax characteristics of
an Initial Common Unit. In connection with the condition imposed
by this
Section 6.7(c),
the General Partner may take whatever steps are required to
provide economic uniformity to such Common Units in preparation
for a transfer of such Common Units, including the application
of
Sections 5.5(c)(ii),
6.1(d)(x)
and 6.7(b);
provided, however, that no such steps may be taken that
would have a material adverse effect on the Unitholders holding
Common Units represented by Common Unit Certificates.
(d) Except with respect to the right to vote on or approve
matters requiring the vote or approval of a percentage of the
holders of Outstanding Common Units and the right to participate
in allocations of income, gain, loss and deduction and
distributions made with respect to Common Units, the holders of
Class B Units shall have all the rights and obligations of
a Unitholder holding Common Units; provided,
43
however, that immediately upon the conversion of
Class B Units into Common Units pursuant to
Section 5.11, the Unitholders holding a Class B Unit
shall possess all the rights and obligations of a Unitholder
holding Common Units hereunder, including the right to vote as a
Common Unitholder and the right to participate in allocations of
income, gain, loss and deduction and distributions made with
respect to Common Units; provided, however, that such
converted Class B Units shall remain subject to the
provisions of
Sections 6.1(d)(x)(B)
and 6.7(e).
(e) The holder or holders of Common Units resulting from
the conversion pursuant to
Section 5.11(f)
of any Class B Units pursuant to Section 5.11 shall
not be issued a Common Unit Certificate pursuant to
Section 4.1, and shall not be permitted to transfer such
Common Units until such time as the General Partner determines,
based on advice of counsel, that each such Common Unit should
have, as a substantive matter, like intrinsic economic and
federal income tax characteristics, in all material respects, to
the intrinsic economic and federal income tax characteristics of
an Initial Common Unit. In connection with the condition imposed
by this
Section 6.7(d),
the General Partner may take whatever steps are required to
provide economic uniformity to such Common Units, including the
application of
Section 6.1(d)(x)(B);
provided, however, that no such steps may be taken
that would have a material adverse effect on the Unitholders
holding Common Units represented by Common Unit Certificates.
Section 6.8 Special
Provisions Relating to the Holders of Incentive Distribution
Rights.
Notwithstanding anything to the contrary set forth in this
Agreement, the holders of the Incentive Distribution Rights
(a) shall (i) possess the rights and obligations
provided in this Agreement with respect to a Limited Partner
pursuant to Article III and Article VII and
(ii) have a Capital Account as a Partner pursuant to
Section 5.5 and all other provisions related thereto and
(b) shall not (i) be entitled to vote on any matters
requiring the approval or vote of the holders of Outstanding
Units, except as provided by law, (ii) be entitled to any
distributions other than as provided in Sections 6.4(a)(v),
(vi) and (vii),
Section 6.4(b)(iii),
(iv) and (v), and Section 12.4 or (iii) be
allocated items of income, gain, loss or deduction other than as
specified in this Article VI.
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 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 tax liability for
Incremental Income Taxes (or the relevant portion thereof) for
such Quarter may, to the extent determined by the General
Partner 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.
44
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:
(i) the making of any expenditures, the lending or
borrowing of money, the assumption or guarantee of, or other
contracting for, indebtedness and other liabilities, the
issuance of evidences of indebtedness, including indebtedness
that is convertible into Partnership Securities, and the
incurring of any other obligations;
(ii) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other
agencies having jurisdiction over the business or assets of the
Partnership;
(iii) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any or all of the
assets of the Partnership or the merger or other combination of
the Partnership with or into another Person (the matters
described in this clause (iii) being subject, however, to
any prior approval that may be required by Section 7.3 and
Article XIV);
(iv) the use of the assets of the Partnership (including
cash on hand) for any purpose consistent with the terms of this
Agreement, including the financing of the conduct of the
operations of the Partnership Group; subject to
Section 7.6(a), the lending of funds to other Persons
(including other Group Members); the repayment or guarantee of
obligations of any Group Member; and the making of capital
contributions to any Group Member;
(v) the negotiation, execution and performance of any
contracts, conveyances or other instruments (including
instruments that limit the liability of the Partnership under
contractual arrangements to all or particular assets of the
Partnership, with the other party to the contract to have no
recourse against the General Partner or its assets other than
its interest in the Partnership, even if same results in the
terms of the transaction being less favorable to the Partnership
than would otherwise be the case);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees (including
employees having titles such as president,
vice president, secretary and
treasurer) and agents, outside attorneys,
accountants, consultants and contractors and the determination
of their compensation and other terms of employment or hiring;
(viii) the maintenance of insurance for the benefit of the
Partnership Group, the Partners and Indemnitees;
(ix) the formation of, or acquisition of an interest in,
and the contribution of property and the making of loans to, any
further limited or general partnerships, joint ventures,
corporations, limited liability companies or other relationships
(including the acquisition of interests in, and the
contributions of property to, any Group Member from time to
time) subject to the restrictions set forth in Section 2.4;
45
(x) the control of any matters affecting the rights and
obligations of the Partnership, including the bringing and
defending of actions at law or in equity and otherwise engaging
in the conduct of litigation, arbitration or mediation and the
incurring of legal expense and the settlement of claims and
litigation;
(xi) the indemnification of any Person against liabilities
and contingencies to the extent permitted by law;
(xii) the entering into of listing agreements with any
National Securities Exchange and the delisting of some or all of
the Limited Partner Interests from, or requesting that trading
be suspended on, any such exchange (subject to any prior
approval that may be required under Section 4.8);
(xiii) the purchase, sale or other acquisition or
disposition of Partnership Securities, or the issuance of
options, rights, warrants, appreciation rights and tracking and
phantom interests relating to Partnership Securities;
(xiv) the undertaking of any action in connection with the
Partnerships participation in any Group Member; and
(xv) the entering into of agreements with any of its
Affiliates to render services to a Group Member or to itself in
the discharge of its duties as General Partner of the
Partnership.
(b) Notwithstanding any other provision of this Agreement,
any Group Member Agreement, the Delaware Act or any applicable
law, rule or regulation, each of the Partners and the Assignees
and each other Person who may acquire an interest in Partnership
Securities hereby (i) approves, ratifies and confirms the
execution, delivery and performance by the parties thereto of
this Agreement and the Group Member Agreement of each other
Group Member, the Underwriting Agreement, the Omnibus Agreement,
the Contribution Agreement, the Natural Gas Purchase Agreement,
the NGL and Products Purchase Agreement, any Group Member
Agreement and the other agreements described in or filed as
exhibits to the Registration Statement that are related to the
transactions contemplated by the Registration Statement;
(ii) agrees that the General Partner (on its own or through
any officer of the Partnership) is authorized to execute,
deliver and perform the agreements referred to in
clause (i) of this sentence and the other agreements, acts,
transactions and matters described in or contemplated by the
Registration Statement on behalf of the Partnership without any
further act, approval or vote of the Partners or the Assignees
or the other Persons who may acquire an interest in Partnership
Securities; and (iii) agrees that the execution, delivery
or performance by the General Partner, any Group Member or any
Affiliate of any of them of this Agreement or any agreement
authorized or permitted under this Agreement (including the
exercise by the General Partner or any Affiliate of the General
Partner of the rights accorded pursuant to
Article XV) shall not constitute a breach by the
General Partner of any duty that the General Partner may owe the
Partnership or the Limited Partners or any other Persons under
this Agreement (or any other agreements) or of any duty stated
or implied by law or equity.
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
46
not be required, before or after filing, to deliver or mail a
copy of the Certificate of Limited Partnership, any
qualification document or any amendment thereto to any Limited
Partner.
Section 7.3 Restrictions
on the General Partners Authority.
Except as provided in Article XII and Article XIV, the
General Partner may not sell, exchange or otherwise dispose of
all or substantially all of the assets of the Partnership Group,
taken as a whole, in a single transaction or a series of related
transactions (including by way of merger, consolidation, other
combination or sale of ownership interests of the
Partnerships Subsidiaries) without the approval of holders
of a Unit Majority; provided, however, that this
provision shall not preclude or limit the General Partners
ability to mortgage, pledge, hypothecate or grant a security
interest in all or substantially all of the assets of the
Partnership Group and shall not apply to any forced sale of any
or all of the assets of the Partnership Group pursuant to the
foreclosure of, or other realization upon, any such encumbrance.
Without the approval of holders of a Unit Majority, the General
Partner shall not, on behalf of the Partnership, except as
permitted under Section 4.6, 11.1 and Section 11.2,
elect or cause the Partnership to elect a successor general
partner of the Partnership.
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Section 7.4
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Reimbursement
of the General Partner.
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(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) Subject to the limitations contained in the Omnibus
Agreement, the General Partner shall be reimbursed on a monthly
basis, or such other basis as the General Partner may determine,
for (i) all direct and indirect expenses it incurs or
payments it makes on behalf of the Partnership Group (including
salary, bonus, incentive compensation and other amounts paid to
any Person, including Affiliates of the General Partner to
perform services for the Partnership Group or for the General
Partner in the discharge of its duties to the Partnership
Group), and (ii) all other expenses allocable to the
Partnership Group or otherwise incurred by the General Partner
in connection with operating the Partnership Groups
business (including expenses allocated to the General Partner by
its Affiliates). The General Partner shall determine the
expenses that are allocable to the Partnership Group.
Reimbursements pursuant to this Section 7.4 shall be in
addition to any reimbursement to the General Partner as a result
of indemnification pursuant to Section 7.7.
(c) The General Partner, without the approval of the
Limited Partners (who shall have no right to vote in respect
thereof), may propose and adopt on behalf of the Partnership
employee benefit plans, employee programs and employee practices
(including plans, programs and practices involving the issuance
of Partnership Securities or options to purchase or rights,
warrants or appreciation rights or phantom or tracking interests
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 and
directors of the General Partner or any of its Affiliates, in
respect of services performed, directly or indirectly, for the
benefit of the Partnership Group. The Partnership agrees to
issue and sell to the General Partner or any of its Affiliates
any Partnership Securities that the General Partner or such
Affiliates are obligated to provide to any employees and
directors 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.
47
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Section 7.5
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Outside
Activities.
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(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
(B) the acquiring, owning or disposing of debt or equity
securities in any Group Member or (C) the guarantee of, and
mortgage, pledge, or encumbrance of any or all of its assets in
connection with, any indebtedness of Targa Resources, Inc., any
of its successors or permitted assigns or any other Affiliate of
the General Partner.
(b) Each Indemnitee (other than the General Partner) shall
have the right to engage in businesses of every type and
description and other activities for profit and to engage in and
possess an interest in other business ventures of any and every
type or description, whether in businesses engaged in or
anticipated to be engaged in by any Group Member, independently
or with others, including business interests and activities in
direct competition with the business and activities of any Group
Member, and none of the same shall constitute a breach of this
Agreement or any duty expressed or implied by law to any Group
Member or any Partner or Assignee. None of any Group Member, any
Limited Partner or any other Person shall have any rights by
virtue of this Agreement, any Group Member Agreement, or the
partnership relationship established hereby in any business
ventures of any Indemnitee. Notwithstanding anything to the
contrary in this Agreement, (i) the engaging in competitive
activities by any Indemnitees (other than the General Partner)
in accordance with the provisions of this Section 7.5 is
hereby approved by the Partnership and all Partners,
(ii) it shall be deemed not to be a breach of any fiduciary
duty or any other obligation of any type whatsoever of any
Indemnitee for the Indemnitees (other than the General Partner)
to engage in such business interests and activities in
preference to or to the exclusion of the Partnership and
(iii) the Indemnitees shall have no obligation hereunder or
as a result of any duty expressed or implied by law to present
business opportunities to the Partnership. Notwithstanding
anything to the contrary in this Agreement, the doctrine of
corporate opportunity, or any analogous doctrine, shall not
apply to any Indemnitee (including the General Partner). No
Indemnitee (including the General Partner) who acquires
knowledge of a potential transaction, agreement, arrangement or
other matter that may be an opportunity for the Partnership,
shall have any duty to communicate or offer such opportunity to
the Partnership, and such Indemnitee (including the General
Partner) shall not be liable to the Partnership, to any Limited
Partner or any other Person for breach of any fiduciary or other
duty by reason of the fact that such Indemnitee (including the
General Partner) pursues or acquires for itself, directs such
opportunity to another Person or does not communicate such
opportunity or information to the Partnership; provided such
Indemnitee does not engage in such business or activity as a
result of or using confidential or proprietary information
provided by or on behalf of the Partnership to such Indemnitee.
(c) The General Partner and each of its Affiliates may
acquire Units or other Partnership Securities in addition to
those acquired on the Closing Date and, except as otherwise
provided in this Agreement, shall be entitled to exercise, at
their option, all rights relating to all Units or other
Partnership Securities acquired by them. The term
Affiliates when used in this Section 7.5(d)
with respect to the General Partner shall not include any Group
Member.
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Section 7.6
|
Loans
from the General Partner; Loans or Contributions from the
Partnership or Group Members.
|
(a) The General Partner or any of its Affiliates may lend
to any Group Member, and any Group Member may borrow from the
General Partner or any of its Affiliates, funds needed or
desired by the Group Member for such periods of time and in such
amounts as the General Partner may determine; provided,
however, that in any such case the lending party may not
charge the borrowing party interest at a rate greater than the
rate that would be charged the borrowing party or impose terms
less favorable to the
48
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.
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Section 7.7
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Indemnification.
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(a) To the fullest extent permitted by law but subject to
the limitations expressly provided in this Agreement, all
Indemnitees shall be indemnified and held harmless by the
Partnership from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including
legal fees and expenses), judgments, fines, penalties, interest,
settlements or other amounts arising from any and all claims,
demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any Indemnitee may be
involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as an Indemnitee;
provided, that the Indemnitee shall not be indemnified
and held harmless if there has been a final and non-appealable
judgment entered by a court of competent jurisdiction
determining that, in respect of the matter for which the
Indemnitee is seeking indemnification pursuant to this
Section 7.7, the Indemnitee acted in bad faith or engaged
in fraud, willful misconduct or, in the case of a criminal
matter, acted with knowledge that the Indemnitees conduct
was unlawful; provided, further, no indemnification
pursuant to this Section 7.7 shall be available to the
General Partner or its Affiliates (other than a Group Member)
with respect to its or their obligations incurred pursuant to
the Underwriting Agreement, the Omnibus Agreement or the
Contribution Agreement (other than obligations incurred by the
General Partner on behalf of the Partnership). Any
indemnification pursuant to this Section 7.7 shall be made
only out of the assets of the Partnership, it being agreed that
the General Partner shall not be personally liable for such
indemnification and shall have no obligation to contribute or
loan any monies or property to the Partnership to enable it to
effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses
(including legal fees and expenses) incurred by an Indemnitee
who is indemnified pursuant to Section 7.7(a) in defending
any claim, demand, action, suit or proceeding shall, from time
to time, be advanced by the Partnership prior to a determination
that the Indemnitee is not entitled to be indemnified upon
receipt by the Partnership of any undertaking by or on behalf of
the Indemnitee to repay such amount if it shall be determined
that the Indemnitee is not entitled to be indemnified as
authorized in this Section 7.7.
(c) The indemnification provided by this Section 7.7
shall be in addition to any other rights to which an Indemnitee
may be entitled under any agreement, pursuant to any vote of the
holders of Outstanding Limited Partner Interests, as a matter of
law or otherwise, both as to actions in the Indemnitees
capacity as an Indemnitee and as to actions in any other
capacity (including any capacity under the Underwriting
Agreement), and shall continue as to an Indemnitee who has
ceased to serve in such capacity and shall inure to the benefit
of the heirs, successors, assigns and administrators of the
Indemnitee.
49
(d) The Partnership may purchase and maintain (or reimburse
the General Partner or its Affiliates for the cost of)
insurance, on behalf of the General Partner, its Affiliates and
such other Persons as the General Partner shall determine,
against any liability that may be asserted against, or expense
that may be incurred by, such Person in connection with the
Partnerships activities or such Persons activities
on behalf of the Partnership, regardless of whether the
Partnership would have the power to indemnify such Person
against such liability under the provisions of this Agreement.
(e) For purposes of this Section 7.7, the Partnership
shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee benefit plan whenever the performance
by it of its duties to the Partnership also imposes duties on,
or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed
on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall constitute fines
within the meaning of Section 7.7(a); and action taken or
omitted by it with respect to any employee benefit plan in the
performance of its duties for a purpose reasonably believed by
it to be in the best interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose
that is in the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited
Partners to personal liability by reason of the indemnification
provisions set forth in this Agreement.
(g) An Indemnitee shall not be denied indemnification in
whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to
which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their heirs, successors, assigns and
administrators and shall not be deemed to create any rights for
the benefit of any other Persons.
(i) No amendment, modification or repeal of this
Section 7.7 or any provision hereof shall in any manner
terminate, reduce or impair the right of any past, present or
future Indemnitee to be indemnified by the Partnership, nor the
obligations of the Partnership to indemnify any such Indemnitee
under and in accordance with the provisions of this
Section 7.7 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of
when such claims may arise or be asserted.
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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
50
Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of
when such claims may arise or be asserted.
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Section 7.9
|
Resolution
of Conflicts of Interest; Standards of Conduct and Modification
of Duties.
|
(a) Unless otherwise expressly provided in this Agreement
or any Group Member Agreement, whenever a potential conflict of
interest exists or arises between the General Partner or any of
its Affiliates, on the one hand, and the Partnership, any Group
Member or any Partner, on the other, any resolution or course of
action by the General Partner or its Affiliates in respect of
such conflict of interest shall be permitted and deemed approved
by all Partners, and shall not constitute a breach of this
Agreement, of any Group Member Agreement, of any agreement
contemplated herein or therein, or of any duty stated or implied
by law or equity, if the resolution or course of action in
respect of such conflict of interest is (i) approved by
Special Approval, (ii) approved by the vote of a majority
of the Common Units (excluding Common Units owned by the General
Partner and its Affiliates), (iii) on terms no less
favorable to the Partnership than those generally being provided
to or available from unrelated third parties or (iv) fair
and reasonable to the Partnership, taking into account the
totality of the relationships between the parties involved
(including other transactions that may be particularly favorable
or advantageous to the Partnership). The General Partner shall
be authorized but not required in connection with its resolution
of such conflict of interest to seek Special Approval of such
resolution, and the General Partner may also adopt a resolution
or course of action that has not received Special Approval. If
Special Approval is 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, 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
51
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 or any Group
Member.
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Section 7.11
|
Purchase
or Sale of Partnership Securities.
|
The General Partner may cause the Partnership to purchase or
otherwise acquire Partnership Securities; provided that,
except as permitted pursuant to Section 4.10, the General
Partner may not cause any Group Member to purchase Subordinated
Units during the Subordination Period. Such Partnership
Securities shall be held by the Partnership as treasury
securities unless they are expressly cancelled by action of an
appropriate officer of the General Partner. As long as
Partnership Securities are held by any Group Member, such
Partnership Securities shall not be considered Outstanding for
any purpose, except as otherwise provided herein. The General
Partner or any Affiliate of the General Partner may also
purchase
52
or otherwise acquire and sell or otherwise dispose of
Partnership Securities for its own account, subject to the
provisions of Articles IV and X.
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Section 7.12
|
Registration
Rights of the General Partner and its Affiliates.
|
(a) If (i) the General Partner or any Affiliate of the
General Partner (including for purposes of this
Section 7.12, any Person that is an Affiliate of the
General Partner at the date hereof notwithstanding that it may
later cease to be an Affiliate of the General Partner) holds
Partnership Securities that it desires to sell and
(ii) Rule 144 of the Securities Act (or any successor
rule or regulation to Rule 144) or another exemption
from registration is not available to enable such holder of
Partnership Securities (the Holder) to
dispose of the number of Partnership Securities it desires to
sell at the time it desires to do so without registration under
the Securities Act, then at the option and upon the request of
the Holder, the Partnership shall file with the Commission as
promptly as practicable after receiving such request, and use
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
this Section 7.12(a) and Section 7.12(b); and
provided further, however, that if the Conflicts
Committee determines in good faith that the requested
registration would be materially detrimental to the Partnership
and its Partners because such registration would
(x) materially interfere with a significant acquisition,
reorganization or other similar transaction involving the
Partnership, (y) require premature disclosure of material
information that the Partnership has a bona fide business
purpose for preserving as confidential or (z) render the
Partnership unable to comply with requirements under applicable
securities laws, then the Partnership shall have the right to
postpone such requested registration for a period of not more
than six months after receipt of the Holders
request, such right pursuant to this Section 7.12(a) or
Section 7.12(b) not to be utilized more than once in any
twelve-month period. 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 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 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
53
offering or use would (x) materially interfere with a
significant acquisition, reorganization or other similar
transaction involving the Partnership, (y) require
premature disclosure of material information that the
Partnership has a bona fide business purpose for preserving as
confidential or (z) render the Partnership unable to comply
with requirements under applicable securities laws, then the
Partnership shall have the right to suspend such offering or use
for a period of not more than six months after receipt of the
Holders request, such right pursuant to
Section 7.12(a) or this Section 7.12(b) not to be
utilized more than once in any twelve-month period. In
connection with any shelf registration pursuant to this
Section 7.12(b), the Partnership shall (i) promptly
prepare and file (A) such documents as may be necessary to
register or qualify the securities subject to such shelf
registration under the securities laws of such states as the
Holder shall reasonably request; provided, however, that
no such qualification shall be required in any jurisdiction
where, as a result thereof, the Partnership would become subject
to general service of process or to taxation or qualification to
do business as a foreign corporation or partnership doing
business in such jurisdiction solely as a result of such shelf
registration, and (B) such documents as may be necessary to
apply for listing or to list the Partnership Securities subject
to such shelf registration on such National Securities Exchange
as the Holder shall reasonably request, and (ii) do any and
all other acts and things that may be necessary or appropriate
to enable the Holder to consummate a public sale of such
Partnership Securities in such states. Except as set forth in
Section 7.12(d), all costs and expenses of any such shelf
registration and offering (other than the underwriting discounts
and commissions) shall be paid by the Partnership, without
reimbursement by the Holder.
(c) If the Partnership shall at any time propose to file a
registration statement under the Securities Act for an offering
of equity securities of the Partnership for cash (other than an
offering relating solely to an employee benefit plan), the
Partnership shall notify all Holders of such proposal and use
all reasonable efforts to include such number or amount of
securities held by the Holder in such registration statement as
the Holder shall request; provided, that the Partnership
is not required to make any effort or take any action to so
include the securities of the Holder once the registration
statement is declared effective by the Commission or otherwise
becomes effective, including any registration statement
providing for the offering from time to time of securities
pursuant to Rule 415 of the Securities Act. If the proposed
offering pursuant to this Section 7.12(c) shall be an
underwritten offering, then, in the event that the managing
underwriter or managing underwriters of such offering advise the
Partnership and the Holder in writing that in their opinion the
inclusion of all or some of the Holders Partnership
Securities would adversely and materially affect the success of
the offering, the Partnership shall include in such offering
only that number or amount, if any, of securities held by the
Holder that, in the opinion of the managing underwriter or
managing underwriters, will not so adversely and materially
affect the offering. Except as set forth in
Section 7.12(d), all costs and expenses of any such
registration and offering (other than the underwriting discounts
and commissions) shall be paid by the Partnership, without
reimbursement by the Holder.
(d) If underwriters are engaged in connection with any
registration referred to in this Section 7.12, the
Partnership shall provide indemnification, representations,
covenants, opinions and other assurance to the underwriters in
form and substance reasonably satisfactory to such underwriters.
Further, in addition to and not in limitation of the
Partnerships obligation under Section 7.7, the
Partnership shall, to the fullest extent permitted by law,
indemnify and hold harmless the Holder, its officers, directors
and each Person who controls the Holder (within the meaning of
the Securities Act) and any agent thereof (collectively,
Indemnified Persons) from and against
any and all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees and expenses),
judgments, fines, penalties, interest, settlements or other
amounts arising from any and all claims, demands, actions, suits
or proceedings, whether civil, criminal, administrative or
investigative, in which any Indemnified Person may be involved,
or is threatened to be involved, as a party or otherwise, under
the Securities Act or otherwise (hereinafter referred to in this
Section 7.12(d) as a claim and in
the plural as claims) based upon,
arising out of or resulting from any untrue statement or alleged
untrue statement of any material fact contained in any
registration statement under which any Partnership Securities
were registered under the Securities Act or any state securities
or Blue Sky laws, in any preliminary prospectus (if used prior
to the effective date of such registration statement), or in any
summary or final prospectus or any free writing prospectus or in
any amendment or supplement thereto (if used during the period
the Partnership is required to keep the
54
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 any free writing prospectus or
such amendment or supplement, in reliance upon and in conformity
with written information furnished to the Partnership by or on
behalf of such Indemnified Person specifically for use in the
preparation thereof.
(e) The provisions of Section 7.12(a),
Section 7.12(b) and Section 7.12(c) shall continue to
be applicable with respect to the General Partner (and any of
the General Partners Affiliates) after it ceases to be a
general partner of the Partnership, during a period of two years
subsequent to the effective date of such cessation and for so
long thereafter as is required for the Holder to sell all of the
Partnership Securities with respect to which it has requested
during such two-year period inclusion in a registration
statement otherwise filed or that a registration statement be
filed; provided, however, that the Partnership shall not
be required to file successive registration statements covering
the same Partnership Securities for which registration was
demanded during such two-year period. The provisions of
Section 7.12(d) shall continue in effect thereafter.
(f) The rights to cause the Partnership to register
Partnership Securities pursuant to this Section 7.12 may be
assigned (but only with all related obligations) by a Holder to
a transferee or assignee of such Partnership Securities,
provided (i) the Partnership is, within a reasonable time
after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the Partnership
Securities with respect to which such registration rights are
being assigned; and (ii) such transferee or assignee agrees
in writing to be bound by and subject to the terms set forth in
this Section 7.12.
(g) Any request to register Partnership Securities pursuant
to this Section 7.12 shall (i) specify the Partnership
Securities intended to be offered and sold by the Person making
the request, (ii) express such Persons present intent
to offer such Partnership Securities for distribution,
(iii) describe the nature or method of the proposed offer
and sale of Partnership Securities, and (iv) contain the
undertaking of such Person to provide all such information and
materials and take all action as may be required in order to
permit the Partnership to comply with all applicable
requirements in connection with the registration of such
Partnership Securities.
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Section 7.13
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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.
55
ARTICLE VIII
BOOKS,
RECORDS, ACCOUNTING AND REPORTS
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Section 8.1
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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.
The fiscal year of the Partnership shall be a fiscal year ending
December 31.
(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 or the SECs
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 or the
SECs 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
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Section 9.1
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Tax
Returns and Information.
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The Partnership shall timely file all returns of the Partnership
that are required for federal, state and local income tax
purposes on the basis of the accrual method and the taxable year
or years that it is required by law to adopt, from time to time,
as determined by the General Partner. In the event the
Partnership is required to use a taxable year other than a year
ending on December 31, the General Partner shall use
reasonable efforts to change the taxable year of the Partnership
to a year ending on December 31. The tax information
reasonably required by Record Holders for federal and state
income tax reporting purposes with respect to a taxable year
shall be furnished to them within 90 days of the close of
the calendar year in which the Partnerships taxable year
ends. The classification, realization and recognition of income,
gain, losses and deductions and other items shall be on the
accrual method of accounting for federal income tax purposes.
56
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|
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.
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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.
Notwithstanding any other provision of this Agreement, the
General Partner is authorized to take any action that may be
required to cause the Partnership and other Group Members to
comply with any withholding requirements established under the
Code or any other federal, state or local law including pursuant
to Sections 1441, 1442, 1445 and 1446 of the Code. To the
extent that the Partnership is required or elects to withhold
and pay over to any taxing authority any amount resulting from
the allocation or distribution of income to any Partner or
Assignee (including by reason of Section 1446 of the Code),
the General Partner may treat the amount withheld as a
distribution of cash pursuant to Section 6.3 in the amount
of such withholding from such Partner.
ARTICLE X
ADMISSION OF
PARTNERS
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Section 10.1
|
Admission
of Limited Partners.
|
(a) Upon the issuance by the Partnership of Common Units,
Subordinated Units and Incentive Distribution Rights to the
General Partner, Targa GP Inc., Targa LP Inc. 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.
(b) 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
57
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.
(c) 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.
(d) 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).
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Section 10.2
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Admission
of Successor General Partner.
|
A successor General Partner approved pursuant to
Section 11.1 or Section 11.2 or the transferee of or
successor to all of the General Partner Interest (represented by
General Partner Units) pursuant to Section 4.6 who is
proposed to be admitted as a successor General Partner shall be
admitted to the Partnership as the General Partner, effective
immediately prior to the withdrawal or removal of the
predecessor or transferring General Partner, pursuant to
Section 11.1 or 11.2 or the transfer of the General Partner
Interest (represented by General Partner Units) pursuant to
Section 4.6, provided, however, that no such
successor shall be admitted to the Partnership until compliance
with the terms of Section 4.6 has occurred and such
successor has executed and delivered such other documents or
instruments as may be required to effect such admission. Any
such successor shall, subject to the terms hereof, carry on the
business of the members of the Partnership Group without
dissolution.
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Section 10.3
|
Amendment
of Agreement and Certificate of Limited Partnership.
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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
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Section 11.1
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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);
58
(i) The General Partner voluntarily withdraws from the
Partnership by giving written notice to the other Partners;
(ii) The General Partner transfers all of its rights as
General Partner pursuant to Section 4.6;
(iii) The General Partner is removed pursuant to
Section 11.2;
(iv) The General Partner (A) makes a general
assignment for the benefit of creditors; (B) files a
voluntary bankruptcy petition for relief under Chapter 7 of
the United States Bankruptcy Code; (C) files a petition or
answer seeking for itself a liquidation, dissolution or similar
relief (but not a reorganization) under any law; (D) files
an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against the General
Partner in a proceeding of the type described in
clauses (A)-(C) of this Section 11.1(a)(iv); or (E)
seeks, consents to or acquiesces in the appointment of a trustee
(but not a
debtor-in-possession),
receiver or liquidator of the General Partner or of all or any
substantial part of its properties;
(v) A final and non-appealable order of relief under
Chapter 7 of the United States Bankruptcy Code is entered
by a court with appropriate jurisdiction pursuant to a voluntary
or involuntary petition by or against the General
Partner; or
(vi) (A) in the event the General Partner is a
corporation, a certificate of dissolution or its equivalent is
filed for the General Partner, or 90 days expire after the
date of notice to the General Partner of revocation of its
charter without a reinstatement of its charter, under the laws
of its state of incorporation; (B) in the event the General
Partner is a partnership or a limited liability company, the
dissolution and commencement of winding up of the General
Partner; (C) in the event the General Partner is acting in
such capacity by virtue of being a trustee of a trust, the
termination of the trust; (D) in the event the General
Partner is a natural person, his death or adjudication of
incompetency; and (E) otherwise in the event of the
termination of the General Partner.
If an Event of Withdrawal specified in Section 11.1(a)(iv),
(v) or (vi)(A), (B), (C) or (E) occurs, the withdrawing General
Partner shall give notice to the Limited Partners within
30 days after such occurrence. The Partners hereby agree
that only the Events of Withdrawal described in this
Section 11.1 shall result in the withdrawal of the General
Partner from the Partnership.
(b) Withdrawal of the General Partner from the Partnership
upon the occurrence of an Event of Withdrawal shall not
constitute a breach of this Agreement under the following
circumstances: (i) at any time during the period beginning
on the Closing Date and ending at 12:00 midnight, Central Time,
on December 31, 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 December 31, 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,
59
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.
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Section 11.2
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Removal
of the General Partner.
|
The General Partner may be removed if such removal is approved
by the Unitholders holding at least 662/3% of the Outstanding
Units (including Units held by the General Partner and its
Affiliates) voting as a single class. Any such action by such
holders for removal of the General Partner must also provide for
the election of a successor General Partner by the Unitholders
holding a majority of the outstanding Common Units and
Class B Units, if any, voting as a single class and a
majority of the outstanding Subordinated Units (if any
Subordinated Units are then Outstanding) voting as a class
(including, in each case, Units held by the General Partner and
its Affiliates). Such removal shall be effective immediately
following the admission of a successor General Partner pursuant
to Section 10.3. The removal of the General Partner shall
also automatically constitute the removal of the General Partner
as general partner or managing member, to the extent applicable,
of the other Group Members of which the General Partner is a
general partner or a managing member. If a Person is elected as
a successor General Partner in accordance with the terms of this
Section 11.2, such Person shall, upon admission pursuant to
Section 10.3, automatically become a successor general
partner or managing member, to the extent applicable, of the
other Group Members of which the General Partner is a general
partner or a managing member. The right of the holders of
Outstanding Units to remove the General Partner shall not exist
or be exercised unless the Partnership has received an opinion
opining as to the matters covered by a Withdrawal Opinion of
Counsel. Any successor General Partner elected in accordance
with the terms of this Section 11.2 shall be subject to the
provisions of Section 10.3.
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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 where such withdrawal does not
violate this Agreement or (ii) removal of the General
Partner by the holders of Outstanding Units under circumstances
where Cause does not exist, if the successor General Partner is
elected in accordance with the terms of Section 11.1 or
Section 11.2, the Departing General Partner shall have the
option, exercisable prior to the effective date of the departure
of such Departing General Partner, to require its successor to
purchase its General Partner Interest (represented by General
Partner Units) and its general partner interest (or equivalent
interest), if any, in the other Group Members and all of its
Incentive Distribution Rights (collectively, the
Combined Interest) in exchange for an
amount in cash equal to the fair market value of such Combined
Interest, such amount to be determined and payable as of the
effective date of its departure. If the General Partner is
removed by the Unitholders under circumstances where Cause
exists or if the General Partner withdraws under circumstances
where such withdrawal violates this Agreement, and if a
successor General Partner is elected in accordance with the
terms of Section 11.1 or Section 11.2 (or if the
business of the Partnership is continued pursuant to
Section 12.2 and the successor General Partner is not the
former General Partner), such successor shall have the option,
exercisable prior to the effective date of the departure of such
Departing General Partner (or, in the event the business of the
Partnership is continued, prior to the date the business of the
Partnership is continued), to purchase the Combined Interest for
such fair market value of such Combined Interest of the
Departing General Partner. In 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
60
Departing General Partner or its Affiliates (other than any
Group Member) for the benefit of the Partnership or the other
Group Members.
For purposes of this Section 11.3(a), the fair market value
of the Departing General Partners Combined Interest shall
be determined by agreement between the Departing General Partner
and its successor or, failing agreement within 30 days
after the effective date of such Departing General
Partners departure, by an independent investment banking
firm or other independent expert selected by the Departing
General Partner and its successor, which, in turn, may rely on
other experts, and the determination of which shall be
conclusive as to such matter. If such parties cannot agree upon
one independent investment banking firm or other independent
expert within 45 days after the effective date of such
departure, then the Departing General Partner shall designate an
independent investment banking firm or other independent expert,
the Departing General Partners successor shall designate
an independent investment banking firm or other independent
expert, and such firms or experts shall mutually select a third
independent investment banking firm or independent expert, which
third independent investment banking firm or other independent
expert shall determine the fair market value of the Combined
Interest of the Departing General Partner. In making its
determination, such third independent investment banking firm or
other independent expert may consider the then current trading
price of Units on any National Securities Exchange on which
Units are then listed or admitted to trading, the value of the
Partnerships assets, the rights and obligations of the
Departing General Partner and other factors it may deem relevant.
(b) If the Combined Interest is not purchased in the manner
set forth in Section 11.3(a), the Departing General Partner
(or its transferee) shall become a Limited Partner and its
Combined Interest shall be converted into Common Units pursuant
to a valuation made by an investment banking firm or other
independent expert selected pursuant to Section 11.3(a),
without reduction in such Partnership Interest (but subject
to proportionate dilution by reason of the admission of its
successor). Any successor General Partner shall indemnify the
Departing General Partner (or its transferee) as to all debts
and liabilities of the Partnership arising on or after the date
on which the Departing General Partner (or its transferee)
becomes a Limited Partner. For purposes of this Agreement,
conversion of the Combined Interest of the Departing General
Partner to Common Units will be characterized as if the
Departing General Partner (or its transferee) contributed its
Combined Interest to the Partnership in exchange for the newly
issued Common Units.
(c) If a successor General Partner is elected in accordance
with the terms of Section 11.1 or Section 11.2 (or if
the business of the Partnership is continued pursuant to
Section 12.2 and the successor General Partner is not the
former General Partner) and the option described in
Section 11.3(a) is not exercised by the party entitled to
do so, the successor General Partner shall, at the effective
date of its admission to the Partnership, contribute to the
Partnership cash in the amount equal to the product of the
Percentage Interest of the Departing General Partner and the Net
Agreed Value of the Partnerships assets on such date. In
such event, such successor General Partner shall, subject to the
following sentence, be entitled to its Percentage Interest of
all Partnership allocations and distributions to which the
Departing General Partner was entitled. In addition, the
successor General Partner shall cause this Agreement to be
amended to reflect that, from and after the date of such
successor General Partners admission, the successor
General Partners interest in all Partnership distributions
and allocations shall be its Percentage Interest.
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Section 11.4
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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
61
General Partner Units) and its Incentive Distribution Rights
into Common Units or to receive cash in exchange therefor in
accordance with Section 11.3.
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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
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Section 12.1
|
Dissolution.
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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:
(a) an Event of Withdrawal of the General Partner as
provided in Section 11.1(a) (other than
Section 11.1(a)(ii)), unless a successor is elected and an
Opinion of Counsel is received as provided in
Section 11.1(b) or 11.2 and such successor is admitted to
the Partnership pursuant to Section 10.3;
(b) an election to dissolve the Partnership by the General
Partner that is approved by the holders of a Unit Majority;
(c) the entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Delaware
Act; or
(d) at any time there are no Limited Partners, unless the
Partnership is continued without dissolution in accordance with
the Delaware Act.
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Section 12.2
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Continuation
of the Business of the Partnership After Dissolution.
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Upon (a) dissolution of the Partnership following an Event
of Withdrawal caused by the withdrawal or removal of the General
Partner as provided in Section 11.1(a)(i) or (iii) and the
failure of the Partners to select a successor to such Departing
General Partner pursuant to Section 11.1 or
Section 11.2, then within 90 days thereafter, or
(b) dissolution of the Partnership upon an event
constituting an Event of Withdrawal as defined in
Section 11.1(a)(iv), (v) or (vi), then, to the maximum
extent permitted by law, within 180 days thereafter, the
holders of a Unit Majority may elect to continue the business of
the Partnership on the same terms and conditions set forth in
this Agreement by appointing as a successor General Partner a
Person approved by the holders of a Unit Majority. Unless such
an election is made within the applicable time period as set
forth above, the Partnership shall conduct only activities
necessary to wind up its affairs. If such an election is so
made, then:
(i) the Partnership shall continue without dissolution
unless earlier dissolved in accordance with this
Article XII;
(ii) if the successor General Partner is not the former
General Partner, then the interest of the former General Partner
shall be treated in the manner provided in
Section 11.3; and
(iii) the successor General Partner shall be admitted to
the Partnership as General Partner, effective as of the Event of
Withdrawal, by agreeing in writing to be bound by this
Agreement; provided, that the right of the holders of a
Unit Majority to approve a successor General Partner and
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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).
Section 12.3 Liquidator.
Upon dissolution of the Partnership, unless the business of the
Partnership is continued pursuant to Section 12.2, the
General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the General Partner)
shall be entitled to receive such compensation for its services
as may be approved by holders of at least a majority of the
Outstanding Common Units and Subordinated Units voting as a
single class. The Liquidator (if other than the General Partner)
shall agree not to resign at any time without 15 days
prior notice and may be removed at any time, with or without
cause, by notice of removal approved by holders of at least a
majority of the Outstanding Common Units, Class B Units (if
any), and Subordinated Units voting as a single class. Upon
dissolution, removal or resignation of the Liquidator, a
successor and substitute Liquidator (who shall have and succeed
to all rights, powers and duties of the original Liquidator)
shall within 30 days thereafter be approved by holders of
at least a majority of the Outstanding Common Units,
Class B Units (if any), and Subordinated Units voting as a
single class. The right to approve a successor or substitute
Liquidator in the manner provided herein shall be deemed to
refer also to any such successor or substitute Liquidator
approved in the manner herein provided. Except as expressly
provided in this Article XII, the Liquidator approved in
the manner provided herein shall have and may exercise, without
further authorization or consent of any of the parties hereto,
all of the powers conferred upon the General Partner under the
terms of this Agreement (but subject to all of the applicable
limitations, contractual and otherwise, upon the exercise of
such powers, other than the limitation on sale set forth in
Section 7.3) necessary or appropriate to carry out the
duties and functions of the Liquidator hereunder for and during
the period of time required to complete the winding up and
liquidation of the Partnership as provided for herein.
Section 12.4 Liquidation.
The Liquidator shall proceed to dispose of the assets of the
Partnership, discharge its liabilities, and otherwise wind up
its affairs in such manner and over such period as determined by
the Liquidator, subject to
Section 17-804
of the Delaware Act and the following:
(a) The assets may be disposed of by public or private sale
or by distribution in kind to one or more Partners on such terms
as the Liquidator and such Partner or Partners may agree. If any
property is distributed in kind, the Partner receiving the
property shall be deemed for purposes of Section 12.4(c) to
have received cash equal to its fair market value; and
contemporaneously therewith, appropriate cash distributions must
be made to the other Partners. The Liquidator may defer
liquidation or distribution of the Partnerships assets for
a reasonable time if it determines that an immediate sale or
distribution of all or some of the Partnerships assets
would be impractical or would cause undue loss to the Partners.
The Liquidator may distribute the Partnerships assets, in
whole or in part, in kind if it determines that a sale would be
impractical or would cause undue loss to the Partners.
(b) Liabilities of the Partnership include amounts owed to
the Liquidator as compensation for serving in such capacity
(subject to the terms of Section 12.3) and amounts to
Partners otherwise than in respect of their distribution rights
under Article VI. With respect to any liability that is
contingent, conditional or unmatured or is otherwise not yet due
and payable, the Liquidator shall either settle such claim for
such amount as it thinks appropriate or establish a reserve of
cash or other assets to provide for its payment. When paid, any
unused portion of the reserve shall be distributed as additional
liquidation proceeds.
(c) All property and all cash in excess of that required to
discharge liabilities as provided in Section 12.4(b) shall
be distributed to the Partners in accordance with, and to the
extent of, the positive
63
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).
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:
(a) a change in the name of the Partnership, the location
of the principal place of business of the Partnership, the
registered agent of the Partnership or the registered office of
the Partnership;
(b) admission, substitution, withdrawal or removal of
Partners in accordance with this Agreement;
(c) a change that the General Partner determines to be
necessary or appropriate to qualify or continue the
qualification of the Partnership as a limited partnership or a
partnership in which the Limited Partners have limited liability
under the laws of any state or to ensure that the Group Members
will not be treated as associations taxable as corporations or
otherwise taxed as entities for federal income tax purposes;
(d) a change that the General Partner determines,
(i) does not adversely affect the Limited Partners
(including any particular class of Partnership Interests as
compared to other classes of Partnership Interests) in any
material respect, (ii) to be necessary or appropriate to
(A) satisfy any requirements, conditions or
64
guidelines contained in any opinion, directive, order, ruling or
regulation of any federal or state agency or judicial authority
or contained in any federal or state statute (including the
Delaware Act) or (B) facilitate the trading of the Units
(including the division of any class or classes of Outstanding
Units into different classes to facilitate uniformity of tax
consequences within such classes of Units) or comply with any
rule, regulation, guideline or requirement of any National
Securities Exchange on which the Units are or will be listed or
admitted to trading, (iii) to be necessary or appropriate
in connection with action taken by the General Partner pursuant
to Section 5.9 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;
(e) a change in the fiscal year or taxable year of the
Partnership and any other changes that the General Partner
determines to be necessary or appropriate as a result of a
change in the fiscal year or taxable year of the Partnership
including, if the General Partner shall so determine, a change
in the definition of Quarter and the dates on which
distributions are to be made by the Partnership;
(f) an amendment that is necessary, in the Opinion of
Counsel, to prevent the Partnership, or the General Partner or
its directors, officers, trustees or agents from in any manner
being subjected to the provisions of the Investment Company Act
of 1940, as amended, the Investment Advisers Act of 1940, as
amended, or plan asset regulations adopted under the
Employee Retirement Income Security Act of 1974, as amended,
regardless of whether such are substantially similar to plan
asset regulations currently applied or proposed by the United
States Department of Labor;
(g) an amendment that the General Partner determines to be
necessary or appropriate in connection with the authorization of
issuance of any class or series of Partnership Securities
pursuant to Section 5.6, including any amendment that the
General Partner determines is necessary or appropriate in
connection with (i) the adjustments of the Minimum
Quarterly Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution pursuant to the
provisions of Section 5.11, (ii) the implementation of
the provisions of Section 5.11 or (iii) any
modifications to the Incentive Distribution Rights made in
connection with the issuance of Partnership Securities pursuant
to Section 5.6, provided that, with respect to this
clause (iii), the modifications to the Incentive
Distribution Rights and the related issuance of Partnership
Securities have received Special Approval;
(h) any amendment expressly permitted in this Agreement to
be made by the General Partner acting alone;
(i) an amendment effected, necessitated or contemplated by
a Merger Agreement approved in accordance with Section 14.3;
(j) an amendment that the General Partner determines to be
necessary or appropriate to reflect and account for the
formation by the Partnership of, or investment by the
Partnership in, any corporation, partnership, joint venture,
limited liability company or other entity, in connection with
the conduct by the Partnership of activities permitted by the
terms of Section 2.4;
(k) a merger, conveyance or conversion pursuant to
Section 14.3(d); or
(l) any other amendments substantially similar to the
foregoing.
Section 13.2 Amendment
Procedures.
Except as provided in Section 13.1 and Section 13.3,
all amendments to this Agreement shall be made in accordance
with the requirements contained in this Section 13.2.
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
65
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 or Assignees as contemplated in Section 13.1, any
amendment that would have a material adverse effect on the
rights or preferences of any class of Partnership Interests
in relation to other classes of Partnership Interests must
be approved by the holders of not less than a majority of the
Outstanding Partnership Interests of the class affected.
(d) Notwithstanding any other provision of this Agreement,
except for amendments pursuant to Section 13.1 and except
as otherwise provided by Section 14.3(b), no amendments
shall become effective without the approval of the holders of at
least 90% of the Outstanding Units voting as a single class
unless the Partnership obtains an Opinion of Counsel to the
effect that such amendment will not affect the limited liability
of any Limited Partner under applicable partnership law of the
state under whose laws the Partnership is organized.
(e) Except as provided in Section 13.1, this
Section 13.3 shall only be amended with the approval of the
holders of at least 90% of the Outstanding Units.
Section 13.4 Special
Meetings.
All acts of Limited Partners to be taken pursuant to this
Agreement shall be taken in the manner provided in this
Article XIII. Special meetings of the Limited Partners may
be called by the General Partner or by Limited Partners owning
20% or more of the Outstanding Units of the class or classes for
which a meeting is proposed. Limited Partners shall call a
special meeting by delivering to the General Partner one or more
requests in writing stating that the signing Limited Partners
wish to call a special meeting and indicating the general or
specific purposes for which the special meeting is to be called.
Within 60 days after receipt of such a call from Limited
Partners or within such greater time as may be reasonably
necessary for the Partnership to comply with any statutes,
rules, regulations, listing agreements or similar requirements
governing the holding of a meeting or the solicitation of
proxies for use at such a meeting, the General Partner shall
send a notice of the meeting to the Limited Partners either
directly or indirectly through the Transfer Agent. A meeting
shall be held at a time and place determined by the General
Partner on a date not less than 10 days nor more than
60 days after the time notice of the meeting is given as
provided in Section 16.1. 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
66
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) in the event that approvals are sought
without a meeting, the date by which Limited Partners are
requested in writing by the General Partner to give such
approvals. If the General Partner does not set a Record Date,
then (a) the Record Date for determining the Limited
Partners entitled to notice of or to vote at a meeting of the
Limited Partners shall be the close of business on the day next
preceding the day on which notice is given, and (b) the
Record Date for determining the Limited Partners entitled to
give approvals without a meeting shall be the date the first
written approval is deposited with the Partnership in care of
the General Partner in accordance with Section 13.11.
Section 13.7 Adjournment.
When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting and a new Record Date
need not be fixed, if the time and place thereof are announced
at the meeting at which the adjournment is taken, unless such
adjournment shall be for more than 45 days. At the
adjourned meeting, the Partnership may transact any business
which might have been transacted at the original meeting. If the
adjournment is for more than 45 days or if a new Record
Date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given in accordance with this
Article XIII.
Section 13.8 Waiver
of Notice; Approval of Meeting.
The transactions of any meeting of Limited Partners, however
called and noticed, and whenever held, shall be as valid as if
it had occurred at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy.
Attendance of a Limited Partner at a meeting shall constitute a
waiver of notice of the meeting, except when the Limited Partner
attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened; and
except that attendance at a meeting is not a waiver of any right
to disapprove the consideration of matters required to be
included in the notice of the meeting, but not so included, if
the disapproval is expressly made at the meeting.
Section 13.9 Quorum
and Voting.
The holders of a majority of the Outstanding Units of the class
or classes for which a meeting has been called (including
Outstanding Units deemed owned by the General Partner)
represented in person or by proxy shall constitute a quorum at a
meeting of Limited Partners of such class or classes unless any
such action by the Limited Partners requires approval by holders
of a greater percentage of such Units, in which case the quorum
shall be such greater percentage. At any meeting of the Limited
Partners duly called and held in accordance with this Agreement
at which a quorum is present, the act of Limited Partners
holding Outstanding Units that in the aggregate represent a
majority of the Outstanding Units entitled to vote and
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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 permissible under
the state statutes then governing the rights, duties and
liabilities of the Partnership and the Partners.
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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.
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:
(i) name and state of domicile of each of the business
entities proposing to merge or consolidate;
(ii) the name and state of domicile of the business entity
that is to survive the proposed merger or consolidation (the
Surviving Business Entity);
(iii) the terms and conditions of the proposed merger or
consolidation;
(iv) the manner and basis of exchanging or converting the
equity securities of each constituent business entity for, or
into, cash, property or interests, rights, securities or
obligations of the Surviving Business Entity; and (i) if
any general or limited partner interests, securities or rights
of any constituent business entity are not to be exchanged or
converted solely for, or into, cash, property or general or
limited partner interests, rights, securities or obligations of
the Surviving Business Entity, the cash, property or interests,
rights, securities or obligations of any general or limited
partnership, corporation, trust, limited liability company,
unincorporated business or other entity (other than the
69
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;
(v) a statement of any changes in the constituent documents
or the adoption of new constituent documents (the articles or
certificate of incorporation, articles of trust, declaration of
trust, certificate or agreement of limited partnership,
operating agreement or other similar charter or governing
document) of the Surviving Business Entity to be effected by
such merger or consolidation;
(vi) the effective time of the merger, which may be the
date of the filing of the certificate of merger pursuant to
Section 14.4 or a later date specified in or determinable
in accordance with the Merger Agreement (provided, that
if the effective time of the merger is to be later than the date
of the filing of such certificate of merger, the effective time
shall be fixed at a date or time certain at or prior to the time
of the filing of such certificate of merger and stated
therein); and
(vii) such other provisions with respect to the proposed
merger or consolidation that the General Partner determines to
be necessary or appropriate.
(c) If the General Partner shall determine to consent to
the conversion, the General Partner shall approve the Plan of
Conversion, which shall set forth:
(i) the name of the converting entity and the converted
entity;
(ii) a statement that the Partnership is continuing its
existence in the organizational form of the converted entity;
(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;
(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;
(v) in an attachment or exhibit, the certificate of limited
partnership of the Partnership; and
(vi) in an attachment or exhibit, the certificate of
limited partnership, articles of incorporation, or other
organizational documents of the converted entity;
(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
(viii) such other provisions with respect to the proposed
conversion that the General Partner determines to be necessary
or appropriate.
Section 14.3 Approval
by Limited Partners.
(a) Except as provided in Section 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.
70
(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 14.3
shall be effective at the effective time or date of the merger
or consolidation.
Section 14.4 Certificate
of Merger.
Upon the required approval by the General Partner and the
Unitholders of a Merger Agreement or the Plan of Conversion, as
the case may be, a certificate of merger or articles of
conversion, as applicable, shall be executed and filed with the
Secretary of State of the State of Delaware in conformity with
the requirements of the Delaware Act.
Section 14.5 Effect
of Merger, Consolidation or Conversion.
(a) At the effective time of the certificate of merger:
(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
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vested in the Surviving Business Entity and after the merger or
consolidation shall be the property of the Surviving Business
Entity to the extent they were of each constituent business
entity;
(ii) the title to any real property vested by deed or
otherwise in any of those constituent business entities shall
not revert and is not in any way impaired because of the merger
or consolidation;
(iii) all rights of creditors and all liens on or security
interests in property of any of those constituent business
entities shall be preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent
business entities shall attach to the Surviving Business Entity
and may be enforced against it to the same extent as if the
debts, liabilities and duties had been incurred or contracted by
it.
(b) At the effective time of the articles of conversion:
(i) the Partnership shall continue to exist, without
interruption, but in the organizational form of the converted
entity rather than in its prior organizational form;
(ii) all rights, title, and interests to all real estate
and other property owned by the Partnership shall continue to be
owned by the converted entity in its new organizational form
without reversion or impairment, without further act or deed,
and without any transfer or assignment having occurred, but
subject to any existing liens or other encumbrances thereon;
(iii) all liabilities and obligations of the Partnership
shall continue to be liabilities and obligations of the
converted entity in its new organizational form without
impairment or diminution by reason of the conversion;
(iv) all rights of creditors or other parties with respect
to or against the prior interest holders or other owners of the
Partnership in their capacities as such in existence as of the
effective time of the conversion will continue in existence as
to those liabilities and obligations and may be pursued by such
creditors and obligees as if the conversion did not occur;
(v) a proceeding pending by or against the Partnership or
by or against any of Partners in their capacities as such may be
continued by or against the converted entity in its new
organizational form and by or against the prior partners without
any need for substitution of parties; and
(vi) the Partnership Units that are to be converted into
partnership interests, shares, evidences of ownership, or other
securities in the converted entity as provided in the plan of
conversion shall be so converted, and Partners shall be entitled
only to the rights provided in the Plan of Conversion.
ARTICLE XV
RIGHT TO
ACQUIRE LIMITED PARTNER INTERESTS
Section 15.1 Right
to Acquire Limited Partner Interests.
(a) Notwithstanding any other provision of this Agreement,
if at any time the General Partner and its Affiliates hold more
than 80% of the total Limited Partner Interests of any class
then Outstanding, the General Partner shall then have the right,
which right it may assign and transfer in whole or in part to
the Partnership or any Affiliate of the General Partner,
exercisable at its option, to purchase all, but not less than
all, of such Limited Partner Interests of such class then
Outstanding held by Persons other than the General Partner and
its Affiliates, at the greater of (x) the Current Market
Price as of the date three days prior to the date that the
notice described in Section 15.1(b) is mailed and
(y) the highest price paid by the General Partner or any of
its Affiliates for any such Limited Partner Interest of such
class purchased during the
90-day
period preceding the date that the notice described in
Section 15.1(b) is mailed. As used in this Agreement,
(i) Current Market Price as of any date of any
class of Limited Partner Interests means the average of the
daily Closing Prices (as hereinafter defined) per Limited
Partner Interest of such class for the 20 consecutive Trading
Days (as hereinafter defined) immediately prior to such date;
(ii) Closing Price for any day means the last
sale price on such day, regular way, or in case no such sale
72
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 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).
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(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; Written Communications.
(a) 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.
(b) The terms in writing, written
communications, written notice and words of
similar import shall be deemed satisfied under this Agreement by
use of
e-mail and
other forms of electronic communication.
Section 16.2 Further
Action.
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be
necessary or appropriate to achieve the purposes of this
Agreement.
Section 16.3 Binding
Effect.
This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.
Section 16.4 Integration.
This Agreement constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining
thereto.
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Section 16.5 Creditors.
None of the provisions of this Agreement shall be for the
benefit of, or shall be enforceable by, any creditor of the
Partnership.
Section 16.6 Waiver.
No failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof
shall constitute waiver of any such breach of any other
covenant, duty, agreement or condition.
Section 16.7 Third-Party
Beneficiaries.
Each Partner agrees that any Indemnitee shall be entitled to
assert rights and remedies hereunder as a third-party
beneficiary hereto with respect to those provisions of this
Agreement affording a right, benefit or privilege to such
Indemnitee.
Section 16.8 Counterparts.
This Agreement may be executed in counterparts, all of which
together shall constitute an agreement binding on all the
parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart. Each party
shall become bound by this Agreement immediately upon affixing
its signature hereto or, in the case of a Person acquiring a
Limited Partner Interest, pursuant to Section 10.1(a)
without execution hereto.
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.
GENERAL PARTNER:
TARGA RESOURCES GP LLC
Name:
Title:
ORGANIZATIONAL LIMITED PARTNERS:
TARGA GP INC.
Name:
Title:
TARGA LP INC.
Name:
Title:
Signature
Page First Amended and Restated Agreement
of Limited Partnership of Targa Resources Partners, LP
76
LIMITED PARTNERS:
All Limited Partners now and hereafter admitted as Limited
Partners of the Partnership, pursuant to powers of attorney now
and hereafter executed in favor of, and granted and delivered to
the General Partner or without execution hereof pursuant to
Section 10.2(a) hereof.
[ ]
Name:
Title:
Signature
Page First Amended and Restated Agreement
of Limited Partnership of Targa Resources Partners, LP
77
EXHIBIT A
to the First Amended and Restated
Agreement of Limited Partnership of
Targa Resources Partners LP
Certificate Evidencing Common Units
Representing Limited Partner Interests in
Targa Resources Partners LP
In accordance with Section 4.1 of the First Amended and
Restated Agreement of Limited Partnership of Targa Resources
Partners LP, as amended, supplemented or restated from time to
time (the Partnership Agreement),
Targa Resources Partners LP, a Delaware limited partnership (the
Partnership), hereby certifies that
(the Holder) is the registered owner
of Common Units representing limited partner interests in the
Partnership (the Common Units)
transferable on the books of the Partnership, in person or by
duly authorized attorney, upon surrender of this Certificate
properly endorsed. The rights, preferences and limitations of
the Common Units are set forth in, and this Certificate and the
Common Units represented hereby are issued and shall in all
respects be subject to the terms and provisions of, the
Partnership Agreement. Copies of the Partnership Agreement are
on file at, and will be furnished without charge on delivery of
written request to the Partnership at, the principal office of
the Partnership located at 1000 Louisiana, Suite 4300,
Houston, Texas 77002. Capitalized terms used herein but not
defined shall have the meanings given them in the Partnership
Agreement.
THE HOLDER OF THIS SECURITY ACKNOWLEDGES FOR THE BENEFIT OF
TARGA RESOURCES PARTNERS LP THAT THIS SECURITY MAY NOT BE SOLD,
OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IF SUCH
TRANSFER WOULD (A) VIOLATE THE THEN APPLICABLE FEDERAL OR
STATE SECURITIES LAWS OR RULES AND REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR ANY OTHER GOVERNMENTAL AUTHORITY WITH JURISDICTION
OVER SUCH TRANSFER, (B) TERMINATE THE EXISTENCE OR
QUALIFICATION OF TARGA RESOURCES PARTNERS LP UNDER THE LAWS OF
THE STATE OF DELAWARE, OR (C) CAUSE TARGA RESOURCES
PARTNERS LP TO BE TREATED AS AN ASSOCIATION TAXABLE AS A
CORPORATION OR OTHERWISE TO BE TAXED AS AN ENTITY FOR FEDERAL
INCOME TAX PURPOSES (TO THE EXTENT NOT ALREADY SO TREATED OR
TAXED). TARGA RESOURCES GP LLC, THE GENERAL PARTNER OF TARGA
RESOURCES PARTNERS LP, MAY IMPOSE ADDITIONAL RESTRICTIONS ON THE
TRANSFER OF THIS SECURITY IF IT RECEIVES AN OPINION OF COUNSEL
THAT SUCH RESTRICTIONS ARE NECESSARY TO AVOID A SIGNIFICANT RISK
OF TARGA RESOURCES PARTNERS LP BECOMING TAXABLE AS A CORPORATION
OR OTHERWISE BECOMING TAXABLE AS AN ENTITY FOR FEDERAL INCOME
TAX PURPOSES. THE RESTRICTIONS SET FORTH ABOVE SHALL NOT
PRECLUDE THE SETTLEMENT OF ANY TRANSACTIONS INVOLVING THIS
SECURITY ENTERED INTO THROUGH THE FACILITIES OF ANY NATIONAL
SECURITIES EXCHANGE ON WHICH THIS SECURITY IS LISTED OR ADMITTED
TO TRADING.
The Holder, by accepting this Certificate, is deemed to have
(i) requested admission as, and agreed to become, a Limited
Partner and to have agreed to comply with and be bound by and to
have executed the Partnership Agreement, (ii) represented
and warranted that the Holder has all right, power and authority
and, if an individual, the capacity necessary to enter into the
Partnership Agreement, (iii) granted the powers of attorney
provided for in the Partnership Agreement and (iv) made the
waivers and given the consents and approvals contained in the
Partnership Agreement.
Exhibit 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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Targa Resources Partners LP
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By: Targa Resources GP
LLC
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Countersigned and Registered by:
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[ ]
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By:
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as Transfer Agent and Registrar
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Name:
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By: _
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By:
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Authorized Signature
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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
CD Minors Act (State)
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Additional abbreviations, though not in the above list, may also
be used.
Exhibit A-2
ASSIGNMENT
OF COMMON UNITS OF
TARGA RESOURCES PARTNERS LP
FOR VALUE RECEIVED,
hereby assigns, conveys, sells and transfers unto
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(Please print or typewrite name
and address of assignee)
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(Please insert Social Security or
other identifying number of assignee)
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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 Targa Resources Partners LP.
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Date: _
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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 17d-15
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(Signature)
(Signature)
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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.
Exhibit A-3
APPENDIX B
GLOSSARY
OF SELECTED TERMS
The following are abbreviations and definitions of terms
commonly used in the oil and natural gas industry and this
prospectus.
Adjusted operating surplus. For any
period, operating surplus generated during that period is
adjusted to:
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(a)
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increase operating surplus by any net decreases made in
subsequent periods in cash reserves for operating expenditures
initially established with respect to such period to the extent
such decrease results in a reduction in adjusted operating
surplus in subsequent periods pursuant to clause (b) below;
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(b)
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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)
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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:
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(a)
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all cash and cash equivalents of Targa Resources Partners LP and
its subsidiaries on hand on the date of determination of
available cash for that quarter;
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(b)
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less the amount of cash reserves established by our general
partner to:
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(1)
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provide for the proper conduct of the business of Targa
Resources Partners LP its subsidiaries (including reserves for
future capital expenditures and for future credit needs of Targa
Resource Partners LP and its subsidiaries) after that quarter;
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(2)
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comply with applicable law or any debt instrument or other
agreement or obligation to which Targa Resources Partners LP or
any of its subsidiaries is a party or its assets are subject; and
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(3)
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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.
Bbl or barrel. One stock tank barrel,
or 42 U.S. gallons liquid volume, used in reference to oil
as NGLs or other liquid hydrocarbons.
BBtu. One billion Btus.
Bcf. One billion cubic feet of natural
gas.
Btu. British thermal unit, which is the
heat required to raise the temperature of a one-pound mass of
water from 58.5 to 59.5 degrees Fahrenheit.
Capital account. The capital account
maintained for a partner under the partnership agreement. The
capital account of a partner for a common unit, a Class B
unit, a subordinated unit, an incentive distribution
B-1
right or any other partnership interest will be the amount which
that capital account would be if that common unit, a
Class B unit, subordinated unit, incentive distribution
right or other partnership interest were the only interest in
Targa Resources Partners LP held by a partner.
Capital surplus. All available cash
distributed by us on any date from any source will be treated as
distributed from operating surplus until the sum of all
available cash distributed since the closing of the initial
public offering equals the operating surplus from the closing of
the initial public offering through the end of the quarter
immediately preceding that distribution. Any excess available
cash distributed by us on that date will be deemed to be capital
surplus.
Closing price. The last sale price on a
day, regular way, or in case no sale takes place on that day,
the average of the closing bid and asked prices on that day,
regular way, in either case, as reported in the principal
consolidated transaction reporting system for securities listed
or admitted to trading on the principal national securities
exchange on which the units of that class are listed or admitted
to trading. If the units of that class are not listed or
admitted to trading on any national securities exchange, the
last quoted price on that day. If no quoted price exists, the
average of the high bid and low asked prices on that day in the
over-the-counter
market, as reported by the New York Stock Exchange or any other
system then in use. If on any day the units of that class are
not quoted by any organization of that type, the average of the
closing bid and asked prices on that day as furnished by a
professional market maker making a market in the units of the
class selected by the our board of directors. If on that day no
market maker is making a market in the units of that class, the
fair value of the units on that day as determined reasonably and
in good faith by our board of directors.
Condensate. A natural gas liquid with a
low vapor pressure, mainly composed of propane, butane, pentane
and heavier hydrocarbon fractions.
Cumulative common unit arrearage. The
amount by which the minimum quarterly distribution for a quarter
during the subordination period exceeds the distribution of
available cash from operating surplus actually made for that
quarter on a common unit, cumulative for that quarter and all
prior quarters during the subordination period.
Current market price. For any class of
units listed or admitted to trading on any national securities
exchange as of any date, the average of the daily closing prices
for the 20 consecutive trading days immediately prior to that
date.
Interim capital transactions. The
following transactions if they occur prior to liquidation:
|
|
|
|
(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 Targa Resources
Partners LP or any of its subsidiaries;
|
|
|
(b)
|
sales of equity interests by Targa Resources Partners LP or any
of its subsidiaries;
|
|
|
(c)
|
sales or other voluntary or involuntary dispositions of any
assets of Targa Resources Partners LP or any of its subsidiaries
(other than sales or other dispositions of inventory, accounts
receivable and other assets in the ordinary course of business,
and sales or other dispositions of assets as a part of normal
retirements or replacements);
|
|
|
|
|
(d)
|
capital contributions received; and
|
|
|
|
|
(e)
|
corporate reorganizations or restructurings.
|
Dehydration. The process of removing
liquids and moisture content from gas or other matter.
DOT. Department of Transportation.
EIA. Energy Information Administration.
EPA. Environmental Protection Agency.
B-2
Equity volumes. The portion of natural
gas and/or
NGLs we receive as payment for services in our gathering and
processing business under percent-of-proceeds, percent-of-value
or percent-of-liquids arrangements.
FERC. Federal Energy Regulatory
Commission.
Field. The general area encompassed by
one or more oil or gas reservoirs or pools that are located on a
single geologic feature, that are otherwise closely related to
the same geologic feature (either structural or stratigraphic).
Formation. A subsurface rock formation
containing one or more individual and separate natural
accumulations of moveable petroleum that is confined by
impermeable rock and is characterized by a single-pressure
system.
Fractionation. The process by which a
mixed stream of natural gas liquids is separated into its
constituent products.
Henry Hub. A pipeline interchange near
Erath, Louisiana, where a number of interstate and intrastate
pipelines interconnect through a header system operated by
Sabine Pipe Line. It is the standard delivery point for the
NYMEX natural gas futures contract in the U.S.
Hydrocarbon. An organic compound
containing only carbon and hydrogen.
Liquefied Natural Gas (LNG). Natural
gas that has been cooled to −259 degrees Fahrenheit
(−161 degrees Celsius) and at which point it is
condensed into a liquid which is colorless, odorless,
non-corrosive and non-toxic.
MBbl. One thousand stock tank barrels.
Mcf. One thousand cubic feet of natural
gas.
MMBbl. One million stock tank barrels.
MMBtu. One million Btu.
MMcf. One million cubic feet of natural
gas.
MMS. U.S. Minerals Management
Service.
Natural gas. Hydrocarbon gas found in
the earth, composed of methane, ethane, butane, propane and
other gases.
NGA. Natural Gas Act of 1938.
NGLs. Natural gas liquids. The
combination of ethane, propane, butane and natural gasolines
that when removed from natural gas become liquid under various
levels of higher pressure and lower temperature.
NGPA. Natural Gas Policy Act of 1978.
NGPSA. Natural Gas Transmission
Pipeline Siting Act.
NYMEX. New York Mercantile Exchange.
OCS. Outer Continental Shelf.
Operating expenditures. All of our
expenditures and expenditures of our subsidiaries, including,
but not limited to, taxes, reimbursements of our general
partner, non-pro rata repurchase of units (other than those made
with the proceeds of an Interim Capital Transaction), 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-3
(b) Operating expenditures will not include:
|
|
|
|
(1)
|
expansion capital expenditures;
|
|
|
|
|
(2)
|
payment of transaction expenses (including taxes) relating to
interim capital transactions; or
|
|
|
|
|
(3)
|
distributions to unitholders.
|
Where capital expenditures consist of both maintenance capital
expenditures and expansion capital expenditures, the general
partner, with the concurrence of the conflicts committee, shall
determine the allocation between the amounts paid for each.
Operating surplus. For any period prior
to liquidation, on a cumulative basis and without duplication:
|
|
|
|
(1)
|
all cash receipts of Targa Resource Partners LP and our
subsidiaries for the period beginning on the closing date of our
initial public offering and ending with the last day of that
period, other than cash receipts from interim capital
transactions (provided that cash receipts from the termination
of a commodity hedge or interest rate swap prior to its
specified termination date shall be included in operating
surplus in equal quarterly installments over the scheduled life
of such commodity hedge or interest rate swap); and
|
|
|
|
|
(2)
|
an amount equal to four times the amount needed for any one
quarter for us to pay a distribution on all units (including
general partner units) and incentive distribution rights at the
same per-unit amount as was distributed in the immediately
preceding quarter; less
|
|
|
|
|
(1)
|
operating expenditures for the period beginning on the closing
date of our initial public offering and ending with the last day
of that period; and
|
|
|
(2)
|
the amount of cash reserves that is established by our general
partner to provide funds for future operating expenditures;
provided however, that disbursements made (including
contributions to Targa Resource Partners LP or our subsidiaries
or disbursements on behalf of Targa Resource Partners LP or our
subsidiaries) or cash reserves established, increased or reduced
after the end of that period but on or before the date of
determination of available cash for that period shall be deemed
to have been made, established, increased or reduced for
purposes of determining operating surplus, within that period if
our general partner so determines.
|
Petrochemicals. Chemicals derived from
petroleum; feedstocks for the manufacture of plastics and
synthetic rubber. Petrochemicals include benzene, toluene,
xylene, styrene, and methanol.
Raw NGL mix. Mixed stream of NGLs,
including ethane, propane, butane and natural gasolines, prior
to separation in a fractionator.
Residue gas. The pipeline quality
natural gas remaining after natural gas is processed.
Subordination period. The subordination
period will extend from the closing of the initial public
offering until the first to occur of:
|
|
|
|
(a)
|
the first day of any quarter beginning after December 31,
2009 for which:
|
|
|
|
|
(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, 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 Conversion of Subordinated Units.
|
B-4
|
|
|
|
(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
|
|
|
(3)
|
there are no outstanding cumulative common units arrearages.
|
|
|
|
|
(b)
|
the date on which the general partner is removed as our general
partner upon the requisite vote by the limited partners under
circumstances where cause does not exist and units held by our
general partner and its affiliates are not voted in favor of the
removal.
|
Tcf. One trillion cubic feet of natural
gas.
Throughput. The volume of product
transported or passing through a pipeline, plant, terminal or
other facility.
Wellhead. The equipment at the surface
of a well used to control the pressure; the point at which the
hydrocarbons and water exit the ground.
Workover. Operations on a completed
production well to clean, repair and maintain the well for the
purposes of increasing or restoring production.
B-5
16,800,000
Common Units
Representing Limited Partner
Interests
Targa Resources Partners
LP
PROSPECTUS
,
2007
Citigroup
Goldman, Sachs & Co.
UBS Investment Bank
Merrill Lynch & Co.
A.G. Edwards
Credit Suisse
Lehman Brothers
Wachovia Securities
Raymond James
RBC Capital Markets
Sanders Morris Harris
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
ITEM 13.
|
Other
Expenses of Issuance and Distribution
|
Set forth below are the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered
hereby. With the exception of the Securities and Exchange
Commission registration fee, the NASD filing fee and The NASDAQ
Global Market listing fee, the amounts set forth below are
estimates:
|
|
|
|
|
Securities and Exchange Commission
registration fee
|
|
$
|
43,412
|
|
NASD filing fee
|
|
|
41,072
|
|
NASDAQ Global Market listing fee
|
|
|
100,000
|
|
Printing and engraving expenses
|
|
|
500,000
|
|
Legal fees and expenses
|
|
|
2,000,000
|
|
Accounting fees and expenses
|
|
|
750,000
|
|
Transfer agent and registrar fees
|
|
|
5,000
|
|
Miscellaneous
|
|
|
560,516
|
|
|
|
|
|
|
TOTAL
|
|
$
|
4,000,000
|
|
|
|
|
|
|
|
|
ITEM 14.
|
Indemnification
of Directors and Officers
|
The partnership agreement of Targa Resources Partners L.P.
provides that the partnership will, to the fullest extent
permitted by law but subject to the limitations expressly
provided therein, indemnify and hold harmless its general
partner, any Departing Partner (as defined therein), any person
who is or was an affiliate of the general partner, including the
Guarantor and any Subsidiary Guarantor, or any Departing
Partner, any person who is or was a member, partner, officer,
director, fiduciary or trustee of the general partner, any
Departing Partner, any Group Member (as defined therein) or any
affiliate of the general partner, any Departing Partner or any
Group Member, or any person who is or was serving at the request
of the general partner, including the Guarantor and any
Subsidiary Guarantor, or any affiliate of the general partner,
or any Departing Partner or any affiliate of any Departing
Partner as an officer, director, member, partner, fiduciary or
trustee of another person, or any person that the general
partner designates as a Partnership Indemnitee for purposes of
the partnership agreement (each, a Partnership
Indemnitee) 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 Partnership
Indemnitee may be involved, or is threatened to be involved, as
a party or otherwise, by reason of its status as a Partnership
Indemnitee, provided that the Partnership 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 Partnership Indemnitee is seeking indemnification, the
Partnership Indemnitee acted in bad faith or engaged in fraud,
willful misconduct or gross negligence or, in the case of a
criminal matter, acted with knowledge that the Partnership
Indemnitees conduct was unlawful. This indemnification
would under certain circumstances include indemnification for
liabilities under the Securities Act. To the fullest extent
permitted by law, expenses (including legal fees and expenses)
incurred by a Partnership Indemnitee who is indemnified pursuant
to the partnership agreement 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 Partnership
Indemnitee is not entitled to be indemnified upon receipt by the
partnership of any undertaking by or on behalf of the
Partnership Indemnitee to repay such amount if it shall be
determined that the Partnership Indemnitee is not entitled to be
indemnified under the partnership agreement. Any indemnification
under these provisions will be only out of the assets of the
partnership.
II-1
Targa Resources Partners L.P. is authorized to purchase (or to
reimburse their respective general partners for the costs of)
insurance against liabilities asserted against and expenses
incurred by their respective general partners, their affiliates
and such other persons as the respective general partners may
determine and described in the paragraph above in connection
with their activities, whether or not they would have the power
to indemnify such person against such liabilities under the
provisions described in the paragraphs above. Each general
partner has purchased insurance covering its officers and
directors against liabilities asserted and expenses incurred in
connection with their activities as officers and directors of
the general partner or any of its direct or indirect
subsidiaries.
Any underwriting agreement entered into in connection with the
sale of the securities offered pursuant to this registration
statement will provide for indemnification of officers and
directors of the applicable general partner, including
liabilities under the Securities Act.
|
|
ITEM 15.
|
Recent
Sales of Unregistered Securities
|
On October 23, 2006, in connection with the formation of
Targa Resources Partners LP, or the Partnership, the Partnership
issued to (i) Targa Resources GP LLC the 2% general partner
interest in the Partnership for $20 and (ii) to each of
Targa GP Inc. and Targa LP Inc. a 49% limited partner interest
in the Partnership for $490 in an offering 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.
|
|
ITEM 16.
|
Exhibits
and Financial Statement Schedules
|
a. Exhibits:
|
|
|
|
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|
|
1
|
.1**
|
|
|
|
Form of Underwriting Agreement
|
|
3
|
.1*
|
|
|
|
Amended and Restated Agreement of
Limited Partnership of Targa Resources Partners LP (filed
herewith as Appendix A)
|
|
3
|
.2**
|
|
|
|
Certificate of Limited Partnership
of Targa Resources Partners LP
|
|
3
|
.3**
|
|
|
|
Certificate of Formation of Targa
Resources GP LLC
|
|
3
|
.4**
|
|
|
|
Limited Liability Company
Agreement of Targa Resources GP LLC
|
|
4
|
.1*
|
|
|
|
Specimen Unit Certificate
representing common units
|
|
5
|
.1**
|
|
|
|
Opinion of Vinson &
Elkins LLP relating to the legality of the securities being
registered
|
|
8
|
.1**
|
|
|
|
Opinion of Vinson &
Elkins LLP relating to tax matters
|
|
10
|
.1*
|
|
|
|
Form of Indemnification Agreement
|
|
10
|
.2*
|
|
|
|
Targa Resources Partners Long-Term
Incentive Plan
|
|
10
|
.3*
|
|
|
|
Form of Credit Agreement
|
|
10
|
.4**
|
|
|
|
Form of Omnibus Agreement
|
|
10
|
.5**
|
|
|
|
Gas Gathering and Purchase
Agreement by and between Burlington Resources Oil & Gas
Company LP, Burlington Resources Trading Inc. and Targa
Midstream Services Limited Partnership (portions of this exhibit
have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential
treatment)
|
|
10
|
.6**
|
|
|
|
Form of Natural Gas Purchase
Agreement with Targa Gas Marketing LLC
|
|
10
|
.7**
|
|
|
|
Form of NGL and Condensate
Purchase Agreement with Targa Liquids Marketing and Trade
|
|
10
|
.8*
|
|
|
|
Form of Contribution Agreement
|
|
10
|
.9*
|
|
|
|
Targa Resources Investments Inc.
Long-Term Incentive Plan
|
|
21
|
.1*
|
|
|
|
Subsidiaries of Targa Resources
Partners LP
|
|
23
|
.1*
|
|
|
|
Consent of PricewaterhouseCoopers
LLP
|
|
23
|
.2**
|
|
|
|
Consent of Vinson &
Elkins LLP (contained in Exhibit 5.1)
|
|
23
|
.3**
|
|
|
|
Consent of Peter R. Kagan to be
named as Director
|
II-2
|
|
|
|
|
|
|
|
23
|
.4*
|
|
|
|
Consent of Robert B. Evans to be
named as Director
|
|
23
|
.5*
|
|
|
|
Consent of Chansoo Joung to be
named as Director
|
|
23
|
.6*
|
|
|
|
Consent of Barry R. Pearl to be
named as Director
|
|
23
|
.7*
|
|
|
|
Consent of William D. Sullivan to
be named as Director
|
|
24
|
.1**
|
|
|
|
Power of Attorney
|
|
|
|
* |
|
Filed herewith |
|
** |
|
Previously filed |
b. Financial Statement Schedules
The undersigned Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the provisions described in Item 14, 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 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 Act and will be
governed by the final adjudication of such issue.
(b) To provide to the underwriter(s) at the closing
specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the
underwriter(s) to permit prompt delivery to each purchaser.
(c) For purpose of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in the 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.
(d) For the purpose of determining any liability under the
Securities Act of 1933, 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.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Amendment
No. 4 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the
City of Houston, in the State of Texas on February 1, 2007.
TARGA RESOURCES PARTNERS LP
|
|
|
|
By:
|
TARGA RESOURCES GP LLC,
|
Its general partner
|
|
|
|
By:
|
/s/ Jeffrey
J. McParland
|
Name: Jeffrey J. McParland
|
|
|
|
Title:
|
Executive Vice President, Chief
|
Financial Officer, Treasurer and
Director (Principal Financial 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 below.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
*
Rene
R. Joyce
|
|
Chief Executive Officer and
Director (Principal Executive Officer)
|
|
February 1, 2007
|
|
|
|
|
|
/s/ Jeffrey
J. McParland
Jeffrey
J. McParland
|
|
Executive Vice President, Chief
Financial Officer, Treasurer and Director (Principal Financial
Officer)
|
|
February 1, 2007
|
|
|
|
|
|
*
John
R. Sparger
|
|
Senior Vice President and Chief
Accounting Officer (Principal Accounting Officer)
|
|
February 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*By:
|
|
/s/ Jeffrey
J. McParland
Jeffrey
J. McParland
Attorney-in-Fact
|
|
|
|
|
II-4
EXHIBIT INDEX
|
|
|
|
|
|
|
|
1
|
.1**
|
|
|
|
Form of Underwriting Agreement
|
|
3
|
.1*
|
|
|
|
Amended and Restated Agreement of
Limited Partnership of Targa Resources Partners LP (filed
herewith as Appendix A)
|
|
3
|
.2**
|
|
|
|
Certificate of Limited Partnership
of Targa Resources Partners LP
|
|
3
|
.3**
|
|
|
|
Certificate of Formation of Targa
Resources GP LLC
|
|
3
|
.4**
|
|
|
|
Limited Liability Company
Agreement of Targa Resources GP LLC
|
|
4
|
.1*
|
|
|
|
Specimen Unit Certificate
representing common units
|
|
5
|
.1**
|
|
|
|
Opinion of Vinson &
Elkins LLP relating to the legality of the securities being
registered
|
|
8
|
.1**
|
|
|
|
Opinion of Vinson &
Elkins LLP relating to tax matters
|
|
10
|
.1*
|
|
|
|
Form of Indemnification Agreement
|
|
10
|
.2*
|
|
|
|
Targa Resources Partners Long-Term
Incentive Plan
|
|
10
|
.3*
|
|
|
|
Form of Credit Agreement
|
|
10
|
.4**
|
|
|
|
Form of Omnibus Agreement
|
|
10
|
.5**
|
|
|
|
Gas Gathering and Purchase
Agreement by and between Burlington Resources Oil & Gas
Company LP, Burlington Resources Trading Inc. and Targa
Midstream Services Limited Partnership (portions of this exhibit
have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential
treatment)
|
|
10
|
.6**
|
|
|
|
Form of Natural Gas Purchase
Agreement with Targa Gas Marketing LLC
|
|
10
|
.7**
|
|
|
|
Form of NGL and Condensate
Purchase Agreement with Targa Liquids Marketing and Trade
|
|
10
|
.8*
|
|
|
|
Form of Contribution Agreement
|
|
10
|
.9*
|
|
|
|
Targa Resources Investments Inc.
Long-Term Incentive Plan
|
|
21
|
.1*
|
|
|
|
Subsidiaries of Targa Resources
Partners LP
|
|
23
|
.1*
|
|
|
|
Consent of PricewaterhouseCoopers
LLP
|
|
23
|
.2**
|
|
|
|
Consent of Vinson &
Elkins LLP (contained in Exhibit 5.1)
|
|
23
|
.3**
|
|
|
|
Consent of Peter R. Kagan to be
named as Director
|
|
23
|
.4*
|
|
|
|
Consent of Robert B. Evans to be
named as Director
|
|
23
|
.5*
|
|
|
|
Consent of Chansoo Joung to be
named as Director
|
|
23
|
.6*
|
|
|
|
Consent of Barry R. Pearl to be
named as Director
|
|
23
|
.7*
|
|
|
|
Consent of William D. Sullivan to
be named as Director
|
|
24
|
.1**
|
|
|
|
Power of Attorney
|
|
|
|
* |
|
Filed herewith |
|
** |
|
Previously filed |
exv4w1
exv10w1
Exhibit 10.1
TARGA RESOURCES PARTNERS LP
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (this Agreement) is effective February ___, 2007, between Targa Resources
Partners LP, a Delaware limited partnership (the MLP), Targa Resources GP LLC, a Delaware limited
liability company (the Company), and the undersigned director or officer of the Company
(Indemnitee).
WHEREAS, the MLP Partnership Agreement (as defined below) provides for indemnification of each
director and officer of the Company and the MLP, as well as persons serving in various other
capacities, to the maximum extent permitted by law;
WHEREAS, the Indemnitee is entitled to indemnification pursuant to the MLP Partnership
Agreement;
WHEREAS, the Company LLC Agreement (as defined below) provides indemnification of each
director and officer of the Company, as well as persons serving in other capacities, to the maximum
extent authorized by law;
WHEREAS, the Indemnitee is entitled to indemnification pursuant to the Company LLC Agreement;
WHEREAS, in recognition of Indemnitees need for substantial protection against personal
liability in order to enhance Indemnitees continued service to the MLP and the Company in an
effective manner, the MLP and the Company wish to provide in this Agreement for the indemnification
of and the advancing of expenses to Indemnitee to the fullest extent permitted by law (whether
partial or complete) and as set forth in this Agreement, and, to the extent insurance is
maintained, for the continued coverage of Indemnitee under the MLPs and/or the Companys
directors and officers liability insurance policies;
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service
for or on behalf of the MLP and/or the Company on condition that the Indemnitee be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the MLP,
the Company and Indemnitee do hereby covenant and agree as follows:
1. Definitions. As used in this Agreement:
(a) The term Proceeding shall include any threatened, pending or completed action, suit,
inquiry or proceeding, whether brought by or in the right of the MLP or the Company or any
predecessor, subsidiary or affiliated company or otherwise and whether of a civil, criminal,
administrative, arbitrative or investigative nature, in which Indemnitee is or will be involved as
a party, as a witness or otherwise, by reason of the fact that Indemnitee is or was a director or
officer of the MLP or the Company, by reason of any action taken by him or of any inaction on his
part while acting as a director or officer or by reason of the fact that he is or was serving at
the request of the MLP or the Company as a director, officer, trustee, employee or agent of another
corporation, partnership, joint venture, trust, limited liability company or other
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enterprise; in each case whether or not he is acting or serving in any such capacity at the
time any liability or expense is incurred for which indemnification or reimbursement can be
provided under this Agreement; provided that any such action, suit or proceeding which is brought
by Indemnitee against the MLP or the Company or any predecessor, subsidiary or affiliated company
or directors or officers of the MLP or the Company or any predecessor, subsidiary or affiliated
company, other than an action brought by Indemnitee to enforce his rights under this Agreement,
shall not be deemed a Proceeding without prior approval by a majority of the Board of Directors of
the Company.
(b) The term Expenses shall include, without limitation, any judgments, fines and penalties
against Indemnitee in connection with a Proceeding; amounts paid by Indemnitee in settlement of a
Proceeding; and all attorneys fees and disbursements, accountants fees, private investigation
fees and disbursements, retainers, court costs, transcript costs, fees of experts, fees and
expenses of witnesses, travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements, or expenses, reasonably
incurred by or for Indemnitee in connection with prosecuting, defending, preparing to prosecute or
defend, investigating, being or preparing to be a witness in a Proceeding or establishing
Indemnitees right of entitlement to indemnification for any of the foregoing.
(c) References to Indemnitees being or acting as a director or officer of the MLP or the
Company or serving at the request of the MLP or the Company as a director, officer, trustee,
employee or agent of another corporation, partnership, joint venture, trust, limited liability
company or other enterprise shall include in each case service to or actions taken while and as a
result of being a director, officer, trustee, employee or agent of any predecessor, subsidiary or
affiliated company of the MLP or the Company.
(d) References to other enterprise shall include employee benefit plans; references to
fines shall include any excise tax assessed with respect to any employee benefit plan; references
to serving at the request of the MLP or the Company shall include any service as a director,
officer, employee or agent of the MLP or the Company which imposes duties on, or involves services
by, such director, officer, trustee, employee or agent with respect to an employee benefit plan,
its participants or beneficiaries.
(e) The term substantiating documentation shall mean copies of bills or invoices for costs
incurred by or for Indemnitee, or copies of court or agency orders or decrees or settlement
agreements, as the case may be, accompanied by a sworn statement from Indemnitee that such bills,
invoices, court or agency orders or decrees or settlement agreements, represent costs or
liabilities meeting the definition of Expenses herein.
(f) The terms he and his have been used for convenience and mean she and her if
Indemnitee is a female.
(g) The term MLP Partnership Agreement means the Amended and Restated Agreement of Limited
Partnership of the MLP, dated as of February ___, 2007, as amended or restated from time to time.
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(h) The term Company LLC Agreement means the Limited Liability Company Agreement of the
Company, dated as of October 23, 2006, as amended or restated from time to time.
(i) The term LLC Statute means the Delaware Limited Liability Company Act.
(j) The term Partnership Statute means the Delaware Revised Uniform Limited Partnership Act.
(k) The term Board of Directors means the Board of Directors of the Company.
2. Indemnity of Indemnitee. Each of the MLP and the Company hereby agrees (subject to the
provisions of Section 5 below) to hold harmless and indemnify Indemnitee against Expenses to the
fullest extent authorized or permitted by law (including the applicable provisions of the
Partnership Statute and the LLC Statute). The phrase to the fullest extent permitted by law
shall include, but not be limited to (a) to the fullest extent permitted by any provision of the
Partnership Statute and the LLC Statute that authorizes or permits additional indemnification by
agreement, or the corresponding provision of any amendment to or replacement of the Partnership
Statute and the LLC Statute and (b) to the fullest extent authorized or permitted by any amendments
to or replacements of the Partnership Statute and the LLC Statute adopted after the date of this
Agreement that increase the extent to which an entity may indemnify its officers and directors.
Any amendment, alteration or repeal of the Partnership Statute and the LLC Statute that adversely
affects any right of Indemnitee shall be prospective only and shall not limit or eliminate any such
right with respect to any Proceeding involving any occurrence or alleged occurrence of any action
or omission to act that took place prior to such amendment or repeal.
3. Additional Indemnity. Each of the MLP and the Company hereby further agrees (subject to the
provisions of Section 5 below) to hold harmless and indemnify Indemnitee against Expenses incurred
by reason of the fact that Indemnitee is or was a director or officer of the MLP or the Company, or
is or was serving at the request of the MLP or the Company as a director, officer, trustee,
employee or agent of another corporation, partnership, joint venture, trust, limited liability
company or other enterprise, including, without limitation, any predecessor, subsidiary or
affiliated entity of the MLP or the Company, 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 Agreement, the Indemnitee acted in bad faith or engaged in
fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the
Indemnitees conduct was unlawful. The termination of any Proceeding by judgment, order of the
court, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of
itself, create a presumption that Indemnitee acted in bad faith or engaged in fraud or willful
misconduct or, in the case of a criminal matter, acted with knowledge that the Indemnitees conduct
was unlawful.
4. Contribution. If the indemnification provided under Section 2 is unavailable by reason of a
court decision, based on grounds other than any of those set forth in Section 5 below,
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then, in respect of any Proceeding in which the MLP or the Company is jointly liable with
Indemnitee (or would be if joined in such Proceeding), the MLP and the Company shall contribute to
the amount of Expenses actually and reasonably incurred and paid or payable by Indemnitee in such
proportion as is appropriate to reflect (a) the relative benefits received by the MLP or the
Company on one hand and Indemnitee on the other from the transaction from which such Proceeding
arose and (b) the relative fault of the MLP or the Company on the one hand and of Indemnitee on the
other in connection with the events that resulted in such Expenses as well as any other relevant
equitable considerations. The relative fault of the MLP or the Company on the one hand and of
Indemnitee on the other shall be determined by reference to, among other things, the parties
relative intent, knowledge, access to information and opportunity to correct or prevent the
circumstances resulting in such Expenses. Each of the MLP and the Company agrees that it would not
be just and equitable if contribution pursuant to this Section 4 were determined by pro rata
allocation or any other method of allocation that does not take into account of the foregoing
equitable considerations.
5. Exceptions. Any other provision herein to the contrary notwithstanding, the MLP and the Company
shall not be obligated pursuant to the terms of this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee
with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way
of defense, except with respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement;
(b) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and
amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to
Indemnitee by an insurance carrier under a policy of directors and officers liability insurance;
(c) Claims Under Section 16(b). To indemnify Indemnitee for expenses or the payment
of profits arising from the purchase and sale by Indemnitee of securities in violation of Section
16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute;
(d) Unlawful Claims. To indemnify Indemnitee to the extent such indemnification is
prohibited by applicable law; or
(e) Unauthorized Settlement. To indemnify Indemnitee with regard to any judicial
award if the MLP or the Company was not given a reasonable and timely opportunity, to participate
in the defense of such action or to indemnify Indemnitee for any amounts paid in settlement of any
Proceeding effected without the MLPs or the Companys prior written consent.
6. Choice of Counsel. If Indemnitee is a director but not an officer of the MLP or the Company,
he, together with the other directors who are not officers of the MLP or the Company and are
seeking indemnification (the Outside Directors), shall be entitled to employ, and be reimbursed
for the fees and disbursements of, a single counsel separate from that chosen
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by Indemnitees who are officers of the MLP or the Company. The principal counsel for Outside
Directors (Principal Counsel) shall be determined by majority vote of the Outside Directors who
are seeking indemnification, and the Principal Counsel for the Indemnitees who are not Outside
Directors (Separate Counsel) shall be determined by majority vote of such Indemnitees, in each
case subject to the consent of the MLP or the Company (not to be unreasonably withheld or delayed).
The obligation of the MLP and the Company to reimburse Indemnitee for the fees and disbursements
of counsel hereunder shall not extend to the fees and disbursements of any counsel employed by
Indemnitee other than Principal Counsel or Separate Counsel, as the case may be, unless Indemnitee
has interests that are different from those of the other Indemnitees or defenses available to him
that are in addition to or different from those of the other Indemnitees such that Principal
Counsel or Separate Counsel, as the case may be, would have an actual or potential conflict of
interest in representing Indemnitee.
7. Advances of Expenses.
(a) Expenses (other than judgments, penalties, fines and settlements) incurred by Indemnitee
shall be paid by the MLP and the Company, in advance of the final disposition of the Proceeding,
within three business days after receipt of Indemnitees written request accompanied by
substantiating documentation and Indemnitees written affirmation as described in subsection (c)
below. No objections based on or involving the question whether such charges meet the definition
of Expenses, including any question regarding the reasonableness of such Expenses, shall be
grounds for failure to advance to such Indemnitee, or to reimburse such Indemnitee for, the amount
claimed within such three business day period, and the undertaking of Indemnitee set forth in this
Section 7 to repay any such amount to the extent it is ultimately determined that Indemnitee is not
entitled to indemnification shall be deemed to include an undertaking to repay any such amounts
determined not to have met such definition.
(b) Indemnitee hereby undertakes to repay to the MLP and the Company (i) any advances or
payment of Expenses made pursuant to this Section 7 and (ii) any judgments, penalties, fines and
settlements paid to or on behalf of Indemnitee hereunder, in each case to the extent that it is
ultimately determined in a final judgment or other final adjudication of a court of competent
jurisdiction that Indemnitee is not entitled to indemnification.
(c) As a condition to the advancement of such Expenses or the payment of such judgments,
penalties, fines and settlements, Indemnitee shall execute an acknowledgment wherein Indemnitee
affirms that such Expenses or such judgments, penalties, fines and settlements, as the case may be,
are delivered pursuant and are subject to the provisions of this Agreement.
8. Right of Indemnitee to Indemnification Upon Application; Procedure Upon Application. Any
indemnification payment under this Agreement, other than pursuant to Section 7 hereof, shall be
made no later than 30 days after receipt by the MLP and the Company of the written request of
Indemnitee, accompanied by substantiating documentation, unless a determination is made within said
30-day period that Indemnitee has not met the relevant standards for indemnification set forth in
Section 3 hereof by (a) the Board of Directors by a majority vote of a quorum consisting of
directors who are not or were not parties to such Proceeding, (b) a committee of the Board of
Directors designated by majority vote of the Board
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of Directors, even though less than a quorum, (c) if there are no such directors, or if such
directors so direct, independent legal counsel in a written opinion or (d) the equity owners.
The right to indemnification or advances as provided by this Agreement shall be enforceable by
Indemnitee in any court of competent jurisdiction. The burden of proving that indemnification is
not appropriate shall be on the MLP and the Company. Neither the failure of the MLP or the Company
(including its Board of Directors, any committee thereof, independent legal counsel or its equity
owners) to have made a determination prior to the commencement of such action that indemnification
is proper in the circumstances because Indemnitee has met the applicable standards of conduct, nor
an actual determination by the MLP and the Company (including its Board of Directors, any committee
thereof, independent legal counsel or its equity owners) that Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a presumption that
Indemnitee has not met the applicable standard of conduct.
9. Indemnification Hereunder Not Exclusive. The indemnification and advancement of expenses
provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee
may be entitled under the MLP Partnership Agreement, the Company LLC Agreement, the Partnership
Statute, the LLC Statute, any directors and officers insurance maintained by or on behalf of the
MLP or the Company, any agreement, or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office; provided, however, that this Agreement
supersedes all prior written indemnification agreements between the MLP or the Company (or any
predecessor thereof) and Indemnitee with respect to the subject matter hereof. However, Indemnitee
shall reimburse the MLP and the Company for amounts paid to Indemnitee pursuant to such other
rights to the extent such payments duplicate any payments received pursuant to this Agreement.
10. Continuation of Indemnity. All agreements and obligations of the MLP and the Company contained
herein shall continue during the period Indemnitee is a director or officer of the MLP or the
Company (or is or was serving at the request of the MLP or the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, limited liability
company or other enterprise) and shall continue thereafter so long as Indemnitee shall be subject
to any possible Proceeding (notwithstanding the fact that Indemnitee has ceased to serve the MLP or
the Company).
11. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to
indemnification by the MLP and the Company for a portion of Expenses, but not, however, for the
total amount thereof, the MLP and the Company shall nevertheless indemnify Indemnitee for the
portion of such Expenses to which Indemnitee is entitled.
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12. Acknowledgements. Each of the MLP and the Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby in order to induce
Indemnitee to serve or to continue to serve as a director or officer of the MLP and/or the Company,
and acknowledges that Indemnitee is relying upon this Agreement in agreeing to serve or in
continuing to serve as a director or officer of the MLP and/or the Company.
13. Enforcement. In the event Indemnitee is required to bring any action or other proceeding to
enforce rights or to collect moneys due under this Agreement and is successful in such action, the
MLP and the Company shall reimburse Indemnitee for all of Indemnitees expenses in bringing and
pursuing such action.
14. Severability. If any provision of this Agreement shall be held to be invalid, illegal or
unenforceable (a) the validity, legality and enforceability of the remaining provisions of this
Agreement shall not be in any way affected or impaired thereby, and (b) to the fullest extent
possible, the provisions of this Agreement shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable. Each section of this Agreement
is a separate and independent portion of this Agreement. If the indemnification to which
Indemnitee is entitled with respect to any aspect of any claim varies between two or more sections
of this Agreement, that section providing the most comprehensive indemnification shall apply.
15. Liability Insurance. To the extent the MLP or the Company maintains an insurance policy or
policies providing directors and officers liability insurance, Indemnitee shall be covered by
such policy or policies, in accordance with its or their terms, to the maximum extent of the
coverage available and maintained by the MLP or the Company for any director or officer of the MLP
or the Company or any applicable subsidiary or affiliated company.
16. Miscellaneous.
(a) Governing Law. This Agreement and all acts and transactions pursuant hereto and
the rights and obligations of the parties hereto shall be governed, construed and interpreted in
accordance with the laws of the State of Delaware, without giving effect to principles of conflict
of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter herein and merges all
prior discussions between them. No modification of or amendment to this Agreement, nor any waiver
of any rights under this Agreement, shall be effective unless in writing signed by the parties to
this Agreement. The failure by any party to enforce any rights under this Agreement shall not be
construed as a waiver of any rights of such party.
(c) Construction. This Agreement is the result of negotiations between and has been
reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this
Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be
construed in favor of or against any one of the parties hereto.
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(d) Notices. All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to
have been given (i) when delivered personally to the recipient, (ii) one business day after the
date when sent to the recipient by reputable overnight courier service (charges prepaid), or (iii)
five business days after the date when mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other communications shall
be sent to the parties at the addresses indicated on the signature page hereto, or to such other
address as any party hereto may, from time to time, designate in writing delivered pursuant to the
terms of this Section 16(d).
(e) Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one instrument.
(f) Successors and Assigns. This Agreement shall be binding upon the MLP and the
Company and their respective successors and assigns and shall inure to the benefit of Indemnitee
and Indemnitees heirs, legal representatives and assigns.
(g) Subrogation. In the event of payment under this Agreement, the MLP and the
Company shall be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to
secure such rights and to enable the MLP and the Company to effectively bring suit to enforce such
rights.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and
year first above written.
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TARGA RESOURCES PARTNERS LP
By Targa Resources GP LLC, its general partner
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1000 Louisiana, Suite 4300
Houston, Texas 77002 |
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TARGA RESOURCES GP LLC
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exv10w2
Exhibit 10.2
TARGA RESOURCES PARTNERS
LONG-TERM INCENTIVE PLAN
SECTION 1. Purpose of the Plan.
The Targa Resources Partners Long-Term Incentive Plan (the Plan) has been adopted by Targa
Resources GP LLC, a Delaware limited liability company (the Company), the general partner of
Targa Resources Partners LP, a Delaware limited partnership (the Partnership). The Plan is
intended to promote the interests of the Partnership, the Company and their Affiliates by providing
to employees, consultants and directors of the Partnership, the Company and their Affiliates
incentive compensation awards for superior performance that are based on Units. The Plan is also
contemplated to enhance the ability of the Partnership, the Company and their Affiliates to attract
and retain the services of individuals who are essential for the growth and profitability of the
Company, the Partnership and their Affiliates, and to encourage them to devote their best efforts
to advancing the business of the Company, the Partnership and their Affiliates.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth below:
Affiliate means, with respect to any Person, any other Person that directly or indirectly
through one or more intermediaries controls, is controlled by or is under common control with, the
Person in question. As used herein, the term control means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise.
Award means an Option, Restricted Unit, Performance Unit, Other Unit-Based Award, or
Replacement Award, and shall also include any tandem DERs granted with respect to a Performance
Unit.
Award Agreement means the written or electronic agreement by which an Award shall be
evidenced.
Board means the Board of Directors of the Company.
Change of Control means, and shall be deemed to have occurred upon the occurrence of one or
more of the following events:
(i) any person or group within the meaning of those terms as used in Sections 13(d)
and 14(d)(2) of the Exchange Act, other than an Affiliate of the Company or the Partnership,
shall become the beneficial owner, by way of merger, consolidation, recapitalization,
reorganization or otherwise, of 50% or more of the combined voting power of the equity
interests in the Company or the Partnership;
(ii) the limited partners of the Partnership approve, in one or a series of
transactions, a plan of complete liquidation of the Partnership;
(iii) the sale or other disposition by either the Company or the Partnership of all or
substantially all of its assets in one or more transactions to any Person other than the
Company or an Affiliate of the Company; or
(iv) a transaction resulting in a Person other than the Company or an Affiliate of the
Company being the general partner of the Partnership.
Notwithstanding the foregoing, with respect to an Award that is subject to Section 409A of the
Code and with respect to which a Change of Control will accelerate payment, Change of Control
shall mean a change of control event as defined in the regulations and guidance issued under
Section 409A of the Code.
Code means the Internal Revenue Code of 1986, as amended.
Committee means the Compensation Committee of the Board or, if none, the Board or such
committee of the Board, if any, as may be appointed by the Board to administer the Plan.
Consultant means an independent contractor, other than a Director, who performs services for
the benefit of the Company, the Partnership or an Affiliate of either.
DER or Distribution Equivalent Right means a contingent right, granted in tandem with a
specific Performance Unit, to receive an amount in cash equal to the cash distributions made by the
Partnership with respect to a Unit during the period such DER is outstanding.
Director means a member of the Board or a board of directors of an Affiliate who is not an
Employee.
Employee means any employee of the Company, the Partnership or an Affiliate of either who
performs services for the benefit of the Company, the Partnership or an Affiliate of either.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Fair Market Value means the closing sales price of a Unit on the principal national
securities exchange or other market in which trading in Units occurs on the applicable date (or if
there is no trading in the Units on such date, on the next preceding date on which there was
trading) as reported in The Wall Street Journal (or other reporting service approved by the
Committee). In the event Units are not traded on a national securities exchange or other market at
the time a determination of fair market value is required to be made hereunder, the determination
of fair market value shall be made in good faith by the Committee. Notwithstanding the foregoing,
with respect to an Award granted on the effective date of the initial public offering of Units,
Fair Market Value on such date shall mean the initial offering price per Unit as stated on the
cover page of the S-1 for such offering.
Option means an option to purchase Units granted under the Plan.
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Other Unit-Based Award means an award granted pursuant to Section 6(d) of the Plan.
Participant means any Employee, Consultant or Director granted an Award under the Plan.
Performance Unit means a phantom (notional) unit granted under the Plan which entitles the
Participant to receive an amount of cash equal to the Fair Market Value of one Unit upon vesting of
the Performance Unit; however, the Committee, in its discretion, may elect to pay such vested
Performance Unit with a Unit in lieu of cash.
Person means an individual or a corporation, limited liability company, partnership, joint
venture, trust, unincorporated organization, association, government agency or political
subdivision thereof or other entity.
Replacement Award means an Award granted pursuant to Section 6(e) of the Plan.
Restricted Period means the period established by the Committee with respect to an Award
during which the Award remains subject to forfeiture and is either not exercisable by or payable to
the Participant, as the case may be.
Restricted Unit means a Unit granted under the Plan that is subject to a Restricted Period.
Rule 16b-3 means Rule 16b-3 promulgated by the SEC under the Exchange Act, or any successor
rule or regulation thereto as in effect from time to time.
SEC means the Securities and Exchange Commission, or any successor thereto.
Unit means a common unit of the Partnership.
UDR or Unit Distribution Right means a right to receive distributions made by the
Partnership with respect to a Restricted Unit.
SECTION 3. Administration.
(a) Governance. The Plan shall be administered by the Committee.
(b) Delegation. Subject to the following and applicable law, the Committee, in it
sole discretion, may delegate any or all of its powers and duties under the Plan, including the
power to grant Awards under the Plan, to the Chief Executive Officer of the Company, subject to
such limitations on such delegated powers and duties as the Committee may impose, if any. Upon any
such delegation, all references in the Plan to the Committee, other than in Section 7, shall be
deemed to include the Chief Executive Officer; provided, however, that such delegation shall not
limit the Chief Executive Officers right to receive Awards under the Plan. Notwithstanding the
foregoing, the Chief Executive Officer may not grant Awards to, or take any action with respect to
any Award previously granted to, a person who is an officer subject to Rule 16b-3 or a member of
the Board.
-3-
(c) Authority and Powers. Subject to the terms of the Plan and applicable law, and
in addition to other express powers and authorizations conferred on the Committee by the Plan, the
Committee shall have full power and authority to: (i) designate Participants; (ii) determine the
type or types of Awards to be granted to a Participant; (iii) determine the number of Units to be
covered by Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to
what extent, and under what circumstances Awards may be settled, exercised, canceled, or forfeited;
(vi) interpret and administer the Plan and any instrument or agreement relating to an Award made
under the Plan; (vii) establish, amend, suspend, or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the Plan; and (viii) make
any other determination and take any other action that the Committee deems necessary or desirable
for the administration of the Plan. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and
shall be final, conclusive, and binding upon all Persons, including the Company, the Partnership,
any Affiliate, any Participant, and any beneficiary of any Participant.
SECTION 4. Units.
(a) Limits on Units Deliverable. Subject to adjustment as provided in Section 4(c),
the number of Units that may be delivered with respect to Awards under the Plan may not exceed
1,680,000 Units; provided, however, if any Award (including Restricted Units) is terminated,
forfeited or expires for any reason without the delivery of Units covered by such Award or Units
are withheld from an Award to satisfy the exercise price or the employers tax withholding
obligation with respect to such Award, such Units shall again be available for delivery pursuant to
other Awards granted under the Plan. Notwithstanding the foregoing, (i) there shall not be any
limitation on the number of Awards that may be granted under the Plan and paid in cash, and (ii)
any Units allocated to an Award shall, to the extent such Award is paid in cash, be again available
for delivery under the Plan with respect to other Awards.
(b) Sources of Units Deliverable Under Awards. Any Units delivered pursuant to an
Award shall consist, in whole or in part, of Units acquired in the open market or from any
Affiliate, the Partnership or any other Person, or any combination of the foregoing, as determined
by the Committee in its sole discretion.
(c) Adjustments. In the event that the Committee determines that any distribution
(whether in the form of cash, Units, other securities, or other property), recapitalization, split,
reverse split, reorganization, merger, Change of Control, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Units or other securities of the Partnership, issuance of
warrants or other rights to purchase Units or other securities of the Partnership, or other similar
transaction or event affects the Units such that an adjustment is determined by the Committee to be
appropriate in order to prevent the dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, then the Committee shall, in such manner as it may
deem equitable, adjust any or all of (i) the number and type of Units (or other securities or
property) with respect to which Awards may be granted, (ii) the number and type of Units (or other
securities or property) subject to outstanding Awards, (iii) the grant or exercise price with
respect to any Award, or (iv) if deemed appropriate, make provision for a cash payment to the
-4-
holder of an outstanding Award; provided, that the number of Units subject to any Award shall
always be a whole number. With respect to any other similar event that would not result in a FAS
123R accounting charge if the adjustment to Awards with respect to such event were subject to
discretionary action, the Committee shall have complete discretion to adjust Awards in such manner
as it deems appropriate with respect to such other event.
SECTION 5. Eligibility.
Any Employee, Consultant or Director shall be eligible to be designated a Participant and
receive an Award under the Plan.
SECTION 6. Awards.
(a) Options. The Committee shall have the authority to determine the Employees,
Consultants and Directors to whom Options shall be granted, the number of Units to be covered by
each Option, and the conditions and limitations applicable to the exercise of the Option, including
the following terms and conditions and such additional terms and conditions, as the Committee shall
determine, that are not inconsistent with the provisions of the Plan.
(i) Exercise Price. The exercise price per Unit under an Option shall be
determined by the Committee at the time the Option is granted and, except with respect to a
Replacement Award, may not be less than its Fair Market Value as of the date of grant.
(ii) Time and Method of Exercise. The Committee shall determine (a) the time
or times at which an Option may be exercised in whole or in part, which may include, without
limitation, accelerated exercisability upon the achievement of specified performance goals
or other events, and, (b) in its discretion, the method or methods by which payment of the
exercise price with respect thereto may be made or deemed to have been made, which may
include, without limitation, cash, check acceptable to the Company, a cashless-broker
exercise through a program approved by the Company, with the consent of the Company, the
withholding of Units that would otherwise be delivered to the Participant upon the exercise
of the Option, other securities or other property, or any combination thereof, having a Fair
Market Value on the exercise date equal to the relevant exercise price.
(iii) Forfeitures. Except as otherwise provided in the terms of the Award
Agreement, upon termination of a Participants employment or consulting with the Company,
the Partnership and their Affiliates or membership on the Board, whichever is applicable,
for any reason during the applicable Restricted Period, all Options shall be forfeited by
the Participant. The Committee may, in its discretion, waive in whole or in part such
forfeiture with respect to a Participants Options.
(b) Performance Units. The Committee shall have the authority to determine the
Employees, Consultants, and Directors to whom Performance Units shall be granted, the number of
Performance Units to be granted to each such Participant, the Restricted Period, the time or
conditions under which the Performance Units may become vested or forfeited, which may include,
without limitation, the accelerated vesting upon the achievement of specified performance goals or
other events, and such other terms and conditions as the Committee may
-5-
|
|
establish with respect to such Awards, including whether DERs are granted with respect to such
Performance Units. |
(i) DERs. Unless and to the extent provided otherwise by the Committee in its
discretion, a grant of Performance Units shall include a tandem DER grant, which provides
that such DERs shall be credited to a bookkeeping account (without interest) and shall be
paid to the Participant in cash upon the vesting of the tandem Performance Unit. However,
the Committee, in its discretion, may provide such other terms, including different vesting
and payment forms and mediums and the investment of such DERs in additional Performance
Units, as it may choose with respect to DERs and may also provide that a grant of
Performance Units does not include tandem DERs.
(ii) Forfeitures. Except as otherwise provided in the terms of the Award
Agreement, upon termination of a Participants employment or consulting arrangement with the
Company, the Partnership and their Affiliates or membership on the Board, whichever is
applicable, for any reason during the applicable Restricted Period, all outstanding
Performance Units awarded the Participant, and any outstanding tandem DERs credited to such
Participant, shall be automatically forfeited on such termination. The Committee may, in
its discretion, waive in whole or in part such forfeiture with respect to a Participants
Performance Units and DERs.
(iii) Lapse of Restrictions. Upon or as soon as reasonably practical following
the vesting of each Performance Unit, subject to the provisions of Section 8(b), the
Participant shall be entitled to receive from the Company cash equal to the Fair Market
Value of one Unit as of the vesting date; however, the Committee, in its discretion, may
elect to pay such vested Performance Unit in the form of one Unit in lieu of cash.
(c) Restricted Units. The Committee shall have the authority to determine the
Employees, Consultants and Directors to whom Restricted Units shall be granted, the number of
Restricted Units to be granted to each such Participant, the Restricted Period, the conditions
under which the Restricted Units may become vested or forfeited, which may include, without
limitation, the accelerated vesting upon the achievement of specified performance goals or other
events, and such other terms and conditions as the Committee may establish with respect to such
Awards.
(i) UDRs. To the extent provided by the Committee, in its discretion, a grant
of Restricted Units may provide that distributions made by the Partnership with respect to
the Restricted Units shall be subject to such forfeiture and other restrictions as the
Committee may choose and, if so restricted, such distributions shall be held, without
interest, until the UDR vests or is forfeited. In addition, the Committee may provide that
such distributions be used to acquire additional Restricted Units for the Participant. Such
additional Restricted Units may be subject to such vesting and other terms as the Committee
may proscribe. Absent such a restriction on the UDRs in the Award Agreement, distributions
with respect to a Restricted Unit shall be paid to the holder of the Restricted Unit without
restriction.
-6-
(ii) Forfeitures. Except as otherwise provided in the terms of the Award
Agreement, upon termination of a Participants employment or consulting with the Company,
the Partnership and their Affiliates or membership on the Board, whichever is applicable,
for any reason during the applicable Restricted Period, all outstanding Restricted Units
awarded the Participant, and any unpaid UDRs credited to the Participant, shall be
automatically forfeited on such termination. The Committee may, in its discretion, waive in
whole or in part such forfeitures with respect to a Participants Restricted Units and UDRs.
(iii) Lapse of Restrictions. Upon or as soon as reasonably practical following
the vesting of each Restricted Unit, subject to the provisions of Section 8(b), the
Participant shall be entitled to have the restrictions removed from his or her Unit
certificate so that the Participant then holds an unrestricted Unit.
(d) Other Unit-Based Awards. Other Unit-Based Awards may be granted under the Plan to
such Employees, Consultants and Directors as the Committee, in its discretion, may select. An
Other Unit-Based Award shall be an award denominated or payable in, valued in or otherwise based on
or related to Units, in whole or in part and shall include unrestricted Units paid in lieu of any
bonus or incentive compensation otherwise payable in cash. The Committee shall determine the terms
and conditions, if any, of any such Other Unit-Based Award. An Other Unit-Based Award may be paid
in cash, Common Units (including Restricted Units) or any combination thereof as determined by the
Committee, in its discretion.
(e) Replacement Awards. Awards may be granted under the Plan in substitution or
replacement for similar equity awards cancelled or forfeited by Employees, Consultants and
Directors as a result of a merger or acquisition by the Partnership or an Affiliate of an entity or
the assets of an entity. Such Replacement Awards may have such terms and conditions as the
Committee may determine and the exercise price of an Option may be less than the Fair Market Value
of a Unit on the date of such substitution or replacement.
(f) General.
(i) Awards May Be Granted Separately or Together. Except as provided below,
Awards may, in the discretion of the Committee, be granted either alone or in addition to,
in tandem with, or in substitution for any other Award granted under the Plan or any award
granted under any other plan of the Company, the Partnership or any Affiliate. Awards
granted in addition to or in tandem with other Awards or awards granted under any other plan
of the Company, the Partnership or any Affiliate may be granted either at the same time as
or at a different time from the grant of such other Awards or awards.
(ii) Limits on Transfer of Awards.
(A) Except as provided in paragraph (C) below, each Award shall be exercisable
or payable only by or to the Participant during the Participants lifetime, or by
the person to whom the Participants rights shall pass by will or the laws of
descent and distribution.
-7-
(B) Except as provided in paragraphs (A) and (C), no Award and no right under
any such Award may be assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by a Participant and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be void and
unenforceable against the Company, the Partnership or any Affiliate.
(C) To the extent specifically provided or approved by the Committee with
respect to an Award, an Award may be transferred by a Participant without
consideration to immediate family members or related family trusts, limited
partnerships or similar entities on such terms and conditions as the Committee may
from time to time establish.
(iii) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee.
(iv) Unit Certificates. All certificates for Units or other securities of the
Partnership delivered under the Plan pursuant to any Award or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as the Committee may deem
advisable under the Plan or the rules, regulations, and other requirements of the SEC, any
stock exchange upon which such Units or other securities are then listed, and any applicable
federal or state laws, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(v) Consideration for Grants. Awards may be granted for such consideration,
including services, as the Committee determines.
(vi) Delivery of Units or other Securities and Payment by Participant of
Consideration. Notwithstanding anything in the Plan or any Award Agreement to the
contrary, if the Company is not reasonably able to obtain Units to deliver pursuant to such
Award without violating the rules or regulations of any applicable law or securities
exchange, no delivery shall occur until such time as the Committee, in good faith,
determines that the delivery of Units may be made without violating the rules or regulations
of any applicable law or securities exchange. No Units or other securities shall be
delivered pursuant to any Award until payment in full of any amount required to be paid
pursuant to the Plan or the applicable Award Agreement (including, without limitation, any
exercise price or tax withholding) is received by the Company.
(vii) Change in Control, Similar Events. Upon the occurrence of a Change of
Control, any change in applicable law or regulation affecting the Plan or Awards thereunder,
or any change in accounting principles affecting the financial statements of the
Partnership, the Committee, in its sole discretion, without the consent of any Participant
or holder of the Award, and on such terms and conditions as it deems appropriate, may take
any one or more of the following actions in order to either prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under the Plan or an
outstanding Award or mitigate any unfavorable accounting consequences:
-8-
(A) provide for either (i) the termination of any Award in exchange for an
amount of cash, if any, equal to the amount that would have been attained upon the
exercise of such Award or realization of the Participants rights (and, for the
avoidance of doubt, if as of the date of the occurrence of such transaction or event
the Committee determines in good faith that no amount would have been attained upon
the exercise of such Award or realization of the Participants rights, then such
Award may be terminated by the Company without payment) or (ii) the replacement of
such Award with other rights or property selected by the Committee in its sole
discretion;
(B) provide that such award be assumed by the successor or survivor entity, or
a parent or subsidiary thereof, or be exchanged for similar options, rights or
awards covering the equity of the successor or survivor, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of equity interests
and prices;
(C) make adjustments in the number and type of Units (or other securities or
property) subject to outstanding Awards, and in the number and kind of outstanding
Awards or in the terms and conditions of (including the exercise price), and the
vesting and performance criteria included in, outstanding Awards, or both;
(D) provide that such Award shall be exercisable or payable, notwithstanding
anything to the contrary in the Plan or the applicable Award Agreement; and
(E) provide that the Award cannot be exercised or become payable after such
event, i.e., shall terminate upon such event.
Notwithstanding the foregoing, (i) with respect to an above event that is an equity
restructuring event that would be subject to a compensation expense pursuant FAS 123R if a
discretionary change is made, the provisions in Section 4(c) shall control to the extent
they are in conflict with the discretionary provisions of this Section 6 and (ii) upon a
Change of Control all Awards shall become vested and exercisable or payable, as the case may
be, unless, and to the extent, the Committee specifically provides to the contrary in the
Award Agreement with respect to a Change of Control.
SECTION 7. Amendment and Termination. Except to the extent prohibited by applicable
law:
(a) Amendments to the Plan. Except as required by the rules of the principal
securities exchange on which the Units are traded and subject to Section 7(b) below, the Board or
the Committee may amend, alter, suspend, discontinue, or terminate the Plan in any manner, without
the consent of any member, Participant, other holder or beneficiary of an Award, or other Person.
(b) Amendments to Awards. Subject to Section 7(a), the Committee may waive any
conditions or rights under, amend any terms of, or alter any Award theretofore granted, provided
-9-
no change, other than pursuant to Section 6(f)(vii) or, as determined by the Committee, in its
sole discretion, as being necessary or appropriate to comply with applicable law, including,
without limitation, Section 409A of the Code, in any Award shall materially reduce the benefit of a
Participant without the consent of such Participant.
SECTION 8. General Provisions.
(a) No Rights to Award. No Person shall have any claim to be granted any Award under
the Plan, and there is no obligation for uniformity of treatment of Participants. The terms and
conditions of Awards need not be the same with respect to each recipient.
(b) Tax Withholding. The Company or any Affiliate is authorized to withhold from any
Award, from any payment due or transfer made under any Award or from any compensation or other
amount owing to a Participant the amount (in cash, Units, other securities or property, or Units
that would otherwise be issued or delivered pursuant to such Award) of any applicable taxes payable
in respect of the grant of an Award, its exercise, the lapse of restrictions thereon, or any
payment or transfer under an Award or under the Plan and to take such other action as may be
necessary in the opinion of the Company to satisfy its withholding obligations for the payment of
such taxes.
(c) No Right to Employment. The grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company, the Partnership or any Affiliate
or to remain on the Board or a Consultant, as applicable. Further, the Company, the Partnership or
an Affiliate may at any time dismiss a Participant from employment, free from any liability or any
claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(d) Governing Law. The validity, construction, and effect of the Plan and any rules
and regulations relating to the Plan shall be determined in accordance with the laws of the State
of Delaware law without regard to its conflict of laws principles.
(e) Section 409A. This Plan is intended to meet the requirements of Section 409A of
the Code and may be administered in a manner that is intended to meet those requirements and will
be construed and interpreted in accordance with such intent. All Awards granted and payments
hereunder will either be exempt from Section 409A of the Code or will be subject to Section 409A of
the Code and will be structured in a manner that will meet the requirements of Section 409A of the
Code, including regulations or other guidance issued with respect thereto. Any provision of this
Plan that would cause an Award or payment to fail to satisfy Section 409A of the Code will be
amended (in a manner that as closely as practicable achieves the original intent of the Award) to
comply with Section 409A of the Code on a timely basis, which may be made on a retroactive basis,
in accordance with regulations and other guidance issued under Section 409A of the Code.
(f) Severability. If any provision of the Plan or any Award is or becomes or is
deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award,
or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such
provision shall be construed or deemed amended to conform to the applicable laws, or if it
-10-
cannot be construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall be stricken as to
such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in
full force and effect.
(g) Other Laws. The Committee may refuse to issue or transfer any Units or other
consideration under an Award if, in its sole discretion, it determines that the issuance or
transfer of such Units or such other consideration might violate any applicable law or regulation,
the rules of the principal securities exchange on which the Units are then traded, or result in
recoverable short-swing profits under Section 16(b) of the Exchange Act, and any payment tendered
to the Company by a Participant, other holder or beneficiary in connection with the exercise of
such Award shall be promptly refunded to the relevant Participant, holder or beneficiary.
(h) No Trust or Fund Created. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary relationship between the
Company or any participating Affiliate and a Participant or any other Person. To the extent that
any Person acquires a right to receive payments from the Company or any participating Affiliate
pursuant to an Award, such right shall be no greater than the right of any general unsecured
creditor of the Company or any participating Affiliate.
(i) No Fractional Units. No fractional Units shall be issued or delivered pursuant to
the Plan or any Award, and the Committee shall determine whether cash, other securities, or other
property shall be paid or transferred in lieu of any fractional Units or whether such fractional
Units or any rights thereto shall be canceled, terminated, or otherwise eliminated.
(j) Headings. Headings are given to the Sections and subsections of the Plan solely
as a convenience to facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Plan or any provision thereof.
(k) Facility Payment. Any amounts payable hereunder to any person under legal
disability or who, in the judgment of the Committee, is unable to properly manage his financial
affairs, may be paid to the legal representative of such person, or may be applied for the benefit
of such person in any manner which the Committee may select, and the Company shall be relieved of
any further liability for payment of such amounts.
(l) Gender and Number. Words in the masculine gender shall include the feminine
gender, the plural shall include the singular and the singular shall include the plural.
SECTION 9. Term of the Plan.
The Plan shall become effective on the later of the date of its approval by the Board or the
initial public offering of Units and, except as provided below with respect to Performance Units,
shall terminate on, and no Awards may be granted after, the earliest of the date established by the
Board or the Committee, the 10th anniversary of the date the Plan was adopted by the
Company (or such earlier anniversary, if any, required by the rules of the exchange on which Units
are traded) or the date Units are no longer available for delivery pursuant to Awards under the
Plan. Notwithstanding the foregoing, the Board or the Committee may provide that the Plan
-11-
shall continue without regard to such termination with respect to the grant of Performance
Units, provided such Performance Units shall be payable only in cash. Unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award granted prior to any Plan
termination, and the authority of the Board or the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Award or to waive any conditions or rights under such Award,
shall extend beyond such termination date.
-12-
exv10w3
Exhibit 10.3
[Published CUSIP Number: ________________]
CREDIT AGREEMENT
Dated as of February ___, 2007
Among
TARGA RESOURCES PARTNERS LP,
as the Borrower,
BANK OF AMERICA, N.A.,
as the Administrative Agent, Swing Line Lender
and
L/C Issuer,
WACHOVIA BANK, N.A.,
as the Syndication Agent,
MERRILL LYNCH CAPITAL,
ROYAL BANK OF CANADA,
and
THE ROYAL BANK OF SCOTLAND PLC,
as the Co-Documentation Agents,
and
The Other Lenders Party Hereto
BANC OF AMERICA SECURITIES LLC and WACHOVIA CAPITAL MARKETS, LLC
as
Joint Lead Arrangers
and
BANC OF AMERICA SECURITIES LLC,
as
Sole Book Manager
$500,000,000 Five-Year Revolving Credit Facility
TABLE OF CONTENTS
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Section |
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Page |
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ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS |
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1 |
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1.01 Defined Terms |
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1 |
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1.02 Other Interpretive Provisions |
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27 |
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1.03 Accounting Terms |
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27 |
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1.04 Rounding |
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28 |
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1.05 Times of Day |
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28 |
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1.06 Letter of Credit Amounts |
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28 |
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ARTICLE II. THE COMMITMENTS AND CREDIT EXTENSIONS |
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28 |
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2.01 Committed Loans |
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28 |
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2.02 Borrowings, Conversions and Continuations of Committed Loans |
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29 |
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2.03 Letters of Credit |
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30 |
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2.04 Swing Line Loans |
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39 |
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2.05 Prepayments |
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42 |
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2.06 Termination or Reduction of Commitments |
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44 |
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2.07 Repayment of Loans |
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44 |
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2.08 Interest |
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44 |
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2.09 Fees |
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45 |
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2.10 Computation of Interest and Fees |
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46 |
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2.11 Evidence of Debt |
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46 |
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2.12 Payments Generally; Administrative Agents Clawback |
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47 |
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2.13 Sharing of Payments by Lenders |
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49 |
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2.14 Increase in Commitments |
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49 |
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ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY |
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51 |
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3.01 Taxes |
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51 |
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3.02 Illegality |
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53 |
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3.03 Inability to Determine Rates |
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53 |
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3.04 Increased Costs; Reserves on Eurodollar Rate Loans |
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54 |
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3.05 Compensation for Losses |
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55 |
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3.06 Mitigation Obligations; Replacement of Lenders |
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56 |
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3.07 Survival |
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56 |
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ARTICLE IV. CONDITIONS PRECEDENT TO CREDIT EXTENSIONS |
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56 |
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4.01 Conditions of Initial Credit Extension |
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56 |
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4.02 Conditions to all Credit Extensions |
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60 |
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ARTICLE V. REPRESENTATIONS AND WARRANTIES |
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60 |
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5.01 Existence, Qualification and Power; Compliance with Laws |
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60 |
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5.02 Authorization; No Contravention |
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61 |
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5.03 Governmental Authorization; Other Consents |
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61 |
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5.04 Binding Effect |
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61 |
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5.05 Financial Statements; No Material Adverse Effect |
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62 |
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5.06 Litigation |
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62 |
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5.07 No Default |
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62 |
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5.08 Ownership of Property; Liens |
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62 |
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5.09 Environmental Compliance |
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63 |
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5.10 Insurance |
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63 |
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i
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Section |
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Page |
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5.11 Taxes |
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63 |
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5.12 ERISA Compliance |
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64 |
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5.13 Subsidiaries; Equity Interests; Taxpayer Identification Number |
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64 |
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5.14 Margin Regulations; Investment Company Act |
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65 |
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5.15 Disclosure |
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65 |
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5.16 Compliance with Laws |
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65 |
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5.17
Intellectual Property; Licenses, Etc. |
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65 |
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5.18 Labor Disputes and Acts of God |
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66 |
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5.19 Solvency |
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66 |
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5.20 Credit Arrangements |
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66 |
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5.21 Real Property |
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66 |
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5.22 Labor Matters |
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66 |
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5.23 Security Documents |
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66 |
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ARTICLE VI. AFFIRMATIVE COVENANTS |
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67 |
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6.01 Financial Statements |
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67 |
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6.02 Certificates; Other Information |
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67 |
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6.03 Notices |
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70 |
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6.04 Payment of Obligations |
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71 |
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6.05
Preservation of Existence, Etc. |
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71 |
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6.06 Maintenance of Properties |
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71 |
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6.07 Maintenance of Insurance |
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71 |
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6.08 Compliance with Laws |
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72 |
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6.09 Books and Records |
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72 |
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6.10 Inspection Rights |
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72 |
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6.11 Use of Proceeds |
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72 |
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6.12 Additional Subsidiaries, Guarantors and Pledgors |
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73 |
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6.13 Agreement to Deliver Security Documents |
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73 |
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6.14 Perfection and Protection of Security Interests and Liens |
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74 |
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6.15 Performance on the Borrowers Behalf |
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74 |
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6.16 Environmental Matters; Environmental Reviews |
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74 |
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6.17 Compliance with Agreements |
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75 |
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6.18 Designation and Conversion of Restricted and Unrestricted Subsidiaries |
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75 |
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6.19 Maintenance of Corporate Separateness |
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76 |
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ARTICLE VII. NEGATIVE COVENANTS |
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76 |
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7.01 Liens |
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76 |
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7.02 Investments |
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78 |
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7.03 Indebtedness |
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79 |
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7.04 Subordinated Indebtedness |
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81 |
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7.05 Fundamental Changes |
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81 |
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7.06 Dispositions |
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82 |
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7.07 Restricted Payments |
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84 |
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7.08 Change in Nature of Business |
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84 |
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7.09 Transactions with Affiliates |
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84 |
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7.10 Burdensome Agreements |
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85 |
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7.11 Prohibited Contracts |
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85 |
|
7.12 Limitation on Credit Extensions |
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85 |
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7.13 Use of Proceeds |
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85 |
|
7.14 Interest Coverage Ratio |
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86 |
|
7.15 Leverage Ratios |
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86 |
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7.16 Negative Pledge |
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87 |
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ii
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Section |
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Page |
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ARTICLE VIII. EVENTS OF DEFAULT AND REMEDIES |
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87 |
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8.01 Events of Default |
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87 |
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8.02 Remedies Upon Event of Default |
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89 |
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8.03 Application of Funds |
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90 |
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ARTICLE IX. ADMINISTRATIVE AGENT |
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91 |
|
9.01 Appointment and Authority |
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91 |
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9.02 Rights as a Lender |
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91 |
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9.03 Exculpatory Provisions |
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92 |
|
9.04 Reliance by Agent |
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92 |
|
9.05 Delegation of Duties |
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93 |
|
9.06 Resignation of Agent |
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93 |
|
9.07 Non-Reliance on Agent and Other Lenders |
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94 |
|
9.08 No
Other Duties, Etc. |
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94 |
|
9.09 Administrative Agent May File Proofs of Claim |
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94 |
|
9.10 Collateral and Guaranty Matters |
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95 |
|
9.11 Indemnification of Agents |
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96 |
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9.12 Intercreditor Agreement |
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96 |
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ARTICLE X. MISCELLANEOUS |
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97 |
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10.01 Amendments, Etc |
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97 |
|
10.02 Notices; Effectiveness; Electronic Communication |
|
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98 |
|
10.03 No Waiver; Cumulative Remedies |
|
|
100 |
|
10.04 Expenses; Indemnity; Damage Waiver |
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|
100 |
|
10.05 Payments Set Aside |
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|
102 |
|
10.06 Successors and Assigns |
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103 |
|
10.07 Treatment of Certain Information; Confidentiality |
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107 |
|
10.08 Deposit Accounts; Right of Setoff |
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108 |
|
10.09 Interest Rate Limitation |
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|
108 |
|
10.10 Counterparts; Integration; Effectiveness |
|
|
109 |
|
10.11 Survival of Representations and Warranties |
|
|
109 |
|
10.12 Severability |
|
|
109 |
|
10.13 Replacement of Lenders |
|
|
109 |
|
10.14 Governing Law; Jurisdiction; Etc. |
|
|
110 |
|
10.15 Waiver of Jury Trial and Special Damages |
|
|
111 |
|
10.16 No Advisory or Fiduciary Responsibility |
|
|
112 |
|
10.17 USA PATRIOT Act Notice |
|
|
113 |
|
10.18 No General Partners Liability |
|
|
113 |
|
10.19 Time of the Essence |
|
|
113 |
|
10.20 ENTIRE AGREEMENT |
|
|
113 |
|
SIGNATURES |
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|
S-1 |
|
iii
SCHEDULES
|
|
|
|
|
1.01 |
|
Certain Permitted Hedging Parties |
|
2.01 |
|
Commitments and Applicable Percentages |
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4.01 |
|
Security Documents |
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5.13 |
|
Subsidiaries; Equity Interests; Taxpayer Identification Number |
|
5.21 |
|
Material Real Property |
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6.07 |
|
Insurance Summary Property and Casualty |
|
7.01 |
|
Existing Liens |
|
7.09 |
|
Affiliate Transactions |
|
10.02 |
|
Administrative Agents Office; Certain Addresses for Notices |
|
10.06 |
|
Processing and Recordation Fees |
EXHIBITS
|
|
|
|
|
|
|
Form of |
|
|
A |
|
Committed Loan Notice |
|
B |
|
Swing Line Loan Notice |
|
C |
|
Note |
|
D |
|
Compliance Certificate |
|
E |
|
Assignment and Assumption |
|
F |
|
Guaranty |
|
G |
|
Opinion Matters |
|
H |
|
Pledge and Security Agreement |
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I |
|
Deed of Trust |
|
J |
|
Intercreditor Agreement |
iv
CREDIT AGREEMENT
This CREDIT AGREEMENT (Agreement) is entered into as of February ___, 2007, among
Targa Resources Partners LP, a Delaware limited partnership (the Borrower), each lender
from time to time party hereto (collectively, the Lenders and individually, a
Lender), and Bank of America, N.A., as Administrative Agent, Collateral Agent, Swing Line
Lender and L/C Issuer.
The Borrower has requested that the Lenders provide a revolving credit facility, and the
Lenders are willing to do so on the terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto
covenant and agree as follows:
ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS
1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set
forth below:
Acquired Entity or Business means any Person, property, business or asset acquired
by the Borrower or any Restricted Subsidiary (but not any related Person, property, business or
assets to the extent not so acquired), to the extent not subsequently sold, transferred or
otherwise disposed by the Borrower or such Restricted Subsidiary.
Acquisition means the acquisition by the Borrower from Targa of all the outstanding
partnership interests of Targa North Texas.
Additional Debt means Indebtedness for borrowed money other than Indebtedness
described in Section 7.03.
Administrative Agent means Bank of America in its capacity as administrative agent
under any of the Loan Documents, or any successor administrative agent.
Administrative Agents Office means the Administrative Agents address and, as
appropriate, account as set forth on Schedule 10.02, or such other address or account as
the Administrative Agent may from time to time notify to the Borrower and the Lenders.
Administrative Questionnaire means an Administrative Questionnaire in a form
supplied by the Administrative Agent.
Affiliate means, with respect to any Person, another Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by or is under common
Control with the Person specified.
1
Agent-Related Persons means, with respect to any Agent, such Agent, together with
its Affiliates, and the officers, directors, employees, agents, advisors and attorneys-in-fact of
such Agent and its Affiliates.
Agents means, collectively, the Administrative Agent, the Collateral Agent and the
Syndication Agent.
Aggregate Commitments means the Commitments of all the Lenders.
Agreement means this Credit Agreement.
Applicable Percentage means with respect to any Lender at any time, the percentage
(carried out to the ninth decimal place) of the Aggregate Commitments represented by such Lenders
Commitment at such time. If the commitment of each Lender to make Loans and the obligation of the
L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02 or
if the Aggregate Commitments have expired, then the Applicable Percentage of each Lender shall be
determined based on the Applicable Percentage of such Lender most recently in effect, giving effect
to any subsequent assignments. The initial Applicable Percentage of each Lender is set forth
opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption
pursuant to which such Lender becomes a party hereto, as applicable.
Applicable Rate means, from time to time, the following percentages per annum, based
upon, as of any date of determination, the ratio of (i) Consolidated Funded Indebtedness as of such
date to (ii) Consolidated Adjusted EBITDA for the period of four consecutive fiscal quarters most
recently ended for which the Compliance Certificate has been received by Administrative Agent
pursuant to Section 6.02(b) or (c):
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Consolidated |
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Funded |
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|
Indebtedness to |
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|
|
Revolver |
|
|
|
|
Consolidated |
|
Commitment |
|
Eurodollar |
|
Revolver |
Pricing Level |
|
Adjusted EBITDA |
|
Fee |
|
Rate |
|
Base Rate |
1
|
|
Greater than or
equal to 5.25 to
1.0
|
|
|
0.35 |
% |
|
|
2.25 |
% |
|
|
1.25 |
% |
2
|
|
Less than 5.25 to
1.00 but greater
than or equal to
4.75 to 1.0
|
|
|
0.35 |
% |
|
|
2.00 |
% |
|
|
1.00 |
% |
3
|
|
Less than 4.75 to
1.00 but greater
than or equal to
4.25 to 1.0
|
|
|
0.30 |
% |
|
|
1.75 |
% |
|
|
0.75 |
% |
4
|
|
Less than 4.25 to
1.00 but greater
than or equal to
3.75 to 1.0
|
|
|
0.30 |
% |
|
|
1.50 |
% |
|
|
0.50 |
% |
5
|
|
Less than 3.75 to
1.00 but greater
than or equal to
3.25 to 1.0
|
|
|
0.25 |
% |
|
|
1.25 |
% |
|
|
0.25 |
% |
6
|
|
Less than 3.25 to
1.00
|
|
|
0.20 |
% |
|
|
1.00 |
% |
|
|
0.00 |
% |
2
Any increase or decrease in the Applicable Rate resulting from a change in the ratio of
Consolidated Funded Indebtedness to Consolidated Adjusted EBITDA shall become effective as of the
first Business Day immediately following the date a Compliance Certificate is delivered pursuant to
Section 6.02(b) or (c); provided, however, that at the option of
the Administrative Agent or the Required Lenders, the highest Pricing Level (i.e., the Pricing
Level that produces the highest Applicable Rate) shall apply as of the first Business Day after the
date on which a Compliance Certificate was required to have been delivered but was not delivered,
and shall continue to so apply to and including the date on which such Compliance Certificate is so
delivered (and thereafter the Pricing Level otherwise determined in accordance with this definition
shall apply). The Applicable Rate in effect from the Closing Date through the date following the
Closing Date on which a Compliance Certificate is delivered or to be delivered pursuant to
Section 6.02(b) or (c) shall be determined based upon Pricing Level 4.
Approved Fund means any Fund that is administered or managed by (a) a Lender, (b) an
Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a
Lender.
Arranger means each of Banc of America Securities LLC and Wachovia Capital Markets,
LLC, in its capacity as a joint lead arranger.
Assignee Group means two or more Eligible Assignees that are Affiliates of one
another or two or more Approved Funds managed by the same investment advisor.
Assignment and Assumption means an assignment and assumption entered into by a
Lender and an Eligible Assignee (with the consent of any party whose consent is required by
Section 10.06(b)), and accepted by the Administrative Agent, in substantially the form of
Exhibit E or any other form approved by the Administrative Agent.
Attributable Indebtedness means, on any date, (a) in respect of any Capital Lease of
any Person, the capitalized amount thereof that would appear on a balance sheet of such Person
prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease
Obligation, the capitalized amount of the remaining lease payments under the relevant lease that
would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if
such lease were accounted for as a Capital Lease.
Audited Financial Statements means the audited Consolidated financial statements of
the predecessor business of the Borrower and its Subsidiaries for the ten month period ended
October 31, 2005 and the two month period ended December 31, 2005, and the related Consolidated
statements of income or operations, shareholders equity and cash flows for such periods of the
predecessor business of the Borrower and its Subsidiaries, including the notes thereto.
3
Availability Period means the period from and including the Closing Date to the
earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Commitments
pursuant to Section 2.06, and (c) the date of termination of the commitment of each Lender
to make Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to
Section 8.02.
Bank of America means Bank of America, N.A. and its successors.
Base Rate means for any day a fluctuating rate per annum equal to the
higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such
day as publicly announced from time to time by Bank of America as its prime rate. The prime
rate is a rate set by Bank of America based upon various factors including Bank of Americas costs
and desired return, general economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such announced rate. Any change in
such rate announced by Bank of America shall take effect at the opening of business on the day
specified in the public announcement of such change.
Base Rate Committed Loan means a Committed Loan that is a Base Rate Loan.
Base Rate Loan means a Loan that bears interest based on the Base Rate.
Borrower has the meaning specified in the introductory paragraph hereto.
Borrower Materials has the meaning specified in Section 6.02.
Borrowers Partnership Agreement means the Amended and Restated Agreement of Limited
Partnership of the Borrower dated [___], as the same may be amended, restated,
supplemented, or otherwise modified from time to time.
Borrowing means a Committed Borrowing or a Swing Line Borrowing, as the context may
require.
Business Day means any day other than a Saturday, Sunday or other day on which
commercial banks are authorized to close under the Laws of, or are in fact closed in, the state
where the Administrative Agents Office is located and, if such day relates to any Eurodollar Rate
Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in
the London interbank eurodollar market.
Capital Lease means any lease that has been or should be, in accordance with GAAP
recorded as a capital lease.
Capital Lease Obligation means, with respect to any Person and a Capital Lease, the
amount of the obligation of such Person as the lessee under such Capital Lease which would, in
accordance with GAAP, appear as a liability on a balance sheet of such Person as of the date of any
determination thereof.
Cash Collateralize has the meaning specified in Section 2.03(g).
4
Cash Management Obligations means obligations owed by the Borrower or any Restricted
Subsidiary to any Lender or any Affiliate of a Lender in respect of any overdraft and related
liabilities arising from treasury, depository and cash management services or any automated
clearing house transfers of funds.
Change in Law means the occurrence, after the date of this Agreement, of any of the
following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any
change in any law, rule, regulation or treaty or in the administration, interpretation or
application thereof by any Governmental Authority or (c) the making or issuance of any request,
guideline or directive (whether or not having the force of law) by any Governmental Authority.
Change of Control means the earlier to occur of:
(a) Targa shall cease to Control General Partner, or any Person, other than Targa or a Person
Controlled by Targa, shall Control General Partner; or
(b) General Partner shall cease for any reason to be the sole General Partner of the
Borrower; or
(c) Any change of control or similar event occurs under the terms of any indenture, note
agreement or other agreement governing any outstanding Unsecured Note Indebtedness that result in
such Unsecured Note Indebtedness becoming due and payable before its maturity or being subject to
a repurchase, retirement or redemption right or option; or
(d) Less than 50% of Targas Consolidated assets, after deducting therefrom the value (net of
any applicable reserves) of all goodwill, trade names, trademarks, patents and other like
intangible assets, are in the Present Line of Business.
Chico Plant means the cryogenic natural gas processing plant located in Wise County,
Texas, including the real property owned by Targa North Texas on which the Chico Plant and related
equipment and operations are located.
Closing Date means the first date all the conditions precedent in Section
4.01 are satisfied or waived in accordance with Section 10.01.
Code means the Internal Revenue Code of 1986.
Collateral means all property of any kind which is subject to a Lien in favor of
Secured Parties (or in favor of the Administrative Agent or the Collateral Agent for the benefit of
Secured Parties) or which, under the terms of any Security Document, is purported to be subject to
such a Lien, in each case granted or created to secure all or part of the Obligations, the Cash
Management Obligations and the Secured Swap Obligations.
Collateral Agent means Bank of America, acting through one or more of its branches
or Affiliates, in its capacity as collateral agent under any of the Loan Documents, or any
successor collateral agent.
5
Commitment means, as to each Lender, its obligation to (a) make Committed Loans to
the Borrower pursuant to Section 2.01, (b) purchase participations in L/C Obligations, and
(c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time
outstanding not to exceed the amount set forth opposite such Lenders name on Schedule 2.01
or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as
applicable, as such amount may be adjusted from time to time in accordance with this Agreement.
Committed Borrowing means a borrowing consisting of simultaneous Committed Loans of
the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by
each of the Lenders pursuant to Section 2.01.
Committed Loan has the meaning specified in Section 2.01.
Committed Loan Notice means a notice of (a) a Committed Borrowing, (b) a conversion
of Committed Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans,
pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of
Exhibit A.
Compliance Certificate means a certificate substantially in the form of Exhibit
D.
Consolidated refers to the consolidation of any Person, in accordance with GAAP,
with its properly Consolidated Subsidiaries. References herein to a Persons Consolidated
financial statements, financial position, financial condition, liabilities, etc. refer to the
Consolidated financial statements, financial position, financial condition, liabilities, etc. of
such Person and its properly Consolidated Subsidiaries. For avoidance of doubt, neither an
Unrestricted Subsidiary nor a Partially Owned Operating Company shall be considered a Consolidated
Subsidiary of the Borrower.
Consolidated Adjusted EBITDA means, for any period, Consolidated EBITDA;
provided that, (a) if, since the beginning of the four fiscal quarter period ending on the
date for which Consolidated Adjusted EBITDA is determined, the Borrower or any Consolidated
Restricted Subsidiary shall have made any Material Acquisition or Disposition or a Subsidiary shall
be redesignated as either an Unrestricted Subsidiary or a Restricted Subsidiary, Consolidated
Adjusted EBITDA shall be calculated giving pro forma effect thereto as if the Material Acquisition
or Disposition or redesignation had occurred on the first day of such period. Such pro forma effect
shall be determined (i) in good faith by a Responsible Officer of General Partner, and (ii) without
giving effect to any anticipated or proposed change in operations, revenues, expenses or other
items included in the computation of Consolidated Adjusted EBITDA, except with the consent of the
Administrative Agent in its reasonable discretion and (b) Consolidated Adjusted EBITDA may include,
at the Borrowers option, any Material Project EBITDA Adjustments as provided below. As used
herein, Material Project EBITDA Adjustments means, with respect to the construction or
expansion of any capital project of the Borrower or any of its Consolidated Restricted
Subsidiaries, the aggregate capital cost of which (inclusive of capital costs expended prior to the
acquisition thereof) is reasonably expected by the Borrower to exceed, or exceeds, $10,000,000 (a
Material Project):
6
(A) prior to the date on which a Material Project has achieved commercial operation
(the Commercial Operation Date) (but including the fiscal quarter in which such
Commercial Operation Date occurs), a percentage (based on the then-current completion
percentage of such Material Project as of the date of determination) of an amount to be
approved by Administrative Agent as the projected Consolidated EBITDA attributable to such
Material Project for the first 12-month period following the scheduled Commercial Operation
Date of such Material Project (such amount to be determined based upon projected revenues
from customer contracts, projected revenues that are determined by the Administrative Agent,
in its discretion, to otherwise be highly probable, the creditworthiness and applicable
projected production of the prospective customers, capital and other costs, operating and
administrative expenses, scheduled Commercial Operation Date, commodity price assumptions
and other factors deemed appropriate by Administrative Agent), which may, at the Borrowers
option, be added to actual Consolidated EBITDA for the fiscal quarter in which construction
or expansion of such Material Project commences and for each fiscal quarter thereafter until
the Commercial Operation Date of such Material Project (including the fiscal quarter in
which such Commercial Operation Date occurs, but net of any actual Consolidated EBITDA
attributable to such Material Project following such Commercial Operation Date);
provided that if the actual Commercial Operation Date does not occur by the
scheduled Commercial Operation Date, then the foregoing amount shall be reduced, for
quarters ending after the scheduled Commercial Operation Date to (but excluding) the first
full quarter after its Commercial Operation Date, by the following percentage amounts
depending on the period of delay (based on the period of actual delay or then-estimated
delay, whichever is longer): (i) 90 days or less, 0%, (ii) longer than 90 days, but not more
than 180 days, 25%, (iii) longer than 180 days but not more than 270 days, 50%, (iv) longer
than 270 days but not more than 365 days, 75%, and (v) longer than 365 days, 100%; and
(B) beginning with the first full fiscal quarter following the Commercial Operation
Date of a Material Project and for the two immediately succeeding fiscal quarters, an amount
equal to the projected Consolidated EBITDA attributable to such Material Project for the
balance of the four full fiscal quarter period following such Commercial Operation Date,
which may, at the Borrowers option, be added to actual Consolidated EBITDA for such fiscal
quarters.
Notwithstanding the foregoing:
(i) no such Material Project EBITDA Adjustment shall be allowed with respect to any
Material Project unless:
(a) at least 30 days prior to the last day of the fiscal quarter for which the
Borrower desires to commence inclusion of such Material Project EBITDA Adjustment in
Consolidated EBITDA with respect to a Material Project (the Initial
Quarter), the Borrower shall have delivered to Administrative Agent written pro
forma projections of Consolidated EBITDA attributable to such Material Project, and
7
(b) prior to the last day of the Initial Quarter, Administrative Agent shall
have approved (such approval not to be unreasonably withheld) such projections and
shall have received such other information and documentation as Administrative Agent
may reasonably request, all in form and substance satisfactory to Administrative
Agent, and
(ii) the aggregate amount of all Material Project EBITDA Adjustments during any period shall
be limited to 15% of the total actual Consolidated EBITDA for such period (which total actual
Consolidated EBITDA shall be determined without including any Material Project EBITDA Adjustments).
Consolidated EBITDA means, for any period, the sum of the Consolidated Net Income of
the Borrower and its Consolidated Restricted Subsidiaries during such period, plus (a) the
following to the extent deducted in calculating such Consolidated Net Income: (i) all Interest
Expense for such period, (ii) all Federal, state, local and foreign income taxes (including any
franchise taxes to the extent based upon net income) for such period, (iii) all depreciation,
amortization (including amortization of good will, debt issue costs and amortization under FAS Rule
123) and other non-cash charges (including any provision for the reduction in the carrying value of
assets recorded in accordance with GAAP, any extraordinary gains (or losses), any non-cash gains
(or losses) resulting from mark to market activity as a result of the implementation of Statement
of Financial Accounting Standards 133, Accounting for Derivative Instruments and Hedging
Activities, but excluding any non-cash charges that constitute an accrual of or reserve for future
cash charges, and not treating write downs or write offs of receivables as non-cash charges) for
such period and (iv) costs and expenses incurred in connection with the transactions contemplated
hereby and minus (b) the following to the extent included in calculating such Consolidated
Net Income, (i) all Federal, state, local and foreign income tax credits for such period and (ii)
all non-cash items of income (other than account receivables and similar items arising from the
normal course of business and reflected as income under accrual methods of accounting consistent
with past practices) for such period. For avoidance of doubt, Consolidated Net Income attributable
to Unrestricted Subsidiaries, Partially Owned Operating Companies and Persons that are not
Subsidiaries shall not be considered in calculating Consolidated EBITDA except to the extent of
actual cash distributions to the Borrower or any of its Consolidated Restricted Subsidiaries by
such Unrestricted Subsidiaries, such Partially Owned Operating Companies or such other Persons.
Notwithstanding the foregoing, the actual cash distributions to the Borrower or any of its
Consolidated Restricted Subsidiaries by (i) Persons who are not Subsidiaries and any of whose
Equity Interests that are owned by a Loan Party are not Collateral or (ii) Unrestricted
Subsidiaries, during any period that will be included in Consolidated EBITDA shall be limited in
the aggregate to 15% of the total actual Consolidated EBITDA for such period (which total actual
Consolidated EBITDA shall be determined without including any such distributions).
Consolidated Funded Indebtedness means, as of any date, the sum of the following
(without duplication): (i) Indebtedness of the Borrower or any of its Consolidated Restricted
Subsidiaries for borrowed money or evidenced by bonds, debentures, notes, loan agreements or other
similar instruments, (ii) Attributable Indebtedness of the Borrower or any of its Consolidated
Restricted Subsidiaries in respect of Capital Lease Obligations and Synthetic Lease Obligations or
(iii) Indebtedness of the Borrower or any of its Consolidated Restricted
8
Subsidiaries in respect of Guarantees of Indebtedness of another Person (other than the
Borrower or a Restricted Subsidiary).
Consolidated Leverage Ratio means, for any date of determination (i) Consolidated
Funded Indebtedness on such date of determination to (ii) Consolidated Adjusted EBITDA for the
period of four consecutive fiscal quarters most recently ended prior to the date of determination.
Consolidated Net Income means, for any period, the Borrowers and its Consolidated
Restricted Subsidiaries gross revenues for such period, including any cash dividends or
distributions actually received from any other Person during such period, minus the Borrowers and
its Restricted Subsidiaries expenses and other proper charges against income (including taxes on
income to the extent imposed), determined on a Consolidated basis in accordance with GAAP
consistently applied (including, without duplication, the elimination of earnings or losses
attributable to outstanding minority interests and the exclusion of the net earnings of any Person
other than a Restricted Subsidiary in which the Borrower or any of its Restricted Subsidiaries has
an ownership interest).
Consolidated Net Tangible Assets means, at any date of determination, the total
amount of Consolidated assets of the Borrower and its Consolidated Restricted Subsidiaries after
deducting therefrom: (a) all current liabilities (excluding (i) any current liabilities that by
their terms are extendable or renewable at the option of the obligor thereon to a time more than 12
months after the time as of which the amount thereof is being computed, and (ii) current maturities
of long-term debt); and (b) the value (net of any applicable reserves) of all goodwill, trade
names, trademarks, patents and other like intangible assets, all as set forth, or on a pro forma
basis would be set forth, on the Consolidated balance sheet of the Borrower and its Consolidated
Restricted Subsidiaries for the most recently completed fiscal quarter, prepared in accordance with
GAAP.
Consolidated Senior Leverage Ratio means, for any date of determination (i)
Consolidated Funded Indebtedness on such date of determination (excluding the Unsecured Note
Indebtedness) to (ii) Consolidated Adjusted EBITDA for the period of four consecutive fiscal
quarters most recently ended prior to the date of determination.
Contractual Obligation means, as to any Person, any provision of any security issued
by such Person or of any agreement, instrument or other undertaking to which such Person is a party
or by which it or any of its property is bound.
Control means the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through the ability to
exercise voting power, by contract or otherwise. Controlling and Controlled
have meanings correlative thereto.
Credit Extension means each of the following: (a) a Borrowing and (b) an L/C Credit
Extension.
Debtor Relief Laws means the Bankruptcy Code of the United States, and all other
liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium,
9
rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the
United States or other applicable jurisdictions from time to time in effect and affecting the
rights of creditors generally.
Default means any event or condition that constitutes an Event of Default or that,
with the giving of any notice, the passage of time, or both, would be an Event of Default.
Default Rate means (a) when used with respect to Obligations other than Letter of
Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate, if
any, applicable to Base Rate Loans plus (iii) 2% per annum; provided,
however, that with respect to a Eurodollar Rate Loan, the Default Rate shall be an interest
rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan
plus 2% per annum, and (b) when used with respect to Letter of Credit Fees, a rate equal to the
Applicable Rate plus 2% per annum.
Defaulting Lender means any Lender that (a) has failed to fund any portion of the
Committed Loans, participations in L/C Obligations or participations in Swing Line Loans required
to be funded by it hereunder within one Business Day of the date required to be funded by it
hereunder, unless such failure has been cured, (b) has otherwise failed to pay over to the
Administrative Agent or any other Lender any other amount required to be paid by it hereunder
within one Business Day of the date when due, unless the subject of a good faith dispute or unless
such failure has been cured, or (c) has been deemed insolvent or become the subject of a bankruptcy
or insolvency proceeding.
Disposition or Dispose means the sale, transfer, license, lease or other
disposition (including any sale and leaseback transaction and any sale of Equity Interests) of any
property by any Person (or the granting of any option or other right to do any of the foregoing),
including any sale, assignment, transfer or other disposal, with or without recourse, of any notes
or accounts receivable or any rights and claims associated therewith; provided, that Disposition
or Dispose shall not be deemed to include any issuance by the Borrower of any of its Equity
Interest to another Person.
DOL means the Department of Labor, or any Governmental Authority succeeding to any
of its principal functions.
Dollar and $ mean lawful money of the United States.
Domestic Subsidiary means any Subsidiary that is organized under the laws of any
political subdivision of the United States.
Eligible Assignee means any Person that meets the requirements to be an assignee
under Section 10.06(b)(iii), (v) and (vi) (subject to such consents, if
any, as may be required under Section 10.06(b)(iii)).
Eligible Equity Interests means, with respect to any First-Tier Foreign Subsidiary,
all shares of capital stock or other Equity Interests of whatever class of such First-Tier Foreign
Subsidiary, in each case together with any certificates evidencing the same, excluding, however,
all shares of capital stock or other Equity Interests of such First-Tier Foreign Subsidiary which
10
represent in excess of 66% of the combined voting power of all classes of capital stock or
other Equity Interests of such First-Tier Foreign Subsidiary; provided, however,
that if following a change in the relevant sections of the Code or the regulations, rules, rulings,
notices or other official pronouncements issued or promulgated thereunder which would change the
maximum percentage of the total combined voting power of all classes of capital stock or other
Equity Interests of any such First-Tier Foreign Subsidiary entitled to vote that may be pledged
without causing (a) the undistributed earnings of such First-Tier Foreign Subsidiary as determined
for United States federal income tax purposes to be treated as a deemed dividend to, or investment
in United States property of, the owner of such capital stock or other Equity Interests or (b)
other material adverse consequences to the Borrower, any Guarantor, or any of their Restricted
Subsidiaries, then the 66% limitation set forth above shall be changed to 1% less than such maximum
percentage.
Environmental Laws means any and all Federal, state, local, and foreign statutes,
laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, authorizations, agreements or governmental restrictions relating to pollution
and the protection of the environment or the release of any Hazardous Materials into the
environment, including those related to hazardous substances or wastes, air emissions and
discharges to waste or public systems.
Environmental Liability means any liability, contingent or otherwise (including any
liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the
Borrower, any other Loan Party or any of their respective Subsidiaries (whether imposed by Law or
imposed or assumed by any contract, agreement or other consensual arrangement or otherwise), and
directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the
generation, use, handling, transportation, storage, treatment or disposal of any Hazardous
Materials, (c) exposure to any Hazardous Materials, or (d) the release or threatened release of any
Hazardous Materials into the environment.
Equity Interests means, with respect to any Person, all of the shares of capital
stock of (or other ownership or profit interests in) such Person, all of the warrants, options or
other rights for the purchase or acquisition from such Person of shares of capital stock of (or
other ownership or profit interests in) such Person, all of the securities convertible into or
exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person
or warrants, rights or options for the purchase or acquisition from such Person of such shares (or
such other interests), and all of the other ownership or profit interests in such Person (including
partnership, member or trust interests therein), whether voting or nonvoting, and whether or not
such shares, warrants, options, rights or other interests are outstanding on any date of
determination.
Equity Investors means the Sponsor and the Management Stockholders.
ERISA means the Employee Retirement Income Security Act of 1974.
ERISA Affiliate means any trade or business (whether or not incorporated) under
common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and
Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the
Code).
11
ERISA Event means (a) a Reportable Event with respect to a Pension Plan; (b) a
withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of
ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2)
of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e)
of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a
Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing
of a notice of intent to terminate, the treatment of a Plan amendment as a termination under
Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a
Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any
Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA,
other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower
or any ERISA Affiliate.
Eurodollar Rate means, for any Interest Period with respect to a Eurodollar Rate
Loan, the rate per annum equal to the British Bankers Association LIBOR Rate (BBA LIBOR),
as published by Reuters (or other commercially available source providing quotations of BBA LIBOR
as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London
time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for
delivery on the first day of such Interest Period) with a term equivalent to such Interest Period.
If such rate is not available at such time for any reason, then the Eurodollar Rate for such
Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate
at which deposits in Dollars for delivery on the first day of such Interest Period in same day
funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by
Bank of America and with a term equivalent to such Interest Period would be offered by Bank of
Americas London Branch to major banks in the London interbank eurodollar market at their request
at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such
Interest Period.
Eurodollar Rate Loan means a Committed Loan that bears interest at a rate based on
the Eurodollar Rate.
Event of Default has the meaning specified in Section 8.01.
Excess Sale Proceeds means Net Proceeds of a Disposition by the Borrower or any of
its Restricted Subsidiaries pursuant to Section 7.06(m) that have not been applied within
two hundred seventy (270) days after the date of receipt of such Net Proceeds to the purchase of
capital assets used in the Present Line of Business.
Exchange Act means the Securities Exchange Act of 1934.
Excluded Taxes means, with respect to the Administrative Agent, any Lender, the L/C
Issuer or any other recipient of any payment to be made by or on account of any obligation of the
Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however
denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction
(or any political subdivision thereof) 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
12
Office is located, (b) any branch profits taxes imposed by the United States or any similar
tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a
Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section
10.13), any withholding tax that is imposed on amounts payable to such Foreign Lender at the
time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is
attributable to such Foreign Lenders failure or inability (other than as a result of a Change in
Law) to comply with Section 3.01(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 from the Borrower with respect to such withholding tax pursuant to
Section 3.01(a).
Extraordinary Receipts means gross proceeds received by any Loan Party relating to
(a) insurance in respect of casualty to property that the Borrower has determined (which
determination must be made with reasonable promptness following such casualty) will not be applied
to the repair or replacement thereof within two hundred seventy (270) days following such casualty,
(b) payments pursuant to any indemnity agreement that the Borrower has determined (which
determination must be made with reasonable promptness following receipt of such payment) will not
be applied to remedy the circumstances or improve, repair or replace the property of such Loan
Party pursuant to which such indemnity payment arose within two hundred seventy (270) days
following such payment, or (c) pension reversions; provided that in no event shall
such Extraordinary Receipts include Net Proceeds.
Federal Funds Rate" means, for any day, the rate per annum equal to the
weighted average of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding such day; provided that (a) if such
day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the next succeeding Business
Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole
multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined
by the Administrative Agent.
Fee Letter means the letter agreement, dated January 4, 2007, among the Borrower,
the Administrative Agent, the Syndication Agent and the Arrangers.
First-Tier Foreign Subsidiary means a Foreign Subsidiary that is a direct Subsidiary
of the Borrower, any Guarantor or a Domestic Subsidiary.
Foreign Lender means any Lender that is organized under the laws of a jurisdiction
other than that in which the Borrower is resident for tax purposes. For purposes of this
definition, the United States, each State thereof and the District of Columbia shall be deemed to
constitute a single jurisdiction.
Foreign Subsidiary means, with respect to any Person, any Subsidiary of such Person
which is not a Domestic Subsidiary. Any unqualified reference to any Foreign Subsidiary shall
13
be deemed a reference to a Foreign Subsidiary of the Borrower, unless the context clearly
indicates otherwise.
FRB means the Board of Governors of the Federal Reserve System of the United States.
Fund means any Person (other than a natural person) that is (or will be) engaged in
making, purchasing, holding or otherwise investing in commercial loans and similar extensions of
credit in the ordinary course of its activities.
GAAP means generally accepted accounting principles in the United States set forth
in the opinions and pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial Accounting
Standards Board or such other principles as may be approved by a significant segment of the
accounting profession in the United States, that are applicable to the circumstances as of the date
of determination, consistently applied.
General Partner means Targa Resources GP LLC, a Delaware limited liability company
which, as of the Closing Date, is a Wholly Owned Subsidiary of Targa, and which, as of the Closing
Date, owns a two percent (2%) general partner interest in, and is the sole general partner of, the
Borrower.
Governmental Authority means the government of the United States or any other
nation, or of 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 (including any supra-national bodies such as the European Union or the European Central
Bank).
Guarantee means, as to any Person, (a) any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other
obligation payable or performable by another Person (the primary obligor) in any manner, whether
directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or
other obligation, (ii) to purchase or lease property, securities or services for the purpose of
assuring the obligee in respect of such Indebtedness or other obligation of the payment or
performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity
capital or any other financial statement condition or liquidity or level of income or cash flow of
the primary obligor so as to enable the primary obligor to pay such Indebtedness or other
obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in
respect of such Indebtedness or other obligation of the payment or performance thereof or to
protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any
assets of such Person securing any Indebtedness or other obligation of any other Person, whether or
not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or
otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any
Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related
primary obligation, or portion thereof, in respect of which such Guarantee is made or, if
14
not stated or determinable, the maximum reasonably anticipated liability in respect thereof as
determined by the guaranteeing Person in good faith. The term Guarantee as a verb has a
corresponding meaning.
Guarantors means, collectively, each Restricted Subsidiary of the Borrower that is
not an Immaterial Subsidiary and has become party to the Guaranty on the Closing Date or at any
time thereafter, including pursuant to the requirements of Section 6.12.
Guaranty means the Guaranty made by the Guarantors in favor of the Administrative
Agent, L/C Issuer and the Lenders, substantially in the form of Exhibit F.
Hazardous Materials means all explosive or radioactive substances or wastes and all
hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum
distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas,
infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to
any Environmental Law.
Hedging Party means, in each case in its capacity as a party to a Swap Contract, (i)
any Person that is a Lender or an Affiliate of a Lender, (ii) any Person listed on Schedule 1.01
hereto and any of such Persons Affiliates and (iii) any other Person with the consent of the
Administrative Agent, such consent not be unreasonably withheld or delayed.
Holding Company means, at any time, any company that at such time (a) owns (directly
or indirectly through one or more other Holding Companies satisfying the requirements of this
definition) a majority of the Voting Stock of the Borrower, (b) does not own any other material
assets (other than cash, cash equivalents and Investments in other Holding Companies) and (c) does
not engage in any business or activity other than serving as a direct or indirect holding company
controlling the Borrower and activities incidental thereto.
Immaterial Subsidiary means any one or more Domestic Restricted Subsidiary of the
Borrower or any of its Restricted Subsidiaries that, together with all other Domestic Restricted
Subsidiaries that have not executed and delivered a Guaranty, contribute less than 0.5% to
Consolidated Net Tangible Assets and contribute less than 5% to Consolidated EBITDA.
Indebtedness means, as to any Person at a particular time, without duplication, all
of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:
(a) all obligations of such Person for borrowed money and all obligations of such
Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b) all direct or contingent obligations of such Person arising under letters of credit
(including standby and commercial), bankers acceptances, bank guaranties, surety bonds and
similar instruments;
(c) net obligations of such Person under any Swap Contract;
15
(d) all obligations of such Person to pay the deferred purchase price of property or
services (other than trade accounts payable in the ordinary course of business that are (i)
not unpaid for more than 90 days after the date on which such trade account payable was
created or (ii) being contested in good faith by appropriate proceedings diligently
conducted and adequate reserves in accordance with GAAP are being maintained by the
applicable Loan Party);
(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property
owned or being purchased by such Person (including indebtedness arising under conditional
sales or other title retention agreements and mortgage, industrial revenue bonds, industrial
development bonds and similar financings), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse;
(f) all Attributable Indebtedness in respect of Capital Lease Obligations and Synthetic
Lease Obligations of such Person;
(g) all obligations of such Person to purchase, redeem, retire, defease or otherwise
make any payment in respect of any Equity Interest in such Person (other than as permitted
pursuant to Section 7.06) or any other Person, valued, in the case of a redeemable
preferred interest, at the greater of its voluntary or involuntary liquidation preference
plus accrued and unpaid dividends; and
(h) all Guarantees of such Person in respect of any of the foregoing.
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture (other than a joint venture that is itself a corporation or limited
liability company) in which such Person is a general partner or a joint venturer, unless and to the
extent that such Indebtedness is expressly made non-recourse to such Person. The amount of any net
obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value
thereof as of such date. The amount of Indebtedness of any Person for purposes of clause (e) shall
be deemed to be equal to the lesser of (i) the aggregate unpaid amount of such Indebtedness and
(ii) if and to the extent such Indebtedness is limited in recourse to the property encumbered, the
fair market value of the property encumbered thereby, as determined by such Person in good faith.
Indemnified Taxes means Taxes other than Excluded Taxes.
Indemnitees has the meaning specified in Section 10.04(b).
Information has the meaning specified in Section 10.07.
Initial Financial Statements means (a) the Audited Financial Statements and (b) the
unaudited pro forma Consolidated financial statements of the Borrower and its Consolidated
Subsidiaries as of September 30, 2006 after giving effect to the Acquisition.
Initial Public Offering means the initial offering or issuance by the Borrower of
Equity Interests pursuant to the Registration Statement.
16
Intercompany Indebtedness means all indebtedness of Targa North Texas existing prior
to the date hereof owing to Targa or any of its Subsidiaries which was incurred in connection with
the transfer of assets to Targa North Texas.
Intercreditor Agreement means the Intercreditor Agreement, substantially in the form
attached as Exhibit J, among the Borrower, the Collateral Agent and any Hedging Party that
is party to any Secured Hedge Agreement.
Interest Expense means, with respect to any period, the sum (without duplication) of
the following (in each case, eliminating all offsetting debits and credits between the Borrower and
its Restricted Subsidiaries and all other items required to be eliminated in the course of the
preparation of Consolidated financial statements of the Borrower and its Restricted Subsidiaries in
accordance with GAAP): (a) all interest, premium payments, debt discount, fees, charges and related
expenses in respect of Indebtedness of the Borrower or any of its Restricted Subsidiaries
(including imputed interest on Capital Lease Obligations) which are accrued during such period and
whether expensed in such period or capitalized and (b) all other amounts properly treated as
interest expense in accordance with GAAP.
Interest Payment Date means, (a) as to any Loan other than a Base Rate Loan, the
last day of each Interest Period applicable to such Loan and the Maturity Date; provided,
however, that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the
respective dates that fall every three months after the beginning of such Interest Period shall
also be Interest Payment Dates; and (b) as to any Base Rate Loan (including a Swing Line Loan), the
last Business Day of each March, June, September and December and the Maturity Date.
Interest Period means, as to each Eurodollar Rate Loan, the period commencing on the
date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan
and ending on the date one, two, three or six months thereafter, as selected by the Borrower in its
Committed Loan Notice or such other period that is twelve months or less requested by the Borrower
and consented to by all the Lenders; provided that:
(i) any Interest Period that would otherwise end on a day that is not a Business Day
shall be extended to the next succeeding Business Day unless such Business Day falls in
another calendar month, in which case such Interest Period shall end on the next preceding
Business Day;
(ii) any Interest Period that begins on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business Day of the calendar month at the
end of such Interest Period; and
(iii) no Interest Period shall extend beyond the Maturity Date.
Investment means, as to any Person, any direct or indirect acquisition or investment
by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of
another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of,
or purchase or other acquisition of any other debt or equity participation or interest in, another
Person, including any partnership or joint venture interest in such other Person and any
17
arrangement pursuant to which the investor Guarantees Indebtedness of such other Person, or
(c) the purchase or other acquisition (in one transaction or a series of transactions) of all or
substantially all of the property and assets or business of another Person or assets that
constitute a business unit, line of business or division of another Person. For purposes of
covenant compliance, the amount of any Investment shall be the amount actually invested, without
adjustment for subsequent increases or decreases in the value of such Investment.
IP Rights has the meaning specified in Section 5.17.
IRS means the United States Internal Revenue Service.
ISP means, with respect to any Letter of Credit, the International Standby
Practices 1998 published by the Institute of International Banking Law & Practice, Inc. (or such
later version thereof as may be in effect at the time of issuance of such Letter of Credit).
Issuer Documents means with respect to any Letter of Credit, the Letter of Credit
Application, and any other document, agreement and instrument entered into by the L/C Issuer and
the Borrower (or any Restricted Subsidiary) or in favor of the L/C Issuer and relating to any such
Letter of Credit.
Laws means, collectively, all international, foreign, Federal, state and local
statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or
judicial precedents or authorities, including the interpretation or administration thereof by any
Governmental Authority charged with the enforcement, interpretation or administration thereof, and
all applicable administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authority, in each case whether or not having the
force of law.
L/C Advance means, with respect to each Lender, such Lenders funding of its
participation in any L/C Borrowing in accordance with its Applicable Percentage.
L/C Borrowing means an extension of credit resulting from a drawing under any Letter
of Credit which has not been reimbursed on the date when made or refinanced as a Committed
Borrowing.
L/C Credit Extension means, with respect to any Letter of Credit, the issuance
thereof or extension of the expiry date thereof, or the increase of the amount thereof.
L/C Issuer means Bank of America in its capacity as issuer of Letters of Credit
hereunder, or any successor issuer of Letters of Credit hereunder.
L/C Obligations means, as at any date of determination, the aggregate amount
available to be drawn under all outstanding Letters of Credit plus the aggregate of all
Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amount available
to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in
accordance with Section 1.06. For all purposes of this Agreement, if on any date of
determination a Letter of Credit has expired by its terms but any amount may still be drawn
18
thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be
deemed to be outstanding in the amount so remaining available to be drawn.
Lender has the meaning specified in the introductory paragraph hereto and, as the
context requires, includes the Swing Line Lender.
Lending Office means, as to any Lender, the office or offices of such Lender
described as such in such Lenders Administrative Questionnaire, or such other office or offices as
a Lender may from time to time notify the Borrower and the Administrative Agent.
Letter of Credit means any letter of credit issued hereunder.
Letter of Credit Application means an application and agreement for the issuance or
amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.
Letter of Credit Expiration Date means the day that is nine days prior to the
Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business
Day).
Letter of Credit Fee has the meaning specified in Section 2.03(i).
Lien means any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), charge, or preference, priority or other security interest
or preferential arrangement in the nature of a security interest of any kind or nature whatsoever
(including any conditional sale or other title retention agreement, any easement, right of way or
other encumbrance on title to real property, and any financing lease having substantially the same
economic effect as any of the foregoing).
Loan means an extension of credit by a Lender to the Borrower under Article
II in the form of a Committed Loan or a Swing Line Loan.
Loan Documents means this Agreement, each Note, each Issuer Document, the Fee
Letter, the Guaranty, the Security Documents, the Intercreditor Agreement and all other agreements,
certificates, documents, instruments and writings at any time delivered in connection herewith or
therewith (exclusive of term sheets and commitment letters).
Loan Parties means, collectively, the Borrower and each Guarantor.
Management Stockholders means the members of management of Targa or its Subsidiaries
who are investors in Targa or any Holding Company.
Mark-to-Market means the process of revaluing for trading purposes commodity
contracts held by any Person, whether in respect of physical inventory, futures, forward exchanges,
swaps or other derivatives, and which contracts may have a fixed price, a floating price and fixed
differential, or other pricing basis, to the current market prices for such contracts, and
determining the gain or loss on such contracts, on an aggregate net trading basis for all such
contracts of such Person, by comparing the original prices of such contracts to the market prices
on the date of determination.
19
Material Acquisition or Disposition means the Acquisition or any of the following
having a fair market value in excess of $30,000,000: (a) any acquisition of any Acquired Entity or
Business, (b) the Disposition of any assets (including Equity Interests) by the Borrower or any of
its Restricted Subsidiaries, and (c) all mergers and consolidations of the type referred to in
Sections 7.05(d) and (e).
Material Adverse Effect means (a) a material adverse effect on the business,
operations, assets, liabilities (actual or contingent) or financial condition of the Borrower and
its Restricted Subsidiaries, taken as a whole, (b) a material adverse effect on the ability of the
Borrower or the Loan Parties (taken as a whole) to perform their respective payment obligations
under any Loan Document to which the Borrower or any of the other Loan Parties is a party or (c) a
material adverse effect on the rights and remedies of the Lenders under any Loan Document.
Maturity Date means February ___, 2012; provided, however, that if
such date is not a Business Day, the Maturity Date shall be the next preceding Business Day.
Moodys means Moodys Investors Service, Inc. and any successor thereto.
Mortgage has the meaning specified in Section 4.01(a)(iv).
Mortgage Policy has the meaning specified in Section 4.01(a)(iv)(B).
Multiemployer Plan means any employee benefit plan of the type described in Section
4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate makes or is obligated to make
contributions, or during the preceding five plan years, has made or been obligated to make
contributions.
Net Proceeds means the remainder of (a) as applicable (i) the gross proceeds
received from a Disposition (excluding proceeds that constitute capital assets used in the Present
Line of Business), or (ii) the gross proceeds received by any Loan Party from the issuance of
Additional Debt, as applicable, less (b) underwriter discounts and commissions, investment banking
fees, legal, accounting and other professional fees and expenses, amounts required to be applied to
the repayment of Indebtedness secured by a Lien permitted hereunder on any asset which is the
subject of such Disposition, and other usual and customary transaction costs, net of taxes paid or
reasonably estimated to be payable as a result thereof within two years of the date of the relevant
Disposition as a result of any gain recognized in connection therewith and related to such
Disposition or Additional Debt issuance, as applicable. To the extent any such gross proceeds are
received that are not cash or cash equivalents or are not promptly converted to cash or cash
equivalents, the value of such proceeds shall be the fair market value thereof at the time of
receipt.
Note means a promissory note made by the Borrower in favor of a Lender evidencing
Loans made by such Lender, substantially in the form of Exhibit C.
Obligations means all advances to, and debts, liabilities, obligations, covenants
and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan
or Letter of Credit, whether direct or indirect (including those acquired by assumption),
20
absolute
or contingent, due or to become due, now existing or hereafter arising and including
interest and fees that accrue after the commencement by or against any Loan Party of any
proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding,
regardless of whether such interest and fees are allowed claims in such proceeding.
Omnibus Agreement means the Omnibus Agreement dated as of the Closing Date among
Targa, General Partner and the Borrower.
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-U.S. 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 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
under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with
respect to, this Agreement or any other Loan Document.
Outstanding Amount means (i) with respect to Committed Loans and Swing Line Loans on
any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings
and prepayments or repayments of Committed Loans and Swing Line Loans, as the case may be,
occurring on such date; and (ii) with respect to any L/C Obligations on any date, the amount of
such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such
date and any other changes in the aggregate amount of the L/C Obligations as of such date,
including as a result of any reimbursements by the Borrower of Unreimbursed Amounts.
Partially Owned Operating Company means any Person (i) that is not a Wholly Owned
Subsidiary of the Borrower where the portion of the Equity Interest not owned by the Borrower and
its Restricted Subsidiaries is owned by Targa or any of its Subsidiaries, and (ii) that holds
operating assets.
Participant has the meaning specified in Section 10.06(d).
PBGC means the Pension Benefit Guaranty Corporation.
Pension Plan means any employee pension benefit plan (as such term is defined in
Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and
is sponsored or maintained by the Borrower or any ERISA Affiliate or to which the Borrower or any
ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple
employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time
during the immediately preceding five plan years.
21
Permitted Acquisition has the meaning set forth in Section 7.02(i).
Person means any natural person, corporation, limited liability company, trust,
joint venture, association, company, partnership, Governmental Authority or other entity.
Plan means any employee benefit plan (as such term is defined in Section 3(3) of
ERISA) established by the Borrower or, with respect to any such plan that is subject to Section 412
of the Code or Title IV of ERISA, any ERISA Affiliate.
Platform has the meaning specified in Section 6.02.
Pledge and Security Agreement means the Pledge and Security Agreement, dated as of
the date hereof, and to be executed and delivered by the Borrower and the other Pledgors in favor
of the Collateral Agent, substantially in the form of Exhibit H, as amended, restated,
supplemented or otherwise modified from time to time, including, without limitation, by any
supplement thereto executed and delivered after the date of this Agreement pursuant to Section
6.12 in order to (a) effect the joinder of any additional Subsidiary or (b) subject thereto any
additional Equity Interests.
Pledgors means the Borrower, each Guarantor, and each of the Restricted Subsidiaries
from time to time parties to the Pledge and Security Agreement.
Present Line of Business means (i) the Loan Parties existing natural gas and
natural gas liquids gathering, treating, processing, terminalling, storage, transporting and
marketing operations, (ii) other oil, natural gas, natural gas liquids and related products
gathering, treating, processing, terminalling, storage, transporting and marketing operations and
(iii) any business that is reasonably related, incidental or ancillary thereto.
Register has the meaning specified in Section 10.06(c).
Registration Statement means the Form S-1 Registration Statement filed by the
Borrower with the SEC as Registration No. 333-138747, as amended.
Related Parties means, with respect to any Person, such Persons Affiliates and the
partners, directors, officers, employees, agents and advisors of such Person and of such Persons
Affiliates.
Reportable Event means any of the events set forth in Section 4043(c) of ERISA,
other than events for which the 30 day notice period has been waived.
Request for Credit Extension means (a) with respect to a Borrowing, conversion or
continuation of Committed Loans, a Committed Loan Notice, (b) with respect to an L/C Credit
Extension, a Letter of Credit Application and (c) with respect to a Swing Line Loan, a Swing Line
Loan Notice.
Required Lenders means, as of any date of determination, (subject to the
Intercreditor Agreement with respect to those matters as to which Hedging Parties are entitled to
vote thereunder) Lenders having more than 50% of the Aggregate Commitments or, if the
22
commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C
Credit Extensions have been terminated pursuant to Section 8.02, Lenders holding in the
aggregate more than 50% of the Total Outstandings (with the aggregate amount of each Lenders risk
participation and funded participation in L/C Obligations and Swing Line Loans being deemed held
by such Lender for purposes of this definition); provided that the Commitment of, and the
portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded
for purposes of making a determination of Required Lenders.
Responsible Officer means the chief executive officer, chief accounting officer,
president, chief financial officer, treasurer, assistant treasurer or controller of a Loan Party
and, solely for purposes of notices given pursuant to Article II, any other officer or
employee of the applicable Loan Party so designated by any of the foregoing officers in a notice to
the Administrative Agent. Any document delivered hereunder that is signed by a Responsible Officer
of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate,
partnership and/or other action on the part of such Loan Party and such Responsible Officer shall
be conclusively presumed to have acted on behalf of such Loan Party.
Restricted Payment means any dividend or other distribution (whether in cash,
securities or other property) with respect to any capital stock or other Equity Interest of any
Loan Party or any Subsidiary, or any payment (whether in cash, securities or other property),
including any sinking fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on
account of any return of capital to any Persons stockholders, partners or members (or the
equivalent of any thereof), or any option, warrant or other right to acquire any such dividend or
other distribution or payment.
Restricted Subsidiary means any Subsidiary that is not an Unrestricted Subsidiary or
a Partially Owned Operating Company, provided, that any such Partially Owned Operating
Company will be a Restricted Subsidiary of the Borrower solely for purposes of Sections
7.01, 7.02, 7.03, 7.05, 7.06, 7.07 and 7.08.
S&P means Standard & Poors Ratings Services, a division of The McGraw-Hill
Companies, Inc. and any successor thereto.
SEC means the Securities and Exchange Commission, or any Governmental Authority
succeeding to any of its principal functions.
Secured Hedge Agreement means any Swap Contract that (i) is permitted under Article
7 and (ii) is by and between any Loan Party and any Hedging Party; provided that such Swap Contract
shall not constitute a Secured Hedge Agreement unless the relevant Hedging Party is a Lender or an
Affiliate of a Lender or subject to the Intercreditor Agreement (a) on the Closing Date (in the
case of transactions under Swap Contracts in effect on the Closing Date) or (b) on the date of an
applicable transaction (in the case of transactions under Swap Contracts entered into after the
Closing Date).
Secured Parties means, collectively, the Administrative Agent, the Collateral Agent,
the L/C Issuer, the Lenders, any Hedging Party that is a party to a Secured Hedge Agreement,
23
and each co-agent or sub-agent appointed by the Administrative Agent or Collateral Agent from time
to time pursuant to Section 9.05.
Secured Swap Obligations means all obligations arising from time to time under
Secured Hedge Agreements; provided that if such counterparty ceases to be a Lender
hereunder or an Affiliate of a Lender hereunder, or ceases to be a party to the Intercreditor
Agreement, Secured Swap Obligations shall only include such obligations to the extent arising from
transactions either (i) entered into on or prior to the Closing Date if the counterparty was a
Lender hereunder or an Affiliate of a Lender hereunder or a party to the Intercreditor Agreement on
the Closing Date or (ii) entered into after the Closing Date if such counterparty was a Lender
hereunder or an Affiliate of a Lender hereunder or a party to the Intercreditor Agreement at the
time the transaction was entered into.
Security Documents means the instruments listed in Schedule 4.01 and all
other security agreements, deeds of trust, mortgages, chattel mortgages, pledges, Guarantees,
financing statements, continuation statements, extension agreements and other agreements or
instruments now, heretofore, or hereafter delivered by any Loan Party to Administrative Agent in
connection with this Agreement or any transaction contemplated hereby to secure or Guarantee the
payment of any part of the Obligations, the Secured Swap Obligations or the Cash Management
Obligations or the performance of any Loan Partys other duties and obligations under the Loan
Documents or the Secured Hedge Agreements.
Solvent and Solvency mean, with respect to any Person on a particular
date, that on such date (a) the fair value of the property of such Person is greater than the total
amount of liabilities, including contingent liabilities, of such Person, (b) the present fair
salable value of the assets of such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become absolute and matured, (c) such
Person does not intend to, and does not believe that it will, incur debts or liabilities beyond
such Persons ability to pay such debts and liabilities as they mature, (d) such Person is not
engaged in business or a transaction, and is not about to engage in business or a transaction, for
which such Persons property would constitute an unreasonably small capital, and (e) such Person is
able to pay its debts and liabilities, contingent obligations and other commitments as they mature
in the ordinary course of business. The amount of contingent liabilities at any time shall be
computed as the amount that, in the light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or matured liability.
Specified Acquisition means an acquisition (or series of related acquisitions) of an
Acquired Entity or Business for an aggregate purchase price of not less than $30,000,000.
Sponsor means Warburg Pincus LLC and its Affiliates, but not including, however, any
portfolio companies of any of the foregoing.
Subsidiary of a Person means a corporation, partnership, joint venture, limited
liability company or other business entity of which a majority of the shares of securities or other
interests having ordinary voting power for the election of directors or other governing body (other
than securities or interests having such power only by reason of the happening of a contingency)
are
24
at the time beneficially owned, or the management of which is otherwise controlled, directly,
or indirectly through one or more intermediaries, or both, by such Person.
Swap Contract means (a) any and all rate swap transactions, basis swaps, credit
derivative transactions, forward rate transactions, commodity swaps, commodity options, forward
commodity contracts, commodity futures contracts, equity or equity index swaps or options, bond or
bond price or bond index swaps or options or forward bond or forward bond price or forward bond
index transactions, interest rate options, forward foreign exchange transactions, cap transactions,
floor transactions, collar transactions, currency swap transactions, cross-currency rate swap
transactions, currency options, spot contracts, or any other similar transactions or any
combination of any of the foregoing (including any options to enter into any of the foregoing),
whether or not any such transaction is governed by or subject to any master agreement, and (b) any
and all transactions of any kind, and the related confirmations, which are subject to the terms and
conditions of, or governed by, any form of master agreement published by the International Swaps
and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any
other master agreement relating to transactions of the type described in clause (a) above (any such
master agreement, together with any related schedules, a Master Agreement), including any
such obligations or liabilities under any Master Agreement.
Swap Termination Value means, in respect of any one or more Swap Contracts, after
taking into account the effect of any legally enforceable netting agreement relating to such Swap
Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and
termination value(s) determined in accordance therewith, such termination value(s), and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the Mark-to-Market
value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily
available quotations provided by any recognized dealer in such Swap Contracts (which may include a
Lender or any Affiliate of a Lender).
Swing Line Borrowing means a borrowing of a Swing Line Loan pursuant to Section
2.04.
Swing Line Lender means Bank of America in its capacity as provider of Swing Line
Loans, or any successor swing line lender hereunder.
Swing Line Loan has the meaning specified in Section 2.04(a).
Swing Line Loan Notice means a notice of a Swing Line Borrowing pursuant to
Section 2.04(b), which, if in writing, shall be substantially in the form of Exhibit
B.
Swing Line Sublimit means an amount equal to the lesser of (a) $100,000,000 and (b)
the Aggregate Commitments. The Swing Line Sublimit is part of, and not in addition to, the
Aggregate Commitments.
Syndication Agent means Wachovia Bank, N.A. in its capacity as syndication agent
under any of the Loan Documents, or any successor syndication agent.
Synthetic Lease Obligation means the monetary obligation of a Person under (a) a
so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or
25
possession of property creating obligations that do not appear on the balance sheet of such
Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the
indebtedness of such Person (without regard to accounting treatment).
Targa means Targa Resources, Inc., a Delaware corporation.
Targa Credit Agreement means that certain Credit Agreement dated as of October 31,
2005, among Targa, Credit Suisse, as administrative agent and the lenders from time to time party
thereto.
Targa North Texas means Targa North Texas LP, a Delaware limited partnership.
Taxes means all present or future taxes, levies, imposts, duties, deductions,
withholdings, assessments, fees or other charges imposed by any Governmental Authority, including
any interest, additions to tax or penalties applicable thereto.
Threshold Amount means an amount equal to three percent (3%) of Consolidated Net
Tangible Assets of the Borrower as of the financial statements most recently delivered pursuant to
Section 4.01(a)(vii), Section 6.01(a) or Section 6.01(b), as applicable.
Total Outstandings means the aggregate Outstanding Amount of all Loans and all L/C
Obligations.
Type means, with respect to a Committed Loan, its character as a Base Rate Loan or a
Eurodollar Rate Loan.
UCC means the Uniform Commercial Code as the same may from time to time be in effect
in the State of New York or the Uniform Commercial Code (or similar code or statute) of another
jurisdiction, to the extent it may be required to apply to any item or items of Collateral.
Unfunded Pension Liability means the excess of a Pension Plans benefit liabilities
under Section 4001(a)(16) of ERISA, over the current value of that Pension Plans assets,
determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section
412 of the Code for the applicable plan year.
United States and U.S. mean the United States of America.
Unreimbursed Amount has the meaning specified in Section 2.03(c)(i).
Unrestricted Subsidiary means any Subsidiary which the Borrower has designated in
writing to the Administrative Agent to be an Unrestricted Subsidiary pursuant to Section
6.18 and which the Borrower has not designated to be a Restricted Subsidiary pursuant to
Section 6.18.
Unsecured Note Indebtedness means Indebtedness permitted under Sections
7.03(f) or (o).
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Voting Stock of any Person means Equity Interests of any class or classes having
ordinary voting power for the election of directors or the equivalent governing body of such
Person.
Wholly Owned Subsidiary means any Subsidiary of a Person, all of the issued and
outstanding Equity Interests are directly or indirectly (through one or more Subsidiaries) owned by
such Person, excluding directors qualifying shares if applicable.
1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document,
unless otherwise specified herein or in such other Loan Document:
(a) 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, (i) any definition of or reference to any agreement,
instrument or other document (including any Organization Document) 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 herein or in any other Loan Document), (ii) any reference herein to any Person shall be
construed to include such Persons successors and assigns, (iii) the words herein,
hereof and hereunder, and words of similar import when used in any Loan
Document, shall be construed to refer to such Loan Document in its entirety and not to any
particular provision thereof, (iv) all references in a Loan Document to Articles, Sections,
Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and
Schedules to, the Loan Document in which such references appear, (v) any reference to any law
shall include all statutory and regulatory provisions consolidating, amending, replacing or
interpreting such law and any reference to any law or regulation shall, unless otherwise
specified, refer to such law or regulation as amended, modified or supplemented from time to time,
and (vi) the words asset and property shall be construed to have the same
meaning and effect and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.
(b) In the computation of periods of time from a specified date to a later specified date,
the word from means from and including; the words to and
until each mean to but excluding; and the word through means to
and including.
(c) Section headings herein and in the other Loan Documents are included for convenience of
reference only and shall not affect the interpretation of this Agreement or any other Loan
Document.
1.03 Accounting Terms.
(a) Generally. All accounting terms not specifically or completely defined herein
shall be construed in conformity with, and all financial data (including financial ratios and
other financial calculations) required to be submitted pursuant to this Agreement shall be
27
prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time,
applied in a manner consistent with that used in preparing the Audited Financial Statements,
except as otherwise specifically prescribed herein.
(b) Changes in GAAP. If at any time any change in GAAP would affect the computation
of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or
the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower
shall negotiate in good faith to amend such ratio or requirement to preserve the original intent
thereof in light of such change in GAAP (subject to the approval of the Required Lenders);
provided that, until so amended, (i) such ratio or requirement shall continue to
be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall
provide to the Administrative Agent and the Lenders financial statements and other documents
required under this Agreement or as reasonably requested hereunder setting forth a reconciliation
between calculations of such ratio or requirement made before and after giving effect to such
change in GAAP.
1.04 Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this
Agreement shall be calculated by dividing the appropriate component by the other component,
carrying the result to one place more than the number of places by which such ratio is expressed
herein and rounding the result up or down to the nearest number (with a rounding-up if there is no
nearest number).
1.05 Times of Day. Unless otherwise specified, all references herein to times of day shall be
references to Eastern time (daylight or standard, as applicable).
1.06 Letter of Credit Amounts. Unless otherwise specified herein, the amount of a Letter of Credit
at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such
time; provided, however, that with respect to any Letter of Credit that, by its
terms or the terms of any Issuer Document related thereto, provides for one or more automatic
increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be
the maximum stated amount of such Letter of Credit after giving effect to all such increases,
whether or not such maximum stated amount is in effect at such time.
ARTICLE II.
THE COMMITMENTS AND CREDIT EXTENSIONS
2.01 Committed Loans. Subject to the terms and conditions set forth herein, each Lender severally
agrees to make loans (each such loan, a Committed Loan) to the Borrower from time to
time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at
any time outstanding the amount of such Lenders Commitment; provided, however,
that after giving effect to any Committed Borrowing, (i) the Total Outstandings shall not exceed
the Aggregate Commitments, and (ii) the aggregate Outstanding Amount of the Committed Loans of any
Lender, plus such Lenders Applicable Percentage of the Outstanding Amount of all L/C
Obligations, plus such Lenders Applicable Percentage of the Outstanding Amount of all
Swing Line Loans shall not exceed such Lenders Commitment. Within the limits of each Lenders
Commitment, and subject to the other terms and conditions hereof, the
28
Borrower may borrow under
this Section 2.01, prepay under Section 2.05, and reborrow under this Section
2.01. Committed Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided
herein.
2.02 Borrowings, Conversions and Continuations of Committed Loans.
(a) Each Committed Borrowing, each conversion of Committed Loans from one Type to the other,
and each continuation of Eurodollar Rate Loans shall be made upon the Borrowers irrevocable
notice to the Administrative Agent, which may be given by telephone. Each such notice must be
received by the Administrative Agent not later than (i) noon three Business Days prior to the
requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Loans or of
any conversion of Eurodollar Rate Loans to Base Rate Committed Loans, and (ii) 11:00 a.m. on the
requested date of any Borrowing of Base Rate Committed Loans; provided, however,
that if the Borrower wishes to request Eurodollar Rate Loans having an Interest Period other than
one, two, three or six months in duration as provided in the definition of Interest Period, the
applicable notice must be received by the Administrative Agent not later than noon four Business
Days prior to the requested date of such Borrowing, conversion or continuation, whereupon the
Administrative Agent shall give prompt notice to the Lenders of such request and determine whether
the requested Interest Period is acceptable to all of them. Not later than noon, three Business
Days before the requested date of such Borrowing, conversion or continuation, the Administrative
Agent shall notify the Borrower (which notice may be by telephone) whether or not the requested
Interest Period has been consented to by all the Lenders. Each telephonic notice by the Borrower
pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the
Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a
Responsible Officer of General Partner. Each Borrowing of, conversion to or continuation of
Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of
$1,000,000 in excess thereof or in the amount of the unused Commitments. Except as provided in
Sections 2.03(c) and 2.04(c), each Borrowing of or conversion to Base Rate
Committed Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in
excess thereof or in the amount of the unused Commitments. Each Committed Loan Notice (whether
telephonic or written) shall specify (i) whether the Borrower is requesting a Committed Borrowing,
a conversion of Committed Loans from one Type to the other, or a continuation of Eurodollar Rate
Loans, (ii) the requested date of the Borrowing, conversion or
continuation, as the case may be (which shall be a Business Day), (iii) the principal amount
of Committed Loans to be borrowed, converted or continued, (iv) the Type of Committed Loans to be
borrowed or to which existing Committed Loans are to be converted, and (v) if applicable, the
duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of
Committed Loan in a Committed Loan Notice or if the Borrower fails to give a timely notice
requesting a conversion or continuation, then the applicable Committed Loans shall be made as, or
converted to, Base Rate Loans (unless the Committed Loan being continued is a Eurodollar Rate
Loan, in which case it shall be continued as a Eurodollar Rate Loan with an Interest Period of one
month). Any such automatic conversion to Base Rate Loans or continuations as Eurodollar Rate
Loans shall be effective as of the last day of the Interest Period then in effect with respect to
the applicable Eurodollar Rate Loans. If the Borrower requests a Borrowing of, conversion to, or
continuation of Eurodollar Rate Loans in
29
any such Committed Loan Notice, but fails to specify an
Interest Period, it will be deemed to have specified an Interest Period of one month.
(b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly
notify each Lender of the amount of its Applicable Percentage of the applicable Committed Loans,
and if no timely notice of a conversion or continuation is provided by the Borrower, the
Administrative Agent shall notify each Lender of the details of any automatic conversion to Base
Rate Loans or continuations as Eurodollar Rate Loans described in the preceding subsection. In
the case of a Committed Borrowing, each Lender shall make the amount of its Committed Loan
available to the Administrative Agent in immediately available funds at the Administrative Agents
Office not later than 1:00 p.m. on the Business Day specified in the applicable Committed Loan
Notice. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if
such Borrowing is the initial Credit Extension, Section 4.01), the Administrative Agent
shall make all funds so received available to the Borrower in like funds as received by the
Administrative Agent either by (i) crediting the account of the Borrower on the books of Bank of
America with the amount of such funds or (ii) wire transfer of such funds, in each case in
accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent
by the Borrower; provided, however, that if, on the date the Committed Loan Notice
with respect to such Borrowing is given by the Borrower, there are L/C Borrowings outstanding,
then the proceeds of such Borrowing, first, shall be applied to the payment in full of any
such L/C Borrowings, and second, shall be made available to the Borrower as provided
above.
(c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted
only on the last day of an Interest Period for such Eurodollar Rate Loan unless the Borrower pays
the amount due, if any, under Section 3.05 in connection therewith. During the existence
of an Event of Default, the Administrative Agent or the Required Lenders may require that no Loans
may be requested as, converted to or continued as Eurodollar Rate Loans.
(d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the
interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of
such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent
shall notify the Borrower and the Lenders of any change in Bank of Americas prime rate used in
determining the Base Rate promptly following the public announcement of such change.
(e) After giving effect to all Committed Borrowings, all conversions of Committed Loans from
one Type to the other, and all continuations of Committed Loans as the same Type, there shall not
be more than fifteen Interest Periods in effect with respect to Committed Loans.
2.03 Letters of Credit.
(a) The Letter of Credit Commitment.
(i) Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees, in
reliance upon the agreements of the Lenders set forth in this Section 2.03, (1) from
time to time on any Business Day during the period from the Closing Date until
30
the Letter of
Credit Expiration Date, to issue Letters of Credit upon the request of the Borrower for the
account of the Borrower or any Restricted Subsidiary, and to amend or extend Letters of
Credit previously issued by it, in accordance with subsection (b) below, and (2) to honor
drawings under the Letters of Credit; and (B) the Lenders severally agree to participate in
Letters of Credit issued for the account of the Borrower or any Loan Party and any drawings
thereunder; provided that after taking such Letter of Credit into account, (x) the
Total Outstandings shall not exceed the Aggregate Commitments, and (y) the aggregate
Outstanding Amount of the Committed Loans of any Lender, plus such Lenders
Applicable Percentage of the Outstanding Amount of all L/C Obligations, plus such
Lenders Applicable Percentage of the Outstanding Amount of all Swing Line Loans shall not
exceed such Lenders Commitment. Each request by the Borrower for the issuance or amendment
of a Letter of Credit shall be deemed to be a representation by the Borrower that the L/C
Credit Extension so requested complies with the conditions set forth in the proviso to the
preceding sentence. Within the foregoing limits, and subject to the terms and conditions
hereof, the Borrowers ability to obtain Letters of Credit shall be fully revolving, and
accordingly the Borrower may, during the foregoing period, obtain Letters of Credit for the
account of the Borrower or any Restricted Subsidiary to replace Letters of Credit that have
expired or that have been drawn upon and reimbursed.
(ii) The L/C Issuer shall not issue any Letter of Credit, if:
(A) subject to Section 2.03(b)(iii), the expiry date of such requested
Letter of Credit would occur more than twelve months after the date of issuance or
last extension, unless the Required Lenders have approved such expiry date; or
(B) the expiry date of such requested Letter of Credit would occur after the
Letter of Credit Expiration Date, unless all the Lenders have approved such expiry
date.
(iii) The L/C Issuer shall not be under any obligation to issue any Letter of Credit
if:
(A) any order, judgment or decree of any Governmental Authority or arbitrator
shall by its terms purport to enjoin or restrain the L/C Issuer from issuing such
Letter of Credit, or any Law applicable to the L/C Issuer or any
request or directive (whether or not having the force of law) from any
Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or
request that the L/C Issuer refrain from, the issuance of letters of credit
generally or such Letter of Credit in particular or shall impose upon the L/C Issuer
with respect to such Letter of Credit any restriction, reserve or capital
requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in
effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed
loss, cost or expense which was not applicable on the Closing Date and which the L/C
Issuer in good faith deems material to it;
(B) the issuance of such Letter of Credit would violate any Laws or one or more
policies of the L/C Issuer applicable to letters of credit generally;
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(C) except as otherwise agreed by the Administrative Agent and the L/C Issuer,
such Letter of Credit is in an initial stated amount less than $100,000.
(D) such Letter of Credit is to be denominated in a currency other than
Dollars;
(E) such Letter of Credit contains any provisions for automatic reinstatement
of the stated amount after any drawing thereunder; or
(F) a default of any Lenders obligations to fund under Section 2.03(c)
exists or any Lender is at such time a Defaulting Lender hereunder, unless the L/C
Issuer has entered into satisfactory arrangements with the Borrower or such Lender
to eliminate the L/C Issuers risk with respect to such Lender.
(iv) The L/C Issuer shall not amend any Letter of Credit if the L/C Issuer would not be
permitted at such time to issue such Letter of Credit in its amended form under the terms
hereof.
(v) The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A)
the L/C Issuer would have no obligation at such time to issue such Letter of Credit in its
amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does
not accept the proposed amendment to such Letter of Credit.
(vi) The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of
Credit issued by it and the documents associated therewith, and the L/C Issuer shall have
all of the benefits and immunities (A) provided to the Administrative Agent in Article
IX with respect to any acts taken or omissions suffered by the L/C Issuer in connection
with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents
pertaining to such Letters of Credit as fully as if the term Administrative Agent as used
in Article IX included the L/C Issuer with respect to such acts or omissions, and
(B) as additionally provided herein with respect to the L/C Issuer.
(b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of
Credit.
(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the
request of the Borrower for the account of the Borrower or any Restricted Subsidiary, as the
case may be, delivered to the L/C Issuer (with a copy to the Administrative Agent) in the
form of a Letter of Credit Application, appropriately completed and signed by a Responsible
Officer of General Partner. Such Letter of Credit Application must be received by the L/C
Issuer and the Administrative Agent not later than noon at least one Business Day (or such
later date and time as the Administrative Agent and the L/C Issuer may agree in a particular
instance in their sole discretion) prior to the proposed issuance date or date of amendment,
as the case may be. In the case of a request for an initial issuance of a Letter of Credit,
such Letter of Credit Application shall specify in form and detail reasonably satisfactory
to the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which
shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name
and address of the beneficiary thereof; (E) the
32
documents to be presented by such
beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be
presented by such beneficiary in case of any drawing thereunder; and (G) such other matters
as the L/C Issuer may require. In the case of a request for an amendment of any outstanding
Letter of Credit, such Letter of Credit Application shall specify in form and detail
satisfactory to the L/C Issuer (A) the Letter of Credit to be amended; (B) the proposed date
of amendment thereof (which shall be a Business Day); (C) the nature of the proposed
amendment; and (D) such other matters as the L/C Issuer may require. Additionally, the
Borrower shall furnish to the L/C Issuer and the Administrative Agent such other documents
and information pertaining to such requested Letter of Credit issuance or amendment,
including any Issuer Documents, as the L/C Issuer or the Administrative Agent may require.
(ii) Promptly after receipt of any Letter of Credit Application, the L/C Issuer will
confirm with the Administrative Agent (by telephone or in writing) that the Administrative
Agent has received a copy of such Letter of Credit Application from the Borrower and, if
not, the L/C Issuer will provide the Administrative Agent with a copy thereof. Unless the
L/C Issuer has received written notice from any Lender, the Administrative Agent or any Loan
Party, at least one Business Day prior to the requested date of issuance or amendment of the
applicable Letter of Credit, that one or more applicable conditions contained in Article
IV shall not then be satisfied, then, subject to the terms and conditions hereof, the
L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the
Borrower or the applicable Restricted Subsidiary, as the case may be, or enter into the
applicable amendment, as the case may be, in each case in accordance with the L/C Issuers
usual and customary business practices. Immediately upon the issuance of each Letter of
Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees
to, purchase from the L/C Issuer a risk participation in such Letter of Credit in an amount
equal to the product of such Lenders Applicable Percentage times the amount of such
Letter of Credit.
(iii) If the Borrower so requests in any applicable Letter of Credit Application, the
L/C Issuer may, in its sole and absolute discretion, agree to issue a Letter of Credit that
has automatic extension provisions (each, an Auto-Extension Letter of Credit);
provided that any such Auto-Extension Letter of Credit must permit the L/C Issuer to
prevent any such extension at least once in each twelve-month period (commencing with
the date of issuance of such Letter of Credit) by giving prior notice to the
beneficiary thereof not later than a day (the Non-Extension Notice Date) in each
such twelve-month period to be agreed upon at the time such Letter of Credit is issued.
Unless otherwise directed by the L/C Issuer, the Borrower shall not be required to make a
specific request to the L/C Issuer for any such extension. Once an Auto-Extension Letter of
Credit has been issued, the Lenders shall be deemed to have authorized (but may not require)
the L/C Issuer to permit the extension of such Letter of Credit at any time to an expiry
date not later than the Letter of Credit Expiration Date; provided, however,
that the L/C Issuer shall not permit any such extension if (A) the L/C Issuer has determined
that it would not be permitted, or would have no obligation, at such time to issue such
Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the
provisions of clause (ii) or (iii) of Section 2.03(a) or otherwise), or (B) it has
received notice (which may be by telephone or in writing) on or before the day that is five
33
Business Days before the Non-Extension Notice Date (1) from the Administrative Agent that
the Required Lenders have elected not to permit such extension or (2) from the
Administrative Agent, any Lender or the Borrower that one or more of the applicable
conditions specified in Section 4.02 is not then satisfied, and in each such case
directing the L/C Issuer not to permit such extension.
(iv) Promptly after its delivery of any Letter of Credit or any amendment to a Letter
of Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C
Issuer will also deliver to the Borrower and the Administrative Agent a true and complete
copy of such Letter of Credit or amendment.
(c) Drawings and Reimbursements; Funding of Participations.
(i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a
drawing under such Letter of Credit, the L/C Issuer shall notify the Borrower and the
Administrative Agent thereof. Not later than noon on the date of any payment by the L/C
Issuer under a Letter of Credit (each such date, an Honor Date), the Borrower
shall reimburse the L/C Issuer through the Administrative Agent in an amount equal to the
amount of such drawing. If the Borrower fails to so reimburse the L/C Issuer by such time,
the Administrative Agent shall promptly notify each Lender of the Honor Date, the amount of
the unreimbursed drawing (the Unreimbursed Amount), and the amount of such
Lenders Applicable Percentage thereof. In such event, the Borrower shall be deemed to have
requested a Committed Borrowing of Base Rate Loans to be disbursed on the Honor Date in an
amount equal to the Unreimbursed Amount, without regard to the minimum and multiples
specified in Section 2.02 for the principal amount of Base Rate Loans, but subject
to the amount of the unutilized portion of the Aggregate Commitments and the conditions set
forth in Section 4.02 (other than the delivery of a Committed Loan Notice). Any
notice given by the L/C Issuer or the Administrative Agent pursuant to this Section
2.03(c)(i) may be given by telephone if immediately confirmed in writing;
provided that the lack of such an immediate confirmation shall not affect the
conclusiveness or binding effect of such notice.
(ii) Each Lender shall upon any notice pursuant to Section 2.03(c)(i) make
funds available to the Administrative Agent for the account of the L/C Issuer at the
Administrative Agents Office in an amount equal to its Applicable Percentage of the
Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in such notice by
the Administrative Agent, whereupon, subject to the provisions of Section
2.03(c)(iii), each Lender that so makes funds available shall be deemed to have made a
Base Rate Committed Loan to the Borrower in such amount. The Administrative Agent shall
remit the funds so received to the L/C Issuer.
(iii) With respect to any Unreimbursed Amount that is not fully refinanced by a
Committed Borrowing of Base Rate Loans because the conditions set forth in Section
4.02 cannot be satisfied or for any other reason, the Borrower shall be deemed to have
incurred from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that
is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with
interest) and shall bear interest at the Default Rate. In such event,
34
each Lenders payment
to the Administrative Agent for the account of the L/C Issuer pursuant to Section
2.03(c)(ii) shall be deemed payment in respect of its participation in such L/C
Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its
participation obligation under this Section 2.03.
(iv) Until each Lender funds its Committed Loan or L/C Advance pursuant to this
Section 2.03(c) to reimburse the L/C Issuer for any amount drawn under any Letter of
Credit, interest in respect of such Lenders Applicable Percentage of such amount shall be
solely for the account of the L/C Issuer.
(v) Each Lenders obligation to make Committed Loans or L/C Advances to reimburse the
L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section
2.03(c), shall be absolute and unconditional and shall not be affected by any
circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right
which such Lender may have against the L/C Issuer, the Borrower or any other Person for any
reason whatsoever; (B) the occurrence or continuance of a Default, or (C) any other
occurrence, event or condition, whether or not similar to any of the foregoing;
provided, however, that each Lenders obligation to make Committed Loans
pursuant to this Section 2.03(c) is subject to the conditions set forth in
Section 4.02 (other than delivery by the Borrower of a Committed Loan Notice). No
such making of an L/C Advance shall relieve or otherwise impair the obligation of the
Borrower to reimburse the L/C Issuer for the amount of any payment made by the L/C Issuer
under any Letter of Credit, together with interest as provided herein.
(vi) If any Lender fails to make available to the Administrative Agent for the account
of the L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing
provisions of this Section 2.03(c) by the time specified in Section
2.03(c)(ii), the L/C Issuer shall be entitled to recover from such Lender (acting
through the Administrative Agent), on demand, such amount with interest thereon for the
period from the date such payment is required to the date on which such payment is
immediately available to the L/C Issuer at a rate per annum equal to the greater of the
Federal Funds Rate and a rate determined by the L/C Issuer in accordance with banking
industry rules on interbank compensation, plus any administrative, processing or similar
fees customarily charged by the L/C Issuer in connection with the foregoing. If such Lender
pays such amount (with interest and fees as aforesaid), the amount so paid shall
constitute such Lenders Committed Loan included in the relevant Committed Borrowing or L/C
Advance in respect of the relevant L/C Borrowing, as the case may be. A certificate of the
L/C Issuer submitted to any Lender (through the Administrative Agent) with respect to any
amounts owing under this clause (vi) shall be conclusive absent manifest error.
(d) Repayment of Participations.
(i) At any time after the L/C Issuer has made a payment under any Letter of Credit and
has received from any Lender such Lenders L/C Advance in respect of such payment in
accordance with Section 2.03(c), if the Administrative Agent receives for the
account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or
interest thereon (whether directly from the Borrower or otherwise, including proceeds of
35
Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will
distribute to such Lender its Applicable Percentage thereof (appropriately adjusted, in the
case of interest payments, to reflect the period of time during which such Lenders L/C
Advance was outstanding) in the same funds as those received by the Administrative Agent.
(ii) If any payment received by the Administrative Agent for the account of the L/C
Issuer pursuant to Section 2.03(c)(i) is required to be returned under any of the
circumstances described in Section 10.05 (including pursuant to any settlement
entered into by the L/C Issuer in its discretion), each Lender shall pay to the
Administrative Agent for the account of the L/C Issuer its Applicable Percentage thereof on
demand of the Administrative Agent, plus interest thereon from the date of such demand to
the date such amount is returned by such Lender, at a rate per annum equal to the Federal
Funds Rate from time to time in effect. The obligations of the Lenders under this clause
shall survive the payment in full of the Obligations and the termination of this Agreement.
(e) Obligations Absolute. The obligation of the Borrower to reimburse the L/C Issuer
for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute,
unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement regardless of any circumstances, including any of the following:
(i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or
any other Loan Document;
(ii) the existence of any claim, counterclaim, setoff, defense or other right that the
Borrower or any Subsidiary may have at any time against any beneficiary or any transferee of
such Letter of Credit (or any Person for whom any such beneficiary or any such transferee
may be acting), the L/C Issuer or any other Person, whether in connection with this
Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement
or instrument relating thereto, or any unrelated transaction;
(iii) any draft, demand, certificate or other document presented under such Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; or any loss or delay in the
transmission or otherwise of any document required in order to make a drawing under
such Letter of Credit;
(iv) any payment by the L/C Issuer under such Letter of Credit against presentation of
a draft or certificate that does not strictly comply with the terms of such Letter of
Credit; or any payment made by the L/C Issuer under such Letter of Credit to any Person
purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of
creditors, liquidator, receiver or other representative of or successor to any beneficiary
or any transferee of such Letter of Credit, including any arising in connection with any
proceeding under any Debtor Relief Law; or
36
(v) any other circumstance or happening whatsoever, whether or not similar to any of
the foregoing, including any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Borrower or any Subsidiary.
The Borrower or the applicable Restricted Subsidiary that is the account party thereon, as the
case may be, shall promptly examine a copy of each Letter of Credit and each amendment thereto that
is delivered to it and, in the event of any claim of noncompliance with the Borrowers or such
Restricted Subsidiarys instructions or other irregularity, the Borrower or such Restricted
Subsidiary will immediately notify the L/C Issuer. The Borrower and any such Restricted Subsidiary
shall be conclusively deemed to have waived any such claim against the L/C Issuer and its
correspondents unless such notice is given as aforesaid.
(f) Role of L/C Issuer. Each Lender and the Borrower agree that, in paying any
drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any
document (other than any sight draft, certificates and documents expressly required by the Letter
of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the
authority of the Person executing or delivering any such document. None of the L/C Issuer, the
Administrative Agent, any of their respective Related Parties nor any correspondent, participant
or assignee of the L/C Issuer shall be liable to any Lender for (i) any action taken or omitted in
connection herewith at the request or with the approval of the Lenders or the Required Lenders, as
applicable; (ii) any action taken or omitted in the absence of gross negligence or willful
misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document
or instrument related to any Letter of Credit or Issuer Document. The Borrower and each Loan
Party hereby assume all risks of the acts or omissions of any beneficiary or transferee with
respect to its use of any Letter of Credit; provided, however, that this
assumption is not intended to, and shall not, preclude the Borrower or a Loan Party, as the case
may be, pursuing such rights and remedies as it may have against the beneficiary or transferee at
law or under any other agreement. None of the L/C Issuer, the Administrative Agent, any of their
respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall
be liable or responsible for any of the matters described in clauses (i) through (v) of
Section 2.03(e); provided, however, that anything in such clauses to the
contrary notwithstanding, the Borrower or a Loan Party, as the case may be, may have a claim
against the L/C Issuer, and the L/C Issuer may be liable to the Borrower or a Loan Party, as the
case may be, to the extent, but only to the extent, of any direct, as opposed to consequential or
exemplary, damages suffered by the Borrower or such Loan Party, as the case may be, which the
Borrower or such Loan Party proves were caused by the L/C Issuers
willful misconduct or gross negligence or the L/C Issuers willful failure to pay under any
Letter of Credit after the presentation to it by the beneficiary of a sight draft and
certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In
furtherance and not in limitation of the foregoing, the L/C Issuer may accept documents that
appear on their face to be in order, without responsibility for further investigation, regardless
of any notice or information to the contrary, and the L/C Issuer shall not be responsible for the
validity or sufficiency of any instrument transferring or assigning or purporting to transfer or
assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason. The L/C Issuer shall deliver
to the Borrower or a Restricted
Subsidiary, as the case may be, copies of any documents purporting
to assign or transfer a Letter of Credit issued for the account of the Borrower or such Restricted
37
Subsidiary. The failure of L/C Issuer to deliver such documents will not relieve the Borrower or
any Restricted Subsidiary of its obligations hereunder or under the other Loan Documents.
(g) Cash Collateral. Upon the request of the Administrative Agent, (i) if the L/C
Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing
has resulted in an L/C Borrowing and the conditions set forth in Section 4.01 to a
Committed Borrowing cannot then be met, or (ii) if, as of the Letter of Credit Expiration Date,
any L/C Obligation for any reason remains outstanding, the Borrower shall, in each case,
immediately Cash Collateralize the then Outstanding Amount of all L/C Obligations. Sections
2.05 and 8.02(c) set forth certain additional requirements to deliver Cash Collateral
hereunder. For purposes of this Section 2.03, Section 2.05 and Section
8.02(c), Cash Collateralize means to pledge and deposit with or deliver to the
Administrative Agent, for the benefit of the L/C Issuer and the Lenders, as collateral for the L/C
Obligations, cash or deposit account balances pursuant to documentation in form and substance
satisfactory to the Administrative Agent and the L/C Issuer (which documents are hereby consented
to by the Lenders). Derivatives of such term have corresponding meanings. The Borrower hereby
grants to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, a security
interest in all such cash, deposit accounts and all balances therein and all proceeds of the
foregoing. Cash Collateral shall be maintained in blocked, non-interest bearing deposit accounts
at Bank of America and may be invested in cash equivalents. If at any time during which Cash
Collateral is required to be maintained in respect of L/C Obligations, the Administrative Agent
determines that any funds held as Cash Collateral are subject to any right or claim of any Person
other than the Administrative Agent or that the total amount of such funds is less than the
aggregate Outstanding Amount of all L/C Obligations, the Borrower will, forthwith upon demand by
the Administrative Agent, pay to the Administrative Agent, as additional funds to be deposited as
Cash Collateral, an amount equal to the excess of (x) such aggregate Outstanding Amount over (y)
the total amount of funds, if any, then held as Cash Collateral that the Administrative Agent
determines to be free and clear of any such right and claim. Upon the drawing of any Letter of
Credit for which funds are on deposit as Cash Collateral, such funds shall be applied, to the
extent permitted under applicable Laws, to reimburse the L/C Issuer. To the extent that the
amount of any Cash Collateral exceeds the then Outstanding Amount of L/C Obligations and so long
as no Event of Default has occurred and is continuing, the excess shall be refunded to the
Borrower.
(h) Applicability of ISP and UCP. Unless otherwise expressly agreed by the L/C
Issuer and the Borrower, when a Letter of Credit is issued, (i) the Borrower may specify that
either the rules of the ISP or the rules of the Uniform Customs and Practice for Documentary
Credits (UCP), as most recently published by the International Chamber of Commerce at
the time of issuance, apply to each standby Letter of Credit, and (ii) the rules of the UCP shall
apply to each commercial Letter of Credit.
(i) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent for
the account of each Lender in accordance with its Applicable Percentage a Letter of Credit fee
(the Letter of Credit Fee) for each Letter of Credit issued for the account of the
Borrower or a Restricted Subsidiary, as the case may be, equal to the Applicable Rate with respect
to Eurodollar Rate Loans times the daily amount available to be drawn under such Letter of
Credit on a quarterly basis in arrears. For purposes of computing the daily amount available to
38
be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in
accordance with Section 1.06. Letter of Credit Fees shall be (i) computed on a quarterly
basis in arrears and (ii) due and payable on the tenth Business Day after the end of each March,
June, September and December, commencing with the first such date to occur after the issuance of
such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. If there
is any change in the Applicable Rate during any quarter, the daily maximum amount of each Letter
of Credit shall be computed and multiplied by the Applicable Rate separately for each period
during such quarter that such Applicable Rate was in effect. Notwithstanding anything to the
contrary contained herein, upon the request of Administrative Agent or the Required Lenders, while
any Obligation bears interest at the Default Rate pursuant to Section 2.08(b), all Letter
of Credit Fees shall accrue at the Default Rate.
(j) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer. The
Borrower shall pay directly to the L/C Issuer for its own account a fronting fee with respect to
each Letter of Credit issued for the account of the Borrower or a Restricted Subsidiary, as the
case may be, equal to the greater of (i) $125 or (ii) one-eighth percent (0.125%) per annum,
computed on the daily maximum amount available to be drawn under such Letter of Credit (whether or
not such maximum amount is then in effect under such Letter of Credit) and on a quarterly basis in
arrears, and due and payable on the tenth Business Day after the end of each March, June,
September and December, commencing with the first such date to occur after the issuance of such
Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. For purposes
of computing the daily amount available to be drawn under any Letter of Credit, the amount of such
Letter of Credit shall be determined in accordance with Section 1.06. In addition, the
Borrower shall pay directly to the L/C Issuer for its own account the customary issuance,
presentation, amendment and other processing fees, and other standard costs and charges, of the
L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and
standard costs and charges are due and payable on demand and are nonrefundable.
(k) Conflict with Issuer Documents. In the event of any conflict between the terms
hereof and the terms of any Issuer Document, the terms hereof shall control.
(l) Letters of Credit Issued for Subsidiaries. Notwithstanding that a Letter of
Credit issued or outstanding hereunder is in support of any obligations of, or is for the account
of, a Subsidiary, the Borrower shall be obligated to reimburse the L/C Issuer hereunder for any
and all drawings under such Letter of Credit. The Borrower hereby acknowledges that the
issuance of Letters of Credit for the account of Restricted Subsidiaries inures to the
benefit of the Borrower, and that the Borrowers business derives substantial benefits from the
businesses of such Restricted Subsidiaries.
2.04 Swing Line Loans.
(a) The Swing Line. Subject to the terms and conditions set forth herein, the Swing
Line Lender agrees, in reliance upon the agreements of the other Lenders set forth in this
Section 2.04, to make loans (each such loan, a Swing Line Loan) to the Borrower
from time to time on any Business Day during the Availability Period in an aggregate amount not to
exceed at any time outstanding the amount of the Swing Line Sublimit, notwithstanding the
39
fact
that such Swing Line Loans, when aggregated with the Applicable Percentage of the Outstanding
Amount of Committed Loans and L/C Obligations of the Lender acting as Swing Line Lender, may
exceed the amount of such Lenders Commitment; provided, however, that after
giving effect to any Swing Line Loan, (i) the Total Outstandings shall not exceed the Aggregate
Commitments, and (ii) the aggregate Outstanding Amount of the Committed Loans of any Lender,
plus such Lenders Applicable Percentage of the Outstanding Amount of all L/C Obligations,
plus such Lenders Applicable Percentage of the Outstanding Amount of all Swing Line Loans
shall not exceed such Lenders Commitment, and provided, further, that the
Borrower shall not use the proceeds of any Swing Line Loan to refinance any outstanding Swing Line
Loan. Within the foregoing limits, and subject to the other terms and conditions hereof, the
Borrower may borrow under this Section 2.04, prepay under Section 2.05, and
reborrow under this Section 2.04. Each Swing Line Loan shall be a Base Rate Loan.
Immediately upon the making of a Swing Line Loan, each Lender shall be deemed to, and hereby
irrevocably and unconditionally agrees to, purchase from the Swing Line Lender a risk
participation in such Swing Line Loan in an amount equal to the product of such Lenders
Applicable Percentage times the amount of such Swing Line Loan.
(b) Borrowing Procedures. Each Swing Line Borrowing shall be made upon the
Borrowers irrevocable notice to the Swing Line Lender and the Administrative Agent, which may be
given by telephone. Each such notice must be received by the Swing Line Lender and the
Administrative Agent not later than 1:00 p.m. on the requested borrowing date, and shall specify
(i) the amount to be borrowed, which shall be a minimum of $100,000, and (ii) the requested
borrowing date, which shall be a Business Day. Each such telephonic notice must be confirmed
promptly by delivery to the Swing Line Lender and the Administrative Agent of a written Swing Line
Loan Notice, appropriately completed and signed by a Responsible Officer of General Partner.
Promptly after receipt by the Swing Line Lender of any telephonic Swing Line Loan Notice, the
Swing Line Lender will confirm with the Administrative Agent (by telephone or in writing) that the
Administrative Agent has also received such Swing Line Loan Notice and, if not, the Swing Line
Lender will notify the Administrative Agent (by telephone or in writing) of the contents thereof.
Unless the Swing Line Lender has received notice (by telephone or in writing) from the
Administrative Agent (including at the request of any Lender) prior to 2:00 p.m. on the date of
the proposed Swing Line Borrowing (A) directing the Swing Line Lender not to make such Swing Line
Loan as a result of the limitations set forth in the proviso to the first sentence of Section
2.04(a), or (B) that one or more of the applicable
conditions specified in Article IV is not then satisfied, then, subject to the terms
and conditions hereof, the Swing Line Lender will, not later than 3:00 p.m. on the borrowing date
specified in such Swing Line Loan Notice, make the amount of its Swing Line Loan available to the
Borrower at its office by crediting the account of the Borrower on the books of the Swing Line
Lender in immediately available funds.
(c) Refinancing of Swing Line Loans.
(i) The Swing Line Lender at any time in its sole and absolute discretion may request,
on behalf of the Borrower (which hereby irrevocably authorizes the Swing Line Lender to so
request on its behalf), that each Lender make a Base Rate Committed Loan in an amount equal
to such Lenders Applicable Percentage of the amount of Swing Line Loans then outstanding.
Such request shall be made in writing (which written request
40
shall be deemed to be a
Committed Loan Notice for purposes hereof) and in accordance with the requirements of
Section 2.02, without regard to the minimum and multiples specified therein for the
principal amount of Base Rate Loans, but subject to the unutilized portion of the Aggregate
Commitments and the conditions set forth in Section 4.02. The Swing Line Lender
shall furnish the Borrower with a copy of the applicable Committed Loan Notice promptly
after delivering such notice to the Administrative Agent. Each Lender shall make an amount
equal to its Applicable Percentage of the amount specified in such Committed Loan Notice
available to the Administrative Agent in immediately available funds for the account of the
Swing Line Lender at the Administrative Agents Office not later than 1:00 p.m. on the day
specified in such Committed Loan Notice, whereupon, subject to Section 2.04(c)(ii),
each Lender that so makes funds available shall be deemed to have made a Base Rate Committed
Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so
received to the Swing Line Lender.
(ii) If for any reason any Swing Line Loan cannot be refinanced by such a Committed
Borrowing in accordance with Section 2.04(c)(i), the request for Base Rate Committed
Loans submitted by the Swing Line Lender as set forth herein shall be deemed to be a request
by the Swing Line Lender that each of the Lenders fund its risk participation in the
relevant Swing Line Loan and each Lenders payment to the Administrative Agent for the
account of the Swing Line Lender pursuant to Section 2.04(c)(i) shall be deemed
payment in respect of such participation.
(iii) If any Lender fails to make available to the Administrative Agent for the account
of the Swing Line Lender any amount required to be paid by such Lender pursuant to the
foregoing provisions of this Section 2.04(c) by the time specified in Section
2.04(c)(i), the Swing Line Lender shall be entitled to recover from such Lender (acting
through the Administrative Agent), on demand, such amount with interest thereon for the
period from the date such payment is required to the date on which such payment is
immediately available to the Swing Line Lender at a rate per annum equal to the greater of
the Federal Funds Rate and a rate determined by the Swing Line Lender in accordance with
banking industry rules on interbank compensation, plus any administrative, processing or
similar fees customarily charged by the Swing Line Lender in connection with the foregoing.
If such Lender pays such amount (with interest and
fees as aforesaid), the amount so paid shall constitute such Lenders Committed Loan
included in the relevant Committed Borrowing or funded participation in the relevant Swing
Line Loan, as the case may be. A certificate of the Swing Line Lender submitted to any
Lender (through the Administrative Agent) with respect to any amounts owing under this
clause (iii) shall be conclusive absent manifest error.
(iv) Each Lenders obligation to make Committed Loans or to purchase and fund risk
participations in Swing Line Loans pursuant to this Section 2.04(c) shall be
absolute and unconditional and shall not be affected by any circumstance, including (A) any
setoff, counterclaim, recoupment, defense or other right which such Lender may have against
the Swing Line Lender, the Borrower or any other Person for any reason whatsoever, (B) the
occurrence or continuance of a Default, or (C) any other occurrence, event or condition,
whether or not similar to any of the foregoing; provided, however,
41
that each
Lenders obligation to make Committed Loans pursuant to this Section 2.04(c) is
subject to the conditions set forth in Section 4.02. No such funding of risk
participations shall relieve or otherwise impair the obligation of the Borrower to repay
Swing Line Loans, together with interest as provided herein.
(d) Repayment of Participations.
(i) At any time after any Lender has purchased and funded a risk participation in a
Swing Line Loan, if the Swing Line Lender receives any payment on account of such Swing Line
Loan, the Swing Line Lender will distribute to such Lender its Applicable Percentage thereof
in the same funds as those received by the Swing Line Lender.
(ii) If any payment received by the Swing Line Lender in respect of principal or
interest on any Swing Line Loan is required to be returned by the Swing Line Lender under
any of the circumstances described in Section 10.05 (including pursuant to any
settlement entered into by the Swing Line Lender in its discretion), each Lender shall pay
to the Swing Line Lender its Applicable Percentage thereof on demand of the Administrative
Agent, plus interest thereon from the date of such demand to the date such amount is
returned, at a rate per annum equal to the Federal Funds Rate. The Administrative Agent
will make such demand upon the request of the Swing Line Lender. The obligations of the
Lenders under this clause shall survive the payment in full of the Obligations and the
termination of this Agreement.
(e) Interest for Account of Swing Line Lender. The Swing Line Lender shall be
responsible for invoicing the Borrower for interest on the Swing Line Loans. Until each Lender
funds its Base Rate Committed Loan or risk participation pursuant to this Section 2.04 to
refinance such Lenders Applicable Percentage of any Swing Line Loan, interest in respect of such
Applicable Percentage shall be solely for the account of the Swing Line Lender.
(f) Payments Directly to Swing Line Lender. The Borrower shall make all payments of
principal and interest in respect of the Swing Line Loans directly to the Swing Line Lender.
2.05 Prepayments.
(a) The Borrower may, upon notice to the Administrative Agent, at any time or from time to
time voluntarily prepay Committed Loans in whole or in part without premium or penalty;
provided that (i) such notice must be received by the Administrative Agent not later than
(A) noon three Business Days prior to any date of prepayment of Eurodollar Rate Loans and (B) 11:00
a.m. on the date of prepayment of Base Rate Committed Loans; (ii) any prepayment of Eurodollar Rate
Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess
thereof or, if less, the outstanding amount of such Loans; and (iii) any prepayment of Base Rate
Committed Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in
excess thereof or, in each case, if less, the entire principal amount thereof then outstanding.
Each such notice shall specify the date and amount of such prepayment and the Type(s) of Committed
Loans to be prepaid and, if Eurodollar Rate Loans are to be prepaid, the Interest Period(s) of such
Loans. The Administrative Agent will promptly notify
42
each Lender of its receipt of each such
notice and the amount of such Lenders Applicable Percentage of such prepayment. If such notice is
given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in
such notice shall be due and payable on the date specified therein. Any prepayment of a Eurodollar
Rate Loan shall be accompanied by all accrued interest on the amount prepaid, together with any
additional amounts required pursuant to Section 3.05. Each such prepayment shall be
applied to the Committed Loans of the Lenders in accordance with their respective Applicable
Percentages. Notwithstanding anything herein to the contrary, the Borrower may rescind any notice
of prepayment under this Section 2.05(a) not later than 1:00 p.m. on the Business Day
before such prepayment was scheduled to take place if such prepayment would have resulted from a
refinancing of the Committed Loans, which refinancing shall not be consummated or shall otherwise
be delayed.
(b) The Borrower may, upon notice to the Swing Line Lender (with a copy to the Administrative
Agent), at any time or from time to time, voluntarily prepay Swing Line Loans in whole or in part
without premium or penalty; provided that (i) such notice must be received by the Swing
Line Lender and the Administrative Agent not later than 1:00 p.m. on the date of the prepayment,
and (ii) any such prepayment shall be in a minimum principal amount of $100,000 or, if less, the
entire principal amount of Swing Line Loans then outstanding. Each such notice shall specify the
date and amount of such prepayment. If such notice is given by the Borrower, the Borrower shall
make such prepayment and the payment amount specified in such notice shall be due and payable on
the date specified therein.
(c) If for any reason the Outstanding Amount of all Loans at any time exceeds the Aggregate
Commitments then in effect, the Borrower shall within one Business Day following demand by the
Administrative Agent prepay the Loans in an aggregate amount equal to such excess.
(d) On the date (or the next succeeding Business Day if such date is not a Business Day) that
any Net Proceeds become Excess Sale Proceeds, (i) the Borrower shall make a mandatory prepayment of
the principal of the Loans in the amount of the Excess Sale Proceeds,
and (ii) the Aggregate Commitments shall be reduced, dollar for dollar, by the amount of such
Excess Sale Proceeds provided, however, that prepayments and the corresponding reduction in
Aggregate Commitments under this Section 2.05(d) shall not be required until the aggregate
amount of unapplied Net Proceeds and unapplied Extraordinary Receipts exceeds $5,000,000.
(e) Any Extraordinary Receipts shall be immediately applied as a mandatory prepayment on the
Loans; provided, however, that prepayments under this Section 2.05(e) shall not be required
until the aggregate amount of unapplied Extraordinary Receipts and unapplied Net Proceeds exceeds
$5,000,000.
(f) Immediately upon the consummation by any Loan Party of any issuance of Additional Debt
(but without waiving the requirements of Administrative Agent and/or any Lenders consent to any
such issuance in violation of any Loan Document), the Borrower shall make a mandatory prepayment on
the Loans in an amount equal to the Net Proceeds from such issuance.
43
(g) Each prepayment under Section 2.05(c), (d), (e) or (f)
shall be applied ratably as follows: (i) first to prepay the Outstanding Amount of the Committed
Loans, and (ii) second, to repay the Outstanding Amount of the Swing Line Loans.
(h) Each prepayment of the Loans under Section 2.05(c), (d), (e) or
(f) shall be accompanied by all interest then accrued and unpaid on the principal so
prepaid, together with any additional amounts required pursuant to Section 3.05. Any
principal or interest prepaid pursuant to this Section shall be in addition to, and not in lieu of,
all payments otherwise required to be paid under the Loan Documents at the time of such prepayment.
Each such prepayment shall be applied to the Committed Loans or Swing Line Loans, as applicable,
of the Lenders in accordance with their respective Applicable Percentage of such Committed Loans or
Swing Line Loans.
2.06 Termination or Reduction of Commitments. The Borrower may, upon notice to the
Administrative Agent, terminate the Aggregate Commitments, or from time to time permanently reduce
the Aggregate Commitments; provided that (i) any such notice shall be received by the
Administrative Agent not later than noon five Business Days prior to the date of termination or
reduction, (ii) any such partial reduction shall be in an aggregate amount of $5,000,000 or any
whole multiple of $1,000,000 in excess thereof, (iii) the Borrower shall not terminate or reduce
the Aggregate Commitments if, after giving effect thereto and to any concurrent prepayments
hereunder, the Total Outstandings would exceed the Aggregate Commitments, and (iv) if, after giving
effect to any reduction of the Aggregate Commitments, the Swing Line Sublimit exceeds the amount of
the Aggregate Commitments, such Sublimit shall be automatically reduced by the amount of such
excess. The Administrative Agent will promptly notify the Lenders of any such notice of
termination or reduction of the Aggregate Commitments. Any reduction of the Aggregate Commitments
shall be applied to the Commitment of each Lender according to its Applicable Percentage. All fees
accrued until the effective date of any termination of the Aggregate Commitments shall be paid
on the effective date of such termination. Notwithstanding anything herein to the contrary,
the Borrower may rescind any notice of termination of Aggregate Commitments under this Section
2.06 not later than 1:00 p.m. on the Business Day before such termination was scheduled to take
place if such termination would have resulted from a refinancing of the Aggregate Commitments,
which refinancing shall not be consummated or shall otherwise be delayed
2.07 Repayment of Loans.
(a) The Borrower shall repay to the Lenders on the Maturity Date the aggregate principal
amount of Committed Loans outstanding on such date.
(b) The Borrower shall repay each Swing Line Loan on the earlier to occur of (i) the date ten
Business Days after such Loan is made and (ii) the Maturity Date.
2.08 Interest.
(a) Subject to the provisions of subsection (b) below, (i) each Eurodollar Rate Loan shall
bear interest on the outstanding principal amount thereof for each Interest Period at a rate per
annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate with
44
respect to Eurodollar Rate Loans; (ii) each Base Rate Committed Loan shall bear interest on the
outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal
to the Base Rate plus the Applicable Rate with respect to Base Rate Loans; and (iii) each
Swing Line Loan shall bear interest on the outstanding principal amount thereof from the
applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable
Rate with respect to Base Rate Loans.
(b) (i) If any amount of principal of any Loan is not paid when due (after giving effect to
any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such
amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal
to the Default Rate to the fullest extent permitted by applicable Laws.
(ii) If any amount (other than principal of any Loan) payable by the Borrower under any
Loan Document is not paid when due (after giving effect to any applicable grace periods),
whether at stated maturity, by acceleration or otherwise, then upon the request of the
Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate
per annum at all times equal to the Default Rate to the fullest extent permitted by
applicable Laws.
(iii) Upon the request of the Administrative Agent or Required Lenders, after an Event
of Default under Section 8.01(a) shall have occurred and be continuing, the Borrower
shall pay interest on the principal amount of all outstanding Obligations hereunder at a
fluctuating interest rate per annum at all times equal to the Default Rate to the fullest
extent permitted by applicable Laws and shall continue to pay interest at such
rate until but excluding the date on which such Event of Default is cured or waived
(and thereafter the Pricing Level otherwise applicable shall apply).
(iv) Accrued and unpaid interest on past due amounts (including interest on past due
interest) shall be due and payable upon demand.
(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date
applicable thereto and at such other times as may be specified herein. Interest hereunder shall
be due and payable in accordance with the terms hereof before and after judgment, and before and
after the commencement of any proceeding under any Debtor Relief Law.
2.09 Fees. In addition to certain fees described in subsections (i) and (j)
of Section 2.03:
(a) Commitment Fee. The Borrower shall pay to the Administrative Agent for the
account of each Lender in accordance with its Applicable Percentage, a commitment fee equal to the
Applicable Rate with respect to Commitment Fees times the actual daily amount by which the
Aggregate Commitments exceed the Outstanding Amount of Committed Loans and L/C Obligations (but
excluding, for the avoidance of doubt, the Swing Line Loans); provided, however
that any commitment fee accrued with respect to the Commitment of a Lender that has failed to fund
any portion of the Committed Loans required to be funded by it hereunder within one Business Day
of the date required to be funded by it hereunder shall not be payable
45
by the Borrower until such
time as such failure has been cured. The commitment fees shall accrue at all times during the
Availability Period, including at any time during which one or more of the conditions in
Article IV are not met, and shall be due and payable quarterly in arrears on the tenth
Business Day after each March, June, September and December, commencing with the first such date
to occur after the Closing Date, and on the last day of the Availability Period. The commitment
fees shall be calculated quarterly in arrears, and if there is any change in the Applicable Rate
during any quarter, the actual daily amount shall be computed and multiplied by the Applicable
Rate separately for each period during such quarter that such Applicable Rate was in effect.
(b) Other Fees.
(i) The Borrower shall pay to the Arrangers, the Administrative Agent and the
Syndication Agent for their own respective accounts fees in the amounts and at the times
specified in the Fee Letter. Such fees shall be fully earned when paid and shall not be
refundable for any reason whatsoever.
(ii) The Borrower shall pay to the Lenders such fees as shall have been separately
agreed upon in writing in the amounts and at the times so specified. Such fees shall be
fully earned when paid and shall not be refundable for any reason whatsoever.
2.10 Computation of Interest and Fees. All computations of interest for Base Rate Loans when
the Base Rate is determined by Bank of Americas prime rate shall be made on the basis of a year
of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees
and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in
more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year).
Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a
Loan, or any portion thereof, for the day on which the Loan or such portion is paid,
provided that any Loan that is repaid on the same day on which it is made shall, subject to
Section 2.12(a), bear interest for one day. Each determination by the Administrative Agent
of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent
manifest error.
2.11 Evidence of Debt.
(a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or
records maintained by such Lender and by the Administrative Agent in the ordinary course of
business in accordance with its usual practice. The accounts or records maintained by the
Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of
the Credit Extensions made by the Lenders to the Borrower and the interest and payments thereon.
Any failure to so record or any error in doing so shall not, however, limit or otherwise affect
the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations.
In the event of any conflict between the accounts and records maintained by any Lender and the
accounts and records of the Administrative Agent in respect of such matters, the accounts and
records of the Administrative Agent shall control in the absence of manifest error. Upon the
request of any Lender made through the Administrative Agent, the Borrower shall execute and
deliver to such Lender (through the
46
Administrative Agent) a Note, which shall evidence such
Lenders Loans in addition to such accounts or records. Each Lender may attach schedules to its
Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and
payments with respect thereto.
(b) In addition to the accounts and records referred to in Section 2.11(a), each Lender and
the Administrative Agent shall maintain in accordance with its usual practice accounts or records
evidencing the purchases and sales by such Lender of participations in Letters of Credit and Swing
Line Loans. In the event of any conflict between the accounts and records maintained by the
Administrative Agent and the accounts and records of any Lender in respect of such matters, the
accounts and records of the Administrative Agent shall control in the absence of manifest error.
2.12 Payments Generally; Administrative Agents Clawback.
(a) General. All payments to be made by the Borrower shall be made without condition
or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly
provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent,
for the account of the respective Lenders to which such payment is owed, at the Administrative
Agents Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date
specified herein. The Administrative Agent will promptly distribute to each Lender its Applicable
Percentage (or other applicable share as provided herein) of such payment in like funds as
received by wire transfer to such Lenders Lending Office. All payments received by the
Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day
and any applicable interest or fee shall continue to accrue. If any payment to be made by the
Borrower shall come due on a day other than a Business Day, payment shall be made on the next
following Business Day, and such extension of time shall be reflected in computing interest or
fees, as the case may be; except that this sentence shall not apply to the Maturity Date.
(b) (i) Funding by Lenders; Presumption by Administrative Agent. Unless the
Administrative Agent shall have received notice from a Lender prior to the proposed date of any
Committed Borrowing of Eurodollar Rate Loans (or, in the case of any Committed Borrowing of Base
Rate Loans, prior to noon on the date of such Committed Borrowing) that such Lender will not make
available to the Administrative Agent such Lenders share of such Committed Borrowing, the
Administrative Agent may assume that such Lender has made such share available on such date in
accordance with Section 2.02 (or, in the case of a Committed Borrowing of Base Rate Loans,
that such Lender has made such share available in accordance with and at the time required by
Section 2.02) 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
Committed 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 in immediately available funds 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 (A) in the case of a payment to be made by such Lender, the greater of
the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with
banking industry rules on interbank compensation, plus any administrative, processing or similar
fees
47
customarily charged by the Administrative Agent in connection with the foregoing, and (B) in
the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans.
If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same
or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount
of such interest paid by the Borrower for such period. If such Lender pays its share of the
applicable Committed Borrowing to the Administrative Agent, then the amount so paid shall
constitute such Lenders Committed Loan included in such Committed Borrowing. Any payment by the
Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall
have failed to make such payment to the Administrative Agent.
(ii) Payments by the Borrower; Presumptions by Administrative Agent. 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 L/C Issuer
hereunder 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 L/C Issuer, 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 L/C Issuer, as the case may be, severally agrees to repay to the Administrative Agent forthwith
on demand the amount so distributed to such Lender or the L/C Issuer, in immediately available
funds with interest 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 Rate and a rate determined by the Administrative Agent in accordance with banking industry
rules on interbank compensation.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount
owing under this subsection (b) shall be conclusive, absent manifest error.
(c) Failure to Satisfy Conditions Precedent. If any Lender makes available to the
Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing
provisions of this Article II, and such funds are not made available to the Borrower by
the Administrative Agent because the conditions to the applicable Credit Extension set forth in
Article IV are not satisfied or waived in accordance with the terms hereof, the
Administrative Agent shall return such funds (in like funds as received from such Lender) to such
Lender, without interest.
(d) Obligations of Lenders Several. The obligations of the Lenders hereunder to make
Committed Loans, to fund participations in Letters of Credit and Swing Line Loans and to make
payments pursuant to Section 10.04(c) are several and not joint. The failure of any
Lender to make any Committed Loan, to fund any such participation or to make any payment under
Section 10.04(c) on any date required hereunder shall not relieve any other Lender of its
corresponding obligation to do so on such date, and no Lender shall be responsible for the failure
of any other Lender to so make its Committed Loan, to purchase its participation or to make its
payment under Section 10.04(c).
(e) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain
the funds for any Loan in any particular place or manner or to constitute a representation
48
by any
Lender that it has obtained or will obtain the funds for any Loan in any particular place or
manner.
(f) Insufficient Funds. If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal, L/C Borrowings,
interest and fees then due hereunder, such funds shall be applied (i) first, toward
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, toward payment of principal and L/C Borrowings then due hereunder, ratably among
the parties entitled thereto in accordance with the amounts of principal and L/C Borrowings then
due to such parties.
2.13 Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain
payment in respect of any principal of or interest on any of the Committed Loans made by it, or the
participations in L/C Obligations or in Swing Line Loans held by it resulting in such Lenders
receiving payment of a proportion of the aggregate amount of such Committed Loans or participations
and accrued interest thereon greater than its pro rata share thereof as provided
herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent
of such fact, and (b) purchase (for cash at face value) participations in the Committed Loans and
subparticipations in L/C Obligations and Swing Line Loans of the other Lenders, or make such other
adjustments as shall be equitable, 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 Committed Loans and other amounts owing them, provided that:
(i) if any such participations or subparticipations are purchased and all or any
portion of the payment giving rise thereto is recovered, such participations or
subparticipations shall be rescinded and the purchase price restored to the extent of such
recovery, without interest; and
(ii) the provisions of this Section shall not be construed to apply to (x) any payment
made by the Borrower pursuant to and in accordance with the express terms of this Agreement
or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a
participation in any of its Committed Loans or subparticipations in L/C Obligations or Swing
Line Loans to any assignee or participant, other than to the Borrower or any Subsidiary
thereof (as to which the provisions of this Section shall apply).
Each Loan Party 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 such Loan Party rights of setoff and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of such Loan Party in the
amount of such participation.
2.14 Increase in Commitments.
(a) Request for Increase. Provided there exists no Default, without the consent of
the Lenders and upon notice to the Administrative Agent (which shall promptly notify the
49
Lenders),
the Borrower may from time to time, request an increase in the Aggregate Commitments (as
determined by the Borrower but subject to the approval of the Administrative Agent (such approval
not to be unreasonably withheld or delayed)) by an amount that will not cause the Aggregate
Commitments to be greater than the sum of (i) the Aggregate Commitments on the Closing Date, plus
(ii) $250,000,000; provided that any such request for an increase shall be in a minimum
amount of $5,000,000. At the time of sending such notice, the Borrower may request all or part of
such increase from the existing Lenders and if it does so, shall specify (in consultation with the
Administrative Agent) the time period
within which each Lender is requested to respond (which shall in no event be less than ten
Business Days from the date of delivery of such notice to the Lenders).
(b) Lender Elections to Increase. Each Lender shall notify the Administrative Agent
within such time period whether or not it agrees to increase its Commitment and, if so, whether by
an amount equal to, greater than, or less than its Applicable Percentage of such requested
increase. Any Lender not responding within such time period shall be deemed to have declined to
increase its Commitment.
(c) Notification by Administrative Agent; Additional Lenders. The Administrative
Agent shall notify the Borrower and each Lender of the Lenders responses to each request made
hereunder. To achieve the full amount of a requested increase and subject to the approval of the
Administrative Agent, the L/C Issuer and the Swing Line Lender (which approvals shall not be
unreasonably withheld or delayed), the Borrower may also invite additional Eligible Assignees to
become Lenders pursuant to a joinder agreement in form and substance reasonably satisfactory to
the Administrative Agent and its counsel. It shall not be a condition to obtaining an increase in
the Aggregate Commitments that the full amount of such increase requested by the Borrower be
approved by the Lenders or any additional Eligible Assignees. If less than the full amount of the
increase requested by the Borrower is approved by the Lenders and any additional Eligible
Assignee, the Borrower may, at its option, accept the amount of the increase so approved, or the
Borrower may withdraw its request for such increase.
(d) Effective Date and Allocations. If the Aggregate Commitments are increased in
accordance with this Section, the Administrative Agent and the Borrower shall determine the
effective date (the Increase Effective Date) and the final allocation of such increase.
The Administrative Agent shall promptly notify the Borrower and the Lenders of the final amount
and allocation of such increase and the Increase Effective Date.
(e) Conditions to Effectiveness of Increase. As a condition precedent to such
increase, the Borrower shall deliver to the Administrative Agent a certificate of each Loan Party
dated as of the Increase Effective Date (in sufficient copies for each Lender) signed by a
Responsible Officer of such Loan Party (i) certifying and attaching the resolutions adopted by
such Loan Party approving or consenting to such increase, and (ii) in the case of the Borrower,
certifying that, before and after giving effect to such increase, (A) the representations and
warranties contained in Article V and the other Loan Documents are true and correct in all
material respects on and as of the Increase Effective Date, except to the extent that such
representations and warranties specifically refer to an earlier date, in which case they are true
and correct as of such earlier date, and except that for purposes of this Section 2.14,
the
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representations and warranties contained in subsection (a) of Section 5.05
shall be deemed to refer to the most recent statements furnished pursuant to clauses (a)
and (b) of Section 6.01, and (B) no Default exists. The Borrower shall prepay any
Committed Loans outstanding on the Increase Effective Date (and pay any additional amounts
required pursuant to Section 3.05) to the extent necessary to keep the outstanding
Committed Loans ratable with any revised Applicable Percentages arising from any nonratable
increase in the Commitments under this Section.
(f) Conflicting Provisions. This Section shall supersede any provisions in
Section 2.13 or 10.01 to the contrary.
ARTICLE III.
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes.
(a) Payments Free of Taxes. Any and all payments by or on account of any obligation
of the Borrower hereunder or under any other Loan Document shall be made free and clear of and
without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that
if the Borrower shall be required by applicable law to deduct any Indemnified Taxes (including any
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) the Administrative Agent, Lender or L/C Issuer, 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 shall make such deductions and (iii) the Borrower shall timely pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable law.
(b) Payment of Other Taxes by the Borrower. Without limiting the provisions of
subsection (a) above, the Borrower shall timely 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 L/C Issuer, within 10 days after demand therefor, for the full amount
of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section) paid by the Administrative
Agent, such Lender or the L/C Issuer, as the case may be, 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 as to the amount of such payment or liability delivered to the Borrower
by a Lender or the L/C Issuer (with a copy to the Administrative Agent), or by the Administrative
Agent on its own behalf or on behalf of a Lender or the L/C Issuer, 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 to a Governmental Authority, the Borrower shall deliver to
the Administrative Agent the original or a certified copy of a receipt issued by
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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) Status of 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 resident
for tax purposes, or any treaty to which such jurisdiction is a party, with respect to
payments hereunder or under 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 or reasonably
requested by the Borrower or the Administrative Agent, such properly completed and executed
documentation prescribed by applicable law as will permit such payments to be made without
withholding or at a reduced rate of withholding. In addition, any Lender, if requested by the
Borrower or the Administrative Agent, shall deliver such other documentation prescribed by
applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable
the Borrower or the Administrative Agent to determine whether or not such Lender is subject to
backup withholding or information reporting requirements.
Without limiting the generality of the foregoing, in the event that the Borrower is resident
for tax purposes in the United States, any Foreign Lender shall deliver to the Borrower and the
Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior
to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to
time thereafter upon the request of the Borrower or the Administrative Agent, but only if such
Foreign Lender is legally entitled to do so), whichever of the following is applicable:
(i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility
for benefits of an income tax treaty to which the United States is a party,
(ii) duly completed copies of Internal Revenue Service Form W-8ECI,
(iii) in the case of a Foreign Lender claiming the benefits of the exemption for
portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that
such Foreign Lender is not (A) a bank within the meaning of Section 881(c)(3)(A) of the
Code, (B) a 10 percent shareholder of the Borrower within the meaning of Section
881(c)(3)(B) of the Code, or (C) a controlled foreign corporation described in Section
881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form
W-8BEN, or
(iv) any other form prescribed by applicable law as a basis for claiming exemption from
or a reduction in United States Federal withholding tax duly completed together with such
supplementary documentation as may be prescribed by applicable law to permit the Borrower to
determine the withholding or deduction required to be made.
(f) Treatment of Certain Refunds. If the Administrative Agent, any Lender or the L/C
Issuer determines, in its sole discretion, that it has received a refund of any Taxes or Other
Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower
has paid additional amounts pursuant to this Section, it shall pay to the Borrower an
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amount equal
to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by
the Borrower under this Section with respect to the Taxes or Other Taxes giving rise to such
refund), net of all out-of-pocket expenses of the Administrative Agent, such Lender or the L/C
Issuer, as the case may be, 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, such Lender or the L/C Issuer, 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, such Lender or the
L/C Issuer in the event the Administrative Agent, such Lender or the L/C Issuer is required to
repay such refund to such Governmental Authority. This subsection shall not be construed to
require the Administrative Agent, any Lender or the L/C Issuer to make available its tax returns
(or any other information relating to its taxes that it deems confidential) to the Borrower or any
other Person.
3.02 Illegality. If any Lender determines that any Law has made it unlawful, or that any
Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending
Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates
based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on
the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London
interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative
Agent, any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base
Rate Committed Loans to Eurodollar Rate Loans shall be suspended until such Lender notifies the
Administrative Agent and the Borrower that the circumstances giving rise to such determination no
longer exist. Upon receipt of such notice, the Borrower shall, upon demand from such Lender (with
a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of
such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such
Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if
such Lender may not lawfully continue to maintain such Eurodollar Rate Loans. Upon any such
prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or
converted.
3.03 Inability to Determine Rates. If the Required Lenders determine that for any reason in
connection with any request for a Eurodollar Rate Loan or a conversion to or continuation thereof
that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar market
for the applicable amount and Interest Period of such Eurodollar Rate Loan, (b) adequate and
reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period
with respect to a proposed Eurodollar Rate Loan , or (c) the Eurodollar Rate for any requested
Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly
reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so
notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain
Eurodollar Rate Loans shall be suspended until the Administrative Agent (upon the instruction of
the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke
any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans or,
failing that, will be deemed to have converted such request into a request for a Committed
Borrowing of Base Rate Loans in the amount specified therein.
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3.04 Increased Costs; Reserves on Eurodollar Rate Loans.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan,
insurance charge or similar requirement against assets of, deposits with or for the account
of, or credit extended or participated in by, any Lender (except any reserve requirement
contemplated by Section 3.04(e)) or the L/C Issuer;
(ii) subject any Lender or the L/C Issuer to any tax of any kind whatsoever with
respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or
any Eurodollar Rate Loan made by it, or change the basis of taxation of payments to such
Lender or the L/C Issuer in respect thereof (except for Indemnified Taxes or Other Taxes
covered by Section 3.01 and the imposition of, or any change in the rate of, any
Excluded Tax payable by such Lender or the L/C Issuer); or
(iii) impose on any Lender or the L/C Issuer or the London interbank market any other
condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such
Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Rate Loan (or of maintaining its obligation to make any such Loan), or
to increase the cost to such Lender or the L/C Issuer of participating in, issuing or maintaining
any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of
Credit), or to reduce the amount of any sum received or receivable by such Lender or the L/C Issuer
hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or
the L/C Issuer, the Borrower will pay to such Lender or the L/C Issuer, as the case may be, such
additional amount or amounts as will compensate such Lender or the L/C Issuer, as the case may be,
for such additional costs incurred or reduction suffered.
(b) Capital Requirements. If any Lender or the L/C Issuer determines that any Change
in Law affecting such Lender or the L/C Issuer or any Lending Office of such Lender or such
Lenders or the L/C Issuers holding company, if any, regarding capital requirements has or would
have the effect of reducing the rate of return on such Lenders or the L/C Issuers capital or on
the capital of such Lenders or the L/C Issuers holding company, if any, as a consequence of this
Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of
Credit held by, such Lender, or the Letters of Credit issued by the L/C Issuer, to a level below
that which such Lender or the L/C Issuer or such Lenders or the L/C Issuers holding company
could have achieved but for such Change in Law (taking into consideration such Lenders or the L/C
Issuers policies and the policies of such Lenders or the L/C Issuers holding company with
respect to capital adequacy), then from time to time the Borrower will pay to such Lender or the
L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender
or the L/C Issuer or such Lenders or the L/C Issuers holding company for any such reduction
suffered.
(c) Certificates for Reimbursement. A certificate of a Lender or the L/C Issuer
setting forth the amount or amounts necessary to compensate such Lender or the L/C Issuer or
54
its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and
delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such
Lender or the L/C Issuer, as the case may be, the amount shown as due on any such certificate
within ten (10) days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any Lender or the L/C Issuer
to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a
waiver of such Lenders or the L/C Issuers right to demand such compensation, provided
that the Borrower shall not be required to compensate a Lender or the L/C Issuer pursuant to the
foregoing provisions of this Section for any increased costs incurred or reductions suffered more
than nine months prior to the date that such Lender or the L/C Issuer, as the case may be,
notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and
of such Lenders or the L/C Issuers intention to claim compensation therefor (except that, if the
Change in Law giving rise to such increased costs or reductions is retroactive, then the
nine-month period referred to above shall be extended to include the period of retroactive effect
thereof).
(e) Reserves on Eurodollar Rate Loans. The Borrower shall pay to each Lender, as
long as such Lender shall be required to maintain reserves with respect to liabilities or assets
consisting of or including Eurocurrency funds or deposits (currently known as Eurocurrency
liabilities), additional interest on the unpaid principal amount of each Eurodollar Rate Loan
equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by
such Lender in good faith, which determination shall be conclusive), which shall be due and
payable on each date on which interest is payable on such Loan, provided the Borrower
shall have received at least ten (10) days prior notice (with a copy to the Administrative Agent)
of such additional interest from such Lender. If a Lender fails to give notice ten (10) days
prior to the relevant Interest Payment Date, such additional interest shall be due and payable ten
(10) days from receipt of such notice.
3.05 Compensation for Losses. Upon demand of any Lender (with a copy to the Administrative Agent)
from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender
harmless from any loss, cost or expense incurred by it as a result of:
(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate
Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary,
mandatory, automatic, by reason of acceleration, or otherwise);
(b) any failure by the Borrower (for a reason other than the failure of such Lender to make a
Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or
in the amount notified by the Borrower; or
(c) any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest
Period therefor as a result of a request by the Borrower pursuant to Section 10.13;
including any loss of anticipated profits and any loss or expense arising from the liquidation or
reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the
deposits from which such funds were obtained.
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For purposes of calculating amounts payable by the Borrower to the Lenders under this Section
3.05, each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the
Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank
eurodollar market for a comparable amount and for a comparable period, whether or not such
Eurodollar Rate Loan was in fact so funded.
3.06 Mitigation Obligations; Replacement of Lenders.
(a) Designation of a Different Lending Office. If any Lender requests compensation
under Section 3.04, or 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 3.01, or
if any Lender gives a notice pursuant to Section 3.02, 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 3.01 or 3.04, as the case may be, in
the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable,
and (ii) in each case, 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
3.04, or if any Lender delivers to the Borrower a notice pursuant to Section 3.02, 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 3.01, the Borrower may replace such Lender
in accordance with Section 10.13.
3.07 Survival. All of the Borrowers obligations under this Article III shall survive
termination of the Aggregate Commitments and repayment of all other Obligations hereunder.
ARTICLE IV.
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
4.01 Conditions of Initial Credit Extension. The obligation of the L/C Issuer and each Lender to
make its initial Credit Extension hereunder is subject to satisfaction of the following conditions
precedent:
(a) The Administrative Agents receipt of the following, each of which shall be originals or
telecopies (followed promptly by originals) unless otherwise specified, each properly executed by
a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of
certificates of governmental officials, a recent date before the Closing Date) and each in form
and substance satisfactory to the Administrative Agent and each of the Lenders:
(i) executed counterparts of this Agreement and the Guaranty, sufficient in number for
distribution to the Administrative Agent, each Lender and the Borrower;
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(ii) a Note executed by the Borrower in favor of each Lender requesting a Note;
(iii) the Pledge and Security Agreement duly executed by each Loan Party; together
with:
(A) certificates, if any, representing the Pledged Shares referred to in the
Pledge and Security Agreement accompanied by undated stock powers executed in blank,
(B) proper Financing Statements in form appropriate for filing under the UCC of
all jurisdictions that the Administrative Agent and Collateral Agent may deem
necessary in order to perfect the Liens created under the Pledge and Security
Agreement, covering the Collateral described in the Pledge and Security Agreement,
(C) completed requests for information, dated on or before the date of the
initial Credit Extension, listing all effective financing statements filed in the
jurisdictions referred to in clause (B) above that name any Loan Party as debtor,
together with copies of such other financing statements,
(D) evidence of the completion of all other actions, recordings and filings of
or with respect to the Pledge and Security Agreement that the Administrative Agent
or Collateral Agent may deem necessary in order to perfect the Liens created
thereby, and
(E) evidence that all other action that the Administrative Agent and Collateral
Agent may deem necessary or desirable in order to perfect the Liens created under
the Pledge and Security Agreement has been taken (including receipt of duly executed
payoff letters, UCC-3 termination statements and landlords and bailees waiver and
consent agreements);
(iv) deeds of trust, mortgages, leasehold deeds of trust and leasehold mortgages, in
substantially the form of Exhibit I (with such changes as may be reasonably
satisfactory to the Administrative Agent and Collateral Agent and their counsel to account
for local law matters) and covering substantially all of the operating assets of the
Borrower and its Subsidiaries owned on the Closing Date (together with the Assignments of
Leases and Rents referred to therein and each other mortgage delivered
pursuant to Section 6.13, in each case as amended, the Mortgages),
duly executed by the appropriate Loan Party, together with:
(A) evidence that counterparts of the Mortgages have been duly executed,
acknowledged and delivered and are in form suitable for filing or recording in all
filing or recording offices that the Administrative Agent and Collateral Agent may
deem necessary or desirable in order to create a valid first and subsisting Lien on
the property described therein in favor of the Collateral Agent for the benefit of
the Secured Parties and that all filing, documentary,
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stamp, intangible and
recording taxes and fees have been or will be paid upon recording,
(B) in respect of the Chico Plant a fully paid title insurance policy (the
Mortgage Policies) in form and substance, with endorsements and in amounts
reasonably acceptable to the Administrative Agent and Collateral Agent, issued,
coinsured and reinsured by title insurers reasonably acceptable to the
Administrative Agent and Collateral Agent, insuring the Mortgage in respect of such
property to be valid first and subsisting Liens on the property described therein,
free and clear of all defects (including, but not limited to, mechanics and
materialmens Liens) and encumbrances, excepting only Liens permitted under the Loan
Documents, and providing for such other affirmative insurance (including
endorsements for future advances under the Loan Documents and for mechanics and
materialmens Liens) and such coinsurance and direct access reinsurance as the
Administrative Agent may deem necessary or desirable, and
(C) evidence that all other action that the Administrative Agent and Collateral
Agent may deem necessary or desirable in order to create valid first and subsisting
Liens on the property described in the Mortgages has been taken;
(v) such certificates of resolutions or other action, incumbency certificates and/or
other certificates of Responsible Officers of each Loan Party as the Administrative Agent
may reasonably require evidencing the identity, authority and capacity of each Responsible
Officer thereof authorized to act as a Responsible Officer in connection with this Agreement
and the other Loan Documents to which such Loan Party is a party;
(vi) such documents and certifications as the Administrative Agent may reasonably
require to evidence that each Loan Party is duly organized or formed, and that each Loan
Party is validly existing, in good standing and qualified to engage in business in each
jurisdiction where its ownership, lease or operation of properties or the conduct of its
business requires such qualification;
(vii) a favorable opinion of Bracewell & Giuliani LLP, counsel to the Loan Parties,
addressed to the Administrative Agent and each Lender, as to the matters set forth in
Exhibit G and such other matters concerning the Loan Parties and the Loan Documents
as the Administrative Agent may reasonably request;
(viii) the Initial Financial Statements;
(ix) certificates or binders evidencing Loan Parties insurance in effect on the date
hereof naming the Collateral Agent as loss payee and additional insured;
(x) a certificate signed by a Responsible Officer of General Partner certifying (A)
that the conditions specified in Sections 4.02(a) and (b) have been
satisfied; (B) that there has been no event or circumstance since September 30, 2006 that
has had or could be reasonably expected to have, either individually or in the aggregate, a
Material Adverse Effect; and (C) a calculation of the Consolidated Leverage Ratio as of the
Closing Date demonstrating that such ratio does not exceed 5.0 to 1.0;
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(xi) a certificate attesting to the Solvency of the Loan Parties (taken as a whole)
after giving effect to the Acquisition and the Initial Public Offering, from the chief
financial officer, chief accounting officer, treasurer or controller of General Partner; and
(xii) such other assurances, certificates, documents, consents or opinions as the
Administrative Agent, the L/C Issuer, the Swing Line Lender or the Required Lenders
reasonably may require.
(b) (i) All fees required to be paid to the Administrative Agent, the Syndication Agent and
the Arrangers on or before the Closing Date shall have been paid and (ii) all fees required to be
paid to the Lenders on or before the Closing Date shall have been paid.
(c) Unless waived by the Administrative Agent, the Borrower shall have paid all fees, charges
and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by
the Administrative Agent) to the extent invoiced prior to or on the Closing Date, plus such
additional amounts of such fees, charges and disbursements as shall constitute its reasonable
estimate of such fees, charges and disbursements incurred or to be incurred by it through the
closing proceedings (provided that such estimate shall not thereafter preclude a final settling of
accounts between the Borrower and the Administrative Agent).
(d) The Intercreditor Agreement shall have been duly executed and delivered by each party
thereto, and shall be in full force and effect.
(e) The corporate and capital structure of the Borrower shall be as disclosed in the
Registration Statement.
(f) The consummation of the Initial Public Offering shall have occurred on substantially the
terms as contained in the Registration Statement.
(g) The Borrower shall have received sufficient proceeds from the Initial Public Offering to
finance that portion of the Acquisition not funded by the use of proceeds from this Agreement.
(h) (i) The Borrower has received all governmental, shareholder and third party consents and
approvals necessary to consummate the Initial Public Offering, which consents and approvals are in
full force and effect, (ii) no order, decree, judgment, ruling or injunction exists which
restrains the consummation of the Initial Public Offering or the transactions
contemplated by this Agreement, and (iii) there is no pending, or to the knowledge of the
Borrower, threatened, action, suit, investigation or proceeding which seeks to restrain or affect
the Initial Public Offering, or which, if adversely determined, could materially and adversely
affect the ability of the Borrower to consummate the Initial Public Offering.
(i) Concurrently with the consummation of the Initial Public Offering, (i) all outstanding
Intercompany Indebtedness shall have been repaid or forgiven and (ii) that portion of the loans
made under the Targa Credit Agreement with respect to the assets owned by Targa North Texas and
acquired in the Acquisition shall have been repaid and arrangements
59
satisfactory to the
Administrative Agent shall have been made for the release of the Liens securing same.
(j) The Closing Date shall have occurred on or before March 15, 2007.
Without limiting the generality of the provisions of Section 9.04, for purposes of
determining compliance with the conditions specified in this Section 4.01, each Lender that
has signed this Agreement 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
notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
4.02 Conditions to all Credit Extensions. The obligation of each Lender to honor any Request for
Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed
Loans to the other Type, or a continuation of Eurodollar Rate Loans) is subject to the following
conditions precedent:
(a) The representations and warranties of the Borrower and each other Loan Party contained in
Article V or any other Loan Document, or which are contained in any document furnished at
any time under or in connection herewith or therewith, shall be true and correct in all material
respects on and as of the date of such Credit Extension, except to the extent that such
representations and warranties specifically refer to an earlier date, in which case they shall be
true and correct as of such earlier date, and except that for purposes of this Section
4.02, the representations and warranties contained in subsection (a) of Section
5.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses
(a) and (b) of Section 6.01.
(b) No Default shall exist, or would result from such proposed Credit Extension or from the
application of the proceeds thereof.
(c) The Administrative Agent and, if applicable, the L/C Issuer or the Swing Line Lender
shall have received a Request for Credit Extension in accordance with the requirements hereof.
Each Request for Credit Extension (other than a Committed Loan Notice requesting only a
conversion of Committed Loans to the other Type or a continuation of Eurodollar Rate Loans)
submitted by the Borrower shall be deemed to be a representation and warranty that the conditions
specified in Sections 4.02(a) and (b) have been satisfied on and as of the date of
the applicable Credit Extension.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Administrative Agent and the Lenders that:
5.01 Existence, Qualification and Power; Compliance with Laws. Each Loan Party and each Subsidiary
thereof (a) is duly organized or formed, validly existing and, as applicable, in good standing
under the Laws of the jurisdiction of its incorporation or organization, (b) has
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all requisite
power and authority and all requisite governmental licenses, authorizations, consents and approvals
to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its
obligations under the Loan Documents to which it is a party, (c) is duly qualified and is licensed
and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease
or operation of properties or the conduct of its business requires such qualification or license,
and (d) is in compliance with all Laws (excluding Environmental Laws that are the subject of
Section 5.09, federal, state and local income tax Laws that are the subject of Section
5.11 and ERISA that is the subject of Section 5.12); except in each case referred to in
clause (b)(i), (c) or (d), to the extent that failure to do so could not reasonably be expected to
have a Material Adverse Effect.
5.02 Authorization; No Contravention. The execution, delivery and performance by each Loan Party
of each Loan Document to which such Person is party, have been duly authorized by all necessary
corporate or other organizational action, and do not and will not (a) contravene the terms of any
of such Persons Organization Documents; (b) conflict with or result in any breach or contravention
of, or the creation of any Lien under (other than Liens permitted by the Loan Documents), or
require any payment to be made under (i) any Contractual Obligation (other than the Loan Documents)
to which such Person is a party or affecting such Person or the properties of such Person or any of
its Subsidiaries or (ii) any material order, injunction, writ or decree of any Governmental
Authority or any arbitral award to which such Person or its property is subject; or (c) violate any
material Law. Each Loan Party is in compliance with all Contractual Obligations referred to in
clause (b)(i), except to the extent that failure to do so could not reasonably be expected to have
a Material Adverse Effect.
5.03 Governmental Authorization; Other Consents. No approval, consent, exemption, authorization, or
other action by, or notice to, or filing with, any Governmental Authority or any other Person is
necessary or required in connection with (a) the execution, delivery or performance by, or
enforcement against, any Loan Party of this Agreement or any other Loan Document, (b) the grant by
any Loan Party of the Liens granted by it pursuant to the Security Documents, (c) the perfection or
maintenance of the Liens created under the Security Documents (including the first priority nature
thereof) or (d) the exercise by the Administrative Agent or any Lender of its rights under the Loan
Documents or the remedies in respect of the Collateral pursuant to the Security Documents, except
for (i) filings necessary to perfect and maintain the perfection of the Liens on the Collateral
granted by the Loan Parties in favor of the Lenders, (ii) the authorizations, approvals, actions,
notices and filings which have
been duly obtained, taken, given or made and are in full force and effect and (iii) those
approvals, consents, exemptions, authorizations or other action, notices or filings, the failure of
which to obtain or make could not reasonably be expected to have a Material Adverse Effect.
5.04 Binding Effect. This Agreement has been, and each other Loan Document, when delivered
hereunder, will have been, duly executed and delivered by each Loan Party that is party thereto.
This Agreement constitutes, and each other Loan Document when so delivered will constitute, a
legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is
party thereto in accordance with its terms, except as such enforceability may be limited by Debtor
Relief Laws and by general principles of equity.
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5.05 Financial Statements; No Material Adverse Effect.
(a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently
applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii)
fairly present in all material respects the financial condition of the predecessor business of the
Borrower and its Subsidiaries as of the date thereof and their results of operations for the
period covered thereby in accordance with GAAP consistently applied throughout the period covered
thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and
other liabilities, direct or contingent, of the predecessor business of the Borrower and its
Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and
Indebtedness that would be required to be disclosed in Consolidated financial statements of the
Borrower or the footnotes thereto prepared in accordance with GAAP.
(b) The unaudited pro forma Consolidated financial statements of the Borrower and its
Consolidated Subsidiaries as of September 30, 2006 (i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as otherwise expressly noted
therein, and (ii) fairly present in all material respects the Consolidated pro forma financial
condition of the Borrower and its Consolidated Subsidiaries (after giving effect to the
Acquisition) as of the date thereof and their Consolidated pro forma results of operations for the
period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes
and to normal year-end audit adjustments. As of the Closing Date, all material indebtedness and
other liabilities, direct or contingent, of the Borrower and its Consolidated Subsidiaries as of
the date of such financial statements, including liabilities for taxes, material commitments and
Indebtedness, are disclosed in the Initial Financial Statements.
(c) Since September 30, 2006, there has been no event or circumstance, either individually or
in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.
5.06 Litigation. There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the
Borrower, threatened in writing, at law, in equity, in arbitration or before any Governmental
Authority, against any Loan Party or any Subsidiary thereof or against any of their properties or
revenues, or that is contemplated by any Loan Party against any other Person that (a) purport to
affect or pertain to this Agreement or any other Loan Document, or any of the transactions
contemplated hereby, or (b) either individually or in the aggregate, if determined adversely,
could reasonably be expected to have a Material Adverse Effect.
5.07 No Default. Neither any Loan Party nor any Restricted Subsidiary thereof is in default under
or with respect to any Contractual Obligation that could, either individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. No Default has occurred and is
continuing or would result from the consummation of the transactions contemplated by this Agreement
or any other Loan Document.
5.08 Ownership of Property; Liens. Each Loan Party and each Restricted Subsidiary thereof has (or
on the Closing Date, will have) (i) good and defensible fee simple title to or valid leasehold
interests, or valid easements or other property interests in, all of its real property and
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good and
valid title to all of its personal property necessary in the ordinary conduct of its business,
except for such defects in title as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. The property of the Loan Parties and any of their
Restricted Subsidiaries is subject to no Liens other than Liens permitted under Section
7.01. No material default exists under (i) any lease on any property on which a Mortgage is
granted, or (ii) any other lease, to the extent such default would reasonably be expected to have a
Material Adverse Effect. All of the plants, offices, or facilities and other tangible assets
owned, leased or used by any Loan Party or any Restricted Subsidiary thereof in the conduct of
their respective businesses are (a) insured to the extent and in a manner required by Section
6.07, (b) structurally sound with no known defects which have or could reasonably be expected
to have a Material Adverse Effect, (c) in good operating condition and repair, subject to ordinary
wear and tear and except to the extent failure could not reasonably be expected to have a Material
Adverse Effect, (d) not in need of maintenance or repair except for ordinary, routine maintenance
and repair the cost of which is immaterial and except to the extent failure to so maintain and
repair could not reasonably be expected to have a Material Adverse Effect, (e) sufficient for the
operation of the businesses of such Loan Party and its Restricted Subsidiaries as currently
conducted, except to the extent failure to be so sufficient could not reasonably be expected to
have a Material Adverse Effect and (f) in conformity with all applicable laws, ordinances, orders,
regulations and other requirements (including applicable zoning, environmental, motor vehicle
safety, occupational safety and health laws and regulations) relating thereto, except where the
failure to conform could not reasonably be expected to have a Material Adverse Effect.
5.09 Environmental Compliance. The Borrower and its Restricted Subsidiaries periodically
conduct in the ordinary course of business a review of the effect of existing Environmental Laws
and claims
alleging potential liability or responsibility for violation of any Environmental Law on their
respective businesses, operations and properties, and as a result thereof the Borrower has
reasonably concluded that such Environmental Laws and claims could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
5.10 Insurance. The properties of each Loan Party and each Subsidiary thereof are insured with
financially sound and reputable insurance companies not Affiliates of any Loan Party, in such
amounts, with such deductibles and covering such risks as are customarily carried by companies
engaged in similar businesses and owning similar properties in localities where the applicable Loan
Party or Subsidiary operates.
5.11 Taxes. Except as could not, either individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect, each Loan Party and each Restricted Subsidiary thereof has
filed all federal, state and other tax returns and reports required to be filed, and have paid all
federal, state and other taxes, assessments, fees and other governmental charges levied or imposed
upon them or their properties, income or assets otherwise due and payable, except those which are
being contested in good faith by appropriate proceedings diligently conducted and for which
adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment
against any Loan Party or any Restricted Subsidiary thereof that would, if made, have a Material
Adverse Effect. No Loan Party nor any Restricted Subsidiary thereof is party to any tax sharing
agreement, except as provided in the Borrowers Partnership Agreement or in the Omnibus Agreement.
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5.12 ERISA Compliance.
(a) On the Closing Date, the Borrower has no Plans. Each Plan from time to time in effect
shall be in compliance in all material respects with the applicable provisions of ERISA, the Code
and other Federal or state Laws. Each such Plan that is intended to qualify under Section 401(a)
of the Code has received a favorable determination letter from the IRS or an application for such
a letter is currently being processed by the IRS with respect thereto and, to the best knowledge
of the Borrower, nothing has occurred which would prevent, or cause the loss of, such
qualification. Each Loan Party and each ERISA Affiliate have made all required contributions to
each Plan subject to Section 412 of the Code, and no application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the Code has been made with
respect to any Plan.
(b) There are no pending or, to the best knowledge of the Borrower, threatened claims,
actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could
reasonably be expected to have a Material Adverse Effect. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to any Plan that has
resulted or could reasonably be expected to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan
has any Unfunded Pension Liability; (iii) no Loan Party nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension
Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) no Loan Party
nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event
has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) no
Loan Party nor any ERISA Affiliate has engaged in a transaction that could be subject to Section
4069 or 4212(c) of ERISA.
5.13 Subsidiaries; Equity Interests; Taxpayer Identification Number. Other than those specifically
disclosed in Part (a) of Schedule 5.13 or as disclosed from time to time pursuant to
Sections 6.12, the Borrower has no Subsidiaries and all of the outstanding Equity Interests
in the Borrowers Subsidiaries have been validly issued, are fully paid and nonassessable and are
owned in the amounts so disclosed free and clear of all Liens other than the Liens created pursuant
to the Loan Documents. Set forth on Part (b) of Schedule 5.13, as of the Closing Date, as
supplemented by each report required to be delivered pursuant to Section 6.02(k), as of the
date of such report is: (i) a complete and accurate list of all Loan Parties showing as of such
date the jurisdiction of its formation, the address of its principal place of business, its U.S.
taxpayer identification number or, in the case of any non-U.S. Loan Party that does not have a U.S.
taxpayer identification number, its unique identification number issued to it by the jurisdiction
of its incorporation, and, for the preceding 5 years, any other jurisdiction of organization and
any other name (including any trade or fictitious name) used by such Loan Party, and (ii) a
complete and accurate list of the Investments of the type permitted by Sections 7.02(d),
(i) or (j) and Investments in Partially Owned Operating Companies. All of the
outstanding Equity Interests in the Borrower have been validly issued, are fully paid and
nonassessable, except with respect to additional contributions required to be made by General
Partner pursuant to the Borrowers Partnership Agreement or applicable Law.
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5.14 Margin Regulations; Investment Company Act.
(a) No Loan Party is engaged or will engage, principally or as one of its important
activities, in the business of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying
margin stock.
(b) No Loan Party nor any Person Controlling any Loan Party nor any Subsidiary thereof is or
is required to be registered as an investment company under the Investment Company Act of 1940.
5.15 Disclosure. Each Loan Party has disclosed to the Administrative Agent and the Lenders all
matters required to be disclosed pursuant to Section 6.03. No report, financial statement,
certificate or other written information furnished by or on behalf of any Loan Party to the
Administrative
Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of
this Agreement or delivered hereunder or under any other Loan Document (in each case, as modified
or supplemented by other information so furnished) when taken as a whole contains any material
misstatement of fact or omits to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading; provided
that, with respect to projected financial information, the Borrower represents only that such
information was prepared in good faith based upon assumptions believed to be reasonable at the time
of preparation; provided, further, that, with respect to pro forma financial
information, the Borrower represents only that such information was prepared in good faith and
reflects, in all material respects, such pro forma financial information is in accordance with
assumptions and requirements of GAAP for pro forma presentation and based upon such other
assumptions that are believed to be reasonable at the time of preparation and, to the extent
material, are disclosed as part of such pro forma financial information.
5.16 Compliance with Laws. Each Loan Party and each Restricted Subsidiary thereof is in compliance
in all material respects with the requirements of all Laws (except for Environmental Laws that are
the subject of Section 5.09, federal and state income tax Laws that are the subject of
Section 5.11 and ERISA that is the subject of Section 5.12) and all orders, writs,
injunctions and decrees applicable to it or to its properties, except in such instances in which
(a) such requirement of Law or order, writ, injunction or decree is being contested in good faith
by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either
individually or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
5.17 Intellectual Property; Licenses, Etc. Each Loan Party and each Restricted Subsidiary thereof
own, or possess the right to use, all of the trademarks, service marks, trade names, copyrights,
patents, patent rights, franchises, licenses and other intellectual property rights (collectively,
IP Rights) that are reasonably necessary for the operation of their respective businesses as
currently conducted, and, without conflict with the rights of any other Person, except to the
extent such conflict, either individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect. To the best knowledge of the Borrower, no slogan or other
advertising device, product, process, method, substance, part or other material now employed, or
now contemplated to be employed, by any Loan Party or any
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Restricted Subsidiary thereof infringes
upon any rights held by any other Person, except to the extent such conflicts, either individually
or in the aggregate, which could not reasonably be expected to have a Material Adverse Effect. No
claim or litigation regarding any of the foregoing is pending or, to the best knowledge of the
Borrower, threatened, which, either individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.
5.18 Labor Disputes and Acts of God. Neither the business nor the properties of any Loan
Party or any Restricted Subsidiary thereof has been affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of
the public enemy or other casualty
(whether or not covered by insurance), that either individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect.
5.19 Solvency. Upon giving effect to the execution of this Agreement and the other Loan
Documents by each Loan Party and the consummation of the transactions contemplated hereby and
thereby, each Loan Party will be Solvent.
5.20 Credit Arrangements. No Affiliate of any Loan Party is party to or subject to any credit
agreement, loan agreement, indenture, purchase agreement, guaranty or other arrangement providing
for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any
extension of credit) that creates by a covenant of such Affiliate or otherwise, any limitation or
restriction of any action of any Loan Party or any obligation that any Loan Party be caused to take
any action.
5.21 Real Property. As of the Closing Date, Schedule 5.21 sets forth a description of each
material fee owned property owned by any Loan Party and each material parcel of real property
leased by any Loan Party (in both cases, other than the realty associated with the pipelines and
gathering systems and other than immaterial real property including, but not limited to, compressor
sites, pump stations and meter sites). All material pipelines, gathering systems and the realty
associated therewith owned by the Loan Parties as of the Closing Date are described in the
Registration Statement. The Borrower shall provide updates to Schedule 5.21 upon the
reasonable request of the Administrative Agent.
5.22 Labor Matters. There are no collective bargaining agreements or Multiemployer Plans covering
the employees of any Loan Party or any Subsidiary thereof as of the Closing Date and except as
could not reasonably be expected to have a Material Adverse Effect, no Loan Party nor any
Subsidiary thereof has suffered any strikes, walkouts, work stoppages or other material labor
difficulty within the last five years.
5.23 Security Documents. The provisions of the Security Documents are effective to create in favor
of the Collateral Agent for the benefit of the Secured Parties a legal, valid and enforceable first
priority Lien (subject to Liens permitted by Section 7.01) on all right, title and interest
of the respective Loan Parties in the Collateral described therein. Except for filings completed
prior to the Closing Date and as contemplated hereby and by the Collateral Documents from time to
time, no filing or other action will be necessary to perfect or protect such Liens.
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ARTICLE VI.
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation
hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, the
Borrower shall, and shall (except in the case of the covenants set forth in Sections 6.01,
6.02, and 6.03) cause each Restricted Subsidiary to:
6.01 Financial Statements. Deliver to the Administrative Agent for further distribution to each
Lender:
(a) as soon as available, but in any event within 30 days after the date on which the Borrower
is required under Securities Laws to file a Form 10-K annual report for each fiscal year of the
Borrower (commencing with the fiscal year ended December 31, 2007), a Consolidated and
consolidating balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year,
and the related Consolidated and consolidating statements of income or operations, partners equity
and cash flows for such fiscal year, setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, such
consolidating statements to be for the Guarantors on a combined basis and the Borrowers
Subsidiaries that are not Guarantors on a combined basis and such Consolidated statements to be
audited and accompanied by a report and opinion of an independent certified public accountant of
nationally recognized standing reasonably acceptable to the Administrative Agent, which report and
opinion shall be prepared in accordance with generally accepted auditing standards and applicable
Securities Laws and shall not be subject to any going concern or like qualification or exception
or any qualification or exception as to the scope of such audit; and
(b) as soon as available, but in any event within 30 days after the date on which the Borrower
is required under Securities Laws to file a Form 10-Q quarterly reports for each of the first three
fiscal quarters of each fiscal year of the Borrower (commencing with the fiscal quarter ended March
31, 2007), a Consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as
at the end of such fiscal quarter, and the related Consolidated and consolidating statements of
income or operations, partners equity and cash flows for such fiscal quarter and for the portion
of the Borrowers fiscal year then ended, setting forth in each case in comparative form the
figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding
portion of the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP,
such consolidating statements to be for the Guarantors on a combined basis and the Borrowers
Subsidiaries that are not Guarantors on a combined basis and such Consolidated statements to be
certified by the chief financial officer, chief accounting officer, treasurer or controller of the
Borrower as fairly presenting the financial condition, results of operations, partners equity and
cash flows of the Borrower and its Subsidiaries in accordance with GAAP, subject only to normal
year-end audit adjustments and the absence of footnotes.
6.02 Certificates; Other Information. Deliver to the Administrative Agent for further
distribution to each Lender:
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(a) no later than three (3) days after the delivery of the financial statements referred to in
Sections 6.01(a) and (b), a duly completed Compliance Certificate signed by a Responsible Officer
of General Partner and stating that such officer has caused this Agreement to be reviewed and has
no knowledge of any Default by the Borrower in the performance or observance of any of the
provisions of this Agreement, during, or at the end of, as applicable, such fiscal year or fiscal
quarter, or, if such officer has such knowledge, specifying each Default and the nature thereof,
showing compliance by the Borrower as of the date of such statement with the financial covenants
set forth in Article VII, and calculations for such financial covenants shall be included,
and the other applicable covenants set forth in Exhibit D;
(b) promptly after any request by the Administrative Agent or any Lender, copies of any
detailed audit reports, management letters or recommendations submitted to the board of directors
(or the audit committee of the board of directors) of the Borrower by independent accountants in
connection with the accounts or books of the Borrower or any Subsidiary, or any audit of any of
them;
(c) promptly after the same are available, copies of each annual report, proxy or financial
statement or other report or communication sent to the partners of the Borrower, and copies of all
annual, regular, periodic and special reports and registration statements which the Borrower may
file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act
of 1934, or with any national securities exchange, and in any case not otherwise required to be
delivered to the Administrative Agent pursuant hereto;
(d) promptly, and in any event within five Business Days after receipt thereof by any Loan
Party or any Subsidiary thereof, copies of each notice or other correspondence received from the
SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or
possible investigation or other inquiry by such agency regarding financial or other operational
results of any Loan Party or any Subsidiary thereof;
(e) promptly after the furnishing thereof, copies of any statement or report furnished to any
holder of debt securities of any Loan Party or any Subsidiary thereof pursuant to the terms of any
indenture, loan or credit or similar agreement and not otherwise required to be furnished to the
Lenders pursuant to Section 6.01 or any other clause of this Section 6.02;
(f) within five Business Days after (i) a Responsible Officers receipt of any written notice
of any violation by any Loan Party of any Environmental Law, (ii) a Responsible Officers
obtaining knowledge that any Governmental Authority has asserted that any Loan Party is not in
compliance with any Environmental Law or that any Governmental Authority is investigating any Loan
Partys compliance therewith, (iii) a Responsible Officers receipt of any written notice from any
Governmental Authority or other Person or otherwise obtaining knowledge that any Loan Party is or
may be liable to any Person as a result of the Release or threatened Release of any Contaminant or
that any Loan Party is subject to investigation by any Governmental Authority evaluating whether
any remedial action is needed to respond to the Release or threatened Release of any Contaminant,
or (iv) a Responsible Officers receipt of any written notice of the imposition of any
Environmental Lien against any property of any Loan Party which in any event under clause (i),
(ii), (iii) or (iv) preceding could reasonably be expected to result in, or has resulted in,
liability, either individually or in the aggregate, in excess
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of $10,000,000 or otherwise could reasonably be expected to have, or has resulted in, a
Material Adverse Effect, copies of such notice or a written notice setting forth the matters in
(ii) above;
(g) not less than 3 Business Days prior to any change in any Loan Partys (i) name as it
appears in the jurisdiction of its formation, incorporation, or organization, (ii) type of entity,
or (iii) organizational identification number, written notice thereof;
(h) upon the Administrative Agents request, or, in the event that such filing reflects a
significant material adverse change with respect to the matters covered thereby, within three
Business Days after the filing thereof with the PBGC, the DOL, or the IRS, as applicable, copies of
the following: (i) each annual report (form 5500 series), including Schedule B thereto, filed with
the PBGC, the DOL, or the IRS with respect to each Plan; (ii) a copy of each funding waiver request
filed with the PBGC, the DOL, or the IRS with respect to any Plan and all communications received
by any Loan Party or any ERISA Affiliate from the PBGC, the DOL, or the IRS with respect to such
request; and (iii) a copy of each other filing or notice filed with the PBGC, the DOL, or the IRS,
with respect to each Plan by any Loan Party or any ERISA Affiliate;
(i) as soon as available, but in any event within 90 days after the end of each fiscal year, a
business and financial plan for the Borrower (in form reasonably satisfactory to Administrative
Agent and based on assumptions believed to be reasonable in light of the circumstances at the time
when made), prepared or caused to be prepared by a Responsible Officer of General Partner, setting
forth for the then calendar year, financial projections, budgets and hedging schedules for the
Borrower and its Consolidated Subsidiaries;
(j) not less than one Business Day prior to, and as a condition to, (i) the making of a
Material Acquisition or Disposition, (ii) the commencement of any Material Project, (iii) the
designation of any Subsidiary as a Restricted Subsidiary (other than an Immaterial Subsidiary) or
an Unrestricted Subsidiary (including at the time of formation or acquisition of such Subsidiary),
or (iv) to the extent exceeding (in the aggregate with any related transactions) $25,000,000, the
making of any Investment permitted under Section 7.02 (d), (i) or (j), or
the incurrence of any Indebtedness permitted under Section 7.03(f) or (o), a
certificate from a Responsible Officer of General Partner demonstrating compliance or pro forma
compliance, as the case may be, with the provisions of Section 7.14 and/or Section
7.15 and containing calculations in such detail as may be reasonably required by the
Administrative Agent;
(k) at the time of the delivery of each Compliance Certificate under Section 6.02(a),
a report containing a description of all changes in the information included in Part (b) of
Schedule 5.13 as may be necessary for Part (b) of Schedule 5.13 to be accurate and
complete as of the date of such report; and
(l) promptly, such additional information regarding the business, financial or corporate
affairs of the Borrower or any Subsidiary, or compliance with the terms of the Loan Documents, as
the Administrative Agent or any Lender may from time to time reasonably request.
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Documents required to be delivered pursuant to Section 6.01(a) or (b) or
Section 6.02(a) (to the extent any such documents are included in materials otherwise filed
with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been
delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on
the Borrowers website on the Internet at the website address listed on Schedule 10.02; or
(ii) on which such documents are posted on the Borrowers behalf on an Internet or intranet
website, if any, to which each Lender and the Administrative Agent have access (whether a
commercial, third-party website or whether sponsored by the Administrative Agent); provided
that: (I) the Borrower shall deliver paper copies of such documents to the Administrative Agent or
any Lender that requests the Borrower to deliver such paper copies until a written request to cease
delivering paper copies is given by the Administrative Agent or such Lender and (II) the Borrower
shall notify the Administrative Agent (by telecopier or electronic mail) of the posting of any such
documents and provide to the Administrative Agent by electronic mail electronic versions
(i.e., soft copies) of such documents. The Administrative Agent shall have no obligation
to request the delivery or to maintain copies of the documents referred to above, and in any event
shall have no responsibility to monitor compliance by the Borrower with any such request for
delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining
its copies of such documents.
The Borrower hereby acknowledges that (a) the Administrative Agent, the Syndication Agent
and/or the Arrangers will make available to the Lenders and the L/C Issuer materials and/or
information provided by or on behalf of the Borrower hereunder (collectively, the Borrower
Materials) by posting the Borrower Materials on IntraLinks or another similar electronic
system (the Platform) and (b) certain of the Lenders may be public-side Lenders (i.e.,
Lenders that do not wish to receive material non-public information with respect to the Borrower or
its securities) (each, a Public Lender). The Borrower hereby agrees that so long as the
Borrower is the issuer of any outstanding debt or equity securities that are registered or issued
pursuant to a private offering or is actively contemplating issuing any such securities (w) all the
Borrower Materials that are to be made available to Public Lenders shall be clearly and
conspicuously marked PUBLIC which, at a minimum, shall mean that the word PUBLIC shall appear
prominently on the first page thereof; (x) by marking the Borrower Materials PUBLIC, the Borrower
shall be deemed to have authorized the Administrative Agent, the Syndication Agent, the Arrangers,
the L/C Issuer and the Lenders to treat such Borrower Materials as not containing any material
non-public information (although it may be sensitive and proprietary) with respect to the Borrower
or its securities for purposes of United States Federal and state securities laws; (y) all the
Borrower Materials marked PUBLIC are permitted to be made available through a portion of the
Platform designated Public Investor; and (z) the Administrative Agent, the Syndication Agent and
the Arrangers shall be entitled to treat any the Borrower Materials that are not marked PUBLIC as
being suitable only for posting on a portion of the Platform not designated Public Investor.
6.03 Notices. Promptly notify the Administrative Agent:
(a) of the occurrence of any Default;
(b) to the extent not otherwise disclosed pursuant to Section 6.02(c), of any matter
that has resulted or could reasonably be expected to result in a Material Adverse Effect,
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including (i) breach or non-performance of, or any default under, a Contractual Obligation of the
Borrower or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension,
or any material development therein, between the Borrower or any Subsidiary and any Governmental
Authority; or (iii) the commencement of, or any material development in, any litigation or
proceeding by any Person not a Governmental Authority affecting the Borrower or any Subsidiary;
(c) of the occurrence of any ERISA Event;
(d) of any material change in accounting policies or financial reporting practices by the
Borrower or any Subsidiary; and
(e) of the occurrence of any Disposition of property or assets, any sale of Equity Interests,
any incurrence or issuance of any Indebtedness or receipt of any Extraordinary Receipt, in each
case with respect to which the Borrower is required to make a mandatory prepayment pursuant to
Section 2.05.
Each notice pursuant to this Section 6.03 shall be accompanied by a statement of a
Responsible Officer of General Partner setting forth details of the occurrence referred to therein
and stating what action the Borrower has taken and proposes to take with respect thereto. Each
notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions
of this Agreement and any other Loan Document that have been breached, if any.
6.04 Payment of Obligations. Pay and discharge as the same shall become due and payable, all its
obligations and liabilities (including all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets and all lawful claims which, if unpaid, would by law
become a Lien upon its property) except in each case, to the extent the failure to pay or discharge
the same could not reasonably be expected to have a Material Adverse Effect.
6.05 Preservation of Existence, Etc. (a) Preserve, renew and maintain in full force and effect its
legal existence and good standing under the Laws of the jurisdiction of its organization except in
a transaction permitted by Section 7.05 or 7.06; (b) take all reasonable action to
maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the
normal conduct of its business, except to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered
patents, trademarks, trade names and service marks, the non-preservation of which could reasonably
be expected to have a Material Adverse Effect.
6.06 Maintenance of Properties. Except where the failure to do so could not reasonably be expected
to have a Material Adverse Effect, (a) maintain, preserve and protect all of its material
properties and equipment necessary in the operation of its business in good working order and
condition, ordinary wear and tear
excepted; (b) make all necessary repairs thereto and renewals and replacements thereof; and (c) use
the standard of care typical in the industry in the operation and maintenance of its facilities.
6.07 Maintenance of Insurance. Maintain with financially sound and reputable insurance companies
not Affiliates of any Loan Party, insurance with respect to its properties and
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business against
loss or damage of the kinds customarily insured against by Persons engaged in the same or similar
business, of such types and in such amounts as are customarily carried under similar circumstances
by such other Persons and providing (a) for payment of losses to the Collateral Agent as its
interests may appear, (b) that such policies may not be canceled or reduced or affected in any
material manner for any reason without 30 days prior notice to the Collateral Agent (or 10 days
prior notice in the case of a failure to pay premiums), and (c) to provide for any other matters
specified in any applicable Security Document or which the Administrative Agent may reasonably
require. Each Loan Party will maintain any additional insurance coverage as described in the
respective Security Documents. The Borrower shall maintain, or cause to be maintained, with an
insurer reasonably acceptable to the Administrative Agent, flood insurance sufficient for Lenders
to comply with Regulation H of the Board of Governors of the Federal Reserve System. Each Loan
Party shall at all times maintain insurance against business interruption and its liability for
injury to persons or property in accordance with Schedule 6.07, which insurance shall be by
financially sound and reputable insurers.
6.08 Compliance with Laws. Comply in all material respects with the requirements of all Laws and
all orders, writs, injunctions and decrees applicable to it or to its business or property, except
in such instances in which (a) such requirement of Law or order, writ, injunction or decree is
being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure
to comply therewith could not reasonably be expected to have a Material Adverse Effect.
6.09 Books and Records. Maintain proper books of record and account, in which entries in
conformity with GAAP consistently applied shall be made of all financial transactions and matters
involving the assets and business of the Borrower and such Subsidiary, as the case may be.
6.10 Inspection Rights. Permit representatives and independent contractors of the Administrative
Agent and each Lender to visit and inspect any of its properties, to examine its corporate,
financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its
affairs, finances and accounts with its directors, officers, and independent public accountants,
and at such reasonable times during normal business hours and as often as may be reasonably
desired, upon reasonable advance notice to the Borrower; provided, however, that,
excluding any such visits and inspections during the continuation of an Event of Default, only the
Administrative Agent on behalf of the Lenders may exercise rights of the Administrative Agent and
the Lenders under this Section 6.10 and the Administrative Agent shall not exercise such rights
more often than one (1)
time during any calendar year absent the existence of an Event of Default and only one (1) such
time shall be at the Borrowers expense; provided, further that when an Event of
Default exists the Administrative Agent or any Lender (or any of their respective representatives
or independent contractors) may do any of the foregoing at the expense of the Borrower at any time
during normal business hours and without advance notice.
6.11 Use of Proceeds. On the Closing Date, use the proceeds of this Agreement to (i) fund a
portion of the Acquisition and related expenses, (ii) repay Intercompany Indebtedness, and (iii)
pay fees and expenses incurred pursuant to this Agreement and the Initial Public Offering.
Thereafter, the proceeds of this Agreement shall be used for working capital including
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the issuance
of Letters of Credit, capital expenditures, and for general corporate purposes not in contravention
of any Law or of any Loan Document.
6.12 Additional Subsidiaries, Guarantors and Pledgors. Notify the Administrative Agent and
the Collateral Agent not later than three (3) Business days after any Person becomes a Subsidiary,
which notice shall provide the information included in Schedule 5.13 as may be necessary
for Schedule 5.13 to be accurate and complete as of the date of such notice and shall
specify whether such Person is a Domestic Restricted Subsidiary (and if it is or is to be treated
as an Immaterial Subsidiary information demonstrating to the reasonable satisfaction of the
Administrative Agent that such treatment is permitted), a Partially Owned Operating Company, a
Foreign Subsidiary or an Unrestricted Subsidiary (and shall include compliance with the
requirements of Section 6.18 for designation as an Unrestricted Subsidiary) and (a) in the
case of any Person that becomes a Domestic Restricted Subsidiary (other than an Immaterial
Subsidiary) of the Borrower, and promptly thereafter (and in any event within 30 days (or such
longer period as the Administrative Agent may agree in its discretion)), cause such Person, to (i)
become a Guarantor by executing and delivering to the Administrative Agent a counterpart of the
Guaranty or such other document as the Administrative Agent shall deem appropriate for such
purpose, and (ii) deliver to the Administrative Agent documents of the types referred to in clauses
(v) and (vi) of Section 4.01(a) and, if requested by the Administrative Agent, favorable
opinions of counsel to such Person (which shall cover, among other things, the legality, validity,
binding effect and enforceability of the documentation referred to in clause (i)), all in form,
content and scope reasonably satisfactory to the Administrative Agent and (b) at the time that any
Person becomes a Restricted Subsidiary of the Borrower or a Partially Owned Operating Company, and
promptly thereafter (and in any event within 30 days (or such longer period as the Administrative
Agent may agree in its discretion)), (w) cause all of the Equity Interests, or Eligible Equity
Interests in the case of a First-Tier Foreign Subsidiary, of such Person owned by a Loan Party to
be pledged to the Collateral Agent to secure the Obligations, the Cash Management Obligations and
the Secured Swap Obligations by executing and delivering the Pledge and Security Agreement or a
joinder thereto, (x) pursuant to the Pledge and Security Agreement, deliver or cause to be
delivered to the Collateral Agent all certificates, stock powers and other documents required by
the Pledge and Security Agreement with respect to all such Equity Interests or Eligible Equity
Interests, as applicable, in any such Person, (y) take or cause to be taken such other actions, all
as may be necessary to provide the Collateral Agent with a first priority perfected pledge on and
security interest in such Equity Interests or Eligible
Equity Interests, as applicable, in such Subsidiary, and (z) deliver to the Collateral Agent
documents of the types referred to in clauses (v) and (vi) of Section
4.01(a) and, if requested by the Collateral Agent, favorable opinions of counsel to such Person
(which shall cover, among other things, the legality, validity, binding effect and enforceability
of the documentation referred to in clause (w)), all in form, content and scope reasonably
satisfactory to the Administrative Agent.
6.13 Agreement to Deliver Security Documents. Deliver and to cause each Guarantor and any other
Person required by the Administrative Agent or the Collateral Agent to deliver, to further secure
the Obligations, the Secured Swap Obligations, and the Cash Management Obligations, whenever
requested by the Administrative Agent or Collateral Agent in their sole and absolute discretion,
deeds of trust, mortgages, chattel mortgages, security agreements, flood hazard certification,
evidence of title, financing statements and other Security Documents in form and substance
satisfactory to the Administrative Agent and Collateral Agent
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for the purpose of granting,
confirming, and perfecting first and prior liens or security interests, subject only to Liens
permitted under the Loan Documents, on any real or personal property now owned or hereafter
acquired by such Persons, excluding real property that, taken together with all property reasonably
related thereto or used in connection therewith that does not then constitute Collateral, has a
fair market value of less than $10,000,000. Notwithstanding the foregoing, (a) Equity Interests of
a Person that is not a Subsidiary or a Partially Owned Operating Company shall not be required to
be Collateral to the extent prohibited by a provision that is permitted by clause (II) of the
proviso in Section 7.10 and (b) Equity Interests of an Unrestricted Subsidiary shall not be
required to be Collateral.
6.14 Perfection and Protection of Security Interests and Liens. Deliver and to cause each
Guarantor and any other Person required by the Administrative Agent or Collateral Agent to deliver
Security Documents pursuant to Section 6.13, to deliver from time to time to the
Collateral Agent any financing statements, continuation statements, extension agreements and other
documents, properly completed and executed (and acknowledged when required) by such Persons in form
and substance reasonably satisfactory to the Collateral Agent, which the Collateral Agent requests
for the purpose of perfecting, confirming, or protecting any Liens or other rights in any property
securing any Obligations, Secured Swap Obligations and Cash Management Obligations. The Borrower
further agrees to promptly, upon request by the Administrative Agent or Collateral Agent, or any
Lender through the Administrative Agent, correct any material defect or error that may be
discovered in any Security Document or in the execution, acknowledgment, filing or recordation
thereof.
6.15 Performance on the Borrowers Behalf. If any Loan Party fails to pay any taxes, insurance
premiums, expenses, attorneys fees or other amounts it is required to pay under any Loan Document,
the Administrative Agent may pay the same after notice of such payment by the Administrative Agent
is given to the Borrower. The Borrower shall promptly reimburse the Administrative Agent for any
such payments and each amount paid by the Administrative Agent shall constitute an Obligation owed
hereunder which is due and payable on the date such amount is paid by the Administrative Agent.
6.16 Environmental Matters; Environmental Reviews. Except, in each case, to the extent that the failure
to do so could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect, (a) comply in all
material respects with all Environmental Laws now or hereafter applicable to such Loan Party as
well as all contractual obligations and agreements with respect to environmental remediation or
other environmental matters, (b) obtain, at or prior to the time required by applicable
Environmental Laws, all environmental, health and safety permits, licenses and other authorizations
necessary for its operations and will maintain such authorizations in full force and effect, (c)
conduct any investigation, study, sampling and testing, and undertake any cleanup, removal,
remedial or other action necessary to remove and clean up all Hazardous Materials from any of its
properties, in accordance with the requirements of all Environmental Laws, and (d) promptly pay and
discharge when due all Environmental Liabilities and debts, claims, liabilities and obligations
with respect to any clean-up or remediation measures necessary to comply with Environmental Laws
unless, in each case, the same are being contested in good faith by appropriate proceedings
diligently conducted and adequate reserves in accordance with GAAP are being maintained by the
applicable Loan Party.
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6.17 Compliance with Agreements. Observe, perform or comply with any agreement with any Person or
any term or condition of any instrument, if such agreement or instrument is materially significant
to such Loan Party or to Loan Parties on a Consolidated basis or materially significant to any
Guarantor, unless any such failure to so observe, perform or comply is remedied within the
applicable period of grace (if any) provided in such agreement or instrument or unless such failure
to so observe, perform or comply would not reasonably be expected to have a Material Adverse
Effect.
6.18 Designation and Conversion of Restricted and Unrestricted Subsidiaries.
(a) Unless designated after the Closing Date in writing to the Administrative Agent pursuant
to this Section, any Person that becomes a Subsidiary of the Borrower or any of its Restricted
Subsidiaries shall be classified as a Restricted Subsidiary.
(b) The Borrower may designate any Subsidiary (including a newly formed or newly acquired
Subsidiary) as an Unrestricted Subsidiary if (i) the representations and warranties of the Loan
Parties contained in each of the Loan Documents are true and correct on and as of such date as if
made on and as of the date of such designation (or, if stated to have been made expressly as of an
earlier date, were true and correct as of such date), (ii) after giving effect to such
designation, no Default or Event of Default would exist, (iii) immediately after giving effect to
such designation, the Borrower and its Restricted Subsidiaries shall be in pro forma compliance
with all of the covenants set forth in Sections 7.14 and 7.15, such compliance to
be determined on the basis of the financial information most recently delivered to the
Administrative Agent and the Lenders pursuant to Section 6.01(a) or (b) as though
such Investment had been consummated as of the first day of the fiscal period covered thereby,
(iv) no Subsidiary may be designated as an Unrestricted Subsidiary if it will be treated as a
restricted subsidiary for purposes of any indenture or agreement governing Unsecured Note
Indebtedness and (v) in the case of a Subsidiary which is already classified as a Restricted
Subsidiary (other than an Immaterial Subsidiary), the Borrower has obtained the prior written
consent of the Administrative Agent and the Required Lenders. Except as provided in this Section,
no Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary.
(c) The Borrower may designate any Unrestricted Subsidiary to be a Restricted Subsidiary if
after giving effect to such designation, (i) the representations and warranties of the Loan
Parties contained in each of the Loan Documents are true and correct in all material respects on
and as of such date as if made on and as of the date of such redesignation (or, if stated to have
been made expressly as of an earlier date, were true and correct as of such date), (ii) after
giving effect to such designation, no Default or Event of Default would exist and (iii)
immediately after giving effect to such designation, the Borrower and its Restricted Subsidiaries
shall be in pro forma compliance with all of the covenants set forth in Sections 7.14 and
7.15, such compliance to be determined on the basis of the financial information most
recently delivered to the Administrative Agent and the Lenders pursuant to Section 6.01(a)
or (b) as though such Investment had been consummated as of the first day of the fiscal
period covered thereby.
(d) The Borrower will not, and will not permit any of the Restricted Subsidiaries to
Guarantee any Indebtedness or other obligations of any Unrestricted Subsidiary.
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(e) The Borrower will not permit any Unrestricted Subsidiary to hold any Equity Interests in,
or any Indebtedness of, the Borrower or any Restricted Subsidiary.
6.19 Maintenance of Corporate Separateness. Satisfy customary corporate or limited liability
company formalities and other requirements necessary to preserve the separate existence of each
Unrestricted Subsidiary from the Borrower and each Restricted Subsidiary.
ARTICLE VII.
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation
hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, the
Borrower shall not, nor shall it permit any Restricted Subsidiary to, directly or indirectly:
7.01 Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired, other than the following:
(a) Liens pursuant to any Loan Document;
(b) Liens existing on the date hereof and listed on Schedule 7.01 and any renewals or
extensions thereof, provided that (i) the Lien does not extend to any additional property
other than after-acquired property that is affixed or incorporated into the property covered by
such Lien or financed by Indebtedness permitted under Section 7.03 and proceeds and
products thereof, (ii) the amount secured or benefited thereby is not increased except as
contemplated by Section 7.03(b), (iii) the direct or any contingent obligor with respect
thereto is not changed, and (iv) any renewal or extension of the obligations secured or benefited
thereby is permitted by Section 7.03(b);
(c) Liens for taxes not yet due or which are being contested in good faith and by appropriate
proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the
books of the applicable Person in accordance with GAAP;
(d) carriers, warehousemens, mechanics, materialmens, repairmens or other like Liens
arising in the ordinary course of business which are not overdue for a period of more than 60 days
or if more than sixty (60) days overdue, are unfiled and no other action has been take to enforce
such Lien or which are being contested in good faith and by appropriate proceedings diligently
conducted, if adequate reserves with respect thereto are maintained on the books of the applicable
Person in accordance with GAAP;
(e) (i) pledges or deposits in the ordinary course of business in connection with workers
compensation, unemployment insurance and other social security legislation, other than any Lien
imposed by ERISA and (ii) pledges and deposits in the ordinary course of business securing
liability for reimbursement or indemnification obligations of (including obligations in respect of
letters of credit or bank guarantees for the benefit of) insurance carriers providing property,
casualty or liability insurance to the Borrower or any of its
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Restricted Subsidiaries and (iii)
Liens on proceeds of insurance policies securing Indebtedness permitted under Section
7.03(m)(i);
(f) deposits to secure the performance of bids, trade contracts and leases (other than
Indebtedness), statutory obligations, surety bonds (other than bonds related to judgments or
litigation), performance bonds and other obligations of a like nature incurred in the ordinary
course of business;
(g) easements, rights-of-way, servitudes, permits, reservations, exceptions, covenants and
other restrictions as to the use of real property, and other similar encumbrances incurred in the
ordinary course of business which, with respect to all of the foregoing, do not secure the payment
of Indebtedness of a Loan Party (other than pursuant to the Loan Documents) and which do not in
any case materially detract from the value of the property subject thereto or materially interfere
with the ordinary conduct of the business of the applicable Person;
(h) Liens securing judgments for the payment of money not constituting an Event of Default
under Section 8.01(h) or securing appeal or other surety bonds related to such judgments;
(i) Liens securing Capital Leases and purchase money Indebtedness permitted under Section
7.03(e); provided that (i) such Liens securing purchase money Indebtedness do not at any time
encumber any property other than the property financed by such Indebtedness and the proceeds and
products thereof and (ii) the Indebtedness secured thereby does not exceed as of the date such
Indebtedness is incurred the cost or fair market value, whichever is lower, of the property being
acquired on the date of acquisition;
(j) Subject to the consent of Administrative Agent, Liens existing upon property acquired in
an acquisition or of any Person that becomes a Restricted Subsidiary, existing at
the time of such acquisition and not incurred in contemplation thereof, and not upon any
other property, securing only Indebtedness permitted by Section 7.03(i);
(k) Liens reserved in leases of business premises entered into in the ordinary course of
business for rent and for compliance with the terms of the lease limited to equipment and fixtures
on the leased premises;
(l) Liens (i) of a collection bank arising under Section 4.210 of the UCC on items in the
course of collection, (ii) attaching to commodity trading accounts or other commodities brokerage
accounts incurred in the ordinary course of business (iii) in favor of a banking institution
arising as a matter of law encumbering deposits (including the right of set-off) and which are
within the general parameters customary in the banking industry; or (iv) in connection with Cash
Management Obligations and other obligations in respect of netting services, overdraft protections
and similar arrangements, in each case in connection with deposit accounts in the ordinary course
of business and that are limited to Liens customary in such arrangements;
(m) Liens (i) on cash advances in favor of the seller of any property to be acquired in an
Investment permitted pursuant to Sections 7.02(i) and (j),to be applied against
the
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purchase price for such Investment, and (ii) consisting of an agreement to Dispose of any
property in a Disposition permitted under Section 7.05, in each case, solely to the extent
such Investment or Disposition, as the case may be, would have been permitted on the date of the
creation of such Lien;
(n) Liens encumbering reasonable customary initial deposits and margin deposits and similar
Liens (in each case limited to the cash, commodity contracts or other Investments in such account)
attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary
course of business and not for speculative purposes;
(o) Liens that constitute Guarantees of Indebtedness to the extent such Guarantees are
permitted by Section 7.03;
(p) Liens on Property not constituting Collateral for the Obligations, the Cash Management
Obligations or the Secured Swap Obligations and not otherwise permitted by the foregoing clauses
of this Section 7.01; provided that the aggregate principal or face amount of all
Indebtedness secured by Liens under this Section 7.01(o) shall not exceed $50,000,000 at
any time.
provided, nothing in this Section 7.01 shall in and of itself constitute or be
deemed to constitute an agreement or acknowledgment by the Administrative Agent or any Lender that
any Indebtedness subject to or secured by any Lien, right or other interest permitted under
subsections (a) through (o) above ranks in priority to any Obligation.
7.02 Investments. Make any Investments, except:
(a) Investments held by the Borrower or such Subsidiary in the form of cash equivalents;
(b) Investments of the Borrower in any Restricted Subsidiary and Investments of any
Restricted Subsidiary in the Borrower or in another Restricted Subsidiary;
(c) Investments representing non-cash consideration of Dispositions permitted under
Section 7.05;
(d) The acquisition of or other Investments (other than Investments consisting of Guarantees)
in any Unrestricted Subsidiary so long as (i) immediately before and immediately after giving pro
forma effect to any such acquisition or Investment, no Default shall have occurred and be
continuing and (ii) immediately after giving effect to such acquisition or Investment, the
Borrower and its Restricted Subsidiaries shall be in pro forma compliance with all of the
covenants set forth in Sections 7.14 and 7.15, such compliance to be determined on
the basis of the financial information most recently delivered to the Administrative Agent and the
Lenders pursuant to Section 6.01(a) or (b) as though such Investment had been
consummated as of the first day of the fiscal period covered thereby;
(e) Investments consisting of extensions of credit in the nature of accounts receivable or
notes receivable arising from the grant of trade credit in the ordinary course of business, and
Investments received in satisfaction or partial satisfaction thereof from
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financially troubled
account debtors to the extent reasonably necessary in order to prevent or limit loss;
(f) Guarantees permitted by Section 7.03;
(g) Investments in Swap Contracts permitted by Section 7.03(d);
(h) Loans or advances to any officer, director or employee of any Loan Party for travel and
related expenses consistent with the policies and procedures of such Loan Party and not to exceed
$2,500,000 at any one time outstanding;
(i) the purchase or other acquisition of property and assets or businesses of any Person or
of assets constituting a business unit, a line of business or division of such Person, or Equity
Interests in a Person that, upon the consummation thereof, will be a wholly owned Restricted
Subsidiary of the Borrower (including as a result of a merger or consolidation); provided that,
with respect to each purchase or other acquisition made pursuant to this Section 7.02(i)
(each, a Permitted Acquisition):
(A) to the extent required by Section 6.12, each applicable Loan Party
and any such newly created or acquired Restricted Subsidiary (and, to the extent
required by this Agreement, the Restricted Subsidiaries of such created or acquired
Restricted Subsidiary) shall be a Guarantor and shall have complied with the
requirements of Sections 6.12 and 6.13, within the times specified
therein;
(B) the acquired property, assets, business or Person is in the Present Line of
Business; and
(C) (1) immediately before and immediately after giving pro forma effect to any
such purchase or other acquisition, no Default shall have occurred and be continuing
and (2) immediately after giving effect to such purchase or other acquisition, the
Borrower and its Restricted Subsidiaries shall be in pro forma compliance with all
of the covenants set forth in Sections 7.14 and 7.15, such
compliance to be determined on the basis of the financial information most recently
delivered to the Administrative Agent and the Lenders pursuant to Section
6.01(a) or (b) as though such purchase or other acquisition had been
consummated as of the first day of the fiscal period covered thereby; and
(j) Investments (other than Investments consisting of Guarantees) in Persons (other than a
Person that is or becomes a Subsidiary of the Borrower) in the Present Line of Business to the
extent not otherwise permitted by the foregoing clauses of this Section, so long as, immediately
after giving effect to any such Investment, no Default has occurred and is continuing and the
Borrower and its Restricted Subsidiaries shall be in pro forma compliance with all of the
covenants set forth in Sections 7.14 and 7.15, such compliance to be determined on
the basis of the financial information most recently delivered to the Administrative Agent and the
Lenders pursuant to Section 6.01(a) or (b) as though such Investment had been
consummated as of the first day of the fiscal period covered thereby.
7.03 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except:
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(a) Indebtedness under the Loan Documents;
(b) [intentionally omitted];
(c) Guarantees of the Borrower or any Guarantor in respect of Indebtedness otherwise
permitted hereunder of the Borrower or any Restricted Subsidiary;
(d) obligations (contingent or otherwise) of the Borrower or any Restricted Subsidiary
existing or arising under any Swap Contract with a Hedging Party designed to hedge against
interest rates, foreign exchange rates or commodities pricing risks incurred in the ordinary
course of business and not for speculative purposes;
(e) Indebtedness in respect of Capital Lease Obligations, Synthetic Lease Obligations and
purchase money obligations for fixed or capital assets within the requirements set forth in
Section 7.01(i); provided, however, that the aggregate amount of all such
Indebtedness at any one time outstanding shall not exceed an amount equal to five percent (5%) of
Consolidated Net Tangible Assets;
(f) unsecured Indebtedness in respect of a private placement or a public sale of unsecured
senior or subordinated notes by the Borrower and unsecured guarantees of such notes by one or more
of the Guarantors, provided, that (i) no principal of such Indebtedness is scheduled to
mature earlier than the Maturity Date and (ii) after giving effect to such Indebtedness and the
application of any of the proceeds thereof on the issuance date no Default
or Event of Default shall exist and, on a pro forma basis, the Borrower shall comply with the
covenants contained in Sections 7.14 and 7.15;
(g) Indebtedness of any Restricted Subsidiary owing to the Borrower or another Restricted
Subsidiary subordinated to the Obligations, the Cash Management Obligations and the Secured Swap
Obligations on terms satisfactory to the Administrative Agent;
(h) Indebtedness owed to Targa or any of its Subsidiaries that is subordinated to the
Obligations, the Cash Management Obligations and the Secured Swap Obligations on terms reasonably
satisfactory to the Administrative Agent;
(i) Subject to the consent of Administrative Agent, Indebtedness acquired in an acquisition,
existing at the time of such acquisition and not incurred in contemplation thereof;
provided that such Indebtedness shall not be secured except to the extent such
Indebtedness is secured by Liens permitted by Section 7.01(j); provided further,
that no Person, other than the obligor or obligors thereon at the time of such acquisition shall
become liable for such Indebtedness;
(j) Cash Management Obligations and other Indebtedness in respect of netting services,
overdraft protections and similar arrangements, in each case in connection with deposit accounts
in the ordinary course of business and discharged within two Business Days of its incurrence;
(k) Indebtedness representing deferred compensation to employees of the Borrower and its
Restricted Subsidiaries incurred in the ordinary course of business;
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(l) Customary indemnification obligations or customary obligations in respect of purchase
price or other similar adjustments, in each case incurred by the Borrower or any Restricted
Subsidiary in connection with the Disposition of any assets permitted hereby, or any Investment
permitted hereby or any Permitted Acquisition, but excluding Guarantees of Indebtedness; provided
that (i) such obligations are not required to be reflected on the balance sheet of the Borrower or
any Restricted Subsidiary (contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on
such balance sheet for purposes of this clause (l)(i)) and (ii) the maximum liability in
respect of all such obligations incurred in connection with any Disposition shall at no time
exceed the gross proceeds, including noncash proceeds (the fair market value of such noncash
proceeds being measured at the time received and without giving effect to any subsequent changes
in value), actually received by the Borrower and its Restricted Subsidiaries in connection with
such Disposition;
(m) Indebtedness consisting of (i) the financing of insurance premiums or (ii) customary
take-or-pay obligations contained in supply agreements, in each case, in the ordinary course of
business;
(n) Obligations in respect of performance, bid, appeal and surety bonds and similar
obligations provided by the Borrower or any of its Restricted Subsidiaries, in each case in the
ordinary course of business;
(o) Indebtedness for borrowed money of the Borrower and Guaranties thereof by one or more of
the Guarantors; provided that (i) such Indebtedness and guaranties are unsecured and are
subordinated to the Obligations, the Cash Management Obligations and the Secured Swap Obligations
on terms reasonably satisfactory to the Administrative Agent, (ii) no principal of such
Indebtedness is scheduled to mature earlier than the Maturity Date, (iii) after giving effect to
such Indebtedness and the application of any of the proceeds thereof on the issuance date no
Default or Event of Default shall exist and, on a pro forma basis, the Borrower shall comply with
the covenants contained in Sections 7.14 and 7.15, and such principal amount of
such subordinated Indebtedness cannot be prepaid except in accordance with Section 7.04.
(p) Indebtedness not otherwise permitted by the foregoing clauses of this Section
7.03; provided that the aggregate principal or face amount of all Indebtedness shall not
exceed 10% of Consolidated Net Tangible Assets.
7.04 Subordinated Indebtedness. Pay the principal of any Indebtedness that is subordinated to
the Obligations, other than with the proceeds of unsecured Indebtedness permitted under Section
7.03 that is subordinated on terms at least as favorable to the Administrative Agent and the
Lenders as the Indebtedness being so repaid.
7.05 Fundamental Changes. Merge, dissolve, liquidate, consolidate with or into another Person, or
Dispose of (whether in one transaction or in a series of transactions) all or substantially all of
its assets (whether now owned or hereafter acquired) to or in favor of any Person, except that, so
long as no Default exists or would result therefrom:
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(a) any Restricted Subsidiary may merge with (i) the Borrower, provided that the
Borrower shall be the continuing or surviving Person, or (ii) any one or more other Restricted
Subsidiaries, provided that when any Wholly Owned Subsidiary is merging with another
Restricted Subsidiary, the Wholly Owned Subsidiary shall be the continuing or surviving Person;
and
(b) any Restricted Subsidiary may liquidate or dissolve or change its legal form if the
Borrower determines in good faith that such action is in the best interests of the Borrower and
its Restricted Subsidiaries and is not materially disadvantageous to the Lenders;
(c) any Restricted Subsidiary may Dispose of all or substantially all of its assets (upon
voluntary liquidation or otherwise) to the Borrower or to another Restricted Subsidiary;
provided that if the transferor in such a transaction is a Wholly Owned Subsidiary, then
the transferee must either be the Borrower or a Wholly Owned Subsidiary; provided,
further that if the transferor in any such a transaction is a Guarantor, then the
transferee must either be the Borrower or Guarantor.
(d) so long as no Default exists or would result therefrom, any Restricted Subsidiary may
merge with any other Person in order to effect an Investment permitted
pursuant to Section 7.02; provided that the continuing or surviving Person shall be a
Subsidiary, which together with each of its Subsidiaries, shall have complied with the
requirements of Section 6.12.
(e) so long as no Default has occurred and is continuing or would result therefrom, each of
the Borrower and any of its Restricted Subsidiaries may merge into or consolidate with any other
Person or permit any other Person to merge into or consolidate with it; provided, however,
that in each case, immediately after giving effect thereto (i) in the case of any such merger to
which the Borrower is a party, the Borrower is the surviving entity and (ii) in the case of any
such merger to which any Loan Party (other than the Borrower) is a party, such Loan Party is the
surviving entity.
(f) so long as no Default exists or would result therefrom, a merger, dissolution,
liquidation, consolidation or Disposition, the purpose and effect of which is to consummate a
Disposition permitted pursuant to Section 7.06.
7.06 Dispositions. Make any Disposition or enter into any agreement to make any Disposition, except:
(a) Dispositions of obsolete or worn out property, whether now owned or hereafter acquired,
and Dispositions in the ordinary course of business of property no longer used or useful in the
conduct of the business of the Borrower and its Restricted Subsidiaries;
(b) Dispositions of inventory or cash equivalents or immaterial assets in the ordinary course
of business;
(c) Dispositions of fixtures or equipment to the extent that (i) such property is exchanged
for credit against the purchase price of similar replacement fixtures or equipment or
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(ii) the
proceeds of such Disposition are promptly applied to the purchase price of such replacement
fixtures or equipment;
(d) Restricted Payments permitted by Section 7.07 and Liens permitted by Section
7.01;
(e) Dispositions of property acquired by the Borrower or any Subsidiary after the Closing
Date pursuant to sale-leaseback transactions; provided that the applicable sale-leaseback
transaction (i) occurs within ninety (90) days after the acquisition or construction (as
applicable) of such property and (ii) is made for cash consideration not less than the cost of
acquisition or construction of such property;
(f) Dispositions of accounts receivables in connection with the collection or compromise
thereof in the ordinary course of business;
(g) Leases, subleases, licenses or sublicenses (including the provision of software under an
open source license), easements, rights of way or similar rights or encumbrances in each case in
the ordinary course of business and which do not materially interfere with the business of the
Borrower and its Restricted Subsidiaries;
(h) transfers of property that has suffered a casualty (constituting a total loss or
constructive total loss of such property) upon receipt of the Extraordinary Receipts of such
casualty;
(i) Dispositions of Investments in joint ventures to the extent required by, or made pursuant
to customary buy/sell arrangements between, the joint venture parties set forth in joint venture
arrangements and similar binding arrangements;
(j) Dispositions of property, subject to the Security Documents, by the Borrower or any
Subsidiary to the Borrower or to a Wholly Owned Subsidiary of the Borrower; provided that
if the transferor of such property is the Borrower or a Guarantor, the transferee thereof must
either be the Borrower or a Guarantor;
(k) Dispositions permitted under Section 7.05;
(l) Dispositions by the Borrower and its Restricted Subsidiaries not otherwise permitted
under clauses (a) through (k) or (m) of this Section 7.06; provided that (i) at
the time of such Disposition, no Default shall exist or would result from such Disposition, (ii)
the aggregate book value of all property Disposed of in reliance on this clause (l) since the
Closing Date shall not exceed ten percent (10%) of Consolidated Net Tangible Assets on the first
day of the fiscal year most recently ended at the time of such determination and (iii) no
Disposition of less than all of the Equity Interests of any Subsidiary shall be permitted under
this clause (l); and
(m) Dispositions by the Borrower and its Restricted Subsidiaries not otherwise permitted
under clauses (a) through (l) of this Section 7.06; provided that (i) at the time
of such Disposition, no Default shall exist or would result from such Disposition, (ii) the
Disposition is for 75% cash or cash equivalents, (iii) the Borrower shall make the prepayment or
reinvestment
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of proceeds of such Disposition as required by Section 2.05(d), and (iv) no
Disposition of less than all of the Equity Interests of any Subsidiary shall be permitted under
this clause (m).
provided, however, that any Disposition pursuant to clauses (a),
(b), (c), (e), (f), (i), (j), (k),
(l) or (m) shall be for fair market value.
No Loan Party will discount, sell, pledge or assign any notes payable to it, accounts receivable or
future income except for Dispositions permitted by clause (f). So long as no Event of
Default then exists, the Administrative Agent will, at the Borrowers request and expense, execute
a release, satisfactory to the Borrower and the Administrative Agent, of any Collateral so sold,
transferred, leased, exchanged, alienated or disposed of pursuant to this Section.
7.07 Restricted Payments. Declare or make, directly or indirectly, any Restricted Payment, or incur any
obligation (contingent or otherwise) to do so, except that, so long as no Default shall have
occurred and be continuing at the time of any action described below or would result therefrom:
(a) each Subsidiary may make Restricted Payments to the Borrower, the Guarantors and any
other Person that owns an Equity Interest in such Subsidiary, ratably according to their
respective holdings of the type of Equity Interest in respect of which such Restricted
Payment is being made;
(b) the Borrower and each Subsidiary may declare and make dividend payments or other
distributions payable solely in the common stock or other common Equity Interests of such Person;
(c) the Borrower and each Subsidiary may purchase, redeem or otherwise acquire Equity
Interests issued by it with the proceeds received from the
substantially concurrent issue of new shares of its common stock or other common Equity Interests;
(d) the Borrower may make cash distributions in an amount not to exceed Available Cash (as
such term is defined in the Borrowers Partnership Agreement) to the holders of its Equity
Interest.
7.08 Change in Nature of Business. Engage in any material line of business other than the Present Line
of Business.
7.09 Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate of the
Borrower, whether or not in the ordinary course of business, other than on fair and reasonable
terms substantially as favorable to the Borrower or such Subsidiary as would be obtainable by the
Borrower or such Subsidiary at the time in a comparable arms length transaction with a Person
other than an Affiliate, provided that the foregoing restriction shall not apply to transactions
(a) between or among the Borrower and any of its Wholly Owned Subsidiaries or between and among any
Wholly Owned Subsidiaries, (b) the transaction contemplated hereby and the payment of fees and
expenses related thereto, (c) Restricted Payments permitted under Section 7.07, and (d)
transactions pursuant to agreements, instruments or arrangements in existence on the Closing Date
and set forth on Schedule 7.09 or any
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amendment thereto to the extent such an amendment is
not adverse to the Lenders in any material respect.
7.10 Burdensome Agreements. Enter into any Contractual Obligation (other than this Agreement or any
other Loan Document) that (a) limits the ability (i) of any Subsidiary to (A) make Restricted
Payments to the Borrower or any Guarantor, (B) redeem Equity Interests held in it by the Borrower
or any Guarantor, (C) otherwise transfer property to the Borrower or any Guarantor, (D) to repay
loans and other indebtedness owing by it to the Borrower or any Guarantor, (ii) of any Restricted
Subsidiary to Guarantee the Indebtedness of the Borrower or (iii) of the Borrower or any Restricted
Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person,
provided, however, that the foregoing clauses shall not prohibit (I) any negative
pledge incurred or provided in favor of any holder of Indebtedness permitted under Section
7.03 solely to the extent any such negative pledge relates to the property financed by or the
subject of such Indebtedness, (II) provisions in Organizational Documents and other similar
agreements applicable to joint ventures or to other Persons that are not Restricted Subsidiaries or
Partially Owned Operating Companies (to the extent Investment in such joint venture or other Person
is permitted under Section 7.02) that limit
Liens on or transfers of the Equity Interests in such joint venture or other Person entered into in
the ordinary course of business, (III) are customary restrictions in leases, subleases, licenses,
or asset sale agreements otherwise permitted hereby (or in easements, rights of way or similar
rights or encumbrances, in each case granted to the Borrower or a Restricted Subsidiary by a third
party in respect of real property owned by such third party) so long as such restrictions relate
only to the assets (or the Borrowers or such Restricted Subsidiarys rights under such easement,
right of way or similar right or encumbrance, as applicable) subject thereto or (b) requires the
grant of a Lien to secure an obligation of such Person if a Lien is granted to secure another
obligation of such Person.
7.11 Prohibited Contracts.
(a) Enter into any take-or-pay contract or other contract or arrangement for the purchase
of goods or services which obligates it to pay for such goods or service regardless of whether
they are delivered or furnished to it, other than contracts for pipeline capacity or for services
in either case reasonably anticipated to be utilized in the ordinary course of business or as
otherwise permitted by Section 7.03(m)(ii); or
(b) Incur any obligation to contribute to any Multiemployer Plan.
7.12 Limitation on Credit Extensions. Except for Investments permitted under Section 7.02,
extend credit, make advances or make loans other than normal and prudent extensions of credit to
customers buying goods and services in the ordinary course of business or to another Loan Party in
the ordinary course of business, which extensions shall not be for longer periods than those
extended by similar businesses operated in a normal and prudent manner.
7.13 Use of Proceeds. Use the proceeds of any Credit Extension, whether directly or indirectly, and
whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the
meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or
carrying margin stock or to refund indebtedness originally incurred for such purpose.
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7.14 Interest Coverage Ratio. On the Closing Date and at the end of each fiscal quarter, beginning
March 31, 2007, permit the ratio of (a) Consolidated Adjusted EBITDA to (b) Interest Expense for
the four consecutive fiscal quarter period then ended to be less than 2.25 to 1.0.
7.15 Leverage Ratios.
(a) If no Unsecured Note Indebtedness is outstanding on the applicable date of determination,
permit the Consolidated Leverage Ratio to be greater than: (i) 5.75 to 1.0 on the Closing Date nor
on the last day of the fiscal quarters ending March 31, 2007 and June 30, 2007; and (ii) 5.00 to
1.0 on the last day of any fiscal quarter ending on or after September 30, 2007.
(b) If any Unsecured Note Indebtedness is incurred or outstanding on the applicable date of
determination, permit the Consolidated Leverage Ratio to be greater than: (i) during the period
prior to September 30, 2007, 6.25 to 1.0 on the date any Unsecured Note Indebtedness is incurred
nor on the last day of any fiscal quarter ending during such period; and (ii) during the period on
or after September 30, 2007, 5.50 to 1.0 on the date any Unsecured Note Indebtedness is incurred
nor on the last day of any fiscal quarter ending during such period.
(c) If any Unsecured Note Indebtedness is incurred or outstanding on the applicable date of
determination, permit the Consolidated Senior Leverage Ratio to be greater than: (i) during the
period prior to September 30, 2007, 5.25 to 1.0 on the date any Unsecured Note Indebtedness is
incurred nor on the last day of any fiscal quarter ending during such period; nor (ii) during the
period on or after September 30, 2007, 4.50 to 1.0 on the date any Unsecured Note Indebtedness is
incurred nor on the last day of any fiscal quarter ending during such period.
(d) During an Acquisition Period, the maximum permitted Consolidated Leverage Ratio and the
maximum permitted Consolidated Senior Leverage Ratio shall each be increased by 0.50 to 1.00 from
the otherwise applicable ratio set forth above (for example, the Consolidated Leverage Ratio
requirement that would otherwise be 5.50 to 1.00 will become 6.00 to 1.00). As used in this
Section 7.15(d), Acquisition Period means a period elected by the Borrower, such
election to be exercised by the Borrower by delivering notice thereof to the Administrative Agent,
beginning with the funding date of the purchase price for any Specified Acquisition and ending on
the earlier of (a) the first anniversary date of such funding date or (b) the Borrowers election
(provided, that the Borrower is in compliance with all applicable provisions of this Section
7.15 after giving effect to such election), to terminate such Acquisition Period, such
election to be exercised by the Borrower delivering notice thereof to the Administrative Agent;
provided that once any Acquisition Period is in effect, the next succeeding Acquisition Period may
not commence until (i) the termination of such Acquisition Period in effect and (ii) after giving
effect to the termination of such Acquisition Period in effect the Borrower shall be in compliance
with all applicable provisions of this Section 7.15 and no Default shall have occurred and
be continuing.
(e) Notwithstanding anything to the contrary, and for the avoidance of doubt, any failure by
the Borrower to be in compliance with any requirement of this Section 7.15 shall not
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be
remedied by a change in the Consolidated Leverage Ratio upon the incurrence of any Unsecured Note
Indebtedness or the election of an Acquisition Period.
7.16 Negative Pledge. Allow any Person, other than the Administrative Agent, L/C Issuer or any Lender
or any other Secured Party, to create or otherwise cause or suffer to exist or become effective, or
permit any
of the Subsidiaries to create or otherwise cause or suffer to exist or become effective, directly
or indirectly, any Lien (other than Liens permitted by Section 7.01) upon the assets of the
Borrower or any of its Subsidiaries without the prior express written consent of the Administrative
Agent.
ARTICLE VIII.
EVENTS OF DEFAULT AND REMEDIES
8.01 Events of Default. Any of the following shall constitute an Event of Default:
(a) Non-Payment. The Borrower or any other Loan Party fails to pay (i) when and as
required to be paid herein, any amount of principal of any Loan or any L/C Obligation, or (ii)
within five days after the same becomes due, any interest on any Loan or on any L/C Obligation, or
any fee due hereunder, or (iii) within five days after the same becomes due, any other amount
payable hereunder or under any other Loan Document; or
(b) Specific Covenants. The Borrower fails to perform or observe any term, covenant
or agreement contained in any of Section 6.01, 6.02, 6.03, 6.05,
6.11 or 6.12 or Article VII; provided, however that if the
Borrower fails to deliver any financial statements, certificates or other information required by
Section 6.01, 6.02, 6.03 or 6.12 and subsequently delivers such
financial statements, certificates or other information as required by such Sections, then such
Event of Default shall be deemed to have been cured and/or waived; or
(c) Other Defaults. Any Loan Party fails to perform or observe any other covenant or
agreement (not specified in subsection (a) or (b) above) contained in any Loan Document on its
part to be performed or observed and such failure continues for 30 days after notice thereof by
the Administrative Agent; or
(d) Representations and Warranties. Any representation, warranty, certification or
statement of fact made or deemed made by or on behalf of the Borrower or any other Loan Party
herein, in any other Loan Document, or in any document delivered in connection herewith or
therewith shall be incorrect or misleading in any material respect when made or deemed made; or
(e) Cross-Default. (i) The Borrower or any Subsidiary (A) fails to make any payment
when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise)
in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness
under Swap Contracts) having an aggregate principal amount (including the undrawn face amount of
any outstanding Letter of Credit, surety bonds and other similar contingent obligations
outstanding under any agreement relating to such Indebtedness or Guarantee and including amounts
owing to all creditors under any combined or syndicated credit arrangement) of more than the
Threshold Amount, or (B) fails to observe or perform any
87
other agreement or condition relating to
any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event occurs, the effect of which default or other
event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or
beneficiaries of such Guarantee (or a trustee or agent
on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the
giving of notice if required, such Indebtedness to be demanded or to become due or to be
repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to
repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity,
or such Guarantee to become payable or cash collateral in respect thereof to be demanded; provided
that this clause (e)(B) shall not apply to secured Indebtedness that becomes due as a result of
the voluntary sale or transfer of the property or assets securing such Indebtedness, if such sale
or transfer is permitted hereunder; or (ii) there occurs under any Swap Contract an Early
Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under
such Swap Contract as to which the Borrower or any Subsidiary is the Defaulting Party (as defined
in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to
which the Borrower or any Subsidiary is an Affected Party (as so defined) and, in either event,
the Swap Termination Value owed by the Borrower or such Subsidiary as a result thereof is greater
than the Threshold Amount; or
(f) Insolvency Proceedings, Etc. The Borrower or any of its Restricted Subsidiaries
institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes
an assignment for the benefit of creditors; or applies for or consents to the appointment of any
receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or
for all or any material part of its property; or any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer is appointed without the application or consent of
such Person and the appointment continues undischarged or unstayed for 60 calendar days; or any
proceeding under any Debtor Relief Law relating to any such Person or to all or any material part
of its property is instituted without the consent of such Person and continues undismissed or
unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; or
(g) Inability to Pay Debts; Attachment. (i) The Borrower or any of its Restricted
Subsidiaries becomes unable or admits in writing its inability or fails generally to pay its debts
as they become due, or (ii) any writ or warrant of attachment or execution or similar process is
issued or levied against all or any material part of the property of any such Person and is not
released, vacated or fully bonded within 60 days after its issue or levy; or
(h) Judgments. There is entered against the Borrower or any of its Restricted
Subsidiaries (i) a final judgment or order for the payment of money in an aggregate amount
exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as
to which the insurer does not dispute coverage), or (ii) any one or more non-monetary final
judgments that have, or could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect and, in either case, the same shall remain undischarged and either (A)
enforcement proceedings are commenced by any creditor upon such judgment or order which have not
been stayed by reason of a pending appeal or otherwise, or (B) there is a period of thirty (30)
consecutive days during which a stay of enforcement of such judgment, by reason of a pending
appeal or otherwise, is not in effect; or
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(i) ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer
Plan which has resulted or could reasonably be expected to result in liability of any Loan Party
under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC
in an aggregate amount in excess of the Threshold Amount, or (ii) any Loan Party or any ERISA
Affiliate fails to pay when due, after the expiration of any applicable grace period, any
installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a
Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or
(j) Invalidity of Loan Documents. Any material provision of any Loan Document, at
any time after its execution and delivery and for any reason other than as expressly permitted
hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force
and effect; or any Loan Party or any other Person contests in any manner the validity or
enforceability of any material provision of any Loan Document; or any Loan Party denies that it
has any or further liability or obligation under any Loan Document, or purports to revoke,
terminate or rescind any provision of any Loan Document; or
(k) Change of Control. There occurs any Change of Control; or
(l) Security Documents. Any Security Document shall for any reason (other than
pursuant to the terms hereof and thereof) cease to create a valid and perfected first priority
Lien in any asset having a value in excess of the Threshold Amount, except to the extent that any
such loss of perfection or priority results from the failure of the Administrative Agent or the
Collateral Agent to maintain possession of certificates actually delivered to it representing
securities pledged under the Security Documents or to file Uniform Commercial Code continuation
statements and except as to Collateral consisting of real property to the extent that such losses
are covered by a lenders title insurance policy and such insurer has not denied coverage.
8.02 Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the
Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders,
take any or all of the following actions:
(a) declare the commitment of each Lender to make Loans and any obligation of the L/C Issuer
to make L/C Credit Extensions to be terminated, whereupon such commitments and obligation shall be
terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and
unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document
to be immediately due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived by the Borrower;
(c) require that the Borrower Cash Collateralize the L/C Obligations (in an amount equal to
the then Outstanding Amount thereof); and
(d) exercise on behalf of itself and the Lenders all rights and remedies available to it and
the Lenders under the Loan Documents;
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provided, however, that upon the occurrence of an actual or deemed entry of an
order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the
obligation of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit
Extensions
shall automatically terminate, the unpaid principal amount of all outstanding Loans and all
interest and other amounts as aforesaid shall automatically become due and payable, and the
obligation of the Borrower to Cash Collateralize the L/C Obligations as aforesaid shall
automatically become effective, in each case without further act of the Administrative Agent or any
Lender.
8.03 Application of Funds. After the exercise of remedies provided for in Section 8.02 (or
after the Loans have automatically become immediately due and payable and the L/C Obligations have
automatically been required to be Cash Collateralized as set forth in the proviso to Section
8.02), any amounts received on account of the Obligations, the Cash Management Obligations and
the Secured Swap Obligations shall be applied by the Administrative Agent and the Collateral Agent
in the following order:
First, to payment of that portion of the Obligations constituting fees, indemnities,
expenses and other amounts (including fees, charges and disbursements of external counsel to the
Administrative Agent and amounts payable under Article III) payable to the Administrative
Agent in its capacity as such and payable to the Collateral Agent in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees, indemnities
and other amounts (other than principal, interest and Letter of Credit Fees) payable to the Lenders
and the L/C Issuer (including fees, charges and disbursements of external counsel to the respective
Lenders and the L/C Issuer and amounts payable under Article III), ratably among them in
proportion to the respective amounts described in this clause Second payable to them;
Third, to payment of that portion of the Obligations constituting accrued and unpaid
Letter of Credit Fees and interest on the Loans, L/C Borrowings and other Obligations, ratably
among the Lenders and the L/C Issuer in proportion to the respective amounts described in this
clause Third payable to them;
Fourth, to payment of that portion of the Obligations constituting unpaid principal of
the Loans and L/C Borrowings, the Secured Swap Obligations and the Cash Management Obligations,
ratably among the Lenders, the Hedging Parties and the L/C Issuer in proportion to the respective
amounts described in this clause Fourth held by them;
Fifth, to the Administrative Agent for the account of the L/C Issuer, to Cash
Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters
of Credit; and
Last, the balance, if any, after all of the Obligations, the Cash Management
Obligations and the Secured Swap Obligations have been indefeasibly paid in full, to the Borrower
or as otherwise required by Law.
Subject to Section 2.03(c), amounts used to Cash Collateralize the aggregate undrawn amount
of Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings
under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral
after all
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Letters of Credit have either been fully drawn or expired, such remaining amount shall be
applied to the other Obligations, Cash Management Obligations and Secured Swap Obligations, if any,
in the order set forth above.
ARTICLE IX.
ADMINISTRATIVE AGENT
9.01 Appointment and Authority.
(a) Each of the Lenders and the L/C Issuer hereby irrevocably appoints Bank of America to act
on its behalf as the Administrative Agent hereunder and under the other Loan Documents 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 or thereof, together with such
actions and powers as are reasonably incidental thereto. The provisions of this Article are
solely for the benefit of the Agents, the Lenders and the L/C Issuer, and neither the Borrower nor
any other Loan Party shall have rights as a third party beneficiary of any of such provisions.
(b) Each of the Lenders (in its capacities as a Lender, Swing Line Lender (if applicable),
L/C Issuer (if applicable) and a potential Hedging Party) hereby irrevocably appoints and
authorizes the Collateral Agent to act as the agent of (and to hold any security interest created
by the Security Documents for and on behalf of or on trust for) such Lender for purposes of
acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan
Parties to secure any of the Obligations, the Secured Swap Obligations or the Cash Management
Obligations together with such powers and discretion as are reasonably incidental thereto. In
this connection, the Collateral Agent (and any co-agents, sub-agents and attorneys-in-fact
appointed by the Administrative Agent or the Collateral Agent pursuant to Section 9.05 for
purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under
the Collateral Documents, or for exercising any rights and remedies thereunder at the direction of
the Administrative Agent), shall be entitled to the benefits of all provisions of this Article
IX (including, Section 9.11, as though such co-agents, sub-agents and
attorneys-in-fact were the Collateral Agent) as if set forth in full herein with respect thereto.
Without limiting the generality of the foregoing, the Lenders hereby expressly authorize the
Collateral Agent to execute any and all documents (including releases) with respect to the
Collateral and the rights of the Secured Parties with respect thereto (including the Intercreditor
Agreement), as contemplated by and in accordance with the provisions of this Agreement and the
Security Documents and acknowledge and agree that any such action by any Agent shall bind the
Lenders.
9.02 Rights as a Lender. Any Person serving 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 such
Agent and the term Lender or Lenders shall, unless otherwise expressly indicated or unless the
context otherwise requires, include such Person serving as an Agent hereunder in its individual
capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the
financial
advisor or in any other advisory capacity for and generally engage in any kind of business with any
Loan Party or any Subsidiary or other Affiliate
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thereof as if such Person were not an Agent
hereunder and without any duty to account therefor to the Lenders.
9.03 Exculpatory Provisions. No Agent shall have any duties or obligations except those expressly set
forth herein and in the other Loan Documents. Without limiting the generality of the foregoing,
Agents:
(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing;
(b) shall not have any 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 such Agent is required to exercise as directed in writing by the Required Lenders
(or such other number or percentage of the Lenders as shall be expressly provided for herein or in
the other Loan Documents), provided that no Agent shall be required to take any action
that, in its opinion or the opinion of its counsel, may expose such Agent to liability or that is
contrary to any Loan Document or applicable law; and
(c) shall not, except as expressly set forth herein and in the other Loan Documents, have any
duty to disclose, and shall not be liable for the failure to disclose, any information relating to
the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as
Agent or any of its Affiliates in any capacity.
No Agent shall be liable for any action taken or not taken by it (i) with the consent or at
the request of the Required Lenders (or such other number or percentage of the Lenders as shall be
necessary, or as such Agent shall believe in good faith shall be necessary, under the circumstances
as provided in Sections 10.01 and 8.02) or (ii) in the absence of its own gross
negligence or willful misconduct. No Agent shall be deemed to have knowledge of any Default unless
and until notice describing such Default is given to such Agent by the Borrower, a Lender or the
L/C Issuer.
No Agent shall 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 thereunder 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 therein or the
occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this
Agreement, any other Loan Document or any other agreement, instrument or document or (v) the
satisfaction of any condition set forth in Article IV or elsewhere herein, other than to
confirm receipt of items expressly required to be delivered to the Administrative Agent.
9.04 Reliance by Agent. Each 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 (including any electronic message, Internet or intranet website posting or other
distribution) believed by it
to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. Each
Agent also may rely upon any statement made to it orally or by telephone and believed by it to have
been made by the proper Person, and shall not
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incur any liability for relying thereon. In
determining compliance with any condition hereunder to the making of a Loan, or the issuance of a
Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the L/C
Issuer, such Agent may presume that such condition is satisfactory to such Lender or the L/C Issuer
unless such Agent shall have received notice to the contrary from such Lender or the L/C Issuer
prior to the making of such Loan or the issuance of such Letter of Credit. Each Agent may consult
with legal counsel (who may be counsel for 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.
9.05 Delegation of Duties. Each of the Administrative Agent and the Collateral Agent may perform any
and all of its duties and exercise its rights and powers hereunder or under any other Loan Document
by or through any one or more sub-agents appointed by the Administrative Agent or the Collateral
Agent, respectively. Each of the Administrative Agent and the Collateral Agent and any such
sub-agent may perform any and all of its duties and exercise its rights and powers by or through
their respective Related Parties. The exculpatory provisions of this Article shall apply to any
such sub-agent and to the Related Parties of the Administrative Agent and the Collateral 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 of the
Administrative Agent and the Collateral Agent.
9.06 Resignation of Agent. The Administrative Agent or the Collateral Agent may at any time give notice
of its resignation to the Lenders, the L/C Issuer and the Borrower. Upon receipt of any such
notice of resignation, the Required Lenders shall have the right, in consultation with the
Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an
Affiliate of any such bank with an office in the United States. If no such successor shall have
been so appointed by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent or Collateral Agent gives notice of its resignation, then
such retiring Administrative Agent or Collateral Agent may on behalf of the Lenders and the L/C
Issuer, appoint a successor Administrative Agent or Collateral Agent meeting the qualifications set
forth above; provided that if the Administrative Agent or Collateral Agent shall notify the
Borrower and the Lenders that no qualifying Person has accepted such appointment, then such
resignation shall nonetheless become effective in accordance with such notice and (1) the retiring
Administrative Agent or Collateral Agent shall be discharged from its duties and obligations
hereunder and under the other Loan Documents (except that in the case of any Collateral held by the
Administrative Agent or Collateral Agent on behalf of the Lenders or the L/C Issuer under any of
the Loan Documents, the retiring Administrative Agent or Collateral Agent shall continue to hold
such Collateral until such time as a successor Administrative Agent or Collateral Agent is
appointed) and (2) all payments, communications and determinations provided to be made by, to or
through the Administrative Agent or Collateral Agent shall instead be made by or to each Lender and
the L/C Issuer directly, until such time as the Required Lenders appoint a successor
Administrative Agent or Collateral Agent as provided for above in this Section. Upon the
acceptance of a successors appointment as Administrative Agent or Collateral Agent hereunder, such
successor shall succeed to and become vested with all of the rights, powers, privileges and duties
of the retiring (or retired) Administrative Agent or Collateral Agent, and the retiring
Administrative Agent or Collateral Agent shall be discharged from all of its duties and obligations
hereunder or under the other
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Loan Documents (if not already discharged therefrom as provided above
in this Section). The fees payable by the Borrower to a successor Administrative Agent or
Collateral Agent shall be the same as those payable to its predecessor unless otherwise agreed
between the Borrower and such successor. After the retiring Administrative Agents or Collateral
Agents resignation hereunder and under the other Loan Documents, the provisions of this Article
and Section 10.04 shall continue in effect for the benefit of such retiring Administrative
Agent or Collateral 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 the retiring Administrative Agent or
Collateral Agent was acting as the Administrative Agent.
Any resignation by Bank of America as the Administrative Agent pursuant to this Section shall
also constitute its resignation as L/C Issuer and Swing Line Lender. Upon the acceptance of a
successors appointment as the Administrative Agent hereunder, (a) such successor shall succeed to
and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer
and Swing Line Lender, (b) the retiring L/C Issuer and Swing Line Lender shall be discharged from
all of their respective duties and obligations hereunder or under the other Loan Documents, and (c)
the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit,
if any, outstanding at the time of such succession or make other arrangements satisfactory to the
retiring L/C Issuer to effectively assume the obligations of the retiring L/C Issuer with respect
to such Letters of Credit.
9.07 Non-Reliance on Agent and Other Lenders. Each Lender and the L/C Issuer acknowledges that it has,
independently and without reliance upon any Agent, any Agent-Related Person or any other Lender or
any of their Related Parties and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender
and the L/C Issuer also acknowledges that it will, independently and without reliance upon any
Agent, any Agent-Related Person or any other Lender or any of their Related Parties 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 or any related agreement or any document furnished hereunder or thereunder.
9.08 No Other Duties, Etc. Anything herein to the contrary notwithstanding, none of the agents listed
on the cover page hereof shall have any powers, duties, liabilities or responsibilities under this
Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the
Administrative Agent, a Lender or the L/C Issuer hereunder.
9.09 Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial
proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the
principal of any Loan or L/C Obligation 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, L/C Obligations and all other Obligations that are owing and
unpaid and to file such other documents as may be necessary or advisable in order
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to have the
claims of the Lenders, the L/C Issuer and the Administrative Agent (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Lenders, the L/C Issuer and
the Administrative Agent and their respective agents and external counsel and all other amounts
due the Lenders, the L/C Issuer and the Administrative Agent under Sections 2.03(i) and
(j), 2.09 and 10.04) 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 and the L/C Issuer 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 and the L/C Issuer, 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 external counsel, and any other amounts due
the Administrative Agent under Sections 2.09 and 10.04.
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 or the L/C Issuer any plan of reorganization,
arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or the
L/C Issuer to authorize the Administrative Agent to vote in respect of the claim of any Lender or
the L/C Issuer in any such proceeding.
9.10 Collateral and Guaranty Matters. The Lenders, the L/C Issuer and the Hedging Parties irrevocably
authorize the Collateral Agent, at its option and in its discretion,
(a) to release any Lien on any property granted to or held by the Collateral Agent under any
Loan Document (i) upon termination of the Aggregate Commitments and payment in full of all
Obligations, the Cash Management Obligations and the Secured Swap Obligations (other than
contingent indemnification obligations) and the expiration or termination of all Letters of
Credit, (ii) that is sold or to be sold as part of or in connection with any sale permitted
hereunder or under any other Loan Document, (iii) subject to Section 10.01, if approved,
authorized or ratified in writing by the Required Lenders or, except to the extent that any such
loss of perfection or priority results from the failure of the Administrative Agent or the
Collateral Agent to maintain possession of certificates actually delivered to it representing
securities pledged under the Security Documents or to file Uniform Commercial Code
continuation statements and except as to Collateral consisting of real property to the extent that
such losses are covered by a lenders title insurance policy and such insurer has not denied
coverage or (iv) if the property subject to such Lien is owned by a Guarantor, upon release of
such Guarantor from its obligations under its Guaranty pursuant to clause (c) below; and
(b) to subordinate any Lien on any Property granted to or held by the Collateral Agent under
any Loan Document to the holder of any Lien on such property that is permitted by Section
7.01(i); and
(c) to release any Guarantor from its obligations under the Guaranty if such Person ceases to
be a Restricted Subsidiary as a result of a transaction permitted hereunder.
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Upon request by the Collateral Agent at any time, the Required Lenders will confirm in writing
the Administrative Agents authority to release or subordinate its interest in particular types or
items of property, or to release any Guarantor from its obligations under the Guaranty pursuant to
this Section 9.10. In each case as specified in this Section 9.10, the
Administrative Agent or the Collateral Agent will (and each Lender irrevocably authorizes such
Agent to), at the Borrowers expense, execute and deliver to the applicable Loan Party such
documents as such Loan Party may reasonably request to evidence the release or subordination of
such item of Collateral from the assignment and security interest granted under the Security
Documents, or to evidence the release of such Guarantor from its obligations under the Guaranty, in
each case in accordance with the terms of the Loan Documents and this Section 9.10.
9.11 Indemnification of Agents. Whether or not the transactions contemplated hereby are
consummated, the Lenders shall indemnify upon demand each Agent and Agent-Related Person (to the
extent not reimbursed by or on behalf of any Loan Party and without limiting the obligation of any
Loan Party to do so), pro rata, and hold harmless each Agent and Agent-Related Person from and
against any and all losses, claims, damages, liabilities and related expenses (including the fees,
charges and disbursements of any external counsel for any Agent) incurred by it; provided that no
Lender shall be liable for the payment to any Agent or Agent-Related Person of any portion of such
losses, claims, damages, liabilities and related expenses resulting from such Agents or
Agent-Related Persons own gross negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction; provided that no action taken in accordance
with the directions of the Required Lenders (or such other number or percentage of the Lenders as
shall be required by the Loan Documents) shall be deemed to constitute gross negligence or willful
misconduct for purposes of this Section 9.11. In the case of any investigation, litigation
or proceeding giving rise to any loss, claim, damage, liability and related expense this
Section 9.11 applies whether any such investigation, litigation or proceeding is brought by
any Lender or any other Person. Without limitation of the foregoing, each Lender shall reimburse
the Administrative Agent or Collateral Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including attorney costs) incurred by such Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or
referred to herein, to the extent that such Agent is not reimbursed for such expenses by or on
behalf of the Borrower. The undertaking in this
Section 9.11 shall survive termination of the Aggregate Commitments, the payment of
all other Obligations, Secured Swap Obligations and Cash Management Obligations, and the
resignation of such Agent.
9.12 Intercreditor Agreement. The Collateral Agent is authorized to enter into the
Intercreditor Agreement, and the parties hereto acknowledge, on behalf of themselves and their
Affiliates, that the Intercreditor Agreement is binding upon them and their Affiliates without
execution thereof.
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ARTICLE X.
MISCELLANEOUS
10.01 Amendments, Etc. Subject to the Intercreditor Agreement with respect to those matters as to which
Hedging Parties are entitled to vote thereunder, no amendment or waiver of any provision of this
Agreement or any other Loan Document (other than the Intercreditor Agreement), and no consent to
any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in
writing signed by the Required Lenders and the Borrower or the applicable Loan Party, as the case
may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which given;
provided, however, that no such amendment, waiver or consent shall:
(a) waive any condition set forth in Section 4.01(a) without the written consent of
each Lender;
(b) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated
pursuant to Section 8.02) without the written consent of such Lender;
(c) postpone any date fixed by this Agreement or any other Loan Document for any payment or
mandatory prepayment of principal, interest, fees or other amounts due to the Lenders (or any of
them) or any scheduled or mandatory reduction of the Aggregate Commitments hereunder or under any
other Loan Document without the written consent of each Lender directly affected thereby, it being
understood that the waiver of (or amendment to the terms of) any mandatory prepayment of Loans
shall not constitute a postponement of any date scheduled for the payment of principal or
interest;
(d) reduce the principal of, or the rate of interest specified herein on, any Loan or L/C
Borrowing, or (subject to clause (iv) of the second proviso to this Section 10.01) any
fees or other amounts payable hereunder or under any other Loan Document, without the written
consent of each Lender directly affected thereby; provided, however, that only the
consent of the Required Lenders shall be necessary (i) to amend the definition of Default Rate
or to waive any obligation of the Borrower to pay interest or Letter of Credit Fees at the Default
Rate and (ii) to change the manner of computation of any financial ratio (including any change in
any applicable defined term) used in determining the Applicable Rate that would result in a
reduction of any interest rate on any Loan or any fee payable hereunder;
(e) change Section 2.13 or Section 8.03 in a manner that would alter the pro
rata sharing of payments required thereby without the written consent of each Lender;
(f) change any provision of this Section or the definition of Required Lenders or any other
provision hereof specifying the number or percentage of Lenders required to amend, waive or
otherwise modify any rights hereunder or make any determination or grant any consent hereunder
without the written consent of each Lender;
(g) except as otherwise permitted herein, release any Guarantor from the Guaranty without the
written consent of each Lender; or
97
(h) release of all or substantially all of the Collateral hereunder without the written
consent of each Lender;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights
or duties of the L/C Issuer under this Agreement or any Issuer Document relating to any Letter of
Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing
and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or
duties of the Swing Line Lender under this Agreement; (iii) no amendment, waiver or consent shall,
unless in writing and signed by the Administrative Agent or the Collateral Agent in addition to the
Lenders required above, affect the rights or duties of the Administrative Agent or the Collateral
Agent under this Agreement or any other Loan Document; and (iv) the Fee Letter may be amended, or
rights or privileges thereunder waived, in a writing executed only by the parties thereto.
Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to
approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of
such Lender may not be increased or extended without the consent of such Lender.
No amendment or waiver of any provision of the Intercreditor Agreement shall be effective unless
consented to in writing by the Required Lenders (and as otherwise required in the Intercreditor
Agreement), and each such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
10.02 Notices; Effectiveness; Electronic Communication.
(a) Notices Generally. Except in the case of notices and other communications
expressly permitted to be given by telephone (and except as provided in subsection (b) below), all
notices and other communications provided for herein shall be in writing and shall be delivered by
hand or overnight courier service, mailed by certified or registered mail or sent by telecopier,
or email as follows, and all notices and other communications expressly permitted hereunder to be
given by telephone shall be made to the applicable telephone number, as follows:
(i) if to the Borrower, the Administrative Agent, the Collateral Agent, the L/C Issuer
or the Swing Line Lender, to the address, telecopier number, electronic mail address or
telephone number specified for such Person on Schedule 10.02; and
(ii) if to any other Lender, to the address, telecopier number, electronic mail address
or telephone number specified in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall
be deemed to have been given when received; notices sent by telecopier shall be deemed to have been
given when sent (except that, if not given during normal business hours for the recipient, shall be
deemed to have been given at the opening of business on the next Business Day for the recipient).
Notices delivered through electronic communications to the extent provided in subsection (b) below,
shall be effective as provided in such subsection (b).
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(b) Electronic Communications. Notices and other communications to the Lenders and
the L/C Issuer hereunder may be delivered or furnished by electronic communication (including
e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative
Agent, provided that the foregoing shall not apply to notices to any Lender or the L/C
Issuer pursuant to Article II if such Lender or the L/C Issuer, as applicable, has
notified the Administrative Agent that it is incapable of receiving notices under such Article by
electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree
to accept notices and other communications to it hereunder by electronic communications pursuant
to procedures approved by it, provided that approval of such procedures may be limited to
particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications
sent to an e-mail address shall be deemed received upon the senders receipt of an acknowledgement
from the intended recipient (such as by the return receipt requested function, as available,
return e-mail or other written acknowledgement), provided that if such notice or other
communication is not sent during the normal business hours of the recipient, such notice or
communication shall be deemed to have been sent at the opening of business on the next Business Day
for the recipient, and (ii) notices or communications posted to an Internet or intranet website
shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as
described in the foregoing clause (i) of notification that such notice or communication is
available and identifying the website address therefor.
(c) The Platform. THE PLATFORM IS PROVIDED AS IS AND AS AVAILABLE. THE AGENT
PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS
OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM
THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY
RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION
WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of
its Related Parties (collectively, the Agent Parties) have any
liability to the Borrower, any Lender, the L/C Issuer or any other Person for losses, claims,
damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out
of the Borrowers or the Administrative Agents transmission of the Borrower Materials through the
Internet, except to the extent that such losses, claims, damages, liabilities or expenses are
determined by a court of competent jurisdiction by a final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such Agent Party; provided,
however, that in no event shall any Agent Party have any liability to the Borrower, any
Lender, the L/C Issuer or any other Person for indirect, special, incidental, consequential or
punitive damages (as opposed to direct or actual damages).
(d) Effectiveness of Facsimile Documents and Signatures. Loan Documents may be
transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures
shall, subject to applicable Law, have the same force and effect as manually-signed originals and
shall be binding on all Loan Parties, the Administrative Agent, the Collateral
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Agent, the L/C
Issuer and the Lenders. The Administrative Agent may also require that any such documents and
signatures be confirmed by a manually-signed original thereof; provided, however, that the failure
to request or deliver the same shall not limit the effectiveness of any facsimile document or
signature.
(e) Change of Address, Etc. Each of the Borrower, the Administrative Agent, the L/C
Issuer and the Swing Line Lender may change its address, telecopier or telephone number for
notices and other communications hereunder by notice to the other parties hereto. Each other
Lender may change its address, telecopier or telephone number for notices and other communications
hereunder by notice to the Borrower, the Administrative Agent, the L/C Issuer and the Swing Line
Lender. In addition, each Lender agrees to notify the Administrative Agent from time to time to
ensure that the Administrative Agent has on record (i) an effective address, contact name,
telephone number, telecopier number and electronic mail address to which notices and other
communications may be sent and (ii) accurate wire instructions for such Lender.
(f) Reliance by Administrative Agent, L/C Issuer and Lenders. The Administrative
Agent, the L/C Issuer and the Lenders shall be entitled to rely and act upon any notices
(including telephonic Committed Loan Notices and Swing Line Loan Notices) purportedly given by or
on behalf of the Borrower even if (i) such notices were not made in a manner specified herein,
were incomplete or were not preceded or followed by any other form of notice specified herein, or
(ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The
Borrower shall indemnify the Administrative Agent, the L/C Issuer, each Lender and the Related
Parties of each of them from all losses, costs, expenses and liabilities resulting from the
reliance by such Person on each notice purportedly given by or on behalf of the Borrower except to
the extent that such losses, claims, damages, liabilities or expenses are determined by a court of
competent jurisdiction by a final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Person. All telephonic notices to and other telephonic
communications with the Administrative Agent may be recorded by the Administrative Agent, and each
of the parties hereto hereby consents to such recording.
10.03 No Waiver; Cumulative Remedies. No failure by any Lender, the L/C Issuer or the Administrative Agent to exercise, and no delay
by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
10.04 Expenses; Indemnity; Damage Waiver.
(a) Costs and Expenses. The Borrower shall pay (i) all reasonable out-of-pocket
expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees,
charges and disbursements of external counsel for the Administrative Agent), in connection with
the syndication of the credit facilities provided for herein, the preparation, negotiation,
execution, delivery and administration of this Agreement and the other Loan Documents or any
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amendments, modifications or waivers of the provisions hereof or thereof (whether or not the
transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable
out-of-pocket expenses incurred by the L/C Issuer in connection with the issuance, amendment,
renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all
reasonable out-of-pocket expenses incurred by the Administrative Agent, any Lender or the L/C
Issuer (including the fees, charges and disbursements of any external counsel for the
Administrative Agent, any Lender or the L/C Issuer), in connection with the enforcement or
protection of its rights (A) in connection with this Agreement and the other Loan Documents,
including its rights under this Section, or (B) in connection with the Loans made or Letters of
Credit issued hereunder, including all such reasonably out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b) Indemnification by the Borrower. The Borrower shall indemnify the Administrative
Agent (and any sub-agent thereof), each other Agent, each Lender and the L/C Issuer, and each
Related Party of any of the foregoing Persons (each such Person being called an
Indemnitee) against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses (including the fees, charges and disbursements of any
external counsel for any Indemnitee), incurred by any Indemnitee or asserted against any
Indemnitee by any third party or by any Loan Party or any Subsidiary thereof arising out of, in
connection with, as a result of or in any other way associated with (i) the execution or delivery
of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or
thereby, and the performance by the parties hereto of their respective obligations hereunder or
thereunder, (ii) the Collateral, the Loan Documents and consummation of the transactions or events
(including the enforcement or defense thereof and any occupation, operation, use or maintenance of
Collateral or other property of a Loan Party) at any time associated therewith or contemplated
therein, (iii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom
(including any refusal by the L/C Issuer to honor a demand for payment under a Letter of Credit if
the documents presented in connection with such demand do not strictly comply with the terms of
such Letter of Credit), (iv) any actual or alleged presence or release of Hazardous Materials on
or from any property owned or operated
by any Loan Party or any Subsidiary thereof, or any Environmental Liability related in any
way to any Loan Party or any Subsidiary thereof, or (v) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory, whether brought by a third party or by any Loan Party or any
Subsidiary thereof, and regardless of whether any Indemnitee is a party thereto, in all cases,
whether or not caused by or arising, in whole or in part, out of the comparative, contributory or
sole negligence of the Indemnitee; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related
expenses (x) are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or
(y) result from a claim brought by the Borrower or any other Loan Party against an Indemnitee for
breach in bad faith of such Indemnitees obligations hereunder or under any other Loan Document,
if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on
such claim as determined by a court of competent jurisdiction.
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(c) Reimbursement by Lenders. To the extent that the Borrower for any reason fails
to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by
it to the Administrative Agent (or any sub-agent thereof), each other Agent, the L/C Issuer or any
Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative
Agent (or any such sub-agent), the L/C Issuer or such Related Party, as the case may be, such
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 the Administrative Agent (or any such sub-agent) or the L/C Issuer
in its capacity as such, or against any Related Party of any of the foregoing acting for the
Administrative Agent (or any such sub-agent) or L/C Issuer in connection with such capacity. The
obligations of the Lenders under this subsection (c) are subject to the provisions of Section
2.12(d).
(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by
applicable law, the Borrower shall not assert, and hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages
(as opposed to direct or actual damages) arising out of, in connection with, or as a result of,
this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the
transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the
proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any
damages arising from the use by unintended recipients of any information or other materials
distributed to such unintended recipients by such Indemnitee through telecommunications,
electronic or other information transmission systems in connection with this Agreement or the
other Loan Documents or the transactions contemplated hereby or thereby other than for direct or
actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as
determined by a final and nonappealable judgment of a court of competent jurisdiction.
(e) Payments. All amounts due under this Section shall be payable not later than ten
Business Days after demand therefor.
(f) Survival. The agreements in this Section shall survive the resignation of the
Administrative Agent, the L/C Issuer and the Swing Line Lender, the replacement of any Lender, the
termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the
other Obligations.
10.05 Payments Set Aside. To the extent that any payment by or on behalf of the Borrower is made to the
Administrative Agent, the L/C Issuer or any Lender, or the Administrative Agent, the L/C Issuer or
any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any
part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or
required (including pursuant to any settlement entered into by the Administrative Agent, the L/C
Issuer or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in
connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of
such recovery, the obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or such setoff had not
occurred, and (b) each Lender and
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the L/C Issuer severally agrees to pay to the Administrative
Agent upon demand its applicable share (without duplication) of any amount so recovered from or
repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date
such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in
effect. The obligations of the Lenders and the L/C Issuer under clause (b) of the preceding
sentence shall survive the payment in full of the Obligations and the termination of this
Agreement.
10.06 Successors and Assigns.
(a) Successors and Assigns Generally. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its
rights or obligations hereunder without the prior written consent of the Administrative Agent and
each Lender and no Lender may assign or otherwise transfer any of its rights or obligations
hereunder except (i) to an assignee in accordance with the provisions of subsection (b) of this
Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this
Section, or (iii) by way of pledge or assignment of a security interest subject to the
restrictions of subsection (f) of this Section (and any other attempted assignment or transfer by
any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall
be construed to confer upon any Person (other than the parties hereto, their respective successors
and assigns permitted hereby, Participants to the extent provided in subsection (d) of this
Section and, to the extent expressly contemplated hereby, the Related Parties of each of the
Administrative Agent, the L/C Issuer and the Lenders) any legal or equitable right, remedy or
claim under or by reason of this Agreement.
(b) Assignments by Lenders. Any Lender may at any time assign to one or more
assignees all or a portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans (including for purposes of this subsection (b),
participations in L/C Obligations and in Swing Line Loans) at the time owing to it);
provided that any such assignment shall be subject to the following conditions:
(i) Minimum Amounts.
(A) in the case of an assignment of the entire remaining amount of the
assigning Lenders Commitment and the Loans at the time owing to it or in the case
of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no
minimum amount need be assigned; and
(B) in any case not described in subsection (b)(i)(A) of this Section, the
aggregate amount of the Commitment (which for this purpose includes Loans
outstanding thereunder) or, if the Commitment is not then in effect, the principal
outstanding balance of the Loans of the assigning Lender subject to each such
assignment, determined as of the date the Assignment and Assumption with respect to
such assignment is delivered to the Administrative Agent or, if Trade Date is
specified in the Assignment and Assumption, as of the Trade Date, shall not be less
than $5,000,000 unless each of the Administrative Agent and, so long as no Event of
Default has occurred and is continuing, the Borrower otherwise
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consents (each such
consent not to be unreasonably withheld or delayed); provided,
however, that concurrent assignments to members of an Assignee Group and
concurrent assignments from members of an Assignee Group to a single assignee (or to
an assignee and members of its Assignee Group) will be treated as a single
assignment for purposes of determining whether such minimum amount has been met.
(ii) Proportionate Amounts. Each partial assignment shall be made as an
assignment of a proportionate part of all the assigning Lenders rights and obligations
under this Agreement with respect to the Loans or the Commitment assigned, except that this
clause (ii) shall not apply to the Swing Line Lenders rights and obligations in respect of
Swing Line Loans;
(iii) Required Consents. No consent shall be required for any assignment
except to the extent required by subsection (b)(i)(B) of this Section and, in addition:
(A) the consent of the Borrower (such consent not to be unreasonably withheld
or delayed) shall be required unless (1) an Event of Default has occurred and is
continuing at the time of such assignment or (2) such assignment is to a Lender, an
Affiliate of a Lender or an Approved Fund;
(B) the consent of the Administrative Agent (such consent not to be
unreasonably withheld or delayed) shall be required if such assignment is to a
Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with
respect to such Lender;
(C) the consent of the L/C Issuer (such consent not to be unreasonably withheld
or delayed) shall be required for any assignment that increases the
obligation of the assignee to participate in exposure under one or more Letters
of Credit (whether or not then outstanding); and
(D) the consent of the Swing Line Lender (such consent not to be unreasonably
withheld or delayed) shall be required for any assignment unless such assignment is
to a Lender, an Affiliate of a Lender or an Approved Fund.
(iv) Assignment and Assumption. The parties to each assignment shall execute
and deliver to the Administrative Agent an Assignment and Assumption, together with a
processing and recordation fee in the amount, if any, required as set forth in Schedule
10.06; provided, however, that the Administrative Agent may, in its sole
discretion, elect to waive such processing and recordation fee in the case of any
assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent
an Administrative Questionnaire.
(v) No Assignment to the Borrower. No such assignment shall be made to the
Borrower or any of the Borrowers Affiliates or Subsidiaries.
(vi) No Assignment to Natural Persons. No such assignment shall be made to a
natural person.
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Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c)
of this Section, from and after the effective date specified in each Assignment and Assumption, the
assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned
by such Assignment and Assumption, have the rights and obligations of a Lender under this
Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment and Assumption, be released from its obligations under this Agreement (and, in the
case of an Assignment and Assumption covering all of the assigning Lenders rights and obligations
under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be
entitled to the benefits of Sections 3.01, 3.04, 3.05, and 10.04
with respect to facts and circumstances occurring prior to the effective date of such assignment.
Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee
Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that
does not comply with this subsection shall be treated for purposes of this Agreement as a sale by
such Lender of a participation in such rights and obligations in accordance with subsection (d) of
this Section.
(c) Register. The Administrative Agent, acting solely for this purpose as an agent
of the Borrower, shall maintain at the Administrative Agents Office 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 Commitments of, and principal amounts of the Loans and L/C Obligations owing to,
each Lender pursuant to the terms hereof from time to time (the Register). The entries
in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders
may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a
Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the
Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior
notice.
(d) Participations. Any Lender may at any time, without the consent of, or notice
to, the Borrower or the Administrative Agent, sell participations to any Person (other than a
natural person or the Borrower or any of the Borrowers Affiliates or Subsidiaries) (each, a
Participant) in all or a portion of such Lenders rights and/or obligations under this
Agreement (including all or a portion of its Commitment and/or the Loans (including such Lenders
participations in L/C Obligations and/or Swing Line Loans) owing to it); provided that (i)
such Lenders obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of such obligations and
(iii) the Borrower, the Administrative Agent, the Lenders and the L/C Issuer shall continue to
deal solely and directly with such Lender in connection with such Lenders rights and obligations
under this Agreement.
Any agreement or instrument pursuant to which a Lender sells such a participation shall
provide that such Lender shall retain the sole right to enforce this Agreement and to approve any
amendment, modification or waiver of any provision of this Agreement; provided that such
agreement or instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, waiver or other modification described in the first proviso to
Section 10.01 that affects such Participant. Subject to subsection (e) of this Section,
the Borrower agrees that each Participant shall be entitled to the benefits of Sections
3.01, 3.04 and
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3.05 to the same extent as if it were a Lender and had acquired
its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by
law, each Participant also shall be entitled to the benefits of Section 10.08 as though it
were a Lender, provided such Participant agrees to be subject to Section 2.13 as
though it were a Lender.
(e) Limitations upon Participant Rights. A Participant shall not be entitled to
receive any greater payment under Section 3.01 or 3.04 than the applicable Lender
would have been entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the Borrowers prior written
consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled
to the benefits of Section 3.01 unless the Borrower is notified of the participation sold
to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with
Section 3.01(e) as though it were a Lender.
(f) Certain Pledges. Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement (including under its Note, if any) to
secure obligations of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender
from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
(g) Electronic Execution of Assignments. The words execution, signed,
signature, and words of like import in any Assignment and Assumption shall be deemed to include
electronic signatures or the keeping of records in electronic form, each of which shall be of the
same legal effect, validity or enforceability as a manually executed signature or the
use of a paper-based recordkeeping system, as the case may be, to the extent and as provided
for in any applicable law, including the Federal Electronic Signatures in Global and National
Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state
laws based on the Uniform Electronic Transactions Act.
(h) Resignation as L/C Issuer or Swing Line Lender after Assignment. Notwithstanding
anything to the contrary contained herein, if at any time Bank of America assigns all of its
Commitment and Loans pursuant to subsection (b) above, Bank of America may, (i) upon 30 days
notice to the Borrower and the Lenders, resign as L/C Issuer and/or (ii) upon 30 days notice to
the Borrower, resign as Swing Line Lender. In the event of any such resignation as L/C Issuer or
Swing Line Lender, the Borrower shall be entitled to appoint from among the Lenders a successor
L/C Issuer or Swing Line Lender hereunder; provided, however, that no failure by
the Borrower to appoint any such successor shall affect the resignation of Bank of America as L/C
Issuer or Swing Line Lender, as the case may be. If Bank of America resigns as L/C Issuer, it
shall retain all the rights, powers, privileges and duties of the L/C Issuer hereunder with
respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C
Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to
make Base Rate Committed Loans or fund risk participations in Unreimbursed Amounts pursuant to
Section 2.03(c)). If Bank of America resigns as Swing Line Lender, it shall retain all
the rights of the Swing Line Lender provided for hereunder with respect to Swing Line Loans made
by it and outstanding as of the effective date of such resignation, including the right to require
the Lenders to make Base Rate
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Committed Loans or fund risk participations in outstanding Swing
Line Loans pursuant to Section 2.04(c). Upon the appointment of a successor L/C Issuer
and/or Swing Line Lender, (a) such successor shall succeed to and become vested with all of the
rights, powers, privileges and duties of the retiring L/C Issuer or Swing Line Lender, as the case
may be, and (b) the successor L/C Issuer shall issue letters of credit in substitution for the
Letters of Credit, if any, outstanding at the time of such succession or make other arrangements
satisfactory to Bank of America to effectively assume the obligations of Bank of America with
respect to such Letters of Credit.
10.07 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent, the Lenders
and the L/C Issuer agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates
respective partners, directors, officers, employees, agents, advisors and representatives (it being
understood that the Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information confidential), (b) to the extent
requested by any regulatory authority purporting to have jurisdiction over it (including any
self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the
extent required by applicable laws or regulations or by any subpoena or similar legal process, (d)
to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under
any other Loan Document or any action or proceeding relating to this Agreement or any other Loan
Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to (i) any assignee of or
Participant in, or any prospective assignee of or Participant in, any of its rights or obligations
under this Agreement or
(ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction
relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the
extent such Information (x) becomes publicly available other than as a result of a breach of this
Section or (y) becomes available to the Administrative Agent, any Lender, the L/C Issuer or any of
their respective Affiliates on a nonconfidential basis from a source other than the Borrower.
For purposes of this Section, Information means all information received from the
Borrower or any Subsidiary relating to the Borrower or any Subsidiary or any of their respective
businesses, other than any such information that is available to the Administrative Agent, any
Lender or the L/C Issuer on a nonconfidential basis prior to disclosure by the Borrower or any
Subsidiary, provided that, in the case of information received from the Borrower or any
Subsidiary after the date hereof, such information is clearly identified at the time of delivery as
confidential. Any Person required to maintain the confidentiality of Information as provided in
this Section shall be considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.
Each of the Administrative Agent, the Lenders and the L/C Issuer acknowledges that (a) the
Information may include material non-public information concerning the Borrower or a Subsidiary, as
the case may be, (b) it has developed compliance procedures regarding the use of material
non-public information and (c) it will handle such material non-public information in accordance
with applicable Law, including Federal and state securities Laws.
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10.08 Deposit Accounts; Right of Setoff. Each Loan Party hereby grants to L/C Issuer and each Lender a
security interest, a Lien, and a right of offset, each of which shall be in addition to all other
interests, Liens, and rights of L/C Issuer or any Lender at common Law, under the Loan Documents,
or otherwise, to secure the repayment of the Obligations, the Cash Management Obligations and the
Secured Swap Obligations upon and against (a) any and all moneys, securities or other property (and
the proceeds therefrom) of such Loan Party now or hereafter held or received by or in transit to
L/C Issuer or any Lender from or for the account of such Loan Party, whether for safekeeping,
custody, pledge, transmission, collection or otherwise, (b) any and all deposits (general or
special, time or demand, provisional or final, in whatever currency) of such Loan Party with L/C
Issuer or any Lender, and (c) any other credits and claims of such Loan Party at any time existing
against L/C Issuer or any Lender, including claims under certificates of deposit. If an Event of
Default shall have occurred and be continuing, each Lender, the L/C Issuer and each of their
respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent
permitted by applicable law, to foreclose upon such Lien and/or to set off and apply any and all
deposits (general or special, time or demand, provisional or final, in whatever currency) at any
time held and other obligations (in whatever currency) at any time owing by such Lender, the L/C
Issuer or any such Affiliate to or for the credit or the account of the Borrower or any other Loan
Party against any and all of the Obligations, the Cash Management Obligations and the Secured Swap
Obligations to such Lender or the L/C Issuer, irrespective of whether or not such Lender or the L/C
Issuer shall have made any demand under this Agreement or any other Loan Document and although such
obligations of the Borrower or such Loan Party may be contingent or unmatured or are owed to a
branch or office of such Lender or the L/C Issuer different from
the branch or office holding such deposit or obligated on such indebtedness. The rights of each
Lender, the L/C Issuer and their respective Affiliates under this Section are in addition to other
rights and remedies (including other rights of setoff) that such Lender, the L/C Issuer or their
respective Affiliates may have. Each Lender and the L/C Issuer agrees to notify the Borrower and
the Administrative Agent promptly after any such foreclosure or such setoff and application,
provided that the failure to give such notice shall not affect the validity of such
foreclosure or such setoff and application. The remedies of foreclosure and offset are separate
and cumulative, and either may be exercised independently of the other without regard to procedures
or restrictions applicable to the other.
10.09 Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document,
the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate
of non-usurious interest permitted by applicable Law (the Maximum Rate). If the
Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum
Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such
unpaid principal, refunded to the Borrower. In determining whether the interest contracted for,
charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person
may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal
as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the
effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the
total amount of interest throughout the contemplated term of the Obligations hereunder.
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10.10 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by
different parties hereto in different counterparts), each of which shall constitute an original,
but all of which when taken together shall constitute a single contract. This Agreement and the
other Loan Documents constitute the entire contract among the parties relating to the subject
matter hereof and supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof. Except as provided in Section 4.01, 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 that, when taken together, bear the
signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature
page of this Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.
10.11 Survival of Representations and Warranties. All representations and warranties made hereunder and
in any other Loan Document or other document delivered pursuant hereto or thereto or in connection
herewith or therewith shall survive the execution and delivery hereof and thereof. Such
representations and warranties have been or will be relied upon by the Administrative Agent and
each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on
their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or
knowledge of any Default at the time of any Credit Extension, and shall continue in full force and
effect as
long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter
of Credit shall remain outstanding.
10.12 Severability. If any provision of this Agreement or the other Loan Documents is held to be
illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining
provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby
and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or
unenforceable provisions with valid provisions the economic effect of which comes as close as
possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a
provision in a particular jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.
10.13 Replacement of Lenders. If any Lender requests compensation under Section 3.04, 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 3.01, or if any Lender is a Defaulting Lender
or in connection with any proposed amendment, modification, termination, waiver or consent with
respect to any of the provisions hereof as contemplated by Section 10.01, the consent of
Required Lenders shall have been obtained but the consent of one or more of such other Lenders
whose consent is required shall not have been obtained, if any other circumstance exists hereunder
that gives the Borrower the right to replace a Lender as a party hereto, 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, and consents required by, Section 10.06), all of its interests, rights and
obligations under this Agreement and the related Loan Documents to an assignee that shall assume
such obligations (which assignee may be another Lender, if a Lender accepts such assignment),
provided that:
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(a) the Borrower shall have paid to the Administrative Agent the assignment fee specified in
Section 10.06(b);
(b) such Lender shall have received payment of an amount equal to the outstanding principal
of its Loans and L/C Advances, accrued interest thereon, accrued fees and all other amounts
payable to it hereunder and under the other Loan Documents (including any amounts under
Section 3.05) 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);
(c) in the case of any such assignment resulting from a claim for compensation under
Section 3.04 or payments required to be made pursuant to Section 3.01, such
assignment will result in a reduction in such compensation or payments thereafter; and
(d) such assignment does not conflict with applicable Laws.
A Lender shall not be required to make any such assignment or 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.
10.14 Governing Law; Jurisdiction; Etc.
(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
(b) SUBMISSION TO JURISDICTION. THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY
AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT
OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION
OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN
DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR THE L/C ISSUER MAY
OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AGAINST THE BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY
JURISDICTION.
110
(c) WAIVER OF VENUE. THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF
THIS SECTION. EACH OF THE PARTIES HERETO HEREBY AGREES THAT SECTIONS 5-1401 AND
4-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL APPLY TO THE LOAN
DOCUMENTS AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE
OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d) SERVICE OF PROCESS. IN FURTHERANCE OF THE FOREGOING, BORROWER AND EACH GUARANTOR
HEREBY IRREVOCABLY DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 111 EIGHTH AVENUE , NEW YORK,
NEW YORK 10011, AS AGENT OF BORROWER AND EACH GUARANTOR TO RECEIVE SERVICE OF ALL PROCESS BROUGHT
AGAINST BORROWER OR SUCH
GUARANTOR WITH RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH COURT IN NEW YORK, SUCH SERVICE
BEING HEREBY ACKNOWLEDGED BY BORROWER AND EACH GUARANTOR TO BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT. COPIES OF ANY SUCH PROCESS SO SERVED SHALL ALSO BE SENT BY REGISTERED MAIL TO
BORROWER OR SUCH GUARANTOR AT ITS ADDRESS SET FORTH BELOW, BUT THE FAILURE OF BORROWER OR SUCH
GUARANTOR TO RECEIVE SUCH COPIES SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS AS
AFORESAID. BORROWER AND EACH GUARANTOR SHALL FURNISH TO ADMINISTRATIVE AGENT, L/C ISSUER AND
LENDERS A CONSENT OF CT CORPORATION SYSTEM AGREEING TO ACT HEREUNDER PRIOR TO THE EFFECTIVE DATE
OF THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ADMINISTRATIVE AGENT, L/C ISSUER AND
LENDERS TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF
ADMINISTRATIVE AGENT, L/C ISSUER AND LENDERS TO BRING PROCEEDINGS AGAINST BORROWER OR EACH
GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION. IF FOR ANY REASON CT CORPORATION SYSTEM SHALL
RESIGN OR OTHERWISE CEASE TO ACT AS BORROWERS OR EACH GUARANTORS AGENT, BORROWER AND SUCH
GUARANTOR HEREBY IRREVOCABLY AGREES TO (A) IMMEDIATELY DESIGNATE AND APPOINT A NEW AGENT
REASONABLY ACCEPTABLE TO ADMINISTRATIVE AGENT TO SERVE IN SUCH CAPACITY AND, IN SUCH EVENT, SUCH
NEW AGENT SHALL BE DEEMED TO BE SUBSTITUTED FOR CT CORPORATION SYSTEM FOR ALL PURPOSES HEREOF AND
(B) PROMPTLY DELIVER TO ADMINISTRATIVE AGENT THE WRITTEN CONSENT (IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO ADMINISTRATIVE AGENT) OF SUCH NEW AGENT AGREEING TO SERVE IN SUCH CAPACITY.
10.15 Waiver of Jury Trial and Special Damages. EACH PARTY HERETO AND EACH OTHER LOAN PARTY HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST
111
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO AND EACH OTHER LOAN PARTY (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION. EACH LOAN PARTY AND EACH LENDER HEREBY FURTHER (A) 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 DAMAGES, AS DEFINED BELOW, (B) CERTIFY THAT NO PARTY HERETO NOR
ANY REPRESENTATIVE OR 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 (C) 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. AS USED IN THIS SECTION, SPECIAL DAMAGES INCLUDES ALL SPECIAL,
CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY
PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER
PARTY HERETO.
10.16 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction
contemplated hereby, the Borrower and each other Loan Party acknowledges and agrees, and
acknowledges its Affiliates understanding, that: (i) the credit facility provided for hereunder
and any related arranging or other services in connection therewith (including in connection with
any amendment, waiver or other modification hereof or of any other Loan Document) are an
arms-length commercial transaction between the Borrower, each other Loan Party and their
respective Affiliates, on the one hand, and the Administrative Agent, the Syndication Agent and the
Arrangers, on the other hand, and the Borrower and each other Loan Party is capable of evaluating
and understanding and understands and accepts the terms, risks and conditions of the transactions
contemplated hereby and by the other Loan Documents (including any amendment, waiver or other
modification hereof or thereof); (ii) in connection with the process leading to such transaction,
the Administrative Agent, the Syndication Agent and any Arranger each is and has been acting solely
as a principal and is not the financial advisor, agent or fiduciary, for the Borrower, any other
Loan Party or any of their respective Affiliates, stockholders, creditors or employees or any other
Person; (iii) neither the Administrative Agent, the Syndication Agent nor any Arranger has assumed
or will assume an advisory, agency or fiduciary responsibility in favor of the Borrower or any
other Loan Party with respect to any of the transactions contemplated hereby or the process leading
thereto,
112
including with respect to any amendment, waiver or other modification hereof or of any
other Loan Document (irrespective of whether the Administrative Agent, the Syndication Agent or any
Arranger advised or is currently advising the Borrower, any other Loan Party or any of their
respective Affiliates on other matters) and neither the Administrative Agent, the Syndication Agent
nor any Arranger has any obligation to the Borrower, any other Loan Party or any of their
respective Affiliates with respect to the transactions contemplated hereby except those obligations
expressly set forth herein and in the other Loan Documents; (iv) the Administrative Agent, the
Syndication Agent and each Arranger and their respective Affiliates may be engaged in a broad range
of transactions that involve interests that differ from those of the Borrower, the other Loan
Parties and their respective Affiliates, and neither the Administrative Agent nor the Arranger has
any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary
relationship; and (v) the Administrative Agent, the Syndication Agent and each Arranger have not
provided and will not provide any legal, accounting, regulatory or tax advice with respect to any
of the transactions contemplated hereby (including any amendment, waiver or other modification
hereof or of any other Loan Document) and each of the Borrower and the other Loan Parties has
consulted its own legal, accounting,
regulatory and tax advisors to the extent it has deemed appropriate. Each of the Borrower and the
other Loan Parties hereby waives and releases, to the fullest extent permitted by law, any claims
that it may have against the Administrative Agent, the Syndication Agent and any Arranger with
respect to any breach or alleged breach of agency or fiduciary duty.
10.17 USA PATRIOT Act Notice. Each Lender that is subject to the Act (as hereinafter defined) and the
Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that
pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law
October 26, 2001)) (the Act), it is required to obtain, verify and record information
that identifies the Borrower, which information includes the name and address of the Borrower and
other information that will allow such Lender or the Administrative Agent, as applicable, to
identify the Borrower in accordance with the Act.
10.18 No General Partners Liability. The Administrative Agent and the Lenders agree for
themselves and their respective successors and assigns, including any subsequent holder of any
Note, that no claim under this Agreement or under any other Loan Document shall be made against
General Partner, and that no judgment, order or execution entered in any suit, action or
proceeding, whether legal or equitable, hereunder or on any other Loan Document shall be obtained
or enforced, against General Partner or its assets for the purpose of obtaining satisfaction and
payment of amounts owed under this Agreement or any other Loan Document.
10.19 Time of the Essence. Time is of the essence of the Loan Documents.
10.20 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
[Remainder of page intentionally left blank.]
113
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of
the date first above written.
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TARGA RESOURCES PARTNERS |
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By: |
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Targa Resources GP LLC, its sole general
partner |
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By: |
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Name:
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Title: |
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[Credit Agreement Signature Page]
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BANK OF AMERICA, N.A., as Administrative Agent
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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BANK OF AMERICA, N.A., as a Lender,
L/C Issuer and Swing Line Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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WACHOVIA BANK, NATIONAL
ASSOCIATION, as Syndication Agent and as a
Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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MERRILL LYNCH CAPITAL, A DIVISION
OF MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC., as
Co-Documentation Agent and as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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ROYAL BANK OF CANADA, as
Co-Documentation Agent and as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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THE ROYAL BANK OF SCOTLAND PLC, as
Co-Documentation Agent and as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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BNP PARIBAS, as a Lender
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By: |
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Name: |
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Title: |
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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SOCIÉTÉ GÉNÉRALE, as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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BMO CAPITAL MARKETS FINANCING,
INC., as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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ABN AMRO BANK N.V., as a Lender
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By: |
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Name: |
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Title: |
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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THE BANK OF NOVA SCOTIA, as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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CITIBANK, N.A., as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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AMEGY BANK NATIONAL ASSOCIATION,
as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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COMPASS BANK, as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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U.S. BANK NATIONAL ASSOCIATION, as a
Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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FORTIS CAPITAL CORP., as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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JPMORGAN CHASE BANK, N.A., as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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COMERICA BANK, as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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GUARANTY BANK, as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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NATIXIS, as a Lender
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By: |
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Name: |
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Title: |
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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UBS LOAN FINANCE LLC, as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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LEHMAN BROTHERS COMMERCIAL
BANK, as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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CREDIT SUISSE, as a Lender
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By: |
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Name: |
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Title: |
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
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GOLDMAN SACHS CREDIT PARTNERS L.P., as a Lender
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By: |
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Name: |
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Title: |
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[Credit Agreement Signature Page]
SCHEDULE 1.01
CERTAIN PERMITTED HEDGING PARTIES
Bank of America, N.A.
Bank of Montreal
BP Corporation North America Inc.
BP Products North America Inc.
ConocoPhillips Gas Power Marketing, a division of ConocoPhillips, Inc.
Coral Energy Resources LP
Deutsche Bank AG, New York Branch
ExxonMobil Corporation
J. Aron & Company
JPMorgan Chase Bank, N.A.
Merrill Lynch Commodities, Inc.
Morgan Stanley Capital Group, Inc.
Sempra Energy Trading Group.
Shell Trading (US) Company
Société Générale
Wachovia Bank, National Association
* In each case, the Hedging Party shall be the Affiliate which is trading entity of the
counterparties specified above.
SCHEDULE 2.01
COMMITMENTS
AND APPLICABLE PERCENTAGES
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Applicable |
Lender |
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Commitment |
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Percentage |
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Bank of America, N.A. |
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$ |
29,750,000 |
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5.950000000 |
% |
Wachovia Bank, National Association |
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$ |
29,750,000 |
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5.950000000 |
% |
Merrill Lynch Capital |
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$ |
29,500,000 |
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5.900000000 |
% |
The Royal Bank of Scotland plc |
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$ |
29,500,000 |
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5.900000000 |
% |
Royal Bank of Canada |
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$ |
29,500,000 |
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5.900000000 |
% |
BNP Paribas |
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$ |
25,000,000 |
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5.000000000 |
% |
Société Générale |
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$ |
25,000,000 |
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5.000000000 |
% |
BMO Capital Markets Financing, Inc. |
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$ |
25,000,000 |
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5.000000000 |
% |
ANB AMRO Bank N.V. |
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$ |
25,000,000 |
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5.000000000 |
% |
The Bank of Nova Scotia |
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$ |
25,000,000 |
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5.000000000 |
% |
Citibank, NA |
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$ |
19,000,000 |
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3.800000000 |
% |
Amegy Bank National Association |
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$ |
19,000,000 |
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3.800000000 |
% |
Compass Bank |
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$ |
19,000,000 |
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3.800000000 |
% |
U.S. Bank National Association |
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$ |
19,000,000 |
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3.800000000 |
% |
Fortis Capital Corp. |
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$ |
19,000,000 |
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3.800000000 |
% |
JPMorgan Chase Bank, N.A. |
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$ |
19,000,000 |
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3.800000000 |
% |
Comerica Bank |
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$ |
19,000,000 |
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3.800000000 |
% |
Guaranty Bank |
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$ |
19,000,000 |
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3.800000000 |
% |
Natixis |
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$ |
19,000,000 |
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3.800000000 |
% |
UBS Loan Finance LLC |
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$ |
14,000,000 |
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2.800000000 |
% |
Lehman Brothers Commercial Bank |
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$ |
14,000,000 |
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2.800000000 |
% |
Credit Suisse |
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$ |
14,000,000 |
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2.800000000 |
% |
Goldman Sachs Credit Partners L.P. |
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$ |
14,000,000 |
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2.800000000 |
% |
Total |
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$ |
500,000,000 |
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100.000000000 |
% |
SCHEDULE 4.01
SECURITY DOCUMENTS
1. |
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Guaranty Agreement. |
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2. |
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Pledge and Security Agreement. |
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3. |
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Deed of Trust, Mortgage, Assignment, Security Agreement, Fixture Filing and Financing
Statement from Targa North Texas LP, to PRLAP, Inc., as Trustee and Bank of America, N.A., as
Collateral Agent. |
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4. |
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Deed of Trust, Mortgage, Assignment, Security Agreement, Fixture Filing and Financing
Statement from Targa Intrastate Pipeline LP to PRLAP, Inc., as Trustee and Bank of America,
N.A., as Collateral Agent. |
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5. |
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UCC-1 Financing Statements related to all of the foregoing. |
SCHEDULE 5.13
SUBSIDIARIES;
OTHER EQUITY INVESTMENTS
Part (a). Subsidiaries.
Targa Resources Operating GP LLC, a Delaware limited liability company
Targa Resources Operating LP, a Delaware limited partnership
Targa North Texas GP LLC, a Delaware limited liability company
Targa North Texas LP, a Delaware limited partnership
Targa Intrastate Pipeline LLC, a Delaware limited liability company
Part (b). Other Equity Investments.
Part (b)(ii). Loan Party Information.
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ADDRESS OF |
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PRINCIPAL |
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PRIOR |
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JURISDICTION OF |
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PLACE OF |
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ORGANIZATIONAL |
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PRIOR |
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JURISDICTION OF |
NAME |
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FORMATION |
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BUSINESS |
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FEIN |
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ID NUMBER |
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NAMES |
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FORMATION |
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Targa Resources Partners LP
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Delaware
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1000 Louisiana, Ste. 4300 Houston, TX 77002
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65-1295427
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4239562 |
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None
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None |
Targa Resources Operating GP LLC
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Delaware
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1000 Louisiana, Ste. 4300 Houston, TX 77002
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[to be provided]
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4292540 |
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None
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None |
Targa Resources Operating LP
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Delaware
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1000 Louisiana, Ste. 4300 Houston, TX 77002
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[to be provided]
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4292546 |
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None
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None |
Targa North Texas GP LLC
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Delaware
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1000 Louisiana, Ste. 4300 Houston, TX 77002
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None
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4066474 |
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None
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None |
Targa North Texas LP
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Delaware
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1000 Louisiana, Ste. 4300 Houston, TX 77002
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20-4036176
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4067407 |
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None
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None |
Targa Intrastate Pipeline LLC
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Delaware
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1000 Louisiana, Ste. 4300 Houston, TX 77002
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76-0634836
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3173058 |
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Dynegy Intrastate Pipeline, LLC
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None |
Part (b)(ii). Other Equity Investments.
None.
SCHEDULE 5.21
MATERIAL REAL PROPERTY
Material Fee Owned Property:
The cryogenic natural gas processing plant located in Wise County, Texas, including the real
property owned by Targa North Texas on which the Chico Plant and related equipment and operations
are located.
Material Leased Property:
The cryogenic natural gas processing plant located in Shackelford County, Texas, including the
real property leased by Targa North Texas on which the Shackelford Plant and related equipment and
operations are located.
SCHEDULE 6.07
INSURANCE SUMMARY
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RETENTION/ |
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LINE OF COVERAGE |
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LIMIT OF LIABILITY |
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DEDUCTIBLE |
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INSURANCE CARRIER(S) |
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POLICY TERM |
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POLICY NO. |
1)
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Workers
Compensation/Employers
Liability
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Statutory/$1MM
per occurrence
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$250,000 per
occurrence
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Travelers
Property
Casualty
Company of
America
(TPCCA)
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10/31/06-
10/31/07
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TC2JUB152D6247
TRJUB152D6260 |
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2)
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Business Auto
Liability
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$1MM any one
occurrence CSL
Self-Insure Auto
Physical Damage
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$250,000 per occurrence
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TPCCA
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10/31/06-
10/31/07
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TC2JCAP152D6223 |
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3)
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Excess Liability
(Includes Sudden & Accidental Pollution)
1st Layer Excess
Liability
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$35MM and in the
aggregate as
applicable excess
of underlying limits
(Includes Employment
Practices Liability,
limited Errors &
Omissions, Incidental
Medical Malpractice, etc.)
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As per
Schedule of
Underlyings,
including
$1MM GL
SIR.
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Associated
Electric &
Gas
Insurance
Services
(AEGIS)
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10/31/06-
10/31/07
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X3219A1A06 |
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4)
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2nd Layer Excess
Liability
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$100MM xs
$35MM
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Underlying
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Energy
Insurance
Mutual
(EIM)
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10/31/06-
10/31/07
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250322-06GL |
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5)
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3rd Layer Excess
Liability
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$25MM xs
$135MM
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Underlying
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AEGIS
(London)
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10/31/06-
10/31/07
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JLWCTF3097 |
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6)
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4th Layer Excess
Liability
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$140MM xs
$160MM
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Underlying
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London Markets
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10/31/06-
10/31/07
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JLWCTF3068 |
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7)
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5th Layer Excess
Liability
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$100MM xs
$300MM (total $400MM)
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Underlying
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Bermuda
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10/31/06-
10/31/07
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BM00022429LI06A
(XL) 50% |
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RETENTION/ |
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LINE OF COVERAGE |
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LIMIT OF LIABILITY |
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DEDUCTIBLE |
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INSURANCE CARRIER(S) |
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POLICY TERM |
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POLICY NO. |
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5087049 (Starr
Excess) 50% |
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8)
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All Risk Onshore
Property Insurance
Coverage
Flood, Windstorm,
Earthquake are
Annual Aggregate
Limits
MLP will have
separate
Aggregate/Sublimits
under main Targa
policy
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$400MM per
occurrence CSL
Replacement
Cost Value
property damage
(except for
ACV on old
shut-down TMS gas plants/compressor
stations), boiler &
machinery, EDP,
transit, earthquake,
flood, windstorm,
expediting expenses,
extra expenses,
product
stored below ground, construction projects,
pollution cleanup.
Program placed in
following layers:
$50MM Primary (Incl. Flood/Windstorm)
$50MM xs $50MM
Excess (Incl. F/W)
$300MM xs $100MM
Excess (Excl. F/W)
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$500K
(Interest)
Plants <
$50MM
$1MM
(100%)
Plants >
$50MM
Windstorm/Flood:
2.0% of
Insured
Values,
subject to
$2.5MM
(100%) MIN
and $10MM
(100%) MAX
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Various
Lloyds,
London
Markets,
Domestic
and
Bermuda
Insurers
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10/31/05-
4/16/07
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JLWM3458
JLWM3549
JLWM3550
L3219A1A05
JLWCTF2986
JLWCTF2989
JLWCTF2990
JLWCTF2995
AN0501353
AN0501341
AN0501356 |
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9)
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Business Interruption/Contingent
Business Interruption
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Gross earnings actual
loss sustained wording
24 Mos. Period of
Indemnity
$10MM CBI Named
Customers/Suppliers
$5MM CBI Un-named
Customers/Suppliers
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30 day waiting period
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Same as
Property
Above
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10/31/05-
4/16/07
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Same as above |
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10)
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Stand-Alone Terrorism Property/BI Coverage
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$200MM per
occurrence/policy
aggregate
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$1MM PD
30 day wait BI
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Certain
Underwriters
at Lloyds
(London)
and Others
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10/31/05-
4/16/07
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JLWCTF2991
JLWCTF2996 |
SCHEDULE 7.01
EXISTING LIENS
None.
SCHEDULE 7.09
AFFILIATE TRANSACTIONS
1. |
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Borrower Partnership Agreement |
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2. |
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Contribution Agreement dated as of December 1, 2005 among Targa Midstream Services Limited
Partnership, Targa GP Inc., Targa LP Inc., Targa Downstream GP LLC, Targa North Texas GP LLC,
Targa Straddle GP LLC, Targa Permian GP LLC, Targa Versado GP LLC, Targa Downstream LP, Targa
North Texas, Targa Straddle LP, Targa Permian LP and Targa Versado LP (the 2005
Contribution Agreement). |
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3. |
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Amendment to 2005 Contribution Agreement dated as of February [___], 2007. |
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4. |
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Contribution Agreement dated as of February [___], 2007 among [to be determined]. |
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5. |
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Omnibus Agreement among Targa, the General Partner and the Borrower. |
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6. |
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Natural Gas Purchase Agreement dated as of January 1, 2007 between Targa Gas Marketing LLC
and Targa North Texas. |
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7. |
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Products Purchase Agreement dated as of January 1, 2007 between Targa Liquids Marketing and
Trade and Targa North Texas. |
SCHEDULE 10.02
ADMINISTRATIVE AGENTS OFFICE;
CERTAIN ADDRESSES FOR NOTICES
BORROWER:
Targa Resources Partners LP
1000 Louisiana, Suite 2300
Houston, Texas 77002
Attention: Vice President Finance
Telephone: 713.584.1024
Telecopier: 713.584.1523
Electronic Mail: howardtate@targaresources.com
Website Address: www.targaresources.com
U.S. Taxpayer Identification Number: 65-1295427
ADMINISTRATIVE AGENT:
Administrative Agents Office
(for payments and Requests for Credit Extensions):
Bank of America, N.A.
901 Main St
Mail Code: TX1-492-14-11
Dallas, TX 75202
Attention: Ramon Gomez
Telephone: 214.209.2627
Telecopier: 214.290.8367
Electronic Mail: ramon.gomez_jr@bankofamerica.com
Account No.: 1292000883
Ref: Targa Resources
ABA# 026009593 |
Other Notices as Administrative Agent:
Bank of America, N.A.
Agency Management
100 Federal St
Mail Code: MA5-100-11-02
Boston, MA 02110
Attention: Todd Mac Neill
Telephone: 617.434.6842
Telecopier: 617.790.1361
Electronic Mail: Todd.G.MacNeill@bankofamerica.com
L/C ISSUER:
Bank of America, N.A.
Trade Operations
1 Fleet Way
Mail Code: PA6-580-02-30
Scranton, PA 18507
Attention: Michael Grizzanti
Telephone: 570.330.4214
Telecopier: 800.755.8743
Electronic Mail: michael.a.grizzanti@bankofamerica.com
SWING LINE LENDER:
Bank of America, N.A.
901 Main St
Mail Code: TX1-492-14-11
Dallas, TX 75202
Attention: Ramon Gomez
Telephone: 214.209.2627
Telecopier: 214.290.8367
Electronic Mail: ramon.gomez_jr@bankofamerica.com
Account No.: 1292000883
Ref: Targa Resources
ABA# 026009593
SCHEDULE 10.06
PROCESSING AND RECORDATION FEES
The Administrative Agent will charge a processing and recordation fee (an Assignment
Fee) in the amount of $2,500 for each assignment; provided, however, that in
the event of two or more concurrent assignments to members of the same Assignee Group (which may be
effected by a suballocation of an assigned amount among members of such Assignee Group) or two or
more concurrent assignments by members of the same Assignee Group to a single Eligible Assignee (or
to an Eligible Assignee and members of its Assignee Group), the Assignment Fee will be $2,500 plus
the amount set forth below:
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Transaction |
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Assignment Fee |
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First four concurrent assignments or suballocations to
members of an Assignee Group (or from members of an
Assignee Group, as applicable) |
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-0- |
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Each additional concurrent assignment or suballocation to a
member of such Assignee Group (or from a member of such
Assignee Group, as applicable) |
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$ |
500 |
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exv10w8
Exhibit 10.8
CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT
THIS CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT, dated as of February [ ], 2007, is
entered into by and among TARGA RESOURCES PARTNERS LP, a Delaware limited partnership (MLP),
TARGA RESOURCES OPERATING LP, a Delaware limited partnership (OLP), TARGA RESOURCES GP LLC, a
Delaware limited liability company (GP), TARGA RESOURCES OPERATING GP LLC, a Delaware limited
liability company (OLP GP), TARGA GP INC., a Delaware corporation (GP Inc.), TARGA LP INC., a
Delaware corporation (LP Inc.), TARGA REGULATED HOLDINGS LLC, a Delaware limited liability
company (TRH), TARGA NORTH TEXAS GP LLC, a Delaware limited liability company (North Texas GP),
and TARGA NORTH TEXAS LP, a Delaware limited partnership (North Texas LP). The parties to this
agreement are collectively referred to herein as the Parties. Capitalized terms used herein shall
have the meanings assigned to such terms in Section 1.1.
RECITALS
WHEREAS, GP, LP Inc. and GP Inc. have formed MLP, pursuant to the Delaware Revised Uniform
Limited Partnership Act (the Delaware LP Act), for the purpose of engaging in any business
activity that is approved by GP and that lawfully may be conducted by a limited partnership
organized pursuant to the Delaware LP Act.
WHEREAS, in order to accomplish the objectives and purposes in the preceding recital, the
following actions have been taken prior to the date hereof:
1. GP Inc. formed North Texas GP under the terms of the Delaware Limited Liability Company
Act (the Delaware LLC Act), and contributed $1,000 in exchange for all of the member interests in
North Texas GP.
2. North Texas GP and LP Inc. formed North Texas LP under the terms of the Delaware LP Act,
to which North Texas GP contributed $500 and LP Inc. contributed $500 in exchange for a 50% general
partner interest and a 50% limited partner interest, respectively.
3. Targa Midstream Services Limited Partnership (TMS) conveyed beneficial title to the
assets, generally referred to as the North Texas Assets it acquired from Dynegy, Inc. (the North
Texas Assets) to North Texas LP on behalf of North Texas GP and LP Inc. in part as a capital
contribution and in exchange for a promissory note/acquisition payment obligation of $___
from North Texas GP and a promissory note/acquisition payment obligation of $___from LP
Inc. (collectively the Intercompany Debt).
4. TRH conveyed all of its right, title and interest in and to the member interest in Targa
Intrastate Pipeline LLC, a Delaware limited liability company to North Texas LP.
5. North Texas LP assumed the obligations of North Texas GP and LP Inc. under the
Intercompany Debt.
6. TMS conveyed legal title to the North Texas Assets to North Texas LP on behalf of North
Texas GP and LP Inc.
7. GP Inc. formed GP, under the terms of the Delaware LLC Act, and contributed $1,000 in
exchange for all of the member interests in GP.
8. GP, LP Inc. and GP Inc. formed MLP, under the terms of the Delaware LP Act, to which GP
contributed $20 and LP Inc. and GP Inc. each contributed $490 in exchange for a 2% general partner
interest, a 49% limited partner interest and a 49% limited partner interest, respectively.
9. MLP formed OLP GP under the terms of the Delaware LLC Act, and contributed $1,000 in
exchange for all of the member interests in OLP GP.
10. OLP GP and MLP formed OLP, under the terms of the Delaware LP Act, to which OLP GP
contributed $0.01 and MLP contributed $999.99 in exchange for a 0.001% general partner interest and
99.999% limited partner interest, respectively.
11. MLP, as Borrower, entered into the Credit Agreement with Bank of America N.A. as
Administrative Agent and the other lenders party thereto.
WHEREAS, immediately prior to the closing of the MLPs initial public offering (MLP IPO), GP
Inc. will convey a part of its member interest (the Interest) in North Texas GP to GP equal to 2%
of the equity value of the MLP at the end of the MLP IPO closing based upon the IPO pricing.
WHEREAS, at the MLP IPO closing, each of the following actions shall occur:
1. GP will convey the Interest to MLP in exchange for (a) a continuation of its 2% general
partner interest and (b) the incentive distribution rights (the IDRs).
2. GP Inc. will convey its remaining member interest in North Texas GP to MLP in exchange for
[ ] million subordinated limited partner units (Sub Units) representing limited partner
interests with a [ ]% interest in the MLP.
3. LP Inc. will convey all of its limited partner interest in North Texas LP to MLP in
exchange for [ ] million Sub Units with a [ ]% interest in MLP.
4. The public, through the Underwriters, will contribute $[ ] million in cash, less the net
amount of $[ ] payable to the Underwriters after taking into account the Underwriters discount,
the structuring fees payable to the Underwriters and the Underwriters reimbursement of certain
expenses incurred by the MLP in connection with the Offering, in exchange for 16,800,000 Common
Units in MLP (representing a 58.1% interest).
5. MLP will (a) pay transaction expenses associated with the transactions contemplated by this
Agreement in the amount of approximately $[___] million (exclusive of the Underwriters spread) and
(b) pay fees and expenses associated with the Credit Agreement in the amount of approximately
$[___] million and (c) contribute the balance of the cash received from the public to North Texas
LP as a capital contribution (50% on behalf of North Texas GP and 50% on behalf of LP Inc.).
6. MLP will borrow $[___] million from new lenders under the Credit Agreement and contribute
those funds to North Texas LP as a capital contribution (50% on behalf of North Texas GP).
7. MLP will convey its member interest in North Texas GP and its limited partner interest in
North Texas LP to the OLP as a capital contribution (of which 0.001% of such contribution will be
made to OLP on behalf of OLP GP).
8. North Texas LP will use the various funds contributed to it to retire the Intercompany
Debt.
9. The agreements of limited partnership and the limited liability company agreements of the
aforementioned entities will be amended and restated to the extent necessary to reflect the
applicable matters set forth above and as contained in this Agreement.
NOW, THEREFORE, in consideration of their mutual undertakings and agreements hereunder, the
Parties undertake and agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 The following capitalized terms shall have the meanings given below.
2
(a) Acquisition means consummation of the transactions contemplated by the terms of this
Agreement.
(b) Agreement means this Contribution, Conveyance and Assumption Agreement.
(c) Common Unit has the meaning assigned to such term in the Partnership Agreement.
(d) Credit Agreement means the Credit Agreement, dated as of February [ ], 2007, among MLP,
OLP, the subsidiaries of the MLP, and Bank of America, N.A., as administrative agent for the
lenders named therein.
(e) Effective Time shall mean 8:00 a.m. New York, New York time on February [ ], 2007.
(f) IDRs means Incentive Distribution Rights as such term is defined in the Partnership
Agreement.
(g) MLP has the meaning assigned to such term in the opening paragraph of this Agreement.
(h) Offering means the initial public offering by MLP of Common Units.
(i) Option means the over-allotment option afforded the Underwriters in the Offering.
(j) Partnership Agreement means the Amended and Restated Agreement of Limited Partnership of
MLP dated as of February [ ], 2007.
(k) Sub Unit means Subordinated Unit as such term is defined in the Partnership Agreement.
(l) Underwriters means Citigroup Global Markets Inc., Goldman, Sachs & Co., UBS Securities
LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and A.G. Edwards & Sons, Inc., Credit
Suisse Securities (USA) LLC, Lehman Brothers Inc., Wachovia Capital Markets, LLC, Raymond James &
Associates, Inc., RBC Capital Markets Corporation and Sanders Morris Harris Inc.
ARTICLE 2
CONTRIBUTIONS, ACKNOWLEDGMENTS AND DISTRIBUTIONS
Section 2.1 Contribution of the Interest to GP. GP Inc. hereby grants, contributes, bargains,
conveys, assigns, transfers, sets over and delivers to GP, its successors and assigns, for its and
their own use forever, all right, title and interest in and to the Interest and GP hereby accepts
the Interest.
Section 2.2 Contribution of the Interest by GP to MLP. GP hereby grants, contributes,
bargains, conveys, assigns, transfers, sets over and delivers to MLP, its successors and assigns,
for its and their own use forever, all right, title and interest in and to the Interest, as a
capital contribution, in exchange for (a) a continuation of its 2% general partner interest in MLP
and (b) the issuance of the IDRs, and MLP hereby accepts the Interest as a contribution to the
capital of MLP.
Section 2.3 Contribution of remaining member interest in North Texas GP to MLP. GP Inc.
hereby grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to MLP,
its successors and assigns, for its and their own use forever, all right, title and interest in and
to its remaining member interest in North Texas GP after the contribution of the Interest to GP and
MLP, in exchange for [ ] million Sub Units representing limited partner interests with a [ ]%
interest in the MLP, and MLP hereby accepts such member interests in North Texas GP.
3
Section 2.4 Contribution of limited partner interest in North Texas LP to MLP. LP Inc. hereby
grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to MLP, its
successors and assigns, for its and their own use forever, all right, title and interest in and to
the limited partner interest in North Texas LP, in exchange for [ ] million Sub Units representing
limited partner interests with a [ ]% interest in the MLP, and MLP hereby accepts such member
interests in North Texas LP.
Section 2.5 Public Cash Contribution. The Parties acknowledge a capital contribution by the
public through the Underwriters to MLP of $[___] million in cash ($[___] million net to MLP
after taking into account the Underwriters discount and the structuring fee payable to the
Underwriters, but before paying offering expenses) in exchange for 16,800,000 Common Units,
representing a 58.1% interest in MLP.
Section 2.6 Payment of Transaction Costs. The Parties acknowledge the payment by MLP, in
connection with the Acquisition, of transaction expenses in the amount of $[___] million (exclusive
of the Underwriters discount but including fees and expenses related to the Credit Agreement).
Section 2.7 Capital Contribution by MLP to North Texas LP. MLP
hereby distributes, grants,
bargains, conveys, assigns, transfers, sets over and delivers to North Texas LP as a capital
contribution (50% of which is made on behalf of North Texas GP) $___.
Section 2.8 Contribution by MLP of limited partner interest in North Texas LP to OLP. MLP
hereby grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to OLP,
its successors and assigns, for its and their own use forever, all right, title and interest in and
to the limited partner interest in North Texas LP (of which 0.001% is being contributed on behalf
of OLP GP) as a capital contribution, and OLP hereby accepts such limited partner interest as a
contribution to the capital of OLP.
Section 2.9 Contribution by MLP of all member interest in North Texas GP to OLP. MLP hereby
grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to OLP, its
successors and assigns, for its and their own use forever, all right, title and interest in and to
the member interest in North Texas GP (of which 0.001% is being contributed on behalf of OLP GP) as
a capital contribution, and OLP hereby accepts such member interest as a contribution to the
capital of OLP.
Section 2.10 Issuance of Certificates. At the Closing, MLP shall issue to each of GP Inc. and
LP Inc. a certificate or certificates, which may be held in book entry form, representing the
respective number of Sub Units to be issued to each of GP Inc. and LP Inc. pursuant to Section 2.3
and Section 2.4.
Section 2.11 Certificate Legend. The certificates evidencing the Sub Units delivered pursuant
to Section2.3 and Section 2.4 shall bear a legend substantially in the form set forth below and
containing such other information as MLP may deem necessary or appropriate:
THE HOLDER OF THIS SECURITY ACKNOWLEDGES FOR THE BENEFIT OF TARGA RESOURCES PARTNERS LP (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). TARGA
RESOURCES GP LLC, THE GENERAL PARTNER OF THE PARTNERSHIP, MAY IMPOSE ADDITIONAL RESTRICTIONS ON THE
TRANSFER OF THIS SECURITY IF IT RECEIVES AN OPINION OF COUNSEL THAT SUCH RESTRICTIONS ARE NECESSARY
TO AVOID A SIGNIFICANT RISK OF THE PARTNERSHIP BECOMING
4
TAXABLE AS A CORPORATION OR OTHERWISE BECOMING TAXABLE AS AN ENTITY FOR FEDERAL INCOME TAX
PURPOSES.
ARTICLE 3
ADDITIONAL TRANSACTIONS
Section 3.1 Purchase of Additional Common Units. If the Option is exercised in whole or in
part, the public, through the Underwriters, will contribute additional cash to MLP in exchange for
up to an additional 2,520,000 Common Units.
Section 3.2 Reducing amounts outstanding under Credit Agreement. The Parties acknowledge, in
the event that the Option is exercised in whole or in part, MLP will use the net proceeds from the
issuance of additional Common Units to pay the lenders under the Credit Agreement to reduce
outstanding borrowings under the Credit Agreement.
ARTICLE 4
FURTHER ASSURANCES
From time to time after the Effective Time, and without any further consideration, the Parties
agree to execute, acknowledge and deliver all such additional deeds, assignments, bills of sale,
conveyances, instruments, notices, releases, acquittances and other documents, and will do all such
other acts and things, all in accordance with applicable law, as may be necessary or appropriate
(a) more fully to assure that the applicable Parties own all of the properties, rights, titles,
interests, estates, remedies, powers and privileges granted by this Agreement, or which are
intended to be so granted, or (b) more fully and effectively to vest in the applicable Parties and
their respective successors and assigns beneficial and record title to the interests contributed
and assigned by this Agreement or intended so to be and to more fully and effectively carry out the
purposes and intent of this Agreement.
ARTICLE 5
EFFECTIVE TIME
Notwithstanding anything contained in this Agreement to the contrary, none of the provisions
of Article 2 or Article 3 of this Agreement shall be operative or have any effect until the
Effective Time, at which time all the provisions of Article 2 and Article 3 of this Agreement shall
be effective and operative in accordance with Article 6, without further action by any party
hereto.
ARTICLE 6
MISCELLANEOUS
Section 6.1 Order of Completion of Transactions. The contribution of the Interest to GP
referenced in Section 2.1 is deemed to have occurred immediately prior to the closing of the MLP
IPO whereas all of the other actions referenced in Section 2.2 through [2.12] shall occur at the
closing of the MLP IPO. Following the completion of the transactions as provided in Article 2, the
transactions, if they occur, provided for in Article 3 shall be completed.
Section 6.2 Headings; References; Interpretation. All Article and Section headings in this
Agreement are for convenience only and shall not be deemed to control or affect the meaning or
construction of any of the provisions hereof. The words hereof, herein and hereunder and
words of similar import, when used in this Agreement, shall refer to this Agreement as a whole,
including, without limitation, all Schedules and Exhibits attached hereto, and not to any
particular provision of this Agreement. All references herein to Articles, Sections, Schedules and
Exhibits shall, unless the context requires a different construction, be deemed to be references to
the Articles and Sections of this Agreement and the Schedules and Exhibits attached hereto, and all
such Schedules and
5
Exhibits attached hereto are hereby incorporated herein and made a part hereof for all
purposes. All personal pronouns used in this Agreement, whether used in the masculine, feminine or
neuter gender, shall include all other genders, and the singular shall include the plural and vice
versa. The use herein of the word including following any general statement, term or matter shall
not be construed to limit such statement, term or matter to the specific items or matters set forth
immediately following such word or to similar items or matters, whether or not non-limiting
language (such as without limitation, but not limited to, or words of similar import) is used
with reference thereto, but rather shall be deemed to refer to all other items or matters that
could reasonably fall within the broadest possible scope of such general statement, term or matter.
Section 6.3 Successors and Assigns. The Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and assigns.
Section 6.4 No Third Party Rights. The provisions of this Agreement are intended to bind the
Parties as to each other and are not intended to and do not create rights in any other person or
confer upon any other person any benefits, rights or remedies and no person is or is intended to be
a third party beneficiary of any of the provisions of this Agreement.
Section 6.5 Counterparts. This Agreement may be executed in any number of counterparts, all
of which together shall constitute one agreement binding on the parties hereto.
Section 6.6 Governing Law. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware applicable to contracts made and to be performed wholly
within such state without giving effect to conflict of law principles thereof.
Section 6.7 Severability. If any of the provisions of this Agreement are held by any court of
competent jurisdiction to contravene, or to be invalid under, the laws of any political body having
jurisdiction over the subject matter hereof, such contravention or invalidity shall not invalidate
the entire Agreement. Instead, this Agreement shall be construed as if it did not contain the
particular provision or provisions held to be invalid and an equitable adjustment shall be made and
necessary provision added so as to give effect to the intention of the Parties as expressed in this
Agreement at the time of execution of this Agreement.
Section 6.8 Amendment or Modification. This Agreement may be amended or modified from time to
time only by the written agreement of all the Parties. Each such instrument shall be reduced to
writing and shall be designated on its face as an Amendment to this Agreement.
Section 6.9 Integration. This Agreement and the instruments referenced herein supersede all
previous understandings or agreements among the Parties, whether oral or written, with respect to
their subject matter. This document and such instruments contain the entire understanding of the
Parties with respect to the subject matter hereof and thereof. No understanding, representation,
promise or agreement, whether oral or written, is intended to be or shall be included in or form
part of this Agreement unless it is contained in a written amendment hereto executed by the parties
hereto after the date of this Agreement.
Section 6.10 Deed; Bill of Sale; Assignment. To the extent required and permitted by
applicable law, this Agreement shall also constitute a deed, bill of sale or assignment of
the assets and interests referenced herein.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
6
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date
first above written.
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Targa Resources Partners LP
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Targa Resources GP LLC,
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its general partner |
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By: |
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Rene R. Joyce |
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Chief Executive Officer |
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Targa Resources GP LLC
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By: |
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Rene R. Joyce |
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Chief Executive Officer |
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Targa Resources Operating LP
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By: |
Targa Resources Operating GP LLC,
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its general partner |
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By: |
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Rene R. Joyce |
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Chief Executive Officer |
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Targa Resources Operating GP LLC
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By: |
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Rene R. Joyce |
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Chief Executive Officer |
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Targa GP Inc.
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By: |
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Rene R. Joyce |
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Chief Executive Officer |
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Targa LP Inc.
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By: |
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Rene R. Joyce |
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Chief Executive Officer |
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Targa Regulated Holdings LLC
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By: |
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Rene R. Joyce |
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Chief Executive Officer |
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Targa North Texas GP LLC
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Rene R. Joyce |
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Chief Executive Officer |
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Targa North Texas LP
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Targa North Texas GP LLC,
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its general partner |
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8
exv10w9
Exhibit 10.9
TARGA RESOURCES INVESTMENTS INC.
LONG-TERM INCENTIVE PLAN
SECTION 1. Purpose of the Plan.
The Targa Resources Investments Inc. Long-Term Incentive Plan (the Plan) has been adopted by
Targa Resources Investments Inc., a Delaware corporation (the Company), the parent entity of
Targa Resources GP LLC (Targa GP), the general partner of Targa Resources Partners LP, a Delaware
limited partnership (the Partnership). The Plan is intended to promote the interests of the
Company and its Affiliates by providing to employees, consultants and directors of the Company and
its Affiliates incentive cash compensation awards for superior performance that are based on Units.
The Plan is also contemplated to enhance the ability of the Company and its Affiliates to attract
and retain the services of individuals who are essential for the growth and profitability of the
Company and its Affiliates, and to encourage them to devote their best efforts to advancing the
business of the Company and its Affiliates.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth below:
Affiliate means, with respect to any Person, any other Person that directly or indirectly
through one or more intermediaries controls, is controlled by or is under common control with, the
Person in question. As used herein, the term control means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise.
Award means a Performance Unit and shall also include any tandem DERs granted with respect
to a Performance Unit.
Award Agreement means the written or electronic agreement by which an Award shall be
evidenced.
Board means the Board of Directors of the Company.
Change of Control means, and shall be deemed to have occurred upon the occurrence of one or
more of the following events:
(i) any person or group within the meaning of those terms as used in Sections 13(d)
and 14(d)(2) of the Exchange Act, other than an Affiliate of the Company, shall become the
beneficial owner, by way of merger, consolidation, recapitalization, reorganization or
otherwise, of 50% or more of the combined voting power of the equity interests in Targa GP
or the Partnership;
(ii) the limited partners of the Partnership approve, in one or a series of
transactions, a plan of complete liquidation of the Partnership;
(iii) the sale or other disposition by either Targa GP or the Partnership of all or
substantially all of its assets in one or more transactions to any Person other than Targa
GP or an Affiliate of Targa GP; or
(iv) a transaction resulting in a Person other than Targa GP or an Affiliate of Targa
GP being the general partner of the Partnership.
Notwithstanding the foregoing, with respect to an Award that is subject to Section 409A of the
Code and with respect to which a Change of Control will accelerate payment, Change of Control
shall mean a change of control event as defined in the regulations and guidance issued under
Section 409A of the Code.
Code means the Internal Revenue Code of 1986, as amended.
Committee means the Compensation Committee of the Board or, if none, the Board or such
committee of the Board, if any, as may be appointed by the Board to administer the Plan.
Consultant means an independent contractor, other than a Director, who performs services for
the benefit of the Company or an Affiliate of the Company.
DER or Distribution Equivalent Right means a contingent right, granted in tandem with a
specific Performance Unit, to receive an amount in cash equal to the cash distributions made by the
Partnership with respect to a Unit during the period such DER is outstanding.
Director means a member of the Board or a board of directors of an Affiliate who is not an
Employee.
Employee means any employee of the Company or an Affiliate of the Company who performs
services for the benefit of the Company or an Affiliate of the Company.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Fair Market Value means the closing sales price of a Unit on the principal national
securities exchange or other market in which trading in Units occurs on the applicable date (or if
there is no trading in the Units on such date, on the next preceding date on which there was
trading) as reported in The Wall Street Journal (or other reporting service approved by the
Committee). In the event Units are not traded on a national securities exchange or other market at
the time a determination of fair market value is required to be made hereunder, the determination
of fair market value shall be made in good faith by the Committee. Notwithstanding the foregoing,
with respect to an Award granted on the effective date of the initial public offering of Units,
Fair Market Value on such date shall mean the initial offering price per Unit as stated on the
cover page of the S-1 for such offering.
Participant means any Employee, Consultant or Director granted an Award under the Plan.
-2-
Performance Unit means a phantom (notional) unit granted under the Plan which entitles the
Participant to receive an amount of cash equal to the Fair Market Value of one Unit upon vesting of
the Performance Unit.
Person means an individual or a corporation, limited liability company, partnership, joint
venture, trust, unincorporated organization, association, government agency or political
subdivision thereof or other entity.
Restricted Period means the period established by the Committee with respect to an Award
during which the Award remains subject to forfeiture and is not payable to the Participant.
Rule 16b-3 means Rule 16b-3 promulgated by the SEC under the Exchange Act, or any successor
rule or regulation thereto as in effect from time to time.
SEC means the Securities and Exchange Commission, or any successor thereto.
Unit means a common unit of the Partnership.
SECTION 3. Administration.
(a) Governance. The Plan shall be administered by the Committee.
(b) Delegation. Subject to the following and applicable law, the Committee, in it
sole discretion, may delegate any or all of its powers and duties under the Plan, including the
power to grant Awards under the Plan, to the Chief Executive Officer of the Company, subject to
such limitations on such delegated powers and duties as the Committee may impose, if any. Upon any
such delegation, all references in the Plan to the Committee, other than in Section 7, shall be
deemed to include the Chief Executive Officer; provided, however, that such delegation shall not
limit the Chief Executive Officers right to receive Awards under the Plan. Notwithstanding the
foregoing, the Chief Executive Officer may not grant Awards to, or take any action with respect to
any Award previously granted to, a person who is an officer subject to Rule 16b-3 or a member of
the Board.
(c) Authority and Powers. Subject to the terms of the Plan and applicable law, and
in addition to other express powers and authorizations conferred on the Committee by the Plan, the
Committee shall have full power and authority to: (i) designate Participants; (ii) determine the
type or types of Awards to be granted to a Participant; (iii) determine the number of Units to be
covered by Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to
what extent, and under what circumstances Awards may be settled, exercised, canceled, or forfeited;
(vi) interpret and administer the Plan and any instrument or agreement relating to an Award made
under the Plan; (vii) establish, amend, suspend, or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the Plan; and (viii) make
any other determination and take any other action that the Committee deems necessary or desirable
for the administration of the Plan. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and
shall be final, conclusive, and binding upon all Persons, including
-3-
the Company, Targa GP, the Partnership, any Affiliate, any Participant, and any beneficiary of
any Participant.
SECTION 4. Award Limits.
(a) There shall not be any limitation on the number of Performance Units that may be granted
under the Plan.
(b) Adjustments. In the event that the Committee determines that any distribution
(whether in the form of cash, Units, other securities, or other property), recapitalization, split,
reverse split, reorganization, merger, Change of Control, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Units or other securities of the Partnership, issuance of
warrants or other rights to purchase Units or other securities of the Partnership, or other similar
transaction or event affects the Units such that an adjustment is determined by the Committee to be
appropriate in order to prevent the dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, then the Committee shall, in such manner as it may
deem equitable, adjust any or all of (i) the number and type of Units (or other securities or
property) with respect to which Awards may be granted, (ii) the number and type of Units (or other
securities or property) subject to outstanding Awards, or (iii) if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award; provided, that the number of
Units subject to any Award shall always be a whole number. With respect to any other similar event
that would not result in a FAS 123R accounting charge if the adjustment to Awards with respect to
such event were subject to discretionary action, the Committee shall have complete discretion to
adjust Awards in such manner as it deems appropriate with respect to such other event.
SECTION 5. Eligibility.
Any Employee, Consultant or Director shall be eligible to be designated a Participant and
receive an Award under the Plan.
SECTION 6. Awards.
(a) Performance Units. The Committee shall have the authority to determine the
Employees, Consultants, and Directors to whom Performance Units shall be granted, the number of
Performance Units to be granted to each such Participant, the Restricted Period, the time or
conditions under which the Performance Units may become vested or forfeited, which may include,
without limitation, the accelerated vesting upon the achievement of specified performance goals or
other events, and such other terms and conditions as the Committee may establish with respect to
such Awards, including whether DERs are granted with respect to such Performance Units.
(i) DERs. Unless and to the extent provided otherwise by the Committee in its
discretion, a grant of Performance Units shall include a tandem DER grant, which provides
that such DERs shall be credited to a bookkeeping account (without interest) and shall be
paid to the Participant in cash upon the vesting of the tandem Performance Unit. However,
the Committee, in its discretion, may provide such other terms, including different vesting
and payment forms and mediums and the investment of such DERs in
-4-
additional Performance Units, as it may choose with respect to DERs and may also
provide that a grant of Performance Units does not include tandem DERs.
(ii) Forfeitures. Except as otherwise provided in the terms of the Award
Agreement, upon termination of a Participants employment or consulting arrangement with the
Company, the Partnership and their Affiliates or membership on the Board, whichever is
applicable, for any reason during the applicable Restricted Period, all outstanding
Performance Units awarded the Participant, and any outstanding tandem DERs credited to such
Participant, shall be automatically forfeited on such termination. The Committee may, in
its discretion, waive in whole or in part such forfeiture with respect to a Participants
Performance Units and DERs.
(iii) Lapse of Restrictions. Upon or as soon as reasonably practical following
the vesting of each Performance Unit, subject to the provisions of Section 8(b), the
Participant shall be entitled to receive from the Company cash equal to the Fair Market
Value of one Unit as of the vesting date.
(b) General.
(i) Awards May Be Granted Separately or Together. Except as provided below,
Awards may, in the discretion of the Committee, be granted either alone or in addition to,
in tandem with, or in substitution for any other Award granted under the Plan or any award
granted under any other plan of the Company or any Affiliate. Awards granted in addition to
or in tandem with other Awards or awards granted under any other plan of the Company or any
Affiliate may be granted either at the same time as or at a different time from the grant of
such other Awards or awards.
(ii) Limits on Transfer of Awards.
(A) Except as provided in paragraph (C) below, each Award shall be exercisable
or payable only by or to the Participant during the Participants lifetime, or by
the person to whom the Participants rights shall pass by will or the laws of
descent and distribution.
(B) Except as provided in paragraphs (A) and (C), no Award and no right under
any such Award may be assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by a Participant and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be void and
unenforceable against the Company or any Affiliate.
(C) To the extent specifically provided or approved by the Committee with
respect to an Award, an Award may be transferred by a Participant without
consideration to immediate family members or related family trusts, limited
partnerships or similar entities on such terms and conditions as the Committee may
from time to time establish.
(iii) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee.
-5-
(iv) Consideration for Grants. Awards may be granted for such consideration,
including services, as the Committee determines.
(v) Change in Control, Similar Events. Upon the occurrence of a Change of
Control, any change in applicable law or regulation affecting the Plan or Awards thereunder,
or any change in accounting principles affecting the financial statements of the Company or
the Partnership, the Committee, in its sole discretion, without the consent of any
Participant or holder of the Award, and on such terms and conditions as it deems
appropriate, may take any one or more of the following actions in order to either prevent
dilution or enlargement of the benefits or potential benefits intended to be made available
under the Plan or an outstanding Award or mitigate any unfavorable accounting consequences:
(A) provide for either (i) the termination of any Award in exchange for an
amount of cash, if any, equal to the amount that would have been attained upon the
realization of the Participants rights (and, for the avoidance of doubt, if as of
the date of the occurrence of such transaction or event the Committee determines in
good faith that no amount would have been attained upon the realization of the
Participants rights, then such Award may be terminated by the Company without
payment) or (ii) the replacement of such Award with other rights or property
selected by the Committee in its sole discretion;
(B) provide that such award be assumed by the successor or survivor entity, or
a parent or subsidiary thereof, or be exchanged for similar awards covering the
equity of the successor or survivor, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of equity interests and prices;
(C) make adjustments in the number and type of Units (or other securities or
property) subject to outstanding Awards, and in the number and kind of outstanding
Awards or in the terms and conditions of, and the vesting and performance criteria
included in, outstanding Awards, or both;
(D) provide that such Award shall be payable, notwithstanding anything to the
contrary in the Plan or the applicable Award Agreement; and
(E) provide that the Award cannot become payable after such event, i.e., shall
terminate upon such event.
Notwithstanding the foregoing, (i) with respect to an above event that is an equity
restructuring event that would be subject to a compensation expense pursuant FAS 123R if a
discretionary change is made, the provisions in Section 4(b) shall control to the extent
they are in conflict with the discretionary provisions of this Section 6 and (ii) upon a
Change of Control all Awards shall become vested and exercisable or payable, as the case may
be, unless, and to the extent, the Committee specifically provides to the contrary in the
Award Agreement with respect to a Change of Control.
-6-
SECTION 7. Amendment and Termination. Except to the extent prohibited by applicable
law:
(a) Amendments to the Plan. Except as required by the rules of the principal
securities exchange on which the Units are traded and subject to Section 7(b) below, the Board or
the Committee may amend, alter, suspend, discontinue, or terminate the Plan in any manner, without
the consent of any member, Participant, other holder or beneficiary of an Award, or other Person.
(b) Amendments to Awards. Subject to Section 7(a), the Committee may waive any
conditions or rights under, amend any terms of, or alter any Award theretofore granted, provided no
change, other than pursuant to Section 6(b)(v) or, as determined by the Committee, in its sole
discretion, as being necessary or appropriate to comply with applicable law, including, without
limitation, Section 409A of the Code, in any Award shall materially reduce the benefit of a
Participant without the consent of such Participant.
SECTION 8. General Provisions.
(a) No Rights to Award. No Person shall have any claim to be granted any Award under
the Plan, and there is no obligation for uniformity of treatment of Participants. The terms and
conditions of Awards need not be the same with respect to each recipient.
(b) Tax Withholding. The Company or any Affiliate is authorized to withhold from any
Award, from any payment due or transfer made under any Award or from any compensation or other
amount owing to a Participant the amount in cash of any applicable taxes payable in respect of the
grant of an Award, the lapse of restrictions thereon, or any payment or transfer under an Award or
under the Plan and to take such other action as may be necessary in the opinion of the Company to
satisfy its withholding obligations for the payment of such taxes.
(c) No Right to Employment. The grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company or any Affiliate or to remain on
the Board or a Consultant, as applicable. Further, the Company or an Affiliate may at any time
dismiss a Participant from employment, free from any liability or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement.
(d) Governing Law. The validity, construction, and effect of the Plan and any rules
and regulations relating to the Plan shall be determined in accordance with the laws of the State
of Delaware law without regard to its conflict of laws principles.
(e) Section 409A. This Plan is intended to meet the requirements of Section 409A of
the Code and may be administered in a manner that is intended to meet those requirements and will
be construed and interpreted in accordance with such intent. All Awards granted and payments
hereunder will either be exempt from Section 409A of the Code or will be subject to Section 409A of
the Code and will be structured in a manner that will meet the requirements of Section 409A of the
Code, including regulations or other guidance issued with respect thereto. Any provision of this
Plan that would cause an Award or payment to fail to satisfy Section 409A of the Code will be
amended (in a manner that as closely as practicable achieves the original intent of the Award) to
comply with Section 409A of the Code on a timely basis, which may be
-7-
made on a retroactive basis, in accordance with regulations and other guidance issued under
Section 409A of the Code.
(f) Severability. If any provision of the Plan or any Award is or becomes or is
deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award,
or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such
provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot
be construed or deemed amended without, in the determination of the Committee, materially altering
the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction,
Person or Award and the remainder of the Plan and any such Award shall remain in full force and
effect.
(g) Other Laws. The Committee may refuse to pay an Award if, in its sole discretion,
it determines that such payment might violate any applicable law or regulation, the rules of the
principal securities exchange on which the Units are then traded, or result in recoverable
short-swing profits under Section 16(b) of the Exchange Act.
(h) No Trust or Fund Created. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary relationship between the
Company or any participating Affiliate and a Participant or any other Person. To the extent that
any Person acquires a right to receive payments from the Company or any participating Affiliate
pursuant to an Award, such right shall be no greater than the right of any general unsecured
creditor of the Company or any participating Affiliate.
(i) Headings. Headings are given to the Sections and subsections of the Plan solely
as a convenience to facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Plan or any provision thereof.
(j) Facility Payment. Any amounts payable hereunder to any person under legal
disability or who, in the judgment of the Committee, is unable to properly manage his financial
affairs, may be paid to the legal representative of such person, or may be applied for the benefit
of such person in any manner which the Committee may select, and the Company shall be relieved of
any further liability for payment of such amounts.
(k) Gender and Number. Words in the masculine gender shall include the feminine
gender, the plural shall include the singular and the singular shall include the plural.
SECTION 9. Term of the Plan.
The Plan shall become effective on the date of its approval by the Committee and shall
terminate on the date established by the Board or the Committee. Unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award granted prior to any Plan
termination, and the authority of the Board or the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Award or to waive any conditions or rights under such Award,
shall extend beyond such termination date.
-8-
exv21w1
Exhibit 21.1
Targa Resources Partners LP Subsidiaries
Targa Resources Operating GP LLC
Targa Resources Operating LP
Targa North Texas GP LLC
Targa North Texas LP
Targa Intrastate Pipeline LLC
exv23w1
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby
consent to the use in this Amendment No. 4 to Registration
Statement No. 333-138747 on Form S-1 of our report dated
November 13, 2006 relating to the financial statement of Targa Resources Partners LP, our report
dated November 13, 2006 relating to the financial statement of Targa Resources GP LLC, our report
dated November 13, 2006 relating to the financial statements of the North Texas System, and our
report dated November 13, 2006 relating to the financial statements of Targa North Texas LP which
appear in such Registration Statement. We also consent to the reference to us under the heading
Experts in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
January 31, 2007
exv23w4
Exhibit 23.4
CONSENT OF NOMINEE FOR DIRECTOR
OF
TARGA RESOURCES PARTNERS LP
(a Delaware limited partnership)
The undersigned nominee for director hereby consents to being named as a director under the
heading ManagementDirectors and Executive Officers in the Targa Resources Partners LP
Registration Statement on Form S-1 and the undersigned will serve as a director of the general
partner of Targa Resources Partners LP upon the closing of the offering of common units as
contemplated in the Registration Statement on Form S-1.
Date: January 26, 2007
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/s/ Robert B. Evans
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Robert B. Evans |
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exv23w5
Exhibit 23.5
CONSENT OF NOMINEE FOR DIRECTOR
OF
TARGA RESOURCES PARTNERS LP
(a Delaware limited partnership)
The undersigned nominee for director hereby consents to being named as a director under the
heading ManagementDirectors and Executive Officers in the Targa Resources Partners LP
Registration Statement on Form S-1 and the undersigned will serve as a director of the general
partner of Targa Resources Partners LP upon the closing of the offering of common units as
contemplated in the Registration Statement on Form S-1.
Date: January 25, 2007
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/s/ Chansoo Joung
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Chansoo Joung |
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exv23w6
Exhibit 23.6
CONSENT OF NOMINEE FOR DIRECTOR
OF
TARGA RESOURCES PARTNERS LP
(a Delaware limited partnership)
The undersigned nominee for director hereby consents to being named as a director under the
heading ManagementDirectors and Executive Officers in the Targa Resources Partners LP
Registration Statement on Form S-1 and the undersigned will serve as a director of the general
partner of Targa Resources Partners LP upon the closing of the offering of common units as
contemplated in the Registration Statement on Form S-1.
Date: January 26, 2007
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/s/ Barry R. Pearl
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Barry R. Pearl |
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exv23w7
Exhibit 23.7
CONSENT OF NOMINEE FOR DIRECTOR
OF
TARGA RESOURCES PARTNERS LP
(a Delaware limited partnership)
The undersigned nominee for director hereby consents to being named as a director under the
heading ManagementDirectors and Executive Officers in the Targa Resources Partners LP
Registration Statement on Form S-1 and the undersigned will serve as a director of the general
partner of Targa Resources Partners LP upon the closing of the offering of common units as
contemplated in the Registration Statement on Form S-1.
Date:
January 31, 2007
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/s/ William D. Sullivan
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William D. Sullivan |
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