3
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ____________ to
____________
Commission File Number 1-16417
VALERO L.P.
(Exact name of registrant as specified in its charter)
Delaware 74-2956831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Valero Place
San Antonio, Texas
(Address of principal executive offices)
78212
(Zip Code)
Telephone number: (210) 370-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes X No ____
The number of common units outstanding as of April 30, 2003 was 12,205,822.
================================================================================
================================================================================
VALERO L.P. AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 2003
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002........................... 2
Consolidated Statements of Income for the Three Months Ended
March 31, 2003 and 2002......................................................................... 3
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2003 and 2002......................................................................... 4
Notes to Consolidated Financial Statements....................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................... 27
Item 4. Controls and Procedures.......................................................................... 28
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds......................................................... 28
Item 6. Exhibits and Reports on Form 8-K.................................................................. 28
Signatures........................................................................................ 31
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.......................... 32
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VALERO L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
March 31, December 31,
2003 2002
---- ----
Assets
Current assets:
Cash and cash equivalents............................................. $ 13,042 $ 33,533
Receivable from Valero Energy......................................... 12,277 8,482
Accounts receivable................................................... 1,455 1,502
Other current assets.................................................. 1,888 177
------ -------
Total current assets................................................. 28,662 43,694
------ -------
Property, plant and equipment.......................................... 853,415 486,939
Less accumulated depreciation and amortization......................... (141,934) (137,663)
------- -------
Property, plant and equipment, net.................................... 711,481 349,276
Goodwill, net.......................................................... 4,715 4,715
Investment in Skelly-Belvieu Pipeline Company.......................... 16,073 16,090
Other noncurrent assets, net........................................... 4,002 1,733
------- -------
Total assets......................................................... $ 764,933 $ 415,508
======= =======
Liabilities and Partners' Equity
Current liabilities:
Current portion of long-term debt..................................... $ 449 $ 747
Accounts payable and accrued liabilities.............................. 9,763 8,133
Payable to Valero Energy.............................................. 6,053 -
Taxes other than income taxes......................................... 2,611 3,797
------- -------
Total current liabilities............................................ 18,876 12,677
Long-term debt, less current portion................................... 383,442 108,911
Other long-term liabilities............................................ 25 25
Commitments and contingencies (see Note 5)
Partners' equity:
Common units.......................................................... 238,886 170,655
Subordinated units.................................................... 116,048 117,042
General partner's equity.............................................. 7,656 6,198
------- -------
Total partners' equity............................................... 362,590 293,895
------- -------
Total liabilities and partners' equity............................... $ 764,933 $ 415,508
======= =======
See accompanying notes to consolidated financial statements.
3
VALERO L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except unit and per unit data)
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
Revenues.................................................... $ 31,816 $ 26,024
------ ------
Costs and expenses:
Operating expenses......................................... 11,661 9,184
General and administrative expenses........................ 1,844 1,788
Depreciation and amortization.............................. 4,283 4,356
------ ------
Total costs and expenses.................................. 17,788 15,328
------ ------
Operating income............................................ 14,028 10,696
Equity income from Skelly-Belvieu
Pipeline Company......................................... 731 678
Interest expense, net...................................... (2,377) (556)
------ ------
Income before income tax expense............................ 12,382 10,818
Income tax expense......................................... - (395)
------ ------
Net income.................................................. $ 12,382 $ 10,423
====== ======
Allocation of net income:
Net income................................................. $ 12,382 $ 10,423
Less net income applicable to the Wichita
Falls Business for the month ended
January 31, 2002.......................................... - (650)
------ ------
Net income applicable to the general and limited
partners' interests....................................... 12,382 9,773
General partner's interest in net income.................... (624) (195)
------- ------
Limited partners' interest in net income.................... $ 11,758 $ 9,578
====== =====
Basic and diluted net income per unit applicable to
limited partners........................................... $ 0.60 $ 0.50
==== ====
Weighted average number of basic and diluted units
outstanding................................................ 19,556,486 19,241,617
========== ==========
Cash distributions per unit applicable to limited partners.. $ 0.70 $ 0.65
==== ====
See accompanying notes to consolidated financial statements.
4
VALERO L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Three Months Ended March 31,
---------------------------
2003 2002
---- ----
Cash Flows from Operating Activities:
Net income ................................................ $ 12,382 $ 10,423
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................. 4,283 4,356
Equity income from Skelly-Belvieu Pipeline Company........ (731) (678)
Distributions of equity income from Skelly-Belvieu
Pipeline Company......................................... 731 771
Provision for deferred income taxes....................... - 54
Changes in operating assets and liabilities:
Increase in receivable from Valero Energy................ (3,795) (35)
Decrease in accounts receivable.......................... 47 259
Increase in other current assets......................... (1,711) (460)
Increase (decrease) in accounts payable and accrued
liabilities............................................. 1,630 (109)
Increase in payable to Valero Energy..................... 6,053 -
Decrease in taxes other than income taxes................ (1,186) (674)
Other, net................................................ 2,595 130
------- ------
Net cash provided by operating activities................ 20,298 14,037
------- ------
Cash Flows from Investing Activities:
Maintenance capital expenditures........................... (1,192) (789)
Expansion capital expenditures............................. (940) (1,009)
Acquisitions............................................... (364,807) (64,000)
Distributions in excess of equity income from
Skelly-Belvieu Pipeline Company........................... 17 -
------- ------
Net cash used in investing activities.................... (366,922) (65,798)
------- ------
Cash Flows from Financing Activities:
Proceeds from 6.05% senior note placement, net of discount
and issuance costs........................................ 247,819 -
Proceeds from other long-term debt borrowings.............. 25,000 64,000
Repayment of long-term debt................................ (298) (46)
Distributions to unitholders and general partner........... (14,121) (11,788)
Distributions to Valero Energy and affiliates.............. - (512)
General partner contribution, net of redemption............ 1,456 -
Proceeds from sale of common units to the public, net of
issuance costs............................................ 200,342 -
Redemption of common units held by UDS Logistics, LLC...... (134,065) -
------- ------
Net cash provided by financing activities................. 326,133 51,654
------- ------
Net decrease in cash and cash equivalents.................. (20,491) (107)
Cash and cash equivalents as of the beginning of period.... 33,533 7,796
------- ------
Cash and cash equivalents as of the end of period.......... $ 13,042 $ 7,689
======= ======
Non-Cash Activities - Adjustment related to the transfer of
the Wichita Falls Business to Valero L.P. by Valero Energy:
Property, plant and equipment......................... $ - $ 64,160
Accrued liabilities and taxes other than income taxes. - (382)
Deferred income tax liabilities....................... - (13,147)
Net Valero Energy investment.......................... - (50,631)
See accompanying notes to consolidated financial statements.
5
VALERO L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2003 and 2002
(unaudited)
NOTE 1: Organization, Basis of Presentation, Revenue Changes and FASB Statement
No. 143
Organization
Valero L.P. is a Delaware limited partnership and through its wholly owned
subsidiary, Valero Logistics Operations, L.P. (Valero Logistics), owns and
operates most of the crude oil and refined product pipeline and terminalling
assets that serve Valero Energy Corporation's (Valero Energy) McKee, Three
Rivers and Corpus Christi refineries located in Texas and the Ardmore refinery
located in Oklahoma. Valero Logistics also owns and operates the crude oil and
intermediate feedstock storage tanks that serve Valero Energy's West plant of
the Corpus Christi refinery, the Texas City refinery located in Texas and the
Benicia refinery located in California. The pipeline, terminalling and storage
tank assets provide for the transportation of crude oil and other feedstocks to
the refineries and the transportation of refined products from the refineries to
terminals or third-party pipelines for further distribution. Revenues of Valero
L.P. and its subsidiaries are earned primarily from providing these services to
Valero Energy (see Note 6).
As used in this report, the term Partnership may refer, depending on the
context, to Valero L.P., Valero Logistics, or both of them taken as a whole.
Riverwalk Logistics, L.P., a wholly owned subsidiary of Valero Energy, is the 2%
general partner of Valero L.P. Valero Energy, through various affiliates, is
also a limited partner in Valero L.P., resulting in a combined ownership of
49.5% as of March 31, 2003 (see Note 8). The remaining 50.5% limited partnership
interest is held by public unitholders.
Valero Energy is an independent refining and marketing company. Its operations
consist of 12 refineries with a total throughput capacity of 1.9 million barrels
per day and an extensive network of company-operated and dealer-operated
convenience stores. Valero Energy's refining operations rely on various
logistics assets (pipelines, terminals, marine dock facilities, bulk storage
facilities, refinery delivery racks and rail car loading equipment) that support
its refining and retail operations, including the logistics assets owned and
operated by the Partnership. Valero Energy markets the refined products produced
at the McKee, Three Rivers, Ardmore, Corpus Christi, Texas City and Benicia
refineries primarily in Texas, Oklahoma, Colorado, New Mexico, Arizona,
California and several mid-continent states through a network of
company-operated and dealer-operated convenience stores, as well as through
other wholesale and spot market sales and exchange agreements.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with United States generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they
do not include all of the information and notes required by United States
generally accepted accounting principles (GAAP) for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Certain previously reported amounts have been reclassified to conform
to the 2003 presentation.
Operating results for the three months ended March 31, 2003 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2003. The balance sheet as of December 31, 2002 has been derived from the
audited consolidated financial statements as of that date and does not include
the balances of the Telfer asphalt terminal acquired in January 2003 or the
South Texas Pipelines and Terminals or the Crude Oil Storage Tanks acquired in
March 2003 as discussed in Note 3. These consolidated financial statements
should be read along with the audited consolidated financial statements and
notes thereto included in Valero L.P.'s Annual Report on Form 10-K for the year
ended December 31, 2002.
6
VALERO L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Changes
Effective January 1, 2003, the Partnership began purchasing the additives that
are blended with refined products at the various refined product terminals. As a
result, the fee charged to Valero Energy to blend additives into refined
products was increased from $0.04 per barrel to $0.12 per barrel to cover the
additional cost of the additive.
In conjunction with the acquisitions discussed in Note 3, the Partnership began
charging a filtering fee for jet fuel terminalled at the Hobby Airport terminal,
and began charging a throughput fee for each barrel of crude oil and
intermediate feedstocks received by the West plant of the Corpus Christi
refinery, the Texas City refinery and the Benicia refinery representing the type
of feedstock stored in the crude oil storage tank assets that were acquired from
Valero Energy.
FASB Statement No. 143
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
No. 143, "Accounting for Asset Retirement Obligations." This statement
establishes standards for accounting for an obligation associated with the
retirement of a tangible long-lived asset. An asset retirement obligation should
be recognized in the financial statements in the period in which it meets the
definition of a liability as defined in FASB Concepts Statement No. 6, "Elements
of Financial Statements." The amount of the liability would initially be
measured at fair value. Subsequent to initial measurement, an entity would
recognize changes in the amount of the liability resulting from (a) the passage
of time and (b) revisions to either the timing or amount of estimated cash
flows. Statement No. 143 also establishes standards for accounting for the cost
associated with an asset retirement obligation. It requires that, upon initial
recognition of a liability for an asset retirement obligation, an entity
capitalize that cost by recognizing an increase in the carrying amount of the
related long-lived asset. The capitalized asset retirement cost would then be
allocated to expense using a systematic and rational method.
The Partnership adopted the provisions of Statement No. 143 effective January 1,
2003 and has determined that it is obligated by contractual or regulatory
requirements to remove assets or perform other remediation upon retirement of
certain of its assets. Determination of the amounts to be recognized upon
adoption is based upon numerous estimates and assumptions, including expected
settlement dates, future retirement costs, future inflation rates and the
credit-adjusted risk-free interest rate. However, the fair value of the asset
retirement obligation cannot be reasonably estimated, since the settlement dates
are indeterminate. The Partnership will record an asset retirement obligation in
the period in which it determines the settlement dates. Accordingly, the
adoption of Statement No. 143 did not have an impact on the Partnership's
financial position or results of operations.
NOTE 2: Equity and Debt Offerings, Redemption of Common Units and Related
Transactions
In conjunction with the Partnership's acquisition from Valero Energy of the
South Texas Pipelines and Terminals and the Crude Oil Storage Tanks discussed in
Note 3, the Partnership entered into the following transactions on March 18,
2003:
Common Unit Offering
Valero L.P. consummated a public offering of common units, selling 5,750,000
common units to the public at $36.75 per unit, before underwriters' discount of
$1.56 per unit. Net proceeds were $202.3 million, or $35.19 per unit, before
offering expenses of $2.0 million. In order to maintain a 2% general partner
interest, Riverwalk Logistics, L.P. contributed $4.3 million to Valero L.P. (see
Note 9).
Private Placement of 6.05% Senior Notes
Concurrent with the closing of the common unit offering, Valero Logistics
issued, in a private placement, $250.0 million of 6.05% senior notes, due March
2013, at a price of 99.719% before consideration of debt issuance costs of $1.5
million. In addition, Valero Logistics borrowed $25.0 million under its amended
$175.0 million revolving credit facility.
7
VALERO L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Redemption of Common Units and Amendment to Partnership Agreement
Subsequent to the common unit offering and private placement of 6.05% senior
notes discussed above, Valero L.P. redeemed from UDS Logistics, LLC, a wholly
owned subsidiary of Valero Energy, 3,809,750 common units at a total cost of
$134.1 million, or $35.19 per common unit, which is equal to the net per unit
price received by Valero L.P. in the common unit offering. In order to maintain
a 2% general partner interest, Valero L.P. redeemed a portion of Riverwalk
Logistics, L.P.'s general partner interest at a total cost of $2.9 million. In
addition to the redemption transaction, Valero L.P. amended its partnership
agreement to reduce the vote required to remove the general partner from 66 2/3%
to 58% of its outstanding units and to exclude from participating in such a vote
the common and subordinated units held by affiliates of the general partner.
Summary
The net proceeds from the common unit offering, the private placement of 6.05%
senior notes and the borrowings under the revolving credit facility were used to
redeem common units held by UDS Logistics, LLC and acquire the South Texas
Pipelines and Terminals and the Crude Oil Storage Tanks discussed in Note 3. A
summary of the proceeds received and use of proceeds is as follows (in
thousands):
Proceeds received:
Sale of common units to the public.............. $ 202,342
Private placement of 6.05% senior notes......... 249,298
Borrowings under the revolving credit facility.. 25,000
General partner contribution.................... 4,313
-------
Total proceeds................................ 480,953
-------
Use of proceeds:
South Texas Pipelines and Terminals............. 150,000
Crude Oil Storage Tanks......................... 200,000
Redemption of common units...................... 134,065
Redemption of general partner interest.......... 2,857
Professional fees and other costs of equity
issuance....................................... 2,000
Debt issuance costs............................. 1,479
-------
Total use of proceeds......................... 490,401
-------
Net cash on hand paid out......................... $ (9,448)
=======
Both the South Texas Pipelines and Terminals and the Crude Oil Storage Tanks
acquisitions were approved by the conflicts committee of the board of directors
of Valero GP, LLC, the general partner of Riverwalk Logistics, L.P., based in
part on an opinion from its independent financial advisor that the consideration
paid by the Partnership was fair, from a financial point of view, to the
Partnership and its public unitholders.
NOTE 3: Acquisitions
Telfer Asphalt Terminal
On January 7, 2003, the Partnership completed its acquisition of Telfer Oil
Company's (Telfer) California asphalt terminal for $15.1 million. The asphalt
terminal includes two storage tanks with a combined storage capacity of 350,000
barrels, six 5,000-barrel polymer modified asphalt tanks, a truck rack, rail
facilities and various other tanks and equipment. In conjunction with the Telfer
acquisition, the Partnership entered into a six-year Terminal Storage and
Throughput Agreement with Valero Energy (see Note 6). A portion of the purchase
price represented payment to the principal owner of Telfer for a non-compete
agreement and for the lease of certain facilities adjacent to the terminal
operations.
South Texas Pipelines and Terminals
On March 18, 2003, Valero Energy contributed a South Texas pipeline system to
the Partnership for $150.0 million. The South Texas pipeline system is comprised
8
VALERO L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the Houston pipeline system, the Valley pipeline system and the San Antonio
pipeline system (together referred to as the South Texas Pipelines and
Terminals) as follows:
o The Houston pipeline system is a 204-mile refined product pipeline
originating in Corpus Christi, Texas and ending in Pasadena, Texas at the
Houston ship channel. The pipeline has the capacity to transport 105,000
barrels per day of refined products produced at Valero Energy's Corpus
Christi refinery and third party refineries located in Corpus Christi. The
pipeline system includes four refined product terminals (Hobby Airport,
Placedo, Houston asphalt and Almeda, which is currently idle) with a
combined storage capacity of 310,900 barrels of refined products and 75,000
barrels of asphalt.
o The Valley pipeline system is a 130-mile refined product pipeline
originating in Corpus Christi and ending in Edinburg, Texas. The pipeline
has the capacity to transport 27,100 barrels per day of refined products.
Currently, the pipeline transports refined products produced at Valero
Energy's Corpus Christi refinery. The pipeline system includes a refined
product terminal in Edinburg with a storage capacity of 184,600 barrels.
o The San Antonio pipeline system is comprised of two segments: the north
segment, which runs from Pettus, Texas to San Antonio, Texas and the south
segment which runs from Pettus to Corpus Christi. The north segment is 74
miles long and has a capacity of 24,000 barrels per day. The south segment
is 60 miles long and has a capacity of 15,000 barrels per day and ends at
Valero Energy's Corpus Christi refinery. The pipeline system includes a
refined product terminal in east San Antonio with a storage capacity of
148,200 barrels.
In conjunction with the South Texas Pipelines and Terminals acquisition, the
Partnership entered into several agreements with Valero Energy (see Note 6).
Pro Forma Financial Information
The following unaudited pro forma financial information assumes that the South
Texas Pipelines and Terminals acquisition was funded with $111.0 million of net
proceeds from the issuance of the 6.05% senior notes, $25.0 million of
borrowings under the revolving credit facility, $6.7 million of net proceeds
from the issuance of 185,422 common units and the related general partner
interest capital contribution and $7.3 million of available cash. The unaudited
pro forma financial information for the three months ended March 31, 2003 and
2002, assumes that each of these transactions occurred on January 1, 2003 and
2002, respectively.
Three Months Ended
March 31,
---------
2003 2002
---- ----
(in thousands)
Revenues.............................................. $ 37,660 $ 32,545
Operating income...................................... 16,018 12,058
Net income............................................ 12,718 9,909
Net income per unit applicable to limited partners.... 0.61 0.47
Crude Oil Storage Tanks
On March 18, 2003, Valero Energy contributed 58 crude oil storage tanks and
related assets (the Crude Oil Storage Tanks) to the Partnership for $200.0
million. The Crude Oil Storage Tanks consist of certain tank shells,
foundations, tank valves, tank gauges, pressure equipment, temperature
equipment, corrosion protection, leak detection, tank lighting and related
equipment located at the following Valero Energy refineries:
o West plant of the Corpus Christi refinery, which has a total capacity to
process 225,000 barrels per day of crude oil and other feedstocks;
9
VALERO L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
o Texas City refinery, which has a total capacity to process 243,000 barrels
per day of crude oil and other feedstocks; and
o Benicia refinery, which has a total capacity to process 180,000 barrels per
day of crude oil and other feedstocks.
Historically, the Crude Oil Storage Tanks have been operated as part of Valero
Energy's refining operations and, as a result, no separate fee has been charged
related to these assets and, accordingly, no revenues have been recorded. The
Crude Oil Storage Tanks have not been accounted for separately and have not been
operated as an autonomous business unit. As a result, the purchase of the Crude
Oil Storage Tanks represents an asset acquisition and, therefore, no pro forma
impact of this transaction has been included above. In conjunction with the
Crude Oil Storage Tanks acquisition, the Partnership entered into several
agreements with Valero Energy (see Note 6).
Purchase Price Allocations
The Telfer, South Texas Pipelines and Terminals and Crude Oil Storage Tanks
acquisitions were accounted for using the purchase method in accordance with
FASB Statement No. 141. The purchase price for each acquisition has been
initially allocated based on the estimated fair values of the individual assets
acquired and liabilities assumed at the date of acquisition based on each
asset's anticipated contribution to the Partnership, pending completion of final
purchase price allocations.
South Texas Crude Oil
Pipelines and Storage
Telfer Terminals Tanks
------ --------- -----
(in thousands)
Property, plant and equipment............ $ 14,807 $ 150,000 $ 200,000
Intangible assets........................ 250 - -
NOTE 4: Long-term Debt
Long-term debt consisted of the following:
March 31, December 31,
2003 2002
---- ----
(in thousands)
6.05% senior notes due 2013........................... $ 249,607 $ -
6.875% senior notes due 2012.......................... 99,624 99,700
8.0% Port Authority of Corpus Christi note payable.... 9,660 9,958
Revolving credit facility............................. 25,000 -
------- -------
Total debt........................................... 383,891 109,658
Less current portion.................................. (449) (747)
------- -------
Long-term debt, less current portion................. $ 383,442 $ 108,911
======= =======
Interest payments totaled $3.8 million and $0.5 million for the three months
ended March 31, 2003 and 2002, respectively.
Valero L.P. has no operations and its only asset is its investment in Valero
Logistics, which owns and operates the Partnership's pipelines, terminals and
crude oil storage tank assets. Valero L.P. has fully and unconditionally
guaranteed the senior notes issued by Valero Logistics and any obligations under
Valero Logistics' revolving credit facility.
10
VALERO L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6.05% Senior Notes
On March 18, 2003, Valero Logistics completed the sale of $250.0 million of
6.05% senior notes due March 15, 2013, issued in a private placement, for total
proceeds of $249.3 million, before debt issuance costs. Debt issuance costs of
$1.5 million are being amortized over the life of the senior notes using the
effective interest method. The 6.05% senior notes do not have sinking fund
requirements. Interest on the 6.05% senior notes is payable semiannually in
arrears on March 15 and September 15 of each year beginning September 15, 2003.
The 6.05% senior notes rank equally with all other existing senior unsecured
indebtedness of Valero Logistics, including indebtedness under the revolving
credit facility and the 6.875% senior notes due July 15, 2012. The 6.05% senior
notes contain restrictions on Valero Logistics' ability to incur secured
indebtedness unless the same security is also provided for the benefit of
holders of the 6.05% senior notes. In addition, the 6.05% senior notes limit
Valero Logistics' ability to incur indebtedness secured by certain liens and to
engage in certain sale-leaseback transactions. The 6.05% senior notes are
irrevocably and unconditionally guaranteed on a senior unsecured basis by Valero
L.P. The guarantee by Valero L.P. ranks equally with all of its existing
unsecured and unsubordinated indebtedness and is required to rank equally with
any future unsecured and unsubordinated indebtedness.
The 6.05% senior notes have not been registered under the Securities Act of 1933
or any other securities laws and consequently the 6.05% senior notes are subject
to transfer and resale restrictions. At the option of Valero Logistics, the
6.05% senior notes may be redeemed in whole or in part at any time at a
redemption price, which includes a make-whole premium, plus accrued and unpaid
interest to the redemption date. The 6.05% senior notes also include
registration rights which provide that Valero Logistics will use its best
efforts to file, within 90 days of issuance, a registration statement for the
exchange of the 6.05% senior notes for new notes of the same series that
generally will be freely transferable, and to consummate the exchange offer
within 210 days. The 6.05% senior notes also include a change-in-control
provision, which requires that an investment grade entity own and control the
general partner of Valero L.P. and Valero Logistics. Otherwise, Valero Logistics
must offer to purchase the 6.05% senior notes at a price equal to 100% of their
outstanding principal balance plus accrued interest through the date of
purchase.
$175.0 Million Revolving Credit Facility
On March 6, 2003, Valero Logistics entered into an amended revolving credit
facility with the various banks included in the existing revolving credit
facility and with a group of new banks to increase the revolving credit facility
to $175.0 million. In addition, the amount that may be borrowed to fund
distributions to unitholders was increased from $25.0 million to $40.0 million.
No other significant terms and conditions of the revolving credit facility were
changed, except that the "Total Debt to EBITDA Ratio" as defined in the
revolving credit facility was changed such that the ratio may not exceed 4.0 to
1.0 (as opposed to 3.0 to 1.0 in the original facility), and Valero L.P. is now
guaranteeing the revolving credit facility. This guarantee by Valero L.P. ranks
equally with all of its existing unsecured senior obligations and is required to
rank equally with any future unsecured senior obligations.
Interest Rate Swaps
During the three months ended March 31, 2003, Valero Logistics entered into
interest rate swap agreements to manage its exposure to changes in interest
rates. The interest rate swap agreements have an aggregate notional amount of
$105.0 million, of which $60.0 million is tied to the maturity of the 6.875%
senior notes and $45.0 million is tied to the maturity of the 6.05% senior
notes. Under the terms of the interest rate swap agreements, the Partnership
will receive a fixed rate (6.875% and 6.05% for the $60.0 million and $45.0
million of interest rate swap agreements, respectively) and will pay a variable
rate based on LIBOR plus a percentage that varies with each agreement. As of
March 31, 2003, the weighted average effective interest rate for the interest
rate swaps was 3.7%. The Partnership accounts for the interest rate swaps as
fair value hedges, with changes in the fair value of each swap and the related
debt instrument recorded as an adjustment to interest expense in the
consolidated statement of income.
11
VALERO L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: Commitments and Contingencies
Environmental
The Partnership's operations are subject to extensive federal, state and local
environmental laws and regulations. Although the Partnership believes its
operations are in substantial compliance with applicable environmental laws and
regulations, risks of additional costs and liabilities are inherent in pipeline,
terminalling and storage operations, and there can be no assurance that
significant costs and liabilities will not be incurred. Moreover, it is possible
that other developments, such as increasingly stringent environmental laws,
regulations and enforcement policies thereunder, and claims for damages to
property or persons resulting from the operations, could result in substantial
costs and liabilities. Accordingly, the Partnership has adopted policies,
practices and procedures in the areas of pollution control, product safety,
occupational health and the handling, storage, use and disposal of hazardous
materials that are designed to prevent material environmental or other damage,
and to limit the financial liability which could result from such events.
However, some risk of environmental or other damage is inherent in pipeline,
terminalling and storage operations, as it is with other entities engaged in
similar businesses. Although environmental costs may have a significant impact
on results of operations for any single period, the Partnership believes that
such costs will not have a material adverse effect on its financial position.
In connection with the South Texas Pipelines and Terminals acquisition discussed
in Note 3, Valero Energy has agreed to indemnify the Partnership from
environmental liabilities that are known as of March 18, 2003 or are discovered
within 10 years after March 18, 2003 related to:
o the South Texas Pipelines and Terminals that arose as a result of events
occurring or conditions existing prior to March 18, 2003; and
o any real or personal property on which the South Texas Pipelines and
Terminals are located that arose prior to March 18, 2003.
In connection with the Crude Oil Storage Tanks acquisition, Valero Energy has
agreed to indemnify the Partnership from environmental liabilities related to:
o the Crude Oil Storage Tanks that arose as a result of events occurring or
conditions existing prior to March 18, 2003;
o any real or personal property on which the Crude Oil Storage Tanks are
located that arose prior to March 18, 2003; and
o any actions taken by Valero Energy before, on or after March 18, 2003, in
connection with the ownership, use or operation of the West plant of the
Corpus Christi refinery, the Texas City refinery and the Benicia refinery
or the property on which the Crude Oil Storage Tanks are located, or any
accident or occurrence in connection therewith.
Legal
The Partnership is involved in various lawsuits, claims and regulatory
proceedings incidental to its business. In the opinion of management, the
outcome of such matters will not have a material adverse effect on the
Partnership's financial position or results of operations.
NOTE 6: Related Party Transactions
The Partnership has related party transactions with Valero Energy for pipeline
tariff, terminalling fee and crude oil storage tank fee revenues, certain
employee costs, insurance costs, operating expenses, administrative costs and
rent expense. The receivable from Valero Energy as of December 31, 2002 and
through March 18, 2003 represented the net amount due for these related party
transactions and the net cash collected under Valero Energy's centralized cash
management program on the Partnership's behalf. Beginning March 19, 2003, the
receivable from Valero Energy represents amounts due for pipeline tariff,
terminalling fee and tank fee revenues and the payable to Valero Energy
represents amounts due for employee costs, insurance costs, operating expenses,
administrative costs and rent expense.
12
VALERO L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes transactions with Valero Energy:
Three Months Ended
March 31,
2003 2002
---- ----
(in thousands)
Revenues.............................................. $ 31,766 $ 25,910
Operating expenses.................................... 4,068 3,407
General and administrative expenses................... 1,559 1,300
Services Agreement
Under the Services Agreement, Valero Energy provides the Partnership with the
corporate functions of legal, accounting, treasury, engineering, information
technology and other services for an annual fee of $5.2 million through July of
2008. This annual fee is in addition to the incremental general and
administrative costs to be incurred from third parties for services Valero
Energy does not provide under the Services Agreement.
The Services Agreement also requires that the Partnership reimburse Valero
Energy for various recurring costs of employees who work exclusively within the
pipeline, terminalling and storage operations and for certain other costs
incurred by Valero Energy relating solely to the Partnership. These employee
costs include salary, wage and benefit costs.
Pipelines and Terminals Usage Agreement
Under the Pipelines and Terminals Usage Agreement, Valero Energy agreed to use
the Partnership's pipelines to transport at least 75% of the crude oil shipped
to and at least 75% of the refined products shipped from Valero Energy's McKee,
Three Rivers and Ardmore refineries and to use the Partnership's refined product
terminals for terminalling services for at least 50% of all refined products
shipped from these refineries until at least April of 2008. For the three months
ended March 31, 2003, Valero Energy used the Partnership's pipelines to
transport 97% of its crude oil shipped to and 76% of the refined products
shipped from the McKee, Three Rivers and Ardmore refineries, and Valero Energy
used the Partnership's terminalling services for 57% of all refined products
shipped from these refineries.
Telfer Terminal Storage and Throughput Agreement
On January 7, 2003, the Partnership and Valero Energy entered into a Terminal
Storage and Throughput Agreement pursuant to which Valero Energy agreed to (a)
lease the asphalt storage tanks and related equipment for a monthly fee of $0.60
per barrel of storage capacity, (b) move asphalt through the terminal during the
term of the agreement for a fee of $1.25 per barrel of throughput with a
guaranteed minimum annual throughput of 280,000 barrels, and (c) reimburse the
Partnership for certain costs, including utilities.
South Texas Pipelines and Terminals Agreements
In conjunction with the acquisition of the South Texas Pipelines and Terminals,
Valero Energy and the Partnership entered into the following agreements:
o Throughput Commitment Agreement pursuant to which Valero Energy agreed, for
an initial period of seven years, to (i) transport in the Houston and
Valley pipeline systems an aggregate of 40% of the Corpus Christi refinery
gasoline and distillate production but only if the combined throughput on
these pipelines is less than 110,000 barrels per day, (ii) transport in the
Pettus to San Antonio refined product pipeline 25% of the Three Rivers
refinery gasoline and distillate production and in the Pettus to Corpus
Christi refined product pipeline 90% of the Three Rivers refinery raffinate
production, (iii) use the Houston asphalt terminal for an aggregate of 7%
of the asphalt production of the Corpus Christi refinery, (iv) use the
Edinburg refined product terminal for an aggregate of 7% of the gasoline
and distillate production of the Corpus Christi refinery, but only if the
throughput at this terminal is less than 20,000 barrels per day; and (v)
use the San Antonio terminal for 75% of the throughput in the Pettus to San
Antonio refined product pipeline. In the event Valero Energy does not
transport in the pipelines or use the terminals to handle the minimum
13
VALERO L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
volume requirements and if its obligation has not been suspended under the
terms of the agreement, it will be required to make a cash payment
determined by multiplying the shortfall in volume by the applicable
weighted average tariff rate or terminal fee. Also, Valero Energy agreed to
allow the Partnership to increase its tariff to compensate for any revenue
shortfall in the event the Partnership has to curtail throughput on the
Corpus Christi to Edinburg refined product pipeline as a result of repair
and replacement activities.
o Terminalling Agreements pursuant to which Valero Energy agreed, during the
initial period of five years, to pay a terminalling fee for each barrel of
refined product stored or handled by or on behalf of Valero Energy at the
terminals included in the South Texas Pipelines and Terminals, including an
additive fee for gasoline additives blended at the terminals. At the Hobby
Airport terminal, Valero Energy will also pay a filtering fee for each
barrel of jet fuel stored or handled at the terminal.
Additionally, Valero Energy has indicated to the Partnership that the segment of
the Corpus Christi to Edinburg refined product pipeline that runs approximately
60 miles south from Corpus Christi to Seeligson Station may require repair and,
in some places, replacement. Valero Energy has agreed to indemnify the
Partnership for any costs the Partnership incurs to repair and replace this
segment in excess of $1.5 million, which is approximately the amount of capital
expenditures the Partnership expects to spend on this segment for the next three
years.
Crude Oil Storage Tanks Agreements
In conjunction with the acquisition of the Crude Oil Storage Tanks, Valero
Energy and the Partnership entered into the following agreements:
o Handling and Throughput Agreement pursuant to which Valero Energy agreed to
pay the Partnership a fee, for an initial period of ten years, for 100% of
crude oil delivered to each of the West plant of the Corpus Christi
refinery, the Texas City refinery or the Benicia refinery and to use the
Partnership for handling all deliveries to these refineries. The throughput
fees under the agreement are adjustable annually, generally based on 75% of
the regional consumer price index applicable to the location of each
refinery.
o Services and Secondment Agreements pursuant to which Valero Energy agreed
to second to the Partnership personnel who will provide operating and
routine maintenance services with respect to the Crude Oil Storage Tanks.
The annual reimbursement for services is an aggregate $3.5 million for the
initial year and is subject to adjustment based on actual expenses incurred
and increases in the regional consumer price index. The initial term of the
Services and Secondment Agreements is ten years with a Partnership option
to extend for an additional five years.
o Lease and Access Agreements pursuant to which Valero Energy will lease to
the Partnership the real property on which the Crude Oil Storage Tanks are
located for an aggregate of $0.7 million per year. The initial term of each
lease will be 25 years, subject to automatic renewal for successive
one-year periods thereafter. The Partnership may terminate any of these
leases upon 30 days notice after the initial term or at the end of a
renewal period. In addition, the Partnership may terminate any of these
leases upon 180 days notice prior to the expiration of the current term if
the Partnership ceases to operate the Crude Oil Storage Tanks or ceases
business operations.
Omnibus Agreement
The Omnibus Agreement governs potential competition between Valero Energy and
the Partnership. Under the Omnibus Agreement, Valero Energy has agreed, and will
cause its controlled affiliates to agree, for so long as Valero Energy controls
the general partner, not to engage in the business of transporting crude oil and
other feedstocks or refined products, including petrochemicals, or operating
crude oil storage tanks or refined product terminalling assets in the United
States. This restriction does not apply to:
o any business owned by Valero Energy at the date of its acquisition of
Ultramar Diamond Shamrock Corporation on December 31, 2001;
o any business with a fair market value of less than $10 million;
14
VALERO L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
o any business acquired by Valero Energy in the future that constitutes less
than 50% of the fair market value of a larger acquisition, provided the
Partnership has been offered and declined the opportunity to purchase the
business; and
o any newly constructed pipeline, terminalling or storage tank assets that
the Partnership has not offered to purchase at fair market value within one
year of construction.
NOTE 7: Employee Benefit Expenses
The Partnership, which has no employees, relies on employees of Valero Energy
and its affiliates to provide the necessary services to operate the
Partnership's assets. Effective January 1, 2003, most of the employees providing
services to the Partnership became employees of Valero GP, LLC, a wholly owned
subsidiary of Valero Energy. The Valero GP, LLC employees are included in the
various employee benefit plans of Valero Energy and its affiliates. These plans
include qualified, non-contributory defined benefit retirement plans, defined
contribution 401(k) plans, employee and retiree medical, dental and life
insurance plans, long-term incentive plans (i.e., unit options and bonuses) and
other such benefits.
The Partnership's share of allocated Valero Energy employee benefit plan
expenses, was $0.5 million and $0.3 million for the three months ended March 31,
2003 and 2002, respectively. These employee benefit plan expenses are included
in operating expenses with the related payroll costs.
Long-Term Incentive Plan
The Board of Directors of Valero GP, LLC previously adopted the "2000 Long-Term
Incentive Plan" (the LTIP) under which Valero GP, LLC may award up to 250,000
common units to certain key employees of Valero Energy's affiliates providing
services to Valero L.P. and to directors and officers of Valero GP, LLC. Awards
under the LTIP can include awards such as unit options, restricted common units,
distribution equivalent rights (DERs) and contractual rights to receive common
units.
On January 24, 2003, under the LTIP, Valero GP, LLC granted 30,000 contractual
rights to receive common units and DERs to its officers and directors, excluding
the outside directors. In conjunction with the grant of contractual rights to
receive common units under the LTIP, Valero GP, LLC purchased 30,000 newly
issued Valero L.P. common units from Valero L.P. for total consideration of $1.1
million. In addition, during the three months ended March 31, 2003, Valero GP,
LLC settled the previous purchase of 55,250 common units with the payment of
$2.3 million.
In January of 2003, one-third of the previously issued 55,250 contractual rights
vested and Valero GP, LLC distributed actual Valero L.P. common units to the
officers and directors. Certain of the officers and directors settled their tax
withholding on the vested common units by delivering 6,491 common units to
Valero GP, LLC. As of March 31, 2003, Valero GP, LLC owns 73,319 common units of
Valero L.P.
NOTE 8: Partners' Equity
Outstanding Equity
Prior to the redemption of common units and the common unit offering in March
2003, Valero Energy, through various affiliates, owned 73.6% of Valero L.P.'s
outstanding partners' equity. After giving effect to the redemption of common
units and the common unit offering, outstanding partners' equity of Valero L.P.
as of March 31, 2003 includes 11,624,822 common units (614,572 of which are held
by UDS Logistics, LLC and 73,319 of which are held by Valero GP, LLC), 9,599,322
subordinated units held by UDS Logistics, LLC and a 2% general partner interest
held by Riverwalk Logistics, L.P. On April 16, 2003, the underwriters of the
common unit offering exercised their overallotment option and purchased 581,000
additional common units from Valero L.P. (see Note 9); thus total common units
outstanding now total 12,205,822. As a result of the overallotment exercise,
Valero Energy now owns 48.2% of Valero L.P., including the 2% general partner
interest.
15
VALERO L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Income per Unit Applicable to Limited Partners
The computation of basic net income per unit applicable to limited partners is
based on the weighted-average number of common and subordinated units
outstanding during the period. Net income per unit applicable to limited
partners is computed by dividing net income applicable to limited partners,
after deducting the general partner's 2% interest and incentive distributions,
by the weighted-average number of limited partnership units outstanding. The
general partner's incentive distribution allocation for the three months ended
March 31, 2003 and 2002 was $0.4 million and $0.1 million, respectively. The
Partnership generated sufficient net income such that the amount of net income
allocated to common units was equal to the amount allocated to the subordinated
units.
Cash Distributions
The Partnership makes quarterly distributions of 100% of its available cash,
generally defined as cash receipts less cash disbursements and cash reserves
established by the general partner in its sole discretion. These quarterly
distributions are declared and paid within 45 days subsequent to each
quarter-end. Pursuant to the partnership agreement, the general partner is
entitled to incentive distributions if the amount the Partnership distributes
with respect to any quarter exceeds specified target levels shown below:
Percentage of Distribution
--------------------------
General
Quarterly Distribution Amount per Unit Unitholders Partner
-------------------------------------- ----------- -------
Up to $0.60............................... 98% 2%
Above $0.60 up to $0.66................... 90% 10%
Above $0.66 up to $0.90................... 75% 25%
Above $0.90............................... 50% 50%
The following table reflects the allocation of total cash distributions to the
general and limited partners applicable to the period in which the distributions
are earned:
Three Months Ended
March 31,
---------
2003 2002
---- ----
(in thousands, except per unit data)
General partner interest........................ $ 319 $ 257
General partner incentive distribution.......... 384 86
------ ------
Total general partner distribution............. 703 343
Limited partners' distributions................. 15,264 12,515
------ ------
Total cash distributions....................... $ 15,967 $ 12,858
====== ======
Cash distributions per unit applicable to
limited partners............................... $ 0.70 $ 0.65
====== ======
16
VALERO L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: Subsequent Events
Distributions
On April 17, 2003, the Partnership declared a quarterly distribution of $0.70
per unit payable on May 15, 2003 to unitholders of record on May 6, 2003.
Exercise of Overallotment Option
On April 11, 2003, Valero L.P. was notified by the underwriters of the common
unit offering discussed in Note 2 that they wished to exercise their option to
purchase 581,000 additional common units. On April 16, 2003, Valero L.P. closed
the exercise of the overallotment option, by selling 581,000 common units at
$36.75 per unit, before underwriters' discount of $1.56 per unit. Net proceeds
from the underwriters were $20.4 million, or $35.19 per unit, and Riverwalk
Logistics, L.P. contributed $0.4 million to maintain its 2% general partner
interest. The proceeds and contribution were used to pay down the outstanding
balance on the revolving credit facility.
17
VALERO L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Cautionary Statement Regarding Forward-Looking Information
This report includes forward-looking statements regarding future events
and the future financial performance of the Partnership. All forward-looking
statements are based on the Partnership's beliefs as well as assumptions made by
and information currently available to the Partnership. Words such as
"believes", "expects", "intends", "forecasts", "projects" and similar
expressions, identify forward-looking statements within the meaning of the
Securities Litigation Reform Act of 1995. These statements reflect the
Partnership's current views with respect to future events and are subject to
various risks, uncertainties and assumptions including:
o Any reduction in the quantities of crude oil and refined products
transported in the Partnership's pipelines and handled at the Partnership's
terminals and storage tanks;
o Any significant decrease in the demand for refined products in the markets
served by the Partnership's pipelines;
o Any material decline in production by any of Valero Energy's McKee, Three
Rivers, Corpus Christi, Texas City, Benicia or Ardmore refineries;
o Any downward pressure on market prices caused by new competing refined
product pipelines that could cause Valero Energy to decrease the volumes
transported in the Partnership's pipelines;
o Any challenges to the Partnership's tariff rates or changes in the FERC's
ratemaking methodology;
o Any material decrease in the supply of or material increase in the price of
crude oil available for transport through the Partnership's pipelines and
storage tanks;
o Inability to expand the Partnership's business and acquire new assets as
well as to attract third party shippers;
o Conflicts of interest with Valero Energy;
o Any inability to borrow additional funds;
o Any substantial costs related to environmental risks, including increased
costs of compliance;
o Any change in the credit rating assigned to Valero Logistics' indebtedness;
o Any change in the credit rating assigned to Valero Energy's indebtedness;
o Any reductions in space allocated to the Partnership in interconnecting
third party pipelines;
o Any material increase in the price of natural gas;
o War, terrorist attacks, threats of war or terrorist attacks or political or
other disruptions that limit crude oil production;
o The Partnership's former use of Arthur Andersen LLP as its independent
auditor; and o Proposed changes in federal income tax laws.
If one or more of these risks or uncertainties materialize, or if the underlying
assumptions prove incorrect, actual results may vary materially from those
described in the forward-looking statement. Readers are cautioned not to place
undue reliance on this forward-looking information, which is as of the date of
this Form 10-Q, and the Partnership undertakes no obligation to update publicly
or revise any forward-looking information, whether as a result of new
information, future events or otherwise.
18
Introduction
The following discussion and analysis of the Partnership's results of operations
and financial condition should be read in conjunction with Part I - Financial
Information, Item 1. Financial Statements.
Effective January 7, 2003, the Partnership acquired an asphalt terminal located
in Pittsburg, California from Telfer for $15.1 million in cash. The statement of
income for the three months ended March 31, 2003 includes the results of
operations of the Telfer asphalt terminal from January 7, 2003 through March 31,
2003.
Effective March 18, 2003, Valero L.P. consummated a public offering of common
units resulting in net proceeds of $204.6 million (including the general partner
contribution), Valero Logistics issued 6.05% senior notes in a private placement
resulting in net proceeds of $247.8 million and Valero Logistics borrowed $25.0
million under its revolving credit facility. These net proceeds, along with cash
on hand, were used to redeem 3,809,750 common units owned by UDS Logistics, LLC
and a prorata portion of general partner interest for $136.9 million and to pay
$350 million related to the contribution by Valero Energy to Valero Logistics of
the South Texas Pipelines and Terminals and the Crude Oil Storage Tanks. The
statement of income for the three months ended March 31, 2003 includes the
results of operations of the South Texas Pipelines and Terminals and the Crude
Oil Storage Tanks from March 19, 2003 through March 31, 2003, and includes the
impact of the debt and equity financings related to the above acquisitions and
redemption.
Seasonality
The operating results of the Partnership are affected by factors affecting the
business of Valero Energy, including refinery utilization rates, crude oil
prices, the demand for refined products and industry refining capacity.
The throughput of crude oil that the Partnership transports is directly affected
by the level of, and refiner demand for, crude oil in markets served directly by
the Partnership's crude oil pipelines and crude oil storage tanks. Crude oil
inventories tend to increase due to overproduction of crude oil by producing
companies and countries and planned maintenance turnaround activity by refiners.
The throughput of the refined products that the Partnership transports is
directly affected by the level of, and user demand for, refined products in the
markets served directly or indirectly by the Partnership's refined product
pipelines and terminals. Demand for gasoline in most markets peaks during the
summer driving season, which extends from May through September, and declines
during the fall and winter months. Demand for gasoline in the Arizona market,
however, generally is higher in the winter months than summer months due to
greater tourist activity and second home usage in the winter months.
19
Results of Operations
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
The results of operations for the three months ended March 31, 2003 presented in
the following table are derived from the consolidated statement of income for
Valero L.P. and subsidiaries for the three months ended March 31, 2003, which
includes the results of operations of the South Texas Pipelines and Terminals
and the Crude Oil Storage Tanks for the period from March 19, 2003 through March
31, 2003. The results of operations for the three months ended March 31, 2002
presented in the following table are derived from the consolidated statement of
income for Valero L.P. and subsidiaries for the three months ended March 31,
2002, which includes the Wichita Falls Business for the month ended January 31,
2002 prior to its actual acquisition on February 1, 2002.
Financial Data:
Three Months Ended March 31,
2003 2002
---- ----
Statement of Income Data: (in thousands)
Revenues........................................................ $ 31,816 $ 26,024
------ ------
Costs and expenses:
Operating expenses............................................ 11,661 9,184
General and administrative expenses........................... 1,844 1,788
Depreciation and amortization................................. 4,283 4,356
------ ------
Total costs and expenses..................................... 17,788 15,328
------ ------
Operating income................................................ 14,028 10,696
Equity income from Skelly-Belvieu Pipeline Company............ 731 678
Interest expense, net......................................... (2,377) (556)
------ ------
Income before income tax expense................................ 12,382 10,818
Income tax expense............................................ - (395)
------ ------
Net income...................................................... 12,382 10,423
Less net income applicable to general partner................. (624) (195)
Less net income related to the Wichita Falls Business
for the month ended January 31, 2002...................... - (650)
------ ------
Net income applicable to the limited partners' interest........ $ 11,758 $ 9,578
====== ======
Net income per unit applicable to limited partners............. $ 0.60 $ 0.50
====== ======
Weighted average number of limited partnership units
outstanding................................................. 19,556,486 19,241,617
========== ==========
Earnings before interest, taxes and depreciation and
amortization (EBITDA) (a).................................... $ 19,042 $ 15,730
====== ======
Distributable cash flow (a).................................... $ 15,490 $ 14,478
====== ======
March 31, December 31,
Balance Sheet Data: 2003 2002
---- ----
Long-term debt, including current portion (1).................. $ 383,891 $ 109,658
Partners' equity (2)........................................... 362,590 293,895
Debt-to-capitalization ratio (1) / ((1)+(2))................... 51.4 % 27.2%
20
(a) The following is a reconciliation of income before income tax expense to
EBITDA and distributable cash flow.
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
(in thousands)
Income before income tax expense..................... $ 12,382 $ 10,818
Plus interest expense, net.......................... 2,377 556
Plus depreciation and amortization.................. 4,283 4,356
------ ------
EBITDA 19,042 15,730
Less equity income from Skelly-Belvieu Pipeline
Company........................................... (731) (678)
Less interest expense, net.......................... (2,377) (556)
Less maintenance capital expenditures............... (1,192) (789)
Plus distributions from Skelly-Belvieu Pipeline
Company............................................ 748 771
------ ------
Distributable cash flow.............................. $ 15,490 $ 14,478
====== ======
For a discussion regarding the Partnership's rationale for utilizing the
non-GAAP measures of EBITDA and distributable cash flow, please see Valero
L.P.'s Annual Report on Form 10-K for the year ended December 31, 2003.
Operating Data:
The following table reflects total throughput, on a barrels per day basis, for
the Partnership's crude oil pipelines, refined product pipelines, refined
product terminals and crude oil storage tanks for the three months ended March
31, 2003 and 2002. On March 18, 2003, the Partnership acquired the South Texas
Pipelines and Terminals and the Crude Oil Storage Tanks from Valero Energy. The
throughput related to these newly acquired assets included in the table below is
calculated based on throughput for the period from March 19, 2003 to March 31,
2003 divided by the 90 days in the quarter.
Three Months Ended March 31,
----------------------------
2003 2002 % Change
---- ---- --------
(barrels per day)
Crude oil pipeline throughput........... 332,760 312,387 7%
======= =======
Refined product pipeline throughput..... 296,816 262,872 13%
======= =======
Refined product terminal throughput..... 176,797 175,816 1%
======= =======
Crude oil storage tank throughput....... 77,458 N/A N/A
======
Net income for the three months ended March 31, 2003 was $12.4 million as
compared to $10.4 million for the three months ended March 31, 2002. The
increase of $2.0 million was primarily attributable to the additional net income
generated from the higher throughput volumes in the crude oil pipelines and the
acquisition of the South Texas Pipelines and Terminals and the Crude Oil Storage
Tanks on March 18, 2003. Net income generated by the acquired assets from March
19, 2003 through March 31, 2003 totaled $1.1 million. The increase in net income
resulting from the above factors was partially offset by the impact of lower
throughput barrels in the Partnership's other refined product pipelines and
terminals resulting from economic-based refinery production cuts at Valero
Energy's McKee and Ardmore refineries and lower throughput barrels at Valero
Energy's Three Rivers refinery related to the oil workers' strike in Venezuela.
21
Revenues for the three months ended March 31, 2003 were $31.8 million as
compared to $26.0 million for the three months ended March 31, 2002, an increase
of 22% or $5.8 million. The following discusses significant revenue increases
and decreases:
o revenues for the Corpus Christi to Three Rivers, Ringgold to Wasson and
Wichita Falls to McKee crude oil pipelines increased a combined $1.4
million for the three months ended March 31, 2003 as compared to 2002 due
to a combined 19% increase in throughput barrels. During the first quarter
of 2002, Valero Energy initiated economic-based refinery production cuts at
each of the McKee, Ardmore and Three Rivers refineries and performed
refinery turnarounds at the McKee and Three Rivers refineries. During
January and early February of 2003, Valero Energy again initiated
economic-based refinery production cuts; however, refining fundamentals
improved significantly by mid-February and as a result Valero Energy
maximized production at each of these refineries for the remainder of the
first quarter of 2003. In addition, the only major refinery turnaround
project during the first quarter of 2003 was at the Ardmore refinery, which
began in the last half of March and continued through late April 2003;
o revenues for the crude hydrogen pipeline, which was acquired on May 29,
2002, were $0.4 million for the three months ended March 31, 2003;
o revenues for the South Texas Pipelines from March 19, 2003 to March 31,
2003 totaled $0.9 million based on throughput of 1,974,956 barrels;
o revenues for the Partnership's other refined product pipelines increased
$0.4 million primarily due to increased throughput barrels in the Three
Rivers refined product pipelines for the three months ended March 31, 2003
as compared to 2002. Revenues and throughput barrels in the McKee and
Ardmore refined product pipelines for the three months ended March 31, 2003
were comparable to 2002;
o revenues for the refined product terminals, excluding the Telfer asphalt
terminal and the South Texas Terminals, increased $0.2 million primarily
due to an increase in the additive blending fee from $0.04 per barrel to
$0.12 per barrel effective January 1, 2003, as throughput barrels in
refined product terminals decreased 5%. Revenues for the Telfer asphalt
terminal, which was acquired on January 7, 2003, were $1.0 million and
throughput was 201,350 barrels for the three months ended March 31, 2003.
Revenues for the South Texas Terminals from March 19, 2003 through March
31, 2003 totaled $0.2 million based on throughput of 704,945 barrels; and
o revenues for the Crude Oil Storage Tanks from March 19, 2003 through March
31, 2003 totaled $1.4 million based on throughput of 6,971,237 barrels.
Operating expenses increased $2.5 million for the three months ended March 31,
2003 as compared to the three months ended March 31, 2002 primarily due to the
following items:
o the acquisition of the South Texas Pipelines and Terminals increased
operating expenses by $0.5 million;
o the acquisitions of the Telfer asphalt terminal and crude hydrogen pipeline
increased operating expenses by $0.4 million;
o the acquisition of the Crude Oil Storage Tanks increased operating expenses
by $0.2 million;
o employee benefit expenses increased as a result of higher accruals for
incentive compensation as a result of higher net income and increases in
medical and pension costs; and
o maintenance expenses, excluding the impact of acquisitions, increased $1.1
million due primarily to the increased number of pipeline and terminal
integrity inspections performed during the first quarter of 2003 as
compared to 2002 and increased chemical expenses related to drag reducing
agents and gasoline additives.
22
General and administrative expenses were as follows:
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
(in thousands)
Services Agreement................................... $ 1,300 $ 1,300
Third party expenses................................. 706 604
General and administrative expenses related to the
Wichita Falls Business for the month ended
January 31, 2002.................................... - 40
Reimbursement from partners on jointly owned
pipelines........................................... (162) (156)
----- -----
General and administrative expenses................ $ 1,844 $ 1,788
===== =====
General and administrative expenses increased 3% for the three months ended
March 31, 2003 as compared to the three months ended March 31, 2002 due
primarily to an increase in general and administrative costs from third parties.
In addition to the annual fee charged by Valero Energy to the Partnership for
general and administrative services, the Partnership incurs costs (e.g.,
unitholder annual reports, preparation and mailing of income tax reports to
unitholders and director fees) as a result of being a publicly held entity.
Depreciation and amortization expense decreased slightly during the three months
ended March 31, 2003 as compared to the three months ended March 31, 2002 as
certain assets became fully depreciated and no depreciation was recognized for
the South Texas Pipelines and Terminals and the Crude Oil Storage Tanks acquired
on March 18, 2003. The Partnership begins depreciating assets in the month
following acquisition.
Equity income from Skelly-Belvieu Pipeline Company for the three months ended
March 31, 2003 increased 8% as compared to the three months ended March 31, 2002
due to a 6% increase in throughput barrels in the Skellytown to Mont Belvieu
refined product pipeline.
Interest expense for the three months ended March 31, 2003 was $2.4 million, net
of interest income and capitalized interest of $0.1 million, as compared to $0.6
million of interest expense, net of interest income and capitalized interest of
$0.1 million for the three months ended March 31, 2002. Interest expense was
higher in 2003 due to interest expense related to the $100.0 million of 6.875%
senior notes issued in July of 2002, and interest expense related to the private
placement of $250.0 million of 6.05% senior notes and $25.0 million of
borrowings under the revolving credit facility commencing March 18, 2003. The
2003 borrowings were used to fund the common unit redemption and a portion of
the South Texas Pipelines and Terminals acquisition, all of which closed in
March 2003. The 2002 borrowings were used to repay borrowings under the
variable-rate revolving credit facility. Partially offsetting the higher
interest expense in 2003 from the above factors is the effect of interest rate
swaps entered into during the three months ended March 31, 2003. The Partnership
entered into $105.0 million (notional amount) of interest rate swaps, which
effectively convert $105.0 million of fixed-rate debt to variable-rate debt,
reducing the effective interest rate on such debt by approximately 300 basis
points based on current rates.
Income tax expense for the three months ended March 31, 2002 represents income
tax expense incurred by the Wichita Falls Business during the month ended
January 31, 2002, prior to the transfer of the Wichita Falls Business to the
Partnership.
Net income for the three months ended March 31, 2002 includes $0.7 million of
net income related to the Wichita Falls Business for the month ended January 31,
2002, which was allocated entirely to the general partner. Net income applicable
to the general partner for the three months ended March 31, 2003 includes the
effect of $0.4 million of incentive distributions.
23
Financial Outlook
The second quarter of 2003 began where the first quarter left off, with improved
refining and marketing fundamentals relative to 2002. The combination of low
crude oil and refined product inventories industry-wide and good underlying
demand should result in higher throughput volumes in the Partnership's
pipelines, terminals and storage tanks compared to a year ago.
These factors, coupled with increased net income from the acquisitions completed
in the first quarter of 2003, should allow the Partnership to report net income
per unit in the second quarter of 2003 that exceeds the net income per unit
reported for the second quarter of 2002, notwithstanding the impact of the
2,521,250 net increase in common units outstanding resulting from the recent
common unit offering and redemption transaction.
Liquidity and Capital Resources
The Partnership's primary cash requirements, in addition to normal operating
expenses, are for capital expenditures (both maintenance and expansion),
business and asset acquisitions, distributions to partners and debt service. The
Partnership expects to fund its short-term needs for such items as maintenance
capital expenditures and quarterly distributions to the partners from operating
cash flows. Capital expenditures for long-term needs resulting from future
expansion projects and acquisitions are expected to be funded by a variety of
sources including cash flows from operating activities, borrowings under the
revolving credit facility and the issuance of additional common units, debt
securities and other capital market transactions.
Amended Revolving Credit Facility
On March 6, 2003, Valero Logistics amended its revolving credit facility,
increasing its credit limit to $175.0 million. On March 18, 2003, Valero
Logistics borrowed $25.0 million under the revolving credit facility to
partially fund the purchase of the South Texas Pipelines and Terminals from
Valero Energy. The revolving credit facility expires on January 15, 2006. At
Valero Logistics' option, borrowings under the revolving credit facility bear
interest based on either an alternative base rate or LIBOR. Valero Logistics
also incurs a facility fee on the aggregate commitments of lenders under the
revolving credit facility, whether used or unused. Borrowings under the
revolving credit facility may be used for working capital and general
partnership purposes; however, borrowings to fund distributions to unitholders
are limited to $40.0 million. All borrowings designated as borrowings subject to
the $40.0 million sublimit must be reduced to zero for a period of at least 15
consecutive days during each fiscal year. The revolving credit facility also
allows Valero Logistics to issue letters of credit for an aggregate of $75.0
million.
The amended revolving credit facility requires that Valero Logistics maintain
certain financial ratios and includes other restrictive covenants, including a
prohibition on distributions by Valero Logistics to Valero L.P. if any default,
as defined in the revolving credit facility, exists or would result from the
distribution. Valero L.P. has guaranteed the obligations under the revolving
credit facility.
6.05% Senior Notes
On March 18, 2003, Valero Logistics issued, in a private placement, $250.0
million of 6.05% senior notes, due March 15, 2013, for proceeds of $247.8
million, net of discount of $0.7 million and debt issuance costs of $1.5
million. The net proceeds were used to redeem 3,809,750 common units held by an
affiliate of Valero Energy ($134.1 million), redeem a related portion of the
general partner interest ($2.9 million) and partially fund the South Texas
Pipelines and Terminals acquisition. The 6.05% senior notes are redeemable and
do not have sinking fund requirements. Interest on the 6.05% senior notes is
payable semiannually in arrears on March 15 and September 15 of each year
beginning September 15, 2003. Valero L.P. has fully and unconditionally
guaranteed the 6.05% senior notes.
The 6.05% senior notes have not been registered under the Securities Act of 1933
or any other securities laws and consequently the 6.05% senior notes are subject
to transfer and resale restrictions. However, the 6.05% senior notes include
registration rights which provide that Valero Logistics will use its best
efforts to file, within 90 days, a registration statement for the exchange of
the 6.05% senior notes for new notes of the same series that generally will be
freely transferable and to consummate the exchange within 210 days.
24
6.875% Senior Notes
The 6.875% senior notes are due July 15, 2012 with interest payable on January
15 and July 15 of each year. The 6.875% senior notes are redeemable and do not
have sinking fund requirements and rank equally with all other existing senior
unsecured indebtedness of Valero Logistics, including indebtedness under the
revolving credit facility. Valero L.P. has guaranteed the 6.875% senior notes.
Common Unit Offering
On March 18, 2003, Valero L.P. closed on a public offering of 5,750,000 common
units at a price of $36.75 per unit, before underwriters' discount of $1.56 per
unit, for net proceeds of $202.3 million before offering expenses of $2.0
million. In order to maintain its 2% general partner interest, Riverwalk
Logistics, L.P. made a $4.3 million general partner contribution. The
Partnership used the net proceeds of the common unit offering and the general
partner contribution primarily to fund the acquisition of the Crude Oil Storage
Tanks. On April 16, 2003, Valero L.P. closed on the exercise of the
underwriters' overallotment option, by selling 581,000 common units at $35.19
per unit. Net proceeds from this sale of $20.4 million, combined with $0.4
million contributed by Riverwalk Logistics, L.P. to maintain its 2% general
partner interest, were used to pay down the outstanding balance on the revolving
credit facility.
Shelf Registration Statement
On June 6, 2002, Valero L.P. and Valero Logistics filed a $500.0 million
universal shelf registration statement with the Securities and Exchange
Commission covering the issuance of an unspecified amount of common units or
debt securities or a combination thereof. Valero L.P. may, in one or more
offerings, offer and sell common units representing limited partner interests in
Valero L.P. Valero Logistics may, in one or more offerings, offer and sell its
debt securities, which will be fully and unconditionally guaranteed by Valero
L.P. As a result of the July 2002 6.875% senior note offering by Valero
Logistics and the March 2003 common unit offering (including the overallotment
option) by Valero L.P., the remaining balance under the universal shelf
registration statement is $167.3 million.
Interest Rate Swaps
During the three months ended March 31, 2003, Valero Logistics entered into
interest rate swap agreements to manage its exposure to changes in interest
rates. The interest rate swap agreements have an aggregate notional amount of
$105.0 million, of which $60.0 million is tied to the maturity of the 6.875%
senior notes and $45.0 million is tied to the maturity of the 6.05% senior
notes. Under the terms of the interest rate swap agreements, the Partnership
will receive the fixed rate (6.875% and 6.05%, respectively) and will pay a
variable rate based on LIBOR plus a percentage that varies with each agreement.
The Partnership accounts for the interest rate swaps as fair value hedges, with
changes in the fair value of each swap and the related debt instrument recorded
as an adjustment to interest expense in the consolidated statement of income.
Distributions
Valero L.P.'s partnership agreement, as amended, sets forth the calculation to
be used to determine the amount and priority of cash distributions that the
common unitholders, subordinated unitholders and the general partner will
receive. During the subordination period, the holders of Valero L.P.'s common
units are entitled to receive each quarter a minimum quarterly distribution of
$0.60 per unit ($2.40 annualized) prior to any distribution of available cash to
holders of Valero L.P.'s subordinated units. The subordination period is defined
generally as the period that will end on the first day of any quarter beginning
after March 31, 2006 if (1) Valero L.P. has distributed at least the minimum
quarterly distribution on all outstanding units with respect to each of the
immediately preceding three consecutive, non-overlapping four-quarter periods
and (2) Valero L.P.'s adjusted operating surplus, as defined in the partnership
agreement, during such periods equals or exceeds the amount that would have been
sufficient to enable Valero L.P. to distribute the minimum quarterly
distribution on all outstanding units on a fully diluted basis and the related
distribution on the 2% general partner interest during those periods. If the
subordination period ends, the rights of the holders of subordinated units will
no longer be subordinated to the rights of the holders of common units and the
subordinated units may be converted into common units, on a one-for-one basis.
The general partner is entitled to incentive distributions if the amount Valero
L.P. distributes with respect to any quarter exceeds $0.60 per unit.
25
The following table reflects the allocation of the total cash distributions to
the general and limited partners applicable to the period in which the
distributions are earned:
Three Months Ended March 31,
---------------------------
2003 2002
---- ----
(in thousands, except per unit data)
General partner interest.............................. $ 319 $ 257
General partner incentive distribution................ 384 86
------ ------
Total general partner distribution.................. 703 343
Limited partners' distributions....................... 15,264 12,515
------ ------
Total cash distributions............................ $ 15,967 $ 12,858
====== ======
Cash distributions per unit applicable to limited
partners............................................ $ 0.70 $ 0.65
====== ======
In February 2003, Valero L.P. paid a quarterly cash distribution of $0.70 per
unit for the fourth quarter of 2002.
Capital Requirements
The petroleum pipeline and storage industry is capital-intensive, requiring
significant investments to maintain, upgrade or enhance existing operations and
to comply with environmental and safety regulations. The Partnership's capital
expenditures consist primarily of:
o maintenance capital expenditures, such as those required to maintain
equipment reliability and safety and to address environmental regulations;
and
o expansion capital expenditures, such as those to expand and upgrade
pipeline capacity and to construct new pipelines, terminals and storage
tanks. In addition, expansion capital expenditures may include acquisitions
of pipelines, terminals or storage tank assets.
During the three months ended March 31, 2003, the Partnership incurred
maintenance capital expenditures of $1.2 million primarily related to tank and
pipeline pump station upgrades at numerous locations. Expansion capital
expenditures of $0.9 million during the three months ended March 31, 2003 were
related to modifications of the Albuquerque refined product terminal, the
addition of new pumps on the Wichita Falls to McKee crude oil pipeline and
initial construction of the Nuevo Laredo pipeline and propane terminal.
For the remainder of 2003, the Partnership expects to incur approximately $24
million of capital expenditures including approximately $2 million for
maintenance capital expenditures and approximately $22 million for expansion
capital expenditures, including a pipeline from Laredo, Texas to Nuevo Laredo,
Mexico and a propane terminal in Nuevo Laredo. The Partnership expects to fund
its capital expenditures from cash provided by operations and to the extent
necessary, from proceeds of borrowings under the revolving credit facility or
debt and equity offerings.
Acquisitions during the first quarter of 2003 include the January 7, 2003
purchase of an asphalt terminal from Telfer for $15.1 million and the March 18,
2003 purchases of the South Texas Pipelines and Terminals and Crude Oil Storage
Tanks from Valero Energy for a total of $350.0 million. Acquisitions during the
first quarter of 2002 represent the February 1, 2002 purchase, under a purchase
option included in the Omnibus Agreement, of the Wichita Falls crude oil
pipeline and storage facilities from Valero Energy for $64.0 million, which was
funded with proceeds under the revolving credit facility.
The Partnership believes it has sufficient funds from operations, and to the
extent necessary, from public and private capital markets and bank markets, to
fund its ongoing operating requirements. The Partnership expects that, to the
extent necessary, it can raise additional funds from time to time through equity
or debt financings. However, there can be no assurance regarding the
availability of any future financings or whether such financings can be made
available on terms acceptable to the Partnership.
26
Environmental
The Partnership is subject to extensive federal, state and local environmental
laws and regulations, including those relating to the discharge of materials
into the environment, waste management and pollution prevention measures.
Because environmental laws and regulations are becoming more complex and
stringent and new environmental laws and regulations are continuously being
enacted or proposed, the level of future expenditures required for environmental
matters is expected to increase.
Valero Energy has agreed to indemnify the Partnership, for a period of
approximately 10 years, for pre-acquisition environmental damage related to
assets transferred or otherwise acquired by the Partnership from Valero Energy.
These indemnifications do not include liabilities that result from a change in
environmental law subsequent to acquisition. As an operator or owner of the
assets, the Partnership could be held liable for pre-acquisition environmental
damage should Valero Energy be unable to fulfill its obligation. However, the
Partnership believes that such a situation is remote given Valero Energy's
financial condition. As of March 31, 2003, the Partnership is not aware of any
material environmental liabilities that were not covered by the environmental
indemnifications.
27
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The principal market risk (i.e., the risk of loss arising from adverse changes
in market rates and prices) to which the Partnership is exposed is interest rate
risk on its debt. The Partnership manages its debt considering various financing
alternatives available in the market and manages its exposure to changing
interest rates principally through the use of a combination of fixed and
variable-rate debt. In addition, the Partnership utilizes interest rate swap
agreements to manage a portion of the exposure to changing interest rates by
converting certain fixed-rate debt to variable-rate debt.
Borrowings under the revolving credit facility expose the Partnership to
increases in the benchmark interest rate underlying its variable-rate revolving
credit facility. As of March 31, 2003, the Partnership's fixed-rate debt
consisted of the 6.05% senior notes, the 6.875% senior notes and the 8.0% Port
of Corpus Christi Authority note payable.
The following table provides information about the Partnership's long-term debt
and interest rate derivative instruments, all of which are sensitive to changes
in interest rates. For long-term debt, principal cash flows and related
weighted-average interest rates by expected maturity dates are presented. For
interest rate swaps, the table presents notional amounts and weighted-average
interest rates by expected (contractual) maturity dates. Weighted-average
variable rates are based on implied forward interest rates in the yield curve at
the reporting date.
March 31, 2003
---------------------------------------------------------------------------------------------------
Expected Maturity Dates
-------------------------------------------------------------------------
There- Fair
2003 2004 2005 2006 2007 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
(in thousands, except interest rates)
Long-term Debt:
Fixed rate................... $ 449 $ 485 $ 524 $ 566 $ 611 $ 357,025 $ 359,660 $ 373,214
Average interest rate...... 8.0% 8.0% 8.0% 8.0% 8.0% 6.3% 6.3%
Variable rate................ $ - $ - $ - $ 25,000 $ - $ - $ 25,000 $ 25,000
Average interest rate...... - - - 3.4% - - 3.4%
Interest Rate Swaps
Fixed to Variable:
Notional amount............. $ - $ - $ - $ $ - $ 105,000 $ 105,000 $223
Average pay rate........... 3.3% 4.2% 5.4% 6.2% 6.8% 7.6% 6.6%
Average receive rate....... 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5%
December 31, 2002
---------------------------------------------------------------------------------------------------
Expected Maturity Dates
-------------------------------------------------------------------------
There- Fair
2003 2004 2005 2006 2007 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
(in thousands, except interest rates)
Long-term Debt:
Fixed rate................... $ 747 $ 485 $ 524 $ 566 $ 611 $ 107,025 $ 109,958 $ 109,922
Average interest rate...... 8.0% 8.0% 8.0% 8.0% 8.0% 6.9 % 7.0%
Variable rate................ $ - $ - $ - $ - $ - $ - $ - $ -
Average interest rate....... - - - - - - -
Prior to 2003, the Partnership did not engage in interest rate hedging
transactions.
28
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The principal executive officer and principal financial officer of Valero
GP, LLC have evaluated Valero L.P.'s disclosure controls and procedures (as
defined in Rule 13a-14(c) under the Securities Exchange Act of 1934) as of
a date within 90 days of the filing date of this Quarterly Report on Form
10-Q. Based on that evaluation, these officers concluded that the design
and operation of Valero L.P.'s disclosure controls and procedures are
effective in ensuring that information required to be disclosed by Valero
L.P. in the reports that it files or submits under the Securities Exchange
Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and
forms.
(b) Changes in internal controls.
There have been no significant changes in Valero L.P.'s internal controls,
or in other factors that could significantly affect internal controls,
subsequent to the date of the certifying officers' certifications pursuant
to Rule 13a-14 included with Valero L.P.'s Form 10-K for the year ended
December 31, 2002.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On March 6, 2003, Valero L.P. amended its partnership agreement to provide that
its general partner may be removed by the vote of holders of at least 58% of
Valero L.P.'s outstanding common and subordinated units, excluding the common
and subordinated units held by affiliates of its general partner. Valero L.P.
also amended its partnership agreement to provide that the election of a
successor general partner upon any such removal be approved by the holders of a
majority of the common units, excluding the common units held by affiliates of
its general partner. Prior to the amendment, the partnership agreement provided
that Valero L.P.'s general partner could be removed by the vote of the holders
of at least 66 2/3% of the outstanding common and subordinated units, including
the common and subordinated units held by affiliates of its general partner,
which effectively allowed Valero Energy to block removal of the general partner.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.1 Third Amended and Restated Agreement of Limited Partnership
of Valero L.P.
Exhibit 4.1 Second Supplemental Indenture dated as of March 18, 2003, to
Indenture Dated as of July 15, 2002, as amended and
supplemented by a First Supplemental Indenture thereto dated
as of July 15, 2002, in each case, among Valero Logistics
Operations, Valero L.P. and The Bank of New York, as trustee
Exhibit 10.1 Handling and Throughput Agreement between Valero Marketing
and Supply Company and Valero Logistics Operations, L.P.
dated as of March 18, 2003
Exhibit 10.2 Services and Secondment Agreement between Valero Refining
Company - California and Valero Logistics Operation, L.P.
dated as of March 18, 2003
Exhibit 10.3 Services and Secondment Agreement between Valero Refining -
Texas, L.P. and Valero Logistics Operations, L.P. dated as
of March 18, 2003
29
Exhibit 10.4 Throughput Commitment Agreement by and among Valero
Marketing and Supply Company and Valero Logistics
Operations, L.P. and Valero L.P. dated as of March 18, 2003
Exhibit 10.5 Terminalling Agreement (Edinburg) between Valero Marketing
and Supply Company and Valero Logistics Operations, L.P.
dated as of March 18, 2003
Exhibit 10.6 Terminalling Agreement (Houston Asphalt) between Valero
Marketing and Supply Company and Valero Logistics
Operations, L.P. dated as of March 18, 2003
Exhibit 10.7 Terminalling Agreement (Hobby Airport) between Valero
Marketing and Supply Company and Valero Logistics
Operations, L.P. dated as of March 18, 2003
Exhibit 10.8 Terminalling Agreement (Placedo) between Valero Marketing
and Supply Company and Valero Logistics Operations, L.P.
dated as of March 18, 2003
Exhibit 10.9 Terminalling Agreement (San Antonio East) between Valero
Marketing and Supply Company and Valero Logistics
Operations, L.P. dated as of March 18, 2003
Exhibit 10.10 Registration Rights Agreement dated March 18, 2003 among
Valero Logistics Operations, L.P., Valero L.P. and the
initial purchasers of Valero Logistics Operations, L.P.
6.05% Senior Notes due 2013
Exhibit 12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges
Exhibit 23.1 Consent of Ernst & Young LLP
Exhibit 99.1 Certification of Curtis V. Anastasio pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification of Steven A. Blank pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
(i) On February 27, 2003, Valero L.P. furnished pursuant to Regulation FD a
Current Report on Form 8-K dated February 27, 2003 reporting Item 9 (Regulation
FD Disclosure) and furnishing a copy of the news release with respect to Valero
L.P.'s earnings guidance for the first quarter of 2003.
(ii) On March 10, 2003, Valero L.P. furnished pursuant to Regulation FD a
Current Report on Form 8-K dated March 7, 2003 reporting Item 9 (Regulation FD
Disclosure) and furnishing a copy of the news release with respect to Valero
L.P.'s proposed acquisition of certain assets from Valero Energy and the
redemption of approximately 3.8 million common units held by Valero Energy.
Financial statements were not filed with this report.
(iii) On March 10, 2003, Valero L.P. furnished pursuant to Regulation FD a
Current Report on Form 8-K dated March 10, 2003 reporting Item 9 (Regulation FD
Disclosure) and furnishing a copy of the slide presentation made by Valero
L.P.'s management to analysts and investors in March 2003 during the roadshow
presentations related to the sale of 5,750,000 common units to the public.
Financial statements were not filed with this report.
(iv) On March 14, 2003, Valero L.P. filed a Current Report on Form 8-K
dated March 10, 2003 reporting Item 5 (Other Events) in connection with Valero
L.P.'s announcement of a public offering of 5,750,000 common units. Financial
statements were not filed with this report.
30
(v) On March 14, 2003, Valero L.P. filed a Current Report on Form 8-K dated
March 10, 2003 reporting Item 5 (Other Events) in connection with Valero
Logistics Operations, L.P.'s announcement of a private placement of up to $250.0
million of senior notes. Financial statements were not filed with this report.
(vi) On March 17, 2003, Valero L.P. filed a Current Report on Form 8-K
dated March 12, 2003 reporting Item 5 (Other Events) in connection with Valero
L.P.'s execution of an underwriting agreement for the public offering of
5,750,000 common units (plus up to an additional 862,500 common units subject to
an overallotment option) under Valero L.P.'s shelf registration statement. The
sales price of the common units was $36.75 per unit with an underwriting
discount of $1.56 per unit. In addition, UDS Logistics, LLC and Valero L.P.
entered into a common unit redemption agreement dated March 12, 2003 for the
redemption from UDS Logistics, LLC of 3,809,750 common units for an aggregate
redemption price of $134.1 million or $35.19 per unit. Financial statements were
not filed with this report.
(vii) On April 2, 2003, Valero L.P. filed a Current Report on Form 8-K
dated March 18, 2003 reporting Item 2 (Acquisition or Disposition of Assets) in
connection with Valero L.P.'s acquisition of (a) 58 crude oil storage tanks with
a capacity of approximately 11.0 million barrels for $200.0 million and (b) the
Valero South Texas Pipelines and Terminals Business consisting of three pipeline
systems with an aggregate capacity of 171,100 barrels per day for $150.0
million. Filed in Item 7 (Financial Statements and Exhibits) of the Form 8-K
were (1) audited financial statements for the Valero South Texas Pipeline and
Terminal Business as of and for the year ended December 31, 2002, and (2) pro
forma financial statements for Valero L.P. and subsidiaries as of and for the
year ended December 31, 2002 that give effect to the acquisition of the Valero
South Texas Pipeline and Terminal Business.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VALERO L.P.
(Registrant)
By: Riverwalk Logistics, L.P., its general partner
By: Valero GP, LLC, its general partner
By: /s/ Curtis V. Anastasio
-------------------------------------
(Curtis V. Anastasio)
President and Chief Executive Officer
May 9, 2003
By: /s/ Steven A. Blank
-------------------------------------
(Steven A. Blank)
Chief Financial Officer
May 9, 2003
By: /s/ Clayton E. Killinger
-------------------------------------
(Clayton E. Killinger)
Vice President and Controller
May 9, 2003
32
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Curtis V. Anastasio, the principal executive officer of Valero GP, LLC,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Valero L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 9, 2003
/s/ Curtis V. Anastasio
- -----------------------------------------------
Curtis V. Anastasio
President, Chief Executive Officer and Director
33
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Steven A. Blank, the principal financial officer of Valero GP, LLC, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Valero L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 9, 2003
/s/ Steven A. Blank
- -------------------------------------------------
Steven A. Blank
Senior Vice President and Chief Financial Officer
34
Exhibit 3.1
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
VALERO L.P.
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions......................................................2
SECTION 1.2 Construction....................................................22
ARTICLE II
ORGANIZATION
SECTION 2.1 Formation.......................................................22
SECTION 2.2 Name............................................................22
SECTION 2.3 Registered Office; Registered Agent; Principal Office;
Other Offices...................................................22
SECTION 2.4 Purpose and Business............................................23
SECTION 2.5 Powers..........................................................23
SECTION 2.6 Power of Attorney...............................................23
SECTION 2.7 Term............................................................25
SECTION 2.8 Title to Partnership Assets.....................................25
ARTICLE III
RIGHTS OF LIMITED PARTNERS
SECTION 3.1 Limitation of Liability.........................................26
SECTION 3.2 Management of Business..........................................26
SECTION 3.3 Outside Activities of the Limited Partners......................26
SECTION 3.4 Rights of Limited Partners......................................26
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP
INTERESTS; REDEMPTION OF PARTNERSHIP INTERESTS
SECTION 4.1 Certificates....................................................27
SECTION 4.2 Mutilated, Destroyed, Lost or Stolen Certificates...............28
SECTION 4.3 Record Holders..................................................28
SECTION 4.4 Transfer Generally..............................................29
SECTION 4.5 Registration and Transfer of Limited Partner Interests..........29
SECTION 4.6 Transfer of the General Partner's General Partner Interest......30
SECTION 4.7 Transfer of Incentive Distribution Rights.......................31
SECTION 4.8 Restrictions on Transfers.......................................31
SECTION 4.9 Citizenship Certificates; Non-citizen Assignees.................32
SECTION 4.10 Redemption of Partnership Interests of Non-citizen Assignees....33
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
SECTION 5.1 Organizational Contributions....................................34
SECTION 5.2 Contributions by the General Partner and its Affiliates.........34
SECTION 5.3 Contributions by Initial Limited Partners.......................35
SECTION 5.4 Interest and Withdrawal.........................................36
SECTION 5.5 Capital Accounts................................................36
2
SECTION 5.6 Issuances of Additional Partnership Securities..................39
SECTION 5.7 Limitations on Issuance of Additional Partnership Securities....40
SECTION 5.8 Conversion of Subordinated Units................................42
SECTION 5.9 Limited Preemptive Right........................................42
SECTION 5.10 Splits and Combination..........................................42
SECTION 5.11 Fully Paid and Non-Assessable Nature of Limited
Partner Interests...............................................43
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
SECTION 6.1 Allocations for Capital Account Purposes........................43
SECTION 6.2 Allocations for Tax Purposes....................................51
SECTION 6.3 Requirement and Characterization of Distributions;
Distributions to Record Holders.................................53
SECTION 6.4 Distributions of Available Cash from Operating Surplus..........53
SECTION 6.5 Distributions of Available Cash from Capital Surplus............55
SECTION 6.6 Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels.............................................55
SECTION 6.7 Special Provisions Relating to the Holders of Subordinated
Units...........................................................56
SECTION 6.8 Special Provisions Relating to the Holders of Incentive
Distribution Rights.............................................56
SECTION 6.9 Entity-Level Taxation...........................................56
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
SECTION 7.1 Management......................................................57
SECTION 7.2 Certificate of Limited Partnership..............................59
SECTION 7.3 Restrictions on General Partner's Authority.....................60
SECTION 7.4 Reimbursement of the General Partner............................60
SECTION 7.5 Outside Activities..............................................61
SECTION 7.6 Loans from the General Partner; Loans or Contributions from the
Partnership; Contracts with Affiliates; Certain Restrictions
on the General Partner..........................................62
SECTION 7.7 Indemnification.................................................64
SECTION 7.8 Liability of Indemnitees........................................66
SECTION 7.9 Resolution of Conflicts of Interest.............................66
SECTION 7.10 Other Matters Concerning the General Partner....................68
SECTION 7.11 Purchase or Sale of Partnership Securities......................68
SECTION 7.12 Registration Rights of the General Partner and its Affiliates...69
SECTION 7.13 Reliance by Third Parties.......................................71
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 8.1 Records and Accounting..........................................71
SECTION 8.2 Fiscal Year.....................................................71
SECTION 8.3 Reports.........................................................72
3
ARTICLE IX
TAX MATTERS
SECTION 9.1 Tax Returns and Information.....................................72
SECTION 9.2 Tax Elections...................................................72
SECTION 9.3 Tax Controversies...............................................73
SECTION 9.4 Withholding.....................................................73
ARTICLE X
ADMISSION OF PARTNERS
SECTION 10.1 Admission of Initial Limited Partners...........................73
SECTION 10.2 Admission of Substituted Limited Partner........................73
SECTION 10.3 Admission of Successor General Partner..........................74
SECTION 10.4 Admission of Additional Limited Partners........................74
SECTION 10.5 Amendment of Agreement and Certificate of Limited Partnership...75
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
SECTION 11.1 Withdrawal of the General Partner...............................75
SECTION 11.2 Removal of the General Partner..................................77
SECTION 11.3 Interest of Departing Partner and Successor General Partner.....77
SECTION 11.4 Termination of Subordination Period, Conversion of Subordinated
Units and Extinguishment of Cumulative Common Unit Arrearages...78
SECTION 11.5 Withdrawal of Limited Partners..................................79
ARTICLE XII
DISSOLUTION AND LIQUIDATION
SECTION 12.1 Dissolution.....................................................79
SECTION 12.2 Continuation of the Business of the Partnership After
Dissolution.....................................................79
SECTION 12.3 Liquidator......................................................80
SECTION 12.4 Liquidation.....................................................81
SECTION 12.5 Cancellation of Certificate of Limited Partnership..............81
SECTION 12.6 Return of Contributions.........................................82
SECTION 12.7 Waiver of Partition.............................................82
SECTION 12.8 Capital Account Restoration.....................................82
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS;
RECORD DATE
SECTION 13.1 Amendment to be Adopted Solely by the General Partner...........82
SECTION 13.2 Amendment Procedures............................................84
SECTION 13.3 Amendment Requirements..........................................84
SECTION 13.4 Special Meetings................................................85
SECTION 13.5 Notice of a Meeting.............................................85
SECTION 13.6 Record Date.....................................................85
SECTION 13.7 Adjournment.....................................................85
SECTION 13.8 Waiver of Notice; Approval of Meeting; Approval of Minutes......86
SECTION 13.9 Quorum..........................................................86
4
SECTION 13.10 Conduct of a Meeting............................................87
SECTION 13.11 Action Without a Meeting........................................87
SECTION 13.12 Voting and Other Rights.........................................88
ARTICLE XIV
MERGER
SECTION 14.1 Authority.......................................................88
SECTION 14.2 Procedure for Merger or Consolidation...........................88
SECTION 14.3 Approval by Limited Partners of Merger or Consolidation.........89
SECTION 14.4 Certificate of Merger...........................................90
SECTION 14.5 Effect of Merger................................................90
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
SECTION 15.1 Right to Acquire Limited Partner Interests......................91
ARTICLE XVI
GENERAL PROVISIONS
SECTION 16.1 Addresses and Notices...........................................92
SECTION 16.2 Further Action..................................................93
SECTION 16.3 Binding Effect..................................................93
SECTION 16.4 Integration.....................................................93
SECTION 16.5 Creditors.......................................................93
SECTION 16.6 Waiver..........................................................94
SECTION 16.7 Counterparts....................................................94
SECTION 16.8 Applicable Law..................................................94
SECTION 16.9 Invalidity of Provisions........................................94
SECTION 16.10 Consent of Partners.............................................94
5
THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
VALERO L.P.
THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF VALERO
L.P. dated as of March 18, 2003, is entered into by and among Riverwalk
Logistics, L.P., a Delaware limited partnership, as the General Partner, and the
Limited Partners (as defined herein) as of the date hereof, 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:
WHEREAS, Valero GP, LLC, a Delaware limited liability company, formerly
Shamrock Logistics GP, LLC ("Valero GP"), and the Organizational Limited Partner
formed the Partnership pursuant to the Agreement of Limited Partnership of
Shamrock Logistics, L.P. dated as of December 7, 1999 (the "Initial Agreement")
and a Certificate of Limited Partnership filed with the Secretary of State of
the State of Delaware on such date;
WHEREAS, the Initial Agreement was amended and restated pursuant to the
terms of that certain Amended and Restated Agreement of Limited Partnership of
Shamrock Logistics, L.P. dated as of August 10, 2000 whereby Valero GP withdrew
as the general partner of the Partnership and Riverwalk Logistics, L.P., a
Delaware limited partnership (the "General Partner") was admitted as the new
general partner of the Partnership and a Certificate of Amendment to the
Certificate of Limited Partnership reflecting the substitution of the General
Partner as the new general partner was filed with the Secretary of State of
Delaware as of such date, which agreement was amended and restated pursuant to
the terms of that certain Second Amended and Restated Agreement Limited
Partnership of Shamrock Logistics, L.P. dated as of April 16, 2001 (as so
amended, the "Second Amended Agreement");
WHEREAS, pursuant to the First Amendment to Second Amended and Restated
Agreement of Limited Partnership dated as of December 31, 2001, the name of the
Partnership was changed from "Shamrock Logistics, L.P." to "Valero L.P."
effective January 1, 2002 and an Amended and Restated Certificate of Limited
Partnership was filed with the Secretary of State of Delaware reflecting such
name change;
WHEREAS, the General Partner, the Partnership, Valero Logistics Operations
L.P., a Delaware limited partnership (the "Operating Partnership"), and Valero
GP, Inc., a Delaware corporation (the "Operating General Partner"), entered into
that certain Reorganization Agreement dated as of May 30, 2002 (the
"Reorganization Agreement"), pursuant to which (i) the Partnership contributed a
0.01% limited partner interest in the Operating Partnership to the Operating
General Partner as a capital contribution; (ii) the Second Amended and Restated
Agreement of the Operating Partnership dated as of April 16, 2001 was amended to
convert the Operating General Partner's limited partner interest in the
Operating Partnership to a general partner interest and to convert the General
Partner's existing general partner interest in the Operating Partnership to a
limited partner interest; (iii) the General Partner withdrew as the general
partner of the Operating Partnership and the Operating General Partner became
the sole general partner of the Operating Partnership; (iv) the General Partner
6
contributed its 1.0101% limited partner interest in the Operating Partnership to
the Partnership in exchange for an additional 1% general partner interest in the
Partnership; and (v) the Second Amended Agreement was amended to reflect the
Partnership's 100% ownership interest in the Operating Partnership;
WHEREAS, pursuant to Section 13.1(d) of the Second Amended Agreement, the
General Partner desires to amend the Second Amended Agreement further to provide
that (i) the General Partner may be removed by the vote of the holders of at
least 58% of the outstanding Common Units and Subordinated Units (excluding the
Common Units and Subordinated Units held by Affiliates (as defined below) of the
General Partner and (ii) the successor general partner upon such removal must be
elected by the affirmative vote of the holders of a majority of the Common
Units, excluding the Common Units held by affiliates of the General Partner; and
WHEREAS, the General Partner, as the sole general partner, on behalf of
itself and the Limited Partners, now desires to, and hereby does, amend and
restate the Second Amended Agreement in its entirety to reflect such amendments
and the prior amendments to the Second Amended Agreement;
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Acquisition" means any transaction in which any Group Member acquires
(through an asset acquisition, merger, stock acquisition or other form of
investment) control over all or a portion of the assets, properties or
business of another Person for the purpose of increasing the operating
capacity or revenues of the Partnership Group from the operating capacity
or revenues of the Partnership Group existing immediately prior to such
transaction.
"Additional Book Basis" means the portion of any remaining Carrying
Value of an Adjusted Property that is attributable to positive adjustments
made to such Carrying Value as a result of Book-Up Events. For purposes of
determining the extent that Carrying Value constitutes Additional Book
Basis:
(i) Any negative adjustment made to the Carrying Value of an
Adjusted Property as a result of either a Book-Down Event or a Book-Up
Event shall first be deemed to offset or decrease that portion of the
Carrying Value of such Adjusted Property that is attributable to any
prior positive adjustments made thereto pursuant to a Book-Up Event or
Book-Down Event.
(ii) If Carrying Value that constitutes Additional Book Basis is
reduced as a result of a Book-Down Event and the Carrying Value of
other property is increased as a result of such Book-Down Event, an
allocable portion of any such increase in Carrying Value shall be
7
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 Partnership's
Adjusted Property after such Book-Down Event (determined without
regard to the application of this clause (ii) 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
Partnership's 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.
"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 10.4 and who is shown
as such on the books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each fiscal year of the Partnership, (a)
increased by any amounts that such Partner is obligated to restore under
the standards set by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or
is deemed obligated to restore under Treasury Regulation Sections
1.704-2(g) and 1.704-2(i)(5)) and (b) decreased by (i) the amount of all
losses and deductions that, as of the end of such fiscal year, are
reasonably expected to be allocated to such Partner in subsequent years
under Sections 704(e)(2) and 706(d) of the Code and Treasury Regulation
Section 1.751-1(b)(2)(ii), and (ii) the amount of all distributions that,
as of the end of such fiscal year, are reasonably expected to be made to
such Partner in subsequent years in accordance with the terms of this
Agreement or otherwise to the extent they exceed offsetting increases to
such Partner's Capital Account that are reasonably expected to occur during
(or prior to) the year in which such distributions are reasonably expected
to be made (other than increases as a result of a minimum gain chargeback
pursuant to Section 6.1(d)(i) or 6.1(d)(ii)). The foregoing definition of
Adjusted Capital Account is intended to comply with the provisions of
Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith. The "Adjusted Capital Account" of a Partner in
respect of a General Partner Interest, a Common Unit, a Subordinated Unit
or an Incentive Distribution Right or any other specified interest in the
Partnership shall be the amount which such Adjusted Capital Account would
be if such General Partner Interest, Common Unit, Subordinated Unit,
Incentive Distribution Right or other interest in the Partnership were the
only interest in the Partnership held by a Partner from and after the date
on which such General Partner Interest, Common Unit, Subordinated Unit,
Incentive Distribution Right or other interest was first issued.
8
"Adjusted Operating Surplus" means, with respect to any period,
Operating Surplus generated during such period (a) less (i) any net
increase in Working Capital Borrowings with respect to such period and (ii)
any net reduction 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 in Working Capital
Borrowings with respect to such period and (ii) any net increase in cash
reserves for Operating Expenditures with respect to such period required by
any debt instrument for the repayment of principal, interest or premium.
Adjusted Operating Surplus does not include that portion of Operating
Surplus included in clause (a)(i) of the definition of Operating Surplus.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. As
used herein, the term "control" means the possession, direct or indirect,
of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, by
contract or otherwise.
"Aggregate Remaining Net Positive Adjustments" means, as of the end of
any taxable period, the sum of the Remaining Net Positive Adjustments of
all the Partners.
"Agreed Allocation" means any allocation, other than a Required
Allocation, of an item of income, gain, loss or deduction pursuant to the
provisions of Section 6.1, including, without limitation, a Curative
Allocation (if appropriate to the context in which the term "Agreed
Allocation" is used).
"Agreed Value" of any Contributed Property means the fair market value
of such property or other consideration at the time of contribution as
determined by the General Partner using such reasonable method of valuation
as it may adopt. The General Partner shall, in its discretion, use such
method as it deems reasonable and appropriate to allocate the aggregate
Agreed Value of Contributed Properties contributed to the Partnership in a
single or integrated transaction among each separate property on a basis
proportional to the fair market value of each Contributed Property.
"Agreement" means this Third Amended and Restated Agreement of Limited
Partnership of Valero L.P., as it may be amended, supplemented or restated
from time to time.
"Assignee" means a Non-citizen Assignee or a Person to whom one or
more Limited Partner Interests have been transferred in a manner permitted
under this Agreement and who has executed and delivered a Transfer
Application as required by this Agreement, but who has not been admitted as
a Substituted Limited Partner.
"Associate" means, when used to indicate a relationship with any
Person, (a) any corporation or organization of which such Person is a
9
director, officer or partner or is, directly or indirectly, the owner of
20% or more of any class of voting stock or other voting interest; (b) any
trust or other estate in which such Person has at least a 20% beneficial
interest or as to which such Person serves as trustee or in a similar
fiduciary capacity; and (c) any relative or spouse of such Person, or any
relative of such spouse, who has the same principal residence as such
Person.
"Available Cash" means, with respect to any Quarter ending prior to
the Liquidation Date, and without duplication:
(a) the sum of (i) all cash and cash equivalents of the Partnership
Group on hand at the end of such Quarter, and (ii) all additional cash and
cash equivalents of the Partnership Group on hand on the date of
determination of Available Cash with respect to such Quarter resulting from
Working Capital Borrowings made subsequent to the end of such Quarter, less
(b) the amount of any cash reserves that are necessary or appropriate
in the reasonable discretion of the General Partner to (i) provide for the
proper conduct of the business of the Partnership Group (including reserves
for future capital expenditures and for anticipated future credit needs of
the 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.
"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 which 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
10
difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax
purposes as of such date. A Partner's share of the Partnership's Book-Tax
Disparities in all of its Contributed Property and Adjusted Property will
be reflected by the difference between such Partner's Capital Account
balance as maintained pursuant to Section 5.5 and the hypothetical balance
of such Partner's Capital Account computed as if it had been maintained
strictly in accordance with federal income tax accounting principles.
"Book-Up Event" means an event which 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 states of New York or Texas shall not be regarded as a
Business Day.
"Capital Account" means the capital account maintained for a Partner
pursuant to Section 5.5. The "Capital Account" of a Partner in respect of a
General Partner Interest, a Common Unit, a Subordinated Unit, an Incentive
Distribution Right or any other Partnership Interest shall be the amount
which such Capital Account would be if such General Partner Interest,
Common Unit, Subordinated Unit, Incentive Distribution Right or other
Partnership Interest were the only interest in the Partnership held by a
Partner from and after the date on which such General Partner Interest,
Common Unit, Subordinated Unit, Incentive Distribution Right or other
Partnership Interest was first issued.
"Capital Contribution" means any cash, cash equivalents or the Net
Agreed Value of Contributed Property that a Partner has contributed or
contributes to the Partnership pursuant to this Agreement or the
Contribution Agreement.
"Capital Improvement" means any (a) addition or improvement to the
capital assets owned by any Group Member or (b) acquisition of existing, or
the construction of new, capital assets (including, without limitation,
pipeline systems, terminalling and storage facilities and related assets),
in each case made to increase the operating capacity or revenues of the
Partnership Group from the operating capacity or revenues of the
Partnership Group existing immediately prior to such addition, improvement,
acquisition or construction.
"Capital Surplus" has the meaning assigned to such term in Section
6.3(a).
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all
depreciation, amortization and cost recovery deductions charged to the
Partners' and Assignees' Capital Accounts in respect of such Contributed
Property, and (b) with respect to any other Partnership property, the
adjusted basis of such property for federal income tax purposes, all as of
the time of determination. The Carrying Value of any property shall be
adjusted from time to time in accordance with Sections 5.5(d)(i) and
5.5(d)(ii) and to reflect changes, additions or other adjustments to the
11
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, gross negligence or willful or wanton misconduct in its capacity as
general partner of the Partnership.
"Certificate" means a certificate (i) substantially in the form of
Exhibit A to this Agreement, (ii) issued in global form in accordance with
the rules and regulations of the Depositary or (iii) in such other form as
may be adopted by the General Partner in its discretion, issued by the
Partnership evidencing ownership of one or more Common Units or a
certificate, in such form as may be adopted by the General Partner in its
discretion, issued by the Partnership evidencing ownership of one or more
other Partnership Securities.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership of the Partnership filed with the Secretary of State of the
State of Delaware as referenced in the recitals hereto, as such Certificate
of Limited Partnership has previously been amended and may further be
amended, supplemented or restated from time to time.
"Citizenship Certification" means a properly completed certificate in
such form as may be specified by the General Partner by which an Assignee
or a Limited Partner certifies that he (and if he is a nominee holding for
the account of another Person, that to the best of his knowledge such other
Person) is an Eligible Citizen.
"Claim" has the meaning assigned to such term in Section 7.12(c).
"Closing Date" means the first date on which Common Units were 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 successor law.
"Combined Interest" has the meaning assigned to such term in Section
11.3(a).
"Commission" means the United States Securities and Exchange
Commission.
"Common Unit" means a Partnership Security representing a fractional
part of the Partnership Interests of all Limited Partners and Assignees and
of the General Partner and having the rights and obligations specified with
respect to Common Units in this Agreement. The term "Common Unit" does not
refer to a Subordinated Unit prior to its conversion into a Common Unit
pursuant to the terms hereof.
12
"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).
"Conflicts Committee" means a committee of the Board of Directors of
Valero GP composed entirely of three or more directors who are not (i)
security holders, officers or employees of the General Partner, (ii)
officers, directors or employees of any Affiliate of the General Partner or
(iii) holders of any ownership interest in the Partnership or any of its
Affiliates other than Common Units who also meet the independence standards
required to serve on an audit committee of a board of directors by the
National Securities Exchange on which the Common Units are listed for
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 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.
"Cumulative Common Unit Arrearage" means, with respect to any Common
Unit, whenever issued, and as of the end of any Quarter, the excess, if
any, of (a) the sum resulting from adding together the Common Unit
Arrearage as to an Initial Common Unit for each of the Quarters within the
Subordination Period ending on or before the last day of such Quarter over
(b) the sum of any distributions theretofore made pursuant to Section
6.4(a)(ii) and the second sentence of Section 6.5 with respect to an
Initial Common Unit (including any distributions to be made in respect of
the last of such Quarters).
"Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 6.1(d)(xi).
"Current Market Price" has the meaning assigned to such term in
Section 15.1(a).
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del C. ss.17-101, et seq., as amended, supplemented or restated from
time to time, and any successor to such statute.
"Departing Partner" means a former General Partner from and after the
effective date of any withdrawal or removal of such former General Partner
pursuant to Section 11.1 or 11.2.
13
"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 or Assignee does not or would not subject such Group Member to a
significant risk of cancellation or forfeiture of any of its properties or
any interest therein.
"Event of Withdrawal" has the meaning assigned to such term in Section
11.1(a).
"Final Subordinated Units" has the meaning assigned to such term in
Section 6.1(d)(x).
"First Liquidation Target Amount" has the meaning assigned to such
term in Section 6.1(c)(i)(D).
"First Target Distribution" means $0.66 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on June 30,
2001, it means the product of $0.66 multiplied by a fraction of which the
numerator is the number of days in such period, and of which the
denominator is 91), subject to adjustment in accordance with Sections 6.6
and 6.9.
"General Partner" means Riverwalk Logistics, L.P. and its successors
and permitted assigns as general partner of the Partnership.
"General Partner Interest" means the ownership interest of the General
Partner in the Partnership (in its capacity as a general partner without
reference to any Limited Partner Interest held by it) which may be
evidenced by Partnership Securities or a combination thereof or interest
therein, and includes any and all benefits to which the General Partner is
entitled as provided in this Agreement, together with all obligations of
the General Partner to comply with the terms and provisions of this
Agreement.
"Group" means a Person that with or through any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting (except voting pursuant to a revocable proxy
or consent given to such Person in response to a proxy or consent
solicitation made to 10 or more Persons) or disposing of any Partnership
Securities with any other Person that beneficially owns, or whose
Affiliates or Associates beneficially own, directly or indirectly,
Partnership Securities.
"Group Member" means a member of the Partnership Group.
"Holder" as used in Section 7.12, has the meaning assigned to such
term in Section 7.12(a).
14
"Incentive Distribution Right" means a non-voting Limited Partner
Interest issued to the General Partner in connection with the transfer of
substantially all of its general partner interest in the Operating
Partnership to the Partnership pursuant to Section 5.2, which Partnership
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)(iv), (v) and (vi) and 6.4(b)(ii), (iii) and (iv).
"Indemnified Persons" has the meaning assigned to such term in Section
7.12(c).
"Indemnitee" means (a) the General Partner, (b) any Departing Partner,
(c) any Person who is or was an Affiliate of the General Partner or any
Departing Partner, (d) any Person who is or was a member, partner, officer,
director, employee, agent or trustee of any Group Member, the General
Partner or any Departing Partner or any Affiliate of any Group Member, the
General Partner or any Departing Partner, and (e) any Person who is or was
serving at the request of the General Partner or any Departing Partner or
any Affiliate of the General Partner or any Departing Partner as an
officer, director, employee, member, partner, agent, fiduciary or trustee
of another Person; provided, that a Person shall not be an Indemnitee by
reason of providing, on a fee-for-services basis, trustee, fiduciary or
custodial services.
"Initial Common Units" means the Common Units sold in the Initial
Offering.
"Initial Limited Partners" means the General Partner and UDS
Logistics, LLC (with respect to the Common Units, Subordinated Units and
the Incentive Distribution Rights received by them pursuant to Section 5.2)
and the Underwriters, in each case upon being admitted to the Partnership
in accordance with Section 10.1.
"Initial Offering" means the initial offering and sale of Common Units
to the public, as described in the Registration Statement.
"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.
15
"Interim Capital Transactions" means the following transactions if
they occur prior to the Liquidation Date: (a) borrowings, refinancings or
refundings of indebtedness and sales of debt securities (other than Working
Capital Borrowings and other than for items purchased on open account in
the ordinary course of business) by any Group Member; (b) sales of equity
interests by any Group Member (including the Common Units sold to the
Underwriters pursuant to the exercise of their over-allotment option); and
(c) sales or other voluntary or involuntary dispositions of any assets of
any Group Member other than (i) sales or other dispositions of inventory,
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.
"Issue Price" means the price at which a Unit is purchased from the
Partnership, after taking into account any sales commission or underwriting
discount charged to the Partnership.
"Limited Partner" means, unless the context otherwise requires, (a)
the Organizational Limited Partner prior to its withdrawal from the
Partnership, each Initial Limited Partner, each Substituted Limited
Partner, each Additional Limited Partner and any Partner upon the change of
its status from General Partner to Limited Partner pursuant to Section 11.3
or (b) solely for purposes of Articles V, VI, VII and IX and Sections 12.3
and 12.4, each Assignee; provided, however, that when the term "Limited
Partner" is used herein in the context of any vote or other approval,
including without limitation Articles XIII and XIV, such term shall not,
solely for such purpose, include any holder of an Incentive Distribution
Right except as may otherwise be required by law.
"Limited Partner Interest" means the ownership interest of a Limited
Partner or Assignee in the Partnership, which may be evidenced by Common
Units, 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 or Assignee is
entitled as provided in this Agreement, together with all obligations of
such Limited Partner or Assignee to comply with the terms and provisions of
this Agreement; provided, however, that when the term "Limited Partner
Interest" is used herein in the context of any vote or other approval,
including without limitation Articles XIII and XIV, such term shall not,
solely for such purpose, include any holder of an 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 reconstitute the Partnership and continue its business has expired
without such an election being made, and (b) in the case of any other event
giving rise to the dissolution of the Partnership, the date on which such
event occurs.
16
"Liquidator" means one or more Persons selected by the General Partner
to perform the functions described in Section 12.3 as liquidating trustee
of the Partnership within the meaning of the Delaware Act.
"Merger Agreement" has the meaning assigned to such term in Section
14.1.
"Minimum Quarterly Distribution" means $0.60 per Unit per Quarter (or
with respect to the period commencing on the Closing Date and ending on
June 30, 2001, it means the product of $0.60 multiplied by a fraction of
which the numerator is the number of days in such period and of which the
denominator is 91), subject to adjustment in accordance with Sections 6.6
and 6.9.
"National Securities Exchange" means an exchange registered with the
Commission under Section 6(a) of the Securities Exchange Act of 1934, as
amended, supplemented or restated from time to time, and any successor to
such statute, or the Nasdaq Stock Market or any successor thereto.
"Net Agreed Value" means, (a) in the case of any Contributed Property,
the Agreed Value of such property reduced by any liabilities either assumed
by the Partnership upon such contribution or to which such property is
subject when contributed, and (b) in the case of any property distributed
to a Partner or Assignee by the Partnership, the Partnership's Carrying
Value of such property (as adjusted pursuant to Section 5.5(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.
"Net Income" means, for any taxable year, the excess, if any, of the
Partnership's items of income and gain (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss)
for such taxable year over the Partnership's items of loss and deduction
(other than those items taken into account in the computation of Net
Termination Gain or Net Termination Loss) for such taxable year. The items
included in the calculation of Net Income shall be determined in accordance
with Section 5.5(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
Partnership's items of loss and deduction (other than those items taken
into account in the computation of Net Termination Gain or Net Termination
Loss) for such taxable year over the Partnership's items of income and gain
(other than those items taken into account in the computation of Net
Termination Gain or Net Termination Loss) for such taxable year. The items
included in the calculation of Net Loss shall be determined in accordance
with Section 5.5(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.
17
"Net Positive Adjustments" means, with respect to any Partner, the
excess, if any, of the total positive adjustments over the total negative
adjustments made to the Capital Account of such Partner pursuant to Book-Up
Events and Book-Down Events.
"Net Termination Gain" means, for any taxable year, the sum, if
positive, of all items of income, gain, loss or deduction recognized by the
Partnership after the Liquidation Date. The items included in the
determination of Net Termination Gain shall be determined in accordance
with Section 5.5(b) and shall not include any items of income, gain or loss
specially allocated under Section 6.1(d).
"Net Termination Loss" means, for any taxable year, the sum, if
negative, of all items of income, gain, loss or deduction recognized by the
Partnership after the Liquidation Date. The items included in the
determination of Net Termination Loss shall be determined in accordance
with Section 5.5(b) and shall not include any items of income, gain or loss
specially allocated under Section 6.1(d).
"Non-citizen Assignee" means a Person whom the General Partner has
determined in its discretion 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
expenditures (including, without limitation, any expenditures 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 Omnibus Agreement, dated as of the
Closing Date, among Ultramar Diamond Shamrock Corporation, the General
Partner, Valero GP (formerly Shamrock Logistics GP, LLC) the Partnership
and the Operating Partnership, to which, as of December 31, 2001, Valero
Energy Corporation became a party as a result of the acquisition of
Ultramar Diamond Shamrock Corporation by Valero Energy Corporation
effective as of such date.
"Operating Expenditures" means all Partnership Group expenditures,
including, but not limited to, taxes, reimbursements of the General
18
Partner, repayment of Working Capital Borrowings, debt service payments,
and capital expenditures, subject to the following:
(a) Payments (including prepayments) of principal and premium on
indebtedness other than Working Capital Borrowings shall not constitute
Operating Expenditures; and
(b) Operating Expenditures shall not include (i) capital expenditures
made for Acquisitions or Capital Improvements, (ii) payment of transaction
expenses relating to Interim Capital Transactions and (iii) distributions
to Partners. Where capital expenditures are made in part for Acquisitions
or for Capital Improvements and in part for other purposes, the General
Partner's good faith allocation between the amounts paid for each shall be
conclusive.
"Operating General Partner" means Valero GP, Inc., a Delaware
corporation and wholly owned subsidiary of the Partnership, and any
successors and permitted assigns as the general partner of the Operating
Partnership.
"Operating Partnership" means Valero Logistics Operations, L.P., a
Delaware limited partnership, and such other Persons that are treated as
partnerships for federal income tax purposes that are majority-owned by the
Partnership and controlled by the Partnership (whether by direct or
indirect ownership of the general partner of such Person or otherwise) and
established or acquired for the purpose of conducting the business of the
Partnership.
"Operating Partnership Agreement" means the agreement of limited
partnership of any Operating Partnership that is a limited partnership, or
any limited liability company agreement of any Operating Partnership that
is a limited liability company that is treated as a partnership for federal
income tax purposes, as such may be amended, supplemented or restated from
time to time.
"Operating Surplus" means, with respect to any period ending prior to
the Liquidation Date, on a cumulative basis and without duplication,
(a) the sum of (i) $10 million plus all cash and cash equivalents of
the Partnership Group on hand as of the close of business on the Closing
Date, (ii) all cash receipts of the Partnership Group for the period
beginning on the Closing Date and ending with the last day of such period,
other than cash receipts from Interim Capital Transactions (except to the
extent specified in Section 6.5) and (iii) all cash receipts of the
Partnership Group after the end of such period but on or before the date of
determination of Operating Surplus with respect to such period resulting
from Working Capital Borrowings, less
(b) the sum of (i) Operating Expenditures for the period beginning on
the Closing Date and ending with the last day of such period and (ii) the
amount of cash reserves that is necessary or advisable in the reasonable
discretion of the General Partner to provide funds for future Operating
Expenditures; provided, however, that disbursements made (including
19
contributions to a Group Member or disbursements on behalf of a Group
Member) or cash reserves established, increased or reduced after the end of
such period but on or before the date of determination of Available Cash
with respect to such period shall be deemed to have been made, established,
increased or reduced, for purposes of determining Operating Surplus, within
such period if the General Partner so determines.
Notwithstanding the foregoing, "Operating Surplus" with respect to the
Quarter in which the Liquidation Date occurs and any subsequent Quarter
shall equal zero.
"Opinion of Counsel" means a written opinion of counsel (who may be
regular counsel to the Partnership or the General Partner or any of its
Affiliates) acceptable to the General Partner in its reasonable discretion.
"Organizational Limited Partner" means Todd Walker in his capacity as
the organizational limited partner of the Partnership.
"Outstanding" means, with respect to Partnership Securities, all
Partnership Securities that are issued by the Partnership and reflected as
outstanding on the Partnership's books and records as of the date of
determination; provided, however, that if at any time any Person or Group
(other than the General Partner or its Affiliates) beneficially owns 20% or
more of any Outstanding Partnership Securities of any class then
Outstanding, all Partnership Securities owned by such Person or Group shall
not be voted on any matter and shall not be considered to be Outstanding
when sending notices of a meeting of Limited Partners to vote on any matter
(unless otherwise required by law), calculating required votes, determining
the presence of a quorum or for other similar purposes under this
Agreement, except that Common Units so owned shall be considered to be
Outstanding for purposes of Section 11.1(b)(iv) (such Common Units shall
not, however, be treated as a separate class of Partnership Securities for
purposes of this Agreement); provided, further, that the foregoing
limitation shall not apply (i) to any Person or Group who acquired 20% or
more of any Outstanding Partnership Securities of any class then
Outstanding directly from the General Partner or its Affiliates or (ii) to
any Person or Group who acquired 20% or more of any Outstanding Partnership
Securities of any class then Outstanding directly or indirectly from a
Person or Group described in clause (i) provided that the General Partner
shall have notified such Person or Group in writing that such limitation
shall not apply.
"Over-Allotment Option" means the over-allotment option granted to the
Underwriters by the Partnership pursuant to the Underwriting Agreement.
"Parity Units" means Common Units and all other Units of any other
class or series that have the right to (i) receive distributions of
Available Cash from Operating Surplus pro rata with distributions of the
Minimum Quarterly Distribution and Cumulative Common Unit Arrearages on the
Common Units and (ii) receive allocations of Net Termination Gain pro rata
with allocations of Net Termination Gain to the Common Units pursuant to
Section 6.1(c)(i)(B), in each case regardless of whether the amounts or
value so distributed or allocated on each Parity Unit equals the amount or
20
value so distributed or allocated on each Common Unit. Units whose
participation in such (i) distributions of Available Cash from Operating
Surplus and (ii) allocations of Net Termination Gain are subordinate in
order of priority to such distributions and allocations on Common Units
shall not constitute Parity Units even if such Units are convertible under
certain circumstances into Common Units or Parity Units.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss,
deduction or expenditure (including, without limitation, any expenditure
described in Section 705(a)(2)(B) of the Code) that, in accordance with the
principles of Treasury Regulation Section 1.704-2(i), are attributable to a
Partner Nonrecourse Debt.
"Partners" means the General Partner and the Limited Partners.
"Partnership" means Valero L.P., a Delaware limited partnership, and
any successors thereto.
"Partnership Group" means the Partnership, the Operating Partnership
and any Subsidiary of any such entity, treated as a single consolidated
entity.
"Partnership Interest" means an interest in the Partnership, which
shall include the General Partner Interest and Limited Partner Interests.
"Partnership Minimum Gain" means that amount determined in accordance
with the principles of Treasury Regulation Section 1.704-2(d).
"Partnership Security" means any class or series of equity interest in
the Partnership (but excluding any options, rights, warrants and
appreciation rights relating to an equity interest in the Partnership),
including without limitation, Common Units, Subordinated Units and
Incentive Distribution Rights.
"Percentage Interest" means as of any date of determination (a) as to
the General Partner (with respect to its General Partner Interest), 2% and
(b) as to any Unitholder or Assignee holding Units, the product obtained by
multiplying (i) 98% less the percentage applicable to paragraph (c) by (ii)
the quotient obtained by dividing (A) the number of Units held by such
Unitholder or Assignee by (B) the total number of all Outstanding Units,
and (c) as to holders of additional 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.
21
"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.
"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.
"Pro Rata" means (a) when modifying Units or any class thereof,
apportioned equally among all designated Units in accordance with their
relative Percentage Interests, (b) when modifying Partners and Assignees,
apportioned among all Partners and Assignees in accordance with their
relative Percentage Interests and (c) when modifying holders of Incentive
Distribution Rights, apportioned equally among all holders of Incentive
Distribution Rights in accordance with the relative number 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 Units of a certain class (other
than Units 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.
"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 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
Securities, the Person in whose name any such other Partnership Security is
registered on the books which the General Partner has caused to be kept as
of the opening of business on such Business Day.
"Redeemable Interests" means any Partnership Interests for which a
redemption notice has been given, and has not been withdrawn, pursuant to
Section 4.10.
"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 333-43668) 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.
22
"Remaining Net Positive Adjustments" means as of the end of any
taxable period, (i) with respect to the Unitholders holding Common Units or
Subordinated Units, the excess of (a) the Net Positive Adjustments of the
Unitholders holding Common Units or Subordinated Units as of the end of
such period over (b) the sum of those Partners' Share of Additional Book
Basis Derivative Items for each prior taxable period, (ii) with respect to
the General Partner (as holder of the General Partner Interest), 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 Partner's Share of Additional
Book Basis Derivative Items with respect to the General Partner Interest
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.
"Reorganization Agreement" means the Reorganization Agreement, dated
as of May 30, 2002, among the Partnership, the Operating Partnership, the
General Partner and the Operating General Partner.
"Required Allocations" means (a) any limitation imposed on any
allocation of Net Losses or Net Termination Losses under Section 6.1(b) or
6.1(c)(ii) and (b) any allocation of an item of income, gain, loss or
deduction pursuant to Section 6.1(d)(i), 6.1(d)(ii), 6.1(d)(iv),
6.1(d)(vii) or 6.1(d)(ix).
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of a
Contributed Property or Adjusted Property, to the extent such item of gain
or loss is not allocated pursuant to Section 6.2(b)(i)(A) or 6.2(b)(ii)(A),
respectively, to eliminate Book-Tax Disparities.
"Restricted Business" has the meaning assigned to such term in the
Omnibus Agreement.
"Second Liquidation Target Amount" has the meaning assigned to such
term in Section 6.1(c)(i)(E).
"Second Target Distribution" means $0.90 per Unit per Quarter (or,
with respect to the period commencing on the Closing Date and ending on
June 30, 2001, it means the product of $0.90 multiplied by a fraction of
which the numerator is equal to the number of days in such period and of
which the denominator is 91), subject to adjustment in accordance with
Sections 6.6 and 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.
23
"Services Agreement" means that Services Agreement, effective as of
July1, 2000 by and between Diamond Shamrock Refining and Marketing Company
and certain of its affiliates, the Partnership, the Operating Partnership,
the General Partner and Valero GP.
"Share of Additional Book Basis Derivative Items" means in connection
with any allocation of Additional Book Basis Derivative Items for any
taxable period, (i) with respect to the Unitholders holding Common Units or
Subordinated Units, the amount that bears the same ratio to such Additional
Book Basis Derivative Items as the Unitholders' Remaining Net Positive
Adjustments as of the end of such 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 Interest), the amount that bears
the same ratio to such additional Book Basis Derivative Items as the
General Partner's Remaining Net Positive Adjustments as of the end of such
period bears to the Aggregate Remaining Net Positive Adjustment as of that
time, and (iii) with respect to the Partners holding Incentive Distribution
Rights, the amount that bears the same ratio to such Additional Book Basis
Derivative Items as the Remaining Net Positive Adjustments of the Partners
holding the Incentive Distribution Rights as of the end of such period
bears to the Aggregate Remaining Net Positive Adjustments as of that time.
"Special Approval" means approval by a majority of the members of the
Conflicts Committee, provided that at the time of such approval all of the
material facts known to the General Partner or any of its Affiliates
regarding the proposed transaction in respect of which such approval is
given were fully disclosed to or otherwise known by the Conflicts
Committee.
"Subordinated Unit" means a Unit representing a fractional part of the
Partnership Interests of all Limited Partners and Assignees (other than of
holders of the Incentive Distribution Rights), (i) otherwise having the
rights and obligations specified with respect to Subordinated Units in this
Agreement or (ii) issued in accordance with Section 5.7(d). The term
"Subordinated Unit" as used herein does not include a Common Unit or a
Parity Unit. A Subordinated Unit that is convertible into a Common or
Parity Unit shall not constitute a Common Unit or Parity Unit until such
conversion occurs.
"Subordination Period" means the period commencing on the Closing Date
and ending on the first to occur of the following dates:
(a) the first day of any Quarter beginning after March 31, 2006 in
respect of which (i) (A) distributions of Available Cash from Operating
Surplus on each of the Outstanding Common Units and 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 and
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
and Subordinated Units that were Outstanding during such periods on a fully
diluted basis (i.e., taking into account for purposes of such determination
all Outstanding Common Units, all Outstanding Subordinated Units, all
24
Common Units and Subordinated Units issuable upon exercise of employee
options that have, as of the date of determination, already vested or are
scheduled to vest prior to the end of the Quarter immediately following the
Quarter with respect to which such determination is made, and all Common
Units and Subordinated Units that have as of the date of determination,
been earned by but not yet issued to management of the Partnership in
respect of incentive compensation), plus the related distribution on the
General Partner Interest in the Partnership, during such periods and (ii)
there are no Cumulative Common Unit Arrearages; and
(b) the date on which the General Partner is removed as general
partner of the Partnership upon the requisite vote by holders of
Outstanding Units under circumstances where Cause does not exist and Units
held by the General Partner and its Affiliates are not voted in favor of
such removal.
"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.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 10.2 in place of and
with all the rights of a Limited Partner and who is shown as a Limited
Partner on the books and records of the Partnership.
"Surviving Business Entity" has the meaning assigned to such term in
Section 14.2(b).
"Trading Day" has the meaning assigned to such term in Section
15.1(a).
"Transfer" has the meaning assigned to such term in Section 4.4(a).
"Transfer Agent" means such bank, trust company or other Person
(including the General Partner or one of its Affiliates) as shall be
appointed from time to time by the Partnership to act as registrar and
transfer agent for the Common Units; provided that if no Transfer Agent is
specifically designated for any other Partnership Securities, the General
Partner shall act in such capacity.
25
"Transfer Application" means an application and agreement for transfer
of Units in the form set forth on the back of a Certificate or in a form
substantially to the same effect in a separate instrument.
"Underwriter" means each Person named as an underwriter in Schedule I
to the Underwriting Agreement who purchased Common Units pursuant thereto.
"Underwriting Agreement" means the Underwriting Agreement dated April
9, 2001 among the Underwriters, the Partnership and certain other parties,
providing for the purchase of Common Units by such Underwriters.
"Unit" means a Partnership Security that is designated as a "Unit" and
shall include Common Units and Subordinated Units, but shall not include
(i) a General Partner Interest or (ii) Incentive Distribution Rights.
"Unitholders" means the holders of Common Units and
Subordinated Units.
"Unit Majority" means, during the Subordination Period, at least a
majority of the Outstanding Common Units (excluding for purposes of such
determination Common Units held by the General Partner and its Affiliates
so long as the General Partner and its Affiliates own 10% or more of the
Outstanding Common Units) voting as a class and at least a majority of the
Outstanding Subordinated Units voting as a class, and thereafter, at least
a majority of the Outstanding Common Units.
"Unpaid MQD" has the meaning assigned to such term in Section
6.1(c)(i)(B).
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the fair
market value of such property as of such date (as determined under Section
5.5(d)) over (b) the Carrying Value of such property as of such date (prior
to any adjustment to be made pursuant to Section 5.5(d) as of such date).
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the
Carrying Value of such property as of such date (prior to any adjustment to
be made pursuant to Section 5.5(d) as of such date) over (b) the fair
market value of such property as of such date (as determined under Section
5.5(d)).
"Unrecovered Capital" means at any time, with respect to a Unit, the
Initial Unit Price less the sum of all distributions constituting Capital
Surplus theretofore made in respect of an Initial Common Unit and any
distributions of cash (or the Net Agreed Value of any distributions in
kind) in connection with the dissolution and liquidation of the Partnership
theretofore made in respect of an Initial Common Unit, adjusted as the
General Partner determines to be appropriate to give effect to any
distribution, subdivision or combination of such Units.
"U.S. GAAP" means United States Generally Accepted Accounting
Principles consistently applied.
26
"Valero GP" means Valero GP, LLC, a Delaware limited liability company
(formerly Shamrock Logistics GP, LLC) and the general partner of the
General Partner.
"Withdrawal Opinion of Counsel" has the meaning assigned to
such term in Section 11.1(b).
"Working Capital Borrowings" means borrowings used solely for working
capital purposes or to pay distributions to partners made pursuant to a
credit facility or other arrangement requiring all such borrowings
thereunder to be reduced to a relatively small amount each year for an
economically meaningful period of time.
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; and (c) the term "include" or "includes" means
includes, without limitation, and "including" means including, without
limitation.
ARTICLE II
ORGANIZATION
SECTION 2.1 Formation.
Valero GP and the Organizational Limited Partner have previously formed the
Partnership as a limited partnership pursuant to the provisions of the Delaware
Act. The General Partner and the other Partners hereby amend and restate the
Second Amended Agreement, as amended, in its entirety. This third amendment and
restatement shall become effective on the date of this Agreement. Except as
expressly provided to the contrary in this Agreement, the rights, duties
(including fiduciary duties), liabilities and obligations of the Partners and
the administration, dissolution and termination of the Partnership shall be
governed by the Delaware Act. All Partnership Interests shall constitute
personal property of the owner thereof for all purposes and a Partner has no
interest in specific Partnership property.
SECTION 2.2 Name.
The name of the Partnership shall be "Valero L.P." The Partnership's
business may be conducted under any other name or names deemed necessary or
appropriate by the General Partner in its sole discretion, including the name of
the General Partner. The words "Limited Partnership," "L.P.," "Ltd." or similar
words or letters shall be included in the Partnership's name where necessary for
the purpose of complying with the laws of any jurisdiction that so requires. The
General Partner in its discretion may change the name of the Partnership at any
time and from time to time and shall notify the Limited Partners of such change
in the next regular communication to the Limited Partners.
SECTION 2.3 Registered Office; Registered Agent; Principal Office; Other
Offices.
27
Unless and until changed by the General Partner, the registered office of
the Partnership in the State of Delaware shall be located at Corporation Trust
Center, 1209 Orange Street, Wilmington, DE 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 One Valero Place, San Antonio, Texas
78212 or such other place as the General Partner may from time to time designate
by notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Delaware as the General
Partner deems necessary or appropriate. The address of the General Partner shall
be One Valero Place, San Antonio, Texas 78212 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) serve as a partner of the Operating Partnership and, in
connection therewith, to exercise all the rights and powers conferred upon the
Partnership as a partner of an Operating Partnership pursuant to the Operating
Partnership Agreement for such Operating Partnership or otherwise, (b) engage
directly in, or enter into or form any corporation, partnership, joint venture,
limited liability company or other arrangement to engage indirectly in, any
business activity that the Operating Partnership is permitted to engage in by
the Operating Partnership Agreement and, in connection therewith, to exercise
all of the rights and powers conferred upon the Partnership pursuant to the
agreements relating to such business activity, (c) engage directly in, or enter
into or form any corporation, partnership, joint venture, limited liability
company or other arrangement to engage indirectly in, any business activity that
is approved by the General Partner and which lawfully may be conducted by a
limited partnership organized pursuant to the Delaware Act and, in connection
therewith, to exercise all of the rights and powers conferred upon the
Partnership pursuant to the agreements relating to such business activity;
provided, however, that the General Partner reasonably determines, as of the
date of the acquisition or commencement of such activity, that such activity (i)
generates "qualifying income" (as such term is defined pursuant to Section 7704
of the Code) or (ii) enhances the operations of an activity of the Operating
Partnership or a Partnership activity that generates qualifying income, and (d)
do anything necessary or appropriate to the foregoing, including the making of
capital contributions or loans to a Group Member. The General Partner has no
obligation or duty to the Partnership, the Limited Partners or the Assignees to
propose or approve, and in its discretion may decline to propose or approve, the
conduct by the Partnership of any business.
SECTION 2.5 Powers.
The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described in Section
2.4 and for the protection and benefit of the Partnership.
28
SECTION 2.6 Power of Attorney.
(a) Each Limited Partner and each Assignee hereby constitutes and appoints
the General Partner and, if a Liquidator shall have been selected pursuant to
Section 12.3, the Liquidator (and any successor to the Liquidator by merger,
transfer, assignment, election or otherwise) and each of their authorized
officers and attorneys-in-fact, as the case may be, with full power of
substitution, as his true and lawful agent and attorney-in-fact, with full power
and authority in his name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (A) all certificates, documents and other
instruments (including this Agreement and the Certificate of Limited
Partnership and all amendments or restatements hereof or thereof) that the
General Partner or the Liquidator deems necessary or appropriate to form,
qualify or continue the existence or qualification of the Partnership as a
limited partnership (or a partnership in which the limited partners have
limited liability) in the State of Delaware and in all other jurisdictions
in which the Partnership may conduct business or own property; (B) all
certificates, documents and other instruments that the General Partner or
the Liquidator deems necessary or appropriate to reflect, in accordance
with its terms, any amendment, change, modification or restatement of this
Agreement; (C) all certificates, documents and other instruments (including
conveyances and a certificate of cancellation) that the General Partner or
the Liquidator deems necessary or appropriate to reflect the dissolution
and liquidation of the Partnership pursuant to the terms of this Agreement;
(D) all certificates, documents and other instruments relating to the
admission, withdrawal, removal or substitution of any Partner pursuant to,
or other events described in, Article IV, X, XI or XII; (E) all
certificates, documents and other instruments relating to the determination
of the rights, preferences and privileges of any class or series of
Partnership Securities issued pursuant to Section 5.6; and (F) all
certificates, documents and other instruments (including agreements and a
certificate of merger) relating to a merger or consolidation of the
Partnership pursuant to Article XIV; and
(ii) execute, swear to, acknowledge, deliver, file and record all
ballots, consents, approvals, waivers, certificates, documents and other
instruments necessary or appropriate, in the discretion of the General
Partner or the Liquidator, to make, evidence, give, confirm or ratify any
vote, consent, approval, agreement or other action that is made or given by
the Partners hereunder or is consistent with the terms of this Agreement or
is necessary or appropriate, in the discretion of the General Partner or
the Liquidator, to effectuate the terms or intent of this Agreement;
provided, that when required by Section 13.3 or any other provision of this
Agreement that establishes a percentage of the Limited Partners or of the
Limited Partners of any class or series required to take any action, the
General Partner and the Liquidator may exercise the power of attorney made
in this Section 2.6(a)(ii) only after the necessary vote, consent or
approval of the Limited Partners or of the Limited Partners of such class
or series, as applicable.
Nothing contained in this Section 2.6(a) shall be construed as authorizing
the General Partner to amend this Agreement except in accordance with Article
XIII or as may be otherwise expressly provided for in this Agreement.
29
(b) The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, and it shall survive and, to the maximum
extent permitted by law, not be affected by the subsequent death, incompetency,
disability, incapacity, dissolution, bankruptcy or termination of any Limited
Partner or Assignee and the transfer of all or any portion of such Limited
Partner's or Assignee's Partnership Interest and shall extend to such Limited
Partner's or Assignee's heirs, successors, assigns and personal representatives.
Each such Limited Partner or Assignee hereby agrees to be bound by any
representation made by the General Partner or the Liquidator acting in good
faith pursuant to such power of attorney; and each such Limited Partner or
Assignee, to the maximum extent permitted by law, hereby waives any and all
defenses that may be available to contest, negate or disaffirm the action of the
General Partner or the Liquidator taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within 15 days after receipt of the request
therefor, such further designation, powers of attorney and other instruments as
the General Partner or the Liquidator deems necessary to effectuate this
Agreement and the purposes of the Partnership.
SECTION 2.7 Term.
The term of the Partnership commenced upon the filing of the initial
Certificate of Limited Partnership in accordance with the Delaware Act and shall
be perpetual unless the Partnership is dissolved 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 or Assignee, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner, one or more of its Affiliates or one or more nominees, as
the General Partner may determine. The General Partner hereby declares and
warrants that any Partnership assets for which record title is held in the name
of the General Partner or one or more of its Affiliates or one or more nominees
shall be held by the General Partner or such Affiliate or nominee for the use
and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use reasonable
efforts to cause record title to such assets (other than those assets in respect
of which the General Partner determines that the expense and difficulty of
conveyancing makes transfer of record title to the Partnership impracticable) to
be vested in the Partnership as soon as reasonably practicable; provided,
further, that, prior to the withdrawal or removal of the General Partner or as
soon thereafter as practicable, the General Partner shall use reasonable efforts
to effect the transfer of record title to the Partnership and, prior to any such
transfer, will provide for the use of such assets in a manner satisfactory to
the General Partner. All Partnership assets shall be recorded as the property of
the Partnership in its books and records, irrespective of the name in which
record title to such Partnership assets is held.
30
ARTICLE III
RIGHTS OF LIMITED PARTNERS
SECTION 3.1 Limitation of Liability.
The Limited Partners and the Assignees shall have no liability under this
Agreement except as expressly provided in this Agreement or the Delaware Act.
SECTION 3.2 Management of Business.
No Limited Partner or Assignee, in its capacity as such, shall participate
in the operation, management or control (within the meaning of the Delaware Act)
of the Partnership's business, transact any business in the Partnership's name
or have the power to sign documents for or otherwise bind the Partnership. Any
action taken by any Affiliate of the General Partner or any officer, director,
employee, member, general partner, agent or trustee of the General Partner or
any of its Affiliates, or any officer, director, employee, member, general
partner, agent or trustee of a Group Member, in its capacity as such, shall not
be deemed to be participation in the control of the business of the Partnership
by a limited partner of the Partnership (within the meaning of Section 17-303(a)
of the Delaware Act) and shall not affect, impair or eliminate the limitations
on the liability of the Limited Partners or Assignees under this Agreement.
SECTION 3.3 Outside Activities of the Limited Partners.
Subject to the provisions of Section 7.5 and the Omnibus Agreement, which
shall continue to be applicable to the Persons referred to therein, regardless
of whether such Persons shall also be Limited Partners or Assignees, any Limited
Partner or Assignee shall be entitled to and may have business interests and
engage in business activities in addition to those relating to the Partnership,
including business interests and activities in direct competition with the
Partnership Group. Neither the Partnership nor any of the other Partners or
Assignees shall have any rights by virtue of this Agreement in any business
ventures of any Limited Partner or Assignee.
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 Partner's interest
as a limited partner in the Partnership, upon reasonable written demand and at
such Limited Partner's own expense:
(i) to obtain true and full information regarding the status of the
business and financial condition of the Partnership;
(ii) promptly after becoming available, to obtain a copy of the
Partnership's federal, state and local income tax returns for each year;
(iii) to have furnished to him a current list of the name and last
known business, residence or mailing address of each Partner;
31
(iv) to have furnished to him a copy of this Agreement and the
Certificate of Limited Partnership and all amendments thereto, together
with a copy of the executed copies of all powers of attorney pursuant to
which this Agreement, the Certificate of Limited Partnership and all
amendments thereto have been executed;
(v) to obtain true and full information regarding the amount of cash
and a description and statement of the Net Agreed Value of any other
Capital Contribution by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a Partner; and
(vi) to obtain such other information regarding the affairs of the
Partnership as is just and reasonable.
(b) The General Partner may keep confidential from the Limited Partners and
Assignees, for such period of time as the General Partner deems reasonable, (i)
any information that the General Partner reasonably believes to be in the nature
of trade secrets or (ii) other information the disclosure of which the General
Partner in good faith believes (A) is not in the best interests of the
Partnership Group, (B) could damage the Partnership Group or (C) that any Group
Member is required by law or by agreement with any third party to keep
confidential (other than agreements with Affiliates of the Partnership the
primary purpose of which is to circumvent the obligations set forth in this
Section 3.4).
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP
INTERESTS; REDEMPTION OF PARTNERSHIP INTERESTS
SECTION 4.1 Certificates.
Upon the Partnership's issuance of Common Units or Subordinated Units to
any Person, the Partnership shall issue 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 Partner's request, the Partnership shall issue to it one or
more Certificates in the name of the General Partner evidencing its interests in
the Partnership and (b) upon the request of any Person owning Incentive
Distribution Rights or any other Partnership Securities other than Common Units
or Subordinated Units, the Partnership shall issue to such Person one or more
certificates evidencing such Incentive Distribution Rights or other Partnership
Securities other than Common Units or Subordinated Units. Certificates shall be
executed on behalf of the Partnership by the Chairman of the Board, President or
any Executive Vice President or Vice President and the Secretary or any
Assistant Secretary of Valero GP. 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 and the
Underwriters. Subject to the requirements of Section 6.7(b), 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 5.8.
32
SECTION 4.2 Mutilated, Destroyed, Lost or Stolen Certificates.
(a) If any mutilated Certificate is surrendered to the Transfer Agent, the
appropriate officers of Valero GP on behalf of the Partnership shall execute,
and the Transfer Agent 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 Valero GP on behalf of the Partnership
shall execute and deliver, and the Transfer Agent 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 Partnership, that a previously issued Certificate has been lost,
destroyed or stolen;
(ii) requests the issuance of a new Certificate before the Partnership
has notice that the Certificate has been acquired by a purchaser for value
in good faith and without notice of an adverse claim;
(iii) if requested by the Partnership, delivers to the Partnership a
bond, in form and substance satisfactory to the Partnership, with surety or
sureties and with fixed or open penalty as the Partnership may reasonably
direct, in its sole discretion, to indemnify the Partnership, the 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
Partnership.
If a Limited Partner or Assignee fails to notify the Partnership within a
reasonable time after he has notice of the loss, destruction or theft of a
Certificate, and a transfer of the Limited Partner Interests represented by the
Certificate is registered before the Partnership, the General Partner or the
Transfer Agent receives such notification, the Limited Partner or Assignee shall
be precluded from making any claim against the Partnership, the General Partner
or the Transfer Agent for such transfer or for a new Certificate.
(c) As a condition to the issuance of any new Certificate under this
Section 4.2, the Partnership may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Transfer
Agent) reasonably connected therewith.
SECTION 4.3 Record Holders.
The Partnership shall be entitled to recognize the Record Holder as the
Partner or Assignee with respect to any Partnership Interest and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such Partnership Interest on the part of any other Person, regardless of whether
the Partnership shall have actual or other notice thereof, except as otherwise
provided by law or any applicable rule, regulation, guideline or requirement of
any National Securities Exchange on which such Partnership Interests are listed
33
for trading. Without limiting the foregoing, when a Person (such as a broker,
dealer, bank, trust company or clearing corporation or an agent of any of the
foregoing) is acting as nominee, agent or in some other representative capacity
for another Person in acquiring and/or holding Partnership Interests, as between
the Partnership on the one hand, and such other Persons on the other, such
representative Person (a) shall be the Partner or Assignee (as the case may be)
of record and beneficially, (b) must execute and deliver a Transfer Application
and (c) shall be bound by this Agreement and shall have the rights and
obligations of a Partner or Assignee (as the case may be) hereunder and as, and
to the extent, provided for herein.
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 by which the
General Partner assigns its General Partner Interest to another Person who
becomes the General Partner, by which the holder of a Limited Partner Interest
assigns such Limited Partner Interest to another Person who is or becomes a
Limited Partner or an Assignee, and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise.
(b) No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article IV.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article IV shall be null and void.
(c) Nothing contained in this Agreement shall be construed to prevent (i) a
disposition by any limited partner of the General Partner of any or all of the
issued and outstanding limited partner interests of the General Partner or (ii)
a disposition by any general partner of the General Partner of any or all of the
issued and outstanding capital stock or other equity interests of such general
partner.
SECTION 4.5 Registration and Transfer of Limited Partner Interests.
(a) The Partnership shall keep or cause to be kept on behalf of the
Partnership a register in which, subject to such reasonable regulations as it
may prescribe and subject to the provisions of Section 4.5(b), the Partnership
will provide for the registration and transfer of Limited Partner Interests. The
Transfer Agent is hereby appointed registrar and transfer agent for the purpose
of registering Common Units and transfers of such Common Units as herein
provided. The Partnership shall not recognize transfers of Certificates
evidencing Limited Partner Interests unless such transfers are effected in the
manner described in this Section 4.5. Upon surrender of a Certificate for
registration of transfer of any Limited Partner Interests evidenced by a
Certificate, and subject to the provisions of Section 4.5(b), the appropriate
officers of Valero GP on behalf of the Partnership shall execute and deliver,
and in the case of Common Units, the Transfer Agent shall countersign and
deliver, in the name of the holder or the designated transferee or transferees,
as required pursuant to the holder's instructions, one or more new Certificates
evidencing the same aggregate number and type of Limited Partner Interests as
was evidenced by the Certificate so surrendered.
34
(b) Except as otherwise provided in Section 4.9, the Partnership shall not
recognize any transfer of Limited Partner Interests until the Certificates
evidencing such Limited Partner Interests are surrendered for registration of
transfer and such Certificates are accompanied by a Transfer Application duly
executed by the transferee (or the transferee's attorney-in-fact duly authorized
in writing). No charge shall be imposed by the Partnership for such transfer;
provided, that as a condition to the issuance of any new Certificate under this
Section 4.5, the Partnership may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed with respect
thereto.
(c) Limited Partner Interests may be transferred only in the manner
described in this Section 4.5. The transfer of any Limited Partner Interests and
the admission of any new Limited Partner shall not constitute an amendment to
this Agreement.
(d) Until admitted as a Substituted Limited Partner pursuant to Section
10.2, the Record Holder of a Limited Partner Interest shall be an Assignee in
respect of such Limited Partner Interest. Limited Partners may include
custodians, nominees or any other individual or entity in its own or any
representative capacity.
(e) A transferee of a Limited Partner Interest who has completed and
delivered a Transfer Application shall be deemed to have (i) requested admission
as a Substituted Limited Partner, (ii) agreed to comply with and be bound by and
to have executed this Agreement, (iii) represented and warranted that such
transferee has the right, power and authority and, if an individual, the
capacity to enter into this Agreement, (iv) granted the powers of attorney set
forth in this Agreement and (v) given the consents and approvals and made the
waivers contained in this Agreement.
(f) The General Partner and its Affiliates shall have the right at any time
to transfer their Subordinated Units and Common Units (whether issued upon
conversion of the Subordinated Units or otherwise) to one or more Persons.
SECTION 4.6 Transfer of the General Partner's General Partner Interest.
(a) Subject to Section 4.6(c) below, prior to March 31, 2011, the General
Partner shall not transfer all or any part of its General Partner Interest 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 (other than in individual)
or the transfer by the General Partner of all or substantially all of its assets
to such other Person (other than an individual).
(b) Subject to Section 4.6(c) below, on or after March 31, 2011, 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
35
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 or of any limited partner of the Operating Partnership or
cause the Partnership or the Operating 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 interest of the General Partner as
the general partner of each other Group Member. In the case of a transfer
pursuant to and in compliance with this Section 4.6, the transferee or successor
(as the case may be) shall, subject to compliance with the terms of Section
10.3, be admitted to the Partnership as a General Partner immediately prior to
the transfer of the Partnership Interest, and the business of the Partnership
shall continue without dissolution.
SECTION 4.7 Transfer of Incentive Distribution Rights.
Prior to March 31, 2011, 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 (a) to an Affiliate of such holders
(other than an individual) or (b) to 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 or (ii) the transfer by such
holder of all or substantially all of its assets to such other Person. Any other
transfer of the Incentive Distribution Rights prior to March 31, 2011, shall
require the prior approval of holders at least a majority of the Outstanding
Common Units (excluding Common Units held by the General Partner and its
Affiliates). On or after March 31, 2011, the General Partner or any other holder
of Incentive Distribution Rights may transfer any or all of its Incentive
Distribution Rights without Unitholder approval. Notwithstanding anything herein
to the contrary, no transfer of Incentive Distribution Rights to another Person
shall be permitted unless the transferee agrees to be bound by the provisions of
this Agreement. The General Partner shall have the authority (but shall not be
required) to adopt such reasonable restrictions on the transfer of Incentive
Distribution Rights and requirements for registering the transfer of Incentive
Distribution Rights as the General Partner, in its sole discretion, shall
determine are necessary or appropriate.
SECTION 4.8 Restrictions on Transfers.
(a) Except as provided in Section 4.8(d) below, but notwithstanding the
other provisions of this Article IV, no transfer of any Partnership Interests
shall be made if such transfer would (i) violate the then applicable federal or
state securities laws or rules and regulations of the Commission, any state
securities commission or any other governmental authority with jurisdiction over
such transfer, (ii) terminate the existence or qualification of the Partnership
or the Operating Partnership under the laws of the jurisdiction of its
formation, or (iii) cause the Partnership or the Operating 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 a subsequent Opinion of Counsel determines that such
36
restrictions are necessary to avoid a significant risk of the Partnership
becoming taxable as a corporation or otherwise to be taxed as an entity for
federal income tax purposes. The restrictions may be imposed by making such
amendments to this Agreement as the General Partner may determine to be
necessary or appropriate to impose such restrictions; provided, however, that
any amendment that the General Partner believes, in the exercise of its
reasonable discretion, could result in the delisting or suspension of trading of
any class of Limited Partner Interests on the principal National Securities
Exchange on which such class of Limited Partner Interests is then traded must be
approved, prior to such amendment being effected, by the holders of at least a
majority of the Outstanding Limited Partner Interests of such class.
(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(b).
(d) Nothing contained in this Article IV, or elsewhere in this Agreement,
shall preclude the settlement of any transactions involving Partnership
Interests entered into through the facilities of any National Securities
Exchange on which such Partnership Interests are listed for 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, in the reasonable determination of the General
Partner, creates a substantial risk of cancellation or forfeiture of any
property in which the Group Member has an interest based on the nationality,
citizenship or other related status of a Limited Partner or Assignee, the
General Partner may request any Limited Partner or Assignee to furnish to the
General Partner, within 30 days after receipt of such request, an executed
Citizenship Certification or such other information concerning his nationality,
citizenship or other related status (or, if the Limited Partner or Assignee is a
nominee holding for the account of another Person, the nationality, citizenship
or other related status of such Person) as the General Partner may request. If a
Limited Partner or Assignee fails to furnish to the General Partner within the
aforementioned 30-day period such Citizenship Certification or other requested
information or if upon receipt of such Citizenship Certification or other
requested information the General Partner determines, with the advice of
counsel, that a Limited Partner or Assignee is not an Eligible Citizen, the
Partnership Interests owned by such Limited Partner or Assignee 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 Partner or Assignee
be changed to that of a Non-citizen Assignee and, thereupon, the General Partner
shall be substituted for such Non-citizen Assignee as the Limited Partner in
respect of his Limited Partner Interests.
(b) The General Partner shall, in exercising voting rights in respect of
Limited Partner Interests held by it on behalf of Non-citizen Assignees,
distribute the votes in the same ratios as the votes of Partners (including
without limitation the General Partner) in respect of Limited Partner Interests
other than those of Non-citizen Assignees are cast, either for, against or
abstaining as to the matter.
(c) Upon dissolution of the Partnership, a Non-citizen Assignee shall have
no right to receive a distribution in kind pursuant to Section 12.4 but shall be
entitled to the cash equivalent thereof, and the Partnership shall provide cash
37
in exchange for an assignment of the Non-citizen Assignee's share of the
distribution in kind. Such payment and assignment shall be treated for
Partnership purposes as a purchase by the Partnership from the Non-citizen
Assignee of his Limited Partner Interest (representing his right to receive his
share of such distribution in kind).
(d) At any time after he can and does certify that he has become an
Eligible Citizen, a Non-citizen Assignee may, upon application to the General
Partner, request admission as a Substituted Limited Partner with respect to any
Limited Partner Interests of such Non-citizen Assignee not redeemed pursuant to
Section 4.10, and upon his admission pursuant to Section 10.2, the General
Partner shall cease to be deemed to be the Limited Partner in respect of the
Non-citizen Assignee's Limited Partner Interests.
SECTION 4.10 Redemption of Partnership Interests of Non-citizen Assignees.
(a) If at any time a Limited Partner or Assignee fails to furnish a
Citizenship Certification or other information requested within the 30-day
period specified in Section 4.9(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 or Assignee is not an Eligible
Citizen, the Partnership may, unless the Limited Partner or Assignee establishes
to the satisfaction of the General Partner that such Limited Partner or Assignee
is an Eligible Citizen or has transferred his Partnership Interests to a Person
who is an Eligible Citizen and who furnishes a Citizenship Certification to the
General Partner prior to the date fixed for redemption as provided below, redeem
the Partnership Interest of such Limited Partner or Assignee as follows:
(i) The General Partner shall, not later than the 30th day before the
date fixed for redemption, give notice of redemption to the Limited Partner
or Assignee, at his last address designated on the records of the
Partnership or the Transfer Agent, by registered or certified mail, postage
prepaid. The notice shall be deemed to have been given when so mailed. The
notice shall specify the Redeemable Interests, the date fixed for
redemption, the place of payment, that payment of the redemption price will
be made upon surrender of the Certificate evidencing the Redeemable
Interests and that on and after the date fixed for redemption no further
allocations or distributions to which the Limited Partner or Assignee would
otherwise be entitled in respect of the Redeemable Interests will accrue or
be made.
(ii) The aggregate redemption price for Redeemable Interests shall be
an amount equal to the Current Market Price (the date of determination of
which shall be the date fixed for redemption) of Limited Partner Interests
of the class to be so redeemed multiplied by the number of Limited Partner
Interests of each such class included among the Redeemable Interests. The
redemption price shall be paid, in the discretion of the General Partner,
in cash or by delivery of a promissory note of the Partnership in the
principal amount of the redemption price, bearing interest at the rate of
10% annually and payable in three equal annual installments of principal
together with accrued interest, commencing one year after the redemption
date.
(iii) Upon surrender by or on behalf of the Limited Partner or
Assignee, at the place specified in the notice of redemption, of the
38
Certificate evidencing the Redeemable Interests, duly endorsed in blank or
accompanied by an assignment duly executed in blank, the Limited Partner or
Assignee or his duly authorized representative shall be entitled to receive
the payment therefor.
(iv) After the redemption date, Redeemable Interests shall no longer
constitute issued and Outstanding Limited Partner Interests.
(b) The provisions of this Section 4.10 shall also be applicable to Limited
Partner Interests held by a Limited Partner or Assignee as nominee of a Person
determined to be other than an Eligible Citizen.
(c) Nothing in this Section 4.10 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 in a Citizenship Certification
delivered in connection with the Transfer Application that he is an Eligible
Citizen. If the transferee fails to make such certification, such redemption
shall be effected from the transferee on the original redemption date.
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
SECTION 5.1 Organizational Contributions.
In connection with the formation of the Partnership under the Delaware Act,
Valero GP, the former general partner, made an initial Capital Contribution to
the Partnership in the amount of $10.00, for an interest in the Partnership and
was admitted as the general partner of the Partnership, and the Organizational
Limited Partner made an initial Capital Contribution to the Partnership in the
amount of $990.00 for an interest in the Partnership and was admitted as a
Limited Partner of the Partnership. On August 10, 2000, the initial Certificate
of Limited Partnership of the Partnership was amended and the Initial Agreement
was amended and restated to reflect the substitution of the General Partner as
general partner of the Partnership and the removal of Valero GP. As of the
Closing Date, the interest of the Organizational Limited Partner was redeemed as
provided in the Contribution Agreement; the initial Capital Contributions of
each Partner were thereupon refunded; the Initial Limited Partners were admitted
as limited partners of the Partnership; and the Organizational Limited Partner
thereupon ceased to be a limited partner of the Partnership. Ninety-nine percent
of any interest or other profit that may have resulted from the investment or
other use of such initial Capital Contributions was allocated and distributed to
the Organizational Limited Partner, and the balance thereof was allocated and
distributed to the General Partner.
SECTION 5.2 Contributions by the General Partner and its Affiliates.
(a) On the Closing Date and pursuant to the Contribution Agreement, (i) the
General Partner contributed to the Partnership, as a Capital Contribution, all
of its interest in the Operating Partnership other than its 1.0101% general
39
partner interest in the Operating Partnership in exchange for (A) a 1% general
partner interest in the Partnership, and (B) the Incentive Distribution Rights,
and (ii) UDS Logistics, LLC, a Delaware limited liability company ("UDS
Logistics"), contributed its limited partner interests in the Operating
Partnership to the Partnership in exchange for (A) 9,599,322 Subordinated Units
and (B) 4,424,322 Common Units.
(b) Upon the issuance of any additional Limited Partner Interests by the
Partnership (including the issuance of the Common Units issued in the Initial
Offering or pursuant to the Over-Allotment Option), the General Partner shall be
required to make additional Capital Contributions equal to 2/98th of any amount
contributed to the Partnership by the Limited Partners in exchange for such
additional Limited Partner Interests. Except as set forth in the immediately
preceding sentence and Article XII, the General Partner shall not be obligated
to make any 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 paid 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 purchased by such Underwriter at the Closing Date.
Each Underwriter's payment of cash to the Partnership pursuant to the preceding
sentence was regarded as representing (i) a contribution by such Underwriter to
the Partnership in an amount equal to the Initial Unit Price per Initial Common
Unit multiplied by the number of Common Units purchased by such Underwriter at
the Closing Date and (ii) a payment by the Partnership to such Underwriter of
the underwriting discount and commissions in an amount equal to (A) the excess
of the Initial Unit Price over the Issue Price multiplied by (B) the number of
Common Units purchased by such Underwriter at the Closing Date. In exchange for
such Capital Contributions by the Underwriters, the Partnership issued Common
Units to each Underwriter on whose behalf such Capital Contribution was made in
an amount equal to the quotient obtained by dividing (i) the cash paid to the
Partnership by or on behalf of such Underwriter by (ii) the Issue Price per
Initial Common Unit.
(b) Notwithstanding anything else herein contained, all of the proceeds
received by the Partnership from the issuance of Common Units pursuant to
Section 5.3(a) were contributed to the Operating Partnership.
(c) Upon the exercise of the Over-Allotment Option, each Underwriter shall
pay 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 Option Closing
Date. Each Underwriter's payment of cash to the Partnership pursuant to the
preceding sentence shall be regarded as representing (i) a contribution by such
Underwriter to the Partnership in an amount equal to the Initial Unit Price per
Initial Common Unit multiplied by the number of Common Units purchased by such
Underwriter at the Option Closing Date and (ii) a payment by the Partnership to
such Underwriter of the underwriting discount and commissions in an amount equal
to (A) the excess of the Initial Unit Price over the Issue Price multiplied by
(B) the number of Common Units purchased by such Underwriter at the Option
40
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 paid to the Partnership by or on behalf of such
Underwriter by (ii) the Issue Price per Initial Common Unit. Upon receipt by the
Partnership of the Capital Contributions from the Underwriters as provided in
this Section 5.3(c), the Partnership shall contribute such cash to the Operating
Partnership to pay down debt of the Operating Partnership.
(d) No Limited Partner Interests were issued or issuable as of or at the
Closing Date other than (i) the Common Units issued pursuant to subparagraph (a)
hereof in aggregate number equal to 4,500,000, (ii) the "Additional Units" as
such term is used in the Underwriting Agreement in an aggregate number up to
675,000 issued upon exercise of the Over-Allotment Option pursuant to
subparagraph (c) hereof, (iii) the 4,424,322 Common Units issued to UDS
Logistics or its Affiliates pursuant to Section 5.2 hereof, (iv) the 9,599,322
Subordinated Units issued to UDS Logistics or its Affiliates pursuant to Section
5.2 hereof, and (v) the Incentive Distribution Rights.
SECTION 5.4 Interest and Withdrawal.
No interest shall be paid by the Partnership on Capital Contributions. No
Partner or Assignee shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent, if any, that distributions made pursuant to
this Agreement or upon dissolution of the Partnership may be considered as such
by law and then only to the extent provided for in this Agreement. Except to the
extent expressly provided in this Agreement, no Partner or Assignee shall have
priority over any other Partner or Assignee either as to the return of Capital
Contributions or as to profits, losses or distributions. Any such return shall
be a compromise to which all Partners and Assignees agree within the meaning of
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 in its sole discretion) owning a Partnership Interest a separate Capital
Account with respect to such Partnership Interest in accordance with the rules
of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital Account shall be
increased by (i) the amount of all Capital Contributions made to the Partnership
with respect to such Partnership Interest pursuant to this Agreement and (ii)
all items of Partnership income and gain (including, without limitation, 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
pursuant to this Agreement 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
41
reflected in the Partners' Capital Accounts, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:
(i) Solely for purposes of this Section 5.5, the Partnership shall be
treated as owning directly its proportionate share (as determined by the
General Partner based upon the provisions of the Operating Partnership
Agreement) of all property owned by the Operating Partnership or any other
Subsidiary that is classified as a partnership for federal income tax
purposes.
(ii) All fees and other expenses incurred by the Partnership to
promote the sale of (or to sell) a Partnership Interest that can neither be
deducted nor amortized under Section 709 of the Code, if any, shall, for
purposes of Capital Account maintenance, be treated as an item of deduction
at the time such fees and other expenses are incurred and shall be
allocated among the Partners pursuant to Section 6.1.
(iii) Except as otherwise provided in Treasury Regulation Section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss
and deduction shall be made without regard to any election under Section
754 of the Code which may be made by the Partnership and, as to those items
described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without
regard to the fact that such items are not includable in gross income or
are neither currently deductible nor capitalized for federal income tax
purposes. To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Section 734(b) or 743(b) of the Code is
required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to
be taken into account in determining Capital Accounts, the amount of such
adjustment in the Capital Accounts shall be treated as an item of gain or
loss.
(iv) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the adjusted basis of
such property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
(v) In accordance with the requirements of Section 704(b) of the Code,
any deductions for depreciation, cost recovery or amortization attributable
to any Contributed Property shall be determined as if the adjusted basis of
such property on the date it was acquired by the Partnership were equal to
the Agreed Value of such property. Upon an adjustment pursuant to Section
5.5(d) to the Carrying Value of any Partnership property subject to
depreciation, cost recovery or amortization, any further deductions for
such depreciation, cost recovery or amortization attributable to such
property shall be determined (A) as if the adjusted basis of such property
were equal to the Carrying Value of such property immediately following
such adjustment and (B) using a rate of depreciation, cost recovery or
amortization derived from the same method and useful life (or, if
applicable, the remaining useful life) as is applied for federal income tax
purposes; provided, however, that, if the asset has a zero adjusted basis
42
for federal income tax purposes, depreciation, cost recovery or
amortization deductions shall be determined using any reasonable method
that the General Partner may adopt.
(vi) If the Partnership's adjusted basis in a depreciable or cost
recovery property is reduced for federal income tax purposes pursuant to
Section 48(q)(1) or 48(q)(3) of the Code, the amount of such reduction
shall, solely for purposes hereof, be deemed to be an additional
depreciation or cost recovery deduction in the year such property is placed
in service and shall be allocated among the Partners pursuant to Section
6.1. Any restoration of such basis pursuant to Section 48(q)(2) of the Code
shall, to the extent possible, be allocated in the same manner to the
Partners to whom such deemed deduction was allocated.
(c) (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) Immediately prior to the transfer of a Subordinated Unit or of a
Subordinated Unit that has converted into a Common Unit pursuant to Section
5.8 by a holder thereof (other than a transfer to an Affiliate unless the
General Partner elects to have this subparagraph 5.5(c)(ii) apply), the
Capital Account maintained for such Person with respect to its Subordinated
Units or converted Subordinated Units will (A) first, be allocated to the
Subordinated Units or converted Subordinated Units to be transferred in an
amount equal to the product of (x) the number of such Subordinated Units or
converted Subordinated Units to be transferred and (y) the Per Unit Capital
Amount for a Common Unit, and (B) second, any remaining balance in such
Capital Account will be retained by the transferor, regardless of whether
it has retained any Subordinated Units or converted Subordinated Units.
Following any such allocation, the transferor's Capital Account, if any,
maintained with respect to the retained Subordinated Units or converted
Subordinated Units, if any, will have a balance equal to the amount
allocated under clause (B) hereinabove, and the transferee's 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 or the conversion of the General Partner's
Combined Interest to Common Units pursuant to Section 11.3(b), the Capital
Account of all Partners and the Carrying Value of each Partnership property
immediately prior to such issuance shall be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as if such Unrealized Gain or Unrealized Loss had
been recognized on an actual sale of each such property immediately prior
to such issuance and had been allocated to the Partners at such time
pursuant to Section 6.1(c) in the same manner as any item of gain or loss
actually recognized during such period would have been allocated. In
determining such Unrealized Gain or Unrealized Loss, the aggregate cash
amount and fair market value of all Partnership assets (including, without
limitation, cash or cash equivalents) immediately prior to the issuance of
additional Partnership Interests shall be determined by the General Partner
using such reasonable method of valuation as it may adopt; provided,
however, that the General Partner, in arriving at such valuation, must take
43
fully into account the fair market value of the Partnership Interests of
all Partners at such time. The General Partner shall allocate such
aggregate value among the assets of the Partnership (in such manner as it
determines in its discretion to be reasonable) to arrive at a fair market
value for individual properties.
(ii) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed
distribution to a Partner of any Partnership property (other than a
distribution of cash that is not in redemption or retirement of a
Partnership Interest), the Capital Accounts of all Partners and the
Carrying Value of all Partnership property shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable to
such Partnership property, as if such Unrealized Gain or Unrealized Loss
had been recognized in a sale of such property immediately prior to such
distribution for an amount equal to its fair market value, and had been
allocated to the Partners, at such time, pursuant to Section 6.1(c) in the
same manner as any item of gain or loss actually recognized during such
period would have been allocated. In determining such Unrealized Gain or
Unrealized Loss the aggregate cash amount and fair market value of all
Partnership assets (including, without limitation, cash or cash
equivalents) immediately prior to a distribution shall (A) in the case of
an actual distribution which is not made pursuant to Section 12.4 or in the
case of a deemed 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 reasonable method of valuation as it
may adopt.
SECTION 5.6 Issuances of Additional Partnership Securities.
(a) Subject to Section 5.7, 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 shall be established by the General Partner in its sole
discretion, all without the approval of any Limited Partners.
(b) Each additional Partnership Security authorized to be issued by the
Partnership pursuant to Section 5.6(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 in the
exercise of its sole discretion, including (i) the right to share Partnership
profits and losses or items thereof; (ii) the right to share in Partnership
distributions; (iii) the rights upon dissolution and liquidation of the
Partnership; (iv) whether, and the terms and conditions upon which, the
Partnership may redeem 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; and (vii) 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.
44
(c) The General Partner is hereby authorized and directed to take all
actions that it deems necessary or appropriate in connection with (i) each
issuance of Partnership Securities 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 and Incentive
Distribution Rights into Units pursuant to the terms of this Agreement, (iii)
the admission of Additional Limited Partners and (iv) all additional issuances
of Partnership Securities. The General Partner is further authorized and
directed to specify the relative rights, powers and duties of the holders of 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 it deems to be necessary or advisable in connection
with any future issuance of Partnership Securities or in connection with the
conversion of the General Partner Interest and Incentive Distribution Rights
into Units pursuant to the terms of this Agreement, including compliance with
any statute, rule, regulation or guideline of any federal, state or other
governmental agency or any National Securities Exchange on which the Units or
other Partnership Securities are listed for trading.
SECTION 5.7 Limitations on Issuance of Additional Partnership Securities.
The issuance of Partnership Securities pursuant to Section 5.6 shall be
subject to the following restrictions and limitations:
(a) During the Subordination Period, the Partnership shall not issue (and
shall not issue any options, rights, warrants or appreciation rights relating
to) an aggregate of more than 4,462,161 additional Parity Units without the
prior approval of the holders of a Unit Majority. In applying this limitation,
there shall be excluded Common Units and other Parity Units (and options,
rights, warrants or appreciation rights relating thereto) issued (A) in
connection with the exercise of the Over-Allotment Option, (B) in accordance
with Sections 5.7(b) and 5.7(c), (C) upon conversion of the General Partner
Interest and Incentive Distribution Rights pursuant to Section 11.3(b), (D)
pursuant to the employee benefit plans of the General Partner, the Partnership
or any other Group Member and (E) in the event of a combination or subdivision
of Common Units.
(b) The Partnership may also issue an unlimited number of Parity Units,
prior to the end of the Subordination Period and without the prior approval of
the Unitholders, if such issuance occurs (i) in connection with an Acquisition
or a Capital Improvement or (ii) within 365 days of, and the net proceeds from
such issuance are used to repay debt incurred in connection with, an Acquisition
or a Capital Improvement, in each case where such Acquisition or Capital
Improvement involves assets that, if acquired by the Partnership as of the date
that is one year prior to the first day of the Quarter in which such Acquisition
is to be consummated or such Capital Improvement is to be completed, would have
resulted, on a pro forma basis, in an increase in:
(i) the amount of Adjusted Operating Surplus generated by the
Partnership on a per-Unit basis (for all Outstanding Units) with respect to
the most recently completed four-Quarter period (on a pro forma basis as
described below) as compared to
45
(ii) the actual amount of Adjusted Operating Surplus generated by the
Partnership on a per-Unit basis (for all Outstanding Units) (excluding
Adjusted Operating Surplus attributable to the Acquisition or Capital
Improvement) with respect to such most recently completed four-Quarter
period.
If the issuance of Parity Units with respect to an Acquisition or
Capital Improvement occurs within the first four full Quarters after the
Closing Date, then Adjusted Operating Surplus as used in clauses (A)
(subject to the succeeding sentence) and (B) above shall be calculated (i)
for each Quarter, if any, that commenced after the Closing Date for which
actual results of operations are available, based on the actual Adjusted
Operating Surplus of the Partnership generated with respect to such
Quarter, and (ii) for each other Quarter, on a pro forma basis consistent
with the procedures, as applicable, set forth in Appendix D to the
Registration Statement. Furthermore, the amount in clause (A) shall be
determined on a pro forma basis assuming that (1) all of the Parity Units
to be issued in connection with or within 365 days of such Acquisition or
Capital Improvement had been issued and outstanding, (2) all indebtedness
for borrowed money to be incurred or assumed in connection with such
Acquisition or Capital Improvement (other than any such indebtedness that
is to be repaid with the proceeds of such issuance of Parity Units) had
been incurred or assumed, in each case as of the commencement of such
four-Quarter period, (3) the personnel expenses that would have been
incurred by the Partnership in the operation of the acquired assets are the
personnel expenses for employees to be retained by the Partnership in the
operation of the acquired assets, and (4) the non-personnel costs and
expenses are computed on the same basis as those incurred by the
Partnership in the operation of the Partnership's business at similarly
situated Partnership facilities.
(c) During the Subordination Period, without the prior approval of the
holders of a Unit Majority, the Partnership shall not issue any additional
Partnership Securities (or options, rights, warrants or appreciation rights
related thereto) (i) that are entitled in any Quarter to receive in respect of
the Subordination Period any distributions of Available Cash from Operating
Surplus before the Common Units and any Parity Units have received (or amounts
have been set aside for payment of) the Minimum Quarterly Distribution and any
Cumulative Common Unit Arrearage for such Quarter or (ii) that are entitled to
allocations in respect of the Subordination Period of Net Termination Gain
before the Common Units and any Parity Units have been allocated Net Termination
Gain pursuant to Section 6.1(c)(i)(B).
(d) During the Subordination Period, without the prior approval of the
holders of a Unit Majority, the Partnership may issue additional Partnership
Securities (or options, rights, warrants or appreciation rights related thereto)
(i) that are not entitled in any Quarter during the Subordination Period to
receive any distributions of Available Cash from Operating Surplus until after
the Common Units and any Parity Units have received (or amounts have been set
aside for payment of) the Minimum Quarterly Distribution and any Cumulative
Common Unit Arrearage for such Quarter and (ii) that are not entitled to
allocations in respect of the Subordination Period of Net Termination Gain
before the Common Units and any Parity Units have been allocated Net Termination
Gain pursuant to Section 6.1(c)(i)(B), even if (A) the amount of Available Cash
from Operating Surplus to which each such Partnership Security is entitled to
receive after the Minimum Quarterly Distribution and any Cumulative Common Unit
46
Arrearage have been paid or set aside for payment on the Common Units exceeds
the Minimum Quarterly Distribution, (B) the amount of Net Termination Gain to be
allocated to such Partnership Security after Net Termination Gain has been
allocated to any Common Units and Parity Units pursuant to Section 6.1(c)(i)(B)
exceeds the amount of such Net Termination Gain to be allocated to each Common
Unit or Parity Unit or (C) the holders of such additional Partnership Securities
have the right to require the Partnership or its Affiliates to repurchase such
Partnership Securities at a discount, par or a premium.
(e) No fractional Units shall be issued by the Partnership.
SECTION 5.8 Conversion of Subordinated Units.
(a) All Subordinated Units shall convert into Common Units on a one-for-one
basis on the first day following the Record Date for distributions in respect of
the final Quarter of the Subordination Period.
(b) 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.
(c) A Subordinated Unit that has converted into a Common Unit shall be
subject to the provisions of Section 6.7(b).
SECTION 5.9 Limited Preemptive Right.
Except as provided in this Section 5.9 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 5.10 Splits and Combination.
(a) Subject to Sections 5.10(d), 6.6 and 6.9 (dealing with adjustments of
distribution levels), the Partnership may make a Pro Rata distribution of
Partnership Securities to all Record Holders or may effect a subdivision or
combination of Partnership Securities so long as, after any such event, each
Partner shall have the same Percentage Interest in the Partnership as before
such event, and any amounts calculated on a per Unit basis (including any Common
Unit Arrearage or Cumulative Common Unit Arrearage) or stated as a number of
Units (including the number of Subordinated Units that may convert prior to the
end of the Subordination Period and the number of additional Parity Units that
may be issued pursuant to Section 5.7 without a Unitholder vote) are
proportionately adjusted retroactive to the beginning of the Partnership.
47
(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 as it may deem appropriate to reflect such changes.
If any such combination results in a smaller total number of Partnership
Securities Outstanding, the Partnership shall require, as a condition to the
delivery to a Record Holder of such new Certificate, the surrender of any
Certificate held by such Record Holder immediately prior to such Record Date.
(d) The Partnership shall not issue fractional 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 Section 5.7(e) and this Section 5.10(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 5.11 Fully Paid and Non-Assessable Nature of Limited Partner Interests.
All Limited Partner Interests issued pursuant to, and in accordance with
the requirements of, this Article V shall be fully paid and non-assessable
Limited Partner Interests in the Partnership, except as such non-assessability
may be affected by Section 17-607 of the Delaware Act.
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
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 Partnership's items of income,
gain, loss and deduction (computed in accordance with Section 5.5(b)) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
(a) Net Income. After giving effect to the special allocations set
forth in Section 6.1(d), Net Income for each taxable year and all items of
income, gain, loss and deduction taken into account in computing Net Income
for such taxable year shall be allocated as follows:
48
(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, 2% to the General Partner in an amount equal to the
aggregate Net Losses allocated to the General Partner pursuant to Section
6.1(b)(ii) for all previous taxable years and 98% to the Unitholders, 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, 2% to the General Partner and 98%
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, 2% to the General Partner and 98% to the Unitholders, Pro
Rata, 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, 2% to the General Partner and 98% to the Unitholders, Pro
Rata; 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);
(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 Sections 6.4
and 6.5 have been made; provided, however, that solely for purposes of this
49
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
between the General Partner and the Limited Partners in the following
manner (and the Capital Accounts of the Partners shall be increased by the
amount so allocated in each of the following subclauses, in the order
listed, before an allocation is made pursuant to the next succeeding
subclause):
(A) First, to each Partner having a deficit balance in its
Capital Account, in the proportion that such deficit balance bears to
the total deficit balances in the Capital Accounts of all Partners,
until each such Partner has been allocated Net Termination Gain equal
to any such deficit balance in its Capital Account;
(B) Second, 98% to all Unitholders holding Common Units, Pro
Rata, and 2% to the General Partner, until the Capital Account in
respect of each Common Unit then Outstanding is equal to the sum of
(1) its Unrecovered Capital plus (2) the Minimum Quarterly
Distribution for the Quarter during which the Liquidation Date occurs,
reduced by any distribution pursuant to Section 6.4(a)(i) or (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") plus (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 expiration of the Subordination
Period, 98% to all Unitholders holding Subordinated Units, Pro Rata,
and 2% to the General Partner until the Capital Account in respect of
each Subordinated Unit then Outstanding equals the sum of (1) its
Unrecovered Capital, determined for the taxable year (or portion
thereof) to which this allocation of gain relates, plus (2) the
Minimum Quarterly Distribution for the Quarter during which the
Liquidation Date occurs, reduced by any distribution pursuant to
Section 6.4(a)(iii) with respect to such Subordinated Unit for such
Quarter;
(D) Fourth, 90% to all Unitholders, Pro Rata, 8% to the holders
of the Incentive Distribution Rights, Pro Rata, and 2% to the General
Partner until the Capital Account in respect of each Common Unit then
Outstanding is equal to the sum of (1) its Unrecovered Capital, plus
(2) the Unpaid MQD, plus (3) any then existing Cumulative Common Unit
Arrearage, plus (4) the excess of (aa) the First Target Distribution
less the Minimum Quarterly Distribution for each Quarter of the
Partnership's existence over (bb) the cumulative per Unit amount of
any distributions of Operating Surplus that was distributed pursuant
to Sections 6.4(a)(iv) and 6.4(b)(ii) (the sum of (1) plus (2) plus
(3) plus (4) is hereinafter defined as the "First Liquidation Target
Amount");
50
(E) Fifth, 75% to all Unitholders, Pro Rata, 23% to the holders
of the Incentive Distribution Rights, Pro Rata, and 2% to the General
Partner until the Capital Account in respect of each Common Unit then
Outstanding is equal to the sum of (1) the First Liquidation Target
Amount, plus (2) the excess of (aa) the Second Target Distribution
less the First Target Distribution for each Quarter of the
Partnership's existence over (bb) the cumulative per Unit amount of
any distributions of Operating Surplus that was distributed pursuant
to Sections 6.4(a)(v) and 6.4(b)(iii) (the sum of (1) plus (2) is
hereinafter defined as the "Second Liquidation Target Amount"); and
(F) Finally, any remaining amount 50% to all Unitholders, Pro
Rata, 48 % to the holders of the Incentive Distribution Rights, Pro
Rata, and 2% to the General Partner.
(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, 98% to the Unitholders holding Subordinated Units, Pro Rata, and 2%
to the General Partner until the Capital Account in respect of each
Subordinated Unit then Outstanding has been reduced to zero;
(B) Second, 98% to all Unitholders holding Common Units, Pro Rata, and
2% to the General Partner until the Capital Account in respect of each
Common Unit then Outstanding has been reduced to zero; and
(C) Third, the balance, if any, 100% to the General Partner.
(d) Special Allocations. Notwithstanding any other provision of this
Section 6.1, the following special allocations shall be made for such taxable
period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 6.1, if there is a net decrease in Partnership Minimum
Gain during any Partnership taxable period, each Partner shall be allocated
items of Partnership income and gain for such period (and, if necessary,
subsequent periods) in the manner and amounts provided in Treasury Regulation
Sections 1.704-2(f)(6), 1.704-2(g)(2) and 1.704-2(j)(2)(i), or any successor
provision. For purposes of this Section 6.1(d), each Partner's Adjusted Capital
Account balance shall be determined, and the allocation of income or gain
required hereunder shall be effected, prior to the application of any other
allocations pursuant to this Section 6.1(d) with respect to such taxable period
(other than an allocation pursuant to Sections 6.1(d)(vi) and 6.1(d)(vii)). This
Section 6.1(d)(i) is intended to comply with the Partnership Minimum Gain
chargeback requirement in Treasury Regulation Section 1.704-2(f) and shall be
interpreted consistently therewith.
51
(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain. Notwithstanding
the other provisions of this Section 6.1 (other than Section 6.1(d)(i)), except
as provided in Treasury Regulation Section 1.704-2(i)(4), if there is a net
decrease in Partner Nonrecourse Debt Minimum Gain during any Partnership taxable
period, any Partner with a share of Partner Nonrecourse Debt Minimum Gain at the
beginning of such taxable period shall be allocated items of Partnership income
and gain for such period (and, if necessary, subsequent periods) in the manner
and amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and
1.704-2(j)(2)(ii), or any successor provisions. For purposes of this Section
6.1(d), each Partner's Adjusted Capital Account balance shall be determined, and
the allocation of income or gain required hereunder shall be effected, prior to
the application of any other allocations pursuant to this Section 6.1(d), other
than Section 6.1(d)(i) and other than an allocation pursuant to Sections
6.1(d)(vi) and 6.1(d)(vii), with respect to such taxable period. This Section
6.1(d)(ii) is intended to comply with the chargeback of items of income and gain
requirement in Treasury Regulation Section 1.704-2(i)(4) and shall be
interpreted consistently therewith.
(iii) Priority Allocations.
(A) If the amount of cash or the Net Agreed Value of any property
distributed (except cash or property distributed pursuant to Section 12.4)
to any Unitholder with respect to its Units for a taxable year is greater
(on a per Unit basis) than the amount of cash or the Net Agreed Value of
property distributed to the other Unitholders with respect to their Units
(on a per Unit basis), then (1) each Unitholder receiving such greater cash
or property distribution shall be allocated gross income in an amount equal
to the product of (aa) the amount by which the distribution (on a per Unit
basis) to such Unitholder exceeds the distribution (on a per Unit basis) to
the Unitholders receiving the smallest distribution and (bb) the number of
Units owned by the Unitholder receiving the greater distribution; and (2)
the General Partner shall be allocated gross income in an aggregate amount
equal to 2/98th of the sum of the amounts allocated in clause (1) above.
(B) After the application of Section 6.1(d)(iii)(A), all or any
portion of the remaining items of Partnership gross income or gain for the
taxable period, if any, shall be allocated 100% to the holders of Incentive
Distribution Rights, Pro Rata, until the aggregate amount of such items
allocated to the holders of Incentive Distribution Rights pursuant to this
paragraph 6.1(d)(iii)(B) for the current taxable year and all previous
taxable years is equal to the cumulative amount of all Incentive
Distributions made to the holders of Incentive Distribution Rights from the
Closing Date to a date 45 days after the end of the current taxable year.
(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
52
allocated to such Partner in an amount and manner sufficient to eliminate, to
the extent required by the Treasury Regulations promulgated under Section 704(b)
of the Code, the deficit balance, if any, in its Adjusted Capital Account
created by such adjustments, allocations or distributions as quickly as possible
unless such deficit balance is otherwise eliminated pursuant to Section
6.1(d)(i) or (ii).
(v) Gross Income Allocations. In the event any Partner has a deficit
balance in its Capital Account at the end of any Partnership taxable period in
excess of the sum of (A) the amount such Partner is required to restore pursuant
to the provisions of this Agreement and (B) the amount such Partner is deemed
obligated to restore pursuant to Treasury Regulation Sections 1.704-2(g) and
1.704-2(i)(5), such Partner shall be specially allocated items of Partnership
gross income and gain in the amount of such excess as quickly as possible;
provided, that an allocation pursuant to this Section 6.1(d)(v) shall be made
only if and to the 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 in its good faith
discretion that the Partnership's Nonrecourse Deductions must be allocated in a
different ratio to satisfy the safe harbor requirements of the Treasury
Regulations promulgated under Section 704(b) of the Code, the General Partner is
authorized, upon notice to the other Partners, to revise the prescribed ratio to
the numerically closest ratio that does satisfy such requirements.
(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(c)
of the Code is required, pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis), and such item of gain or loss shall be
specially allocated to the Partners in a manner consistent with the manner in
53
which their Capital Accounts are required to be adjusted pursuant to such
Section of the Treasury Regulations.
(x) Economic Uniformity. At the election of the General Partner with
respect to any taxable period ending upon, or after, the termination of the
Subordination Period, all or a portion of the remaining items of Partnership
gross income or gain for such taxable period, after taking into account
allocations pursuant to Section 6.1(d)(iii), shall be allocated 100% to each
Partner holding Subordinated Units that are Outstanding as of the termination of
the Subordination Period ("Final Subordinated Units") in the proportion of the
number of Final Subordinated Units held by such Partner to the total number of
Final Subordinated Units then Outstanding, until each such Partner has been
allocated an amount of gross income or gain which 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 only be
available to the General Partner 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.
(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 reasonably determines that
such allocations will otherwise be inconsistent with the economic agreement
among the Partners. Further, allocations pursuant to this Section
6.1(d)(xi)(A) shall be deferred with respect to allocations pursuant to
clauses (1) and (2) hereof to the extent the General Partner reasonably
determines that such allocations are likely to be offset by subsequent
Required Allocations.
54
(B) The General Partner shall have reasonable discretion, with respect
to each taxable period, to (1) apply the provisions of Section
6.1(d)(xi)(A) in whatever order is most likely to minimize the economic
distortions that might otherwise result from the Required Allocations, and
(2) divide all allocations pursuant to Section 6.1(d)(xi)(A) among the
Partners in a manner that is likely to minimize such economic distortions.
(xii) Corrective Allocations. In the event of any allocation of Additional
Book Basis Derivative Items or any Book-Down Event or any recognition of a Net
Termination Loss, the following rules shall apply:
(A) In the case of any allocation of Additional Book Basis Derivative
Items (other than an allocation of Unrealized Gain or Unrealized Loss under
Section 5.5(d) hereof), the General Partner shall allocate additional items
of gross income and gain away from the holders of Incentive Distribution
Rights to the Unitholders and the General Partner, or additional items of
deduction and loss away from the Unitholders and the General Partner to the
holders of Incentive Distribution Rights, to the extent that the Additional
Book Basis Derivative Items allocated to the Unitholders or the General
Partner exceed their Share of Additional Book Basis Derivative Items. For
this purpose, the Unitholders and the General Partner shall be treated as
being allocated Additional Book Basis Derivative Items to the extent that
such Additional Book Basis Derivative Items have reduced the amount of
income that would otherwise have been allocated to the Unitholders or the
General Partner under this 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 reasonably determined by the General
Partner, that to the extent possible the aggregate Capital Accounts of the
Partners will equal the amount which would have been the Capital Account
balance of the Partners if no prior Book-Up Events had occurred, and (2)
any negative adjustment in excess of the Aggregate Remaining Net Positive
Adjustments shall be allocated pursuant to Section 6.1(c) hereof.
(C) In making the allocations required under this Section 6.1(d)(xii),
the General Partner, in its sole discretion, may apply whatever conventions
or other methodology it deems reasonable to satisfy the purpose of this
Section 6.1(d)(xii).
55
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 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.
(c) For the proper administration of the Partnership and for the
preservation of uniformity of the Limited Partner Interests (or any class or
classes thereof), the General Partner shall have sole discretion to (i) adopt
such conventions as it deems appropriate in determining the amount of
depreciation, amortization and cost recovery deductions; (ii) make special
allocations for federal income tax purposes of income (including, without
limitation, gross income) or deductions; and (iii) amend the provisions of this
Agreement as appropriate (x) to reflect the proposal or promulgation of Treasury
Regulations under Section 704(b) or 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.
56
(d) The General Partner in its discretion may determine to depreciate or
amortize the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the extent
of the unamortized Book-Tax Disparity) using a predetermined rate derived from
the depreciation or amortization method and useful life applied to the
Partnership's common basis of such property, despite any inconsistency of such
approach with Treasury Regulation Section 1.167(c)-l(a)(6), or any successor
regulations thereto. If the General Partner determines that such reporting
position cannot reasonably be taken, the General Partner may adopt depreciation
and amortization conventions under which all purchasers acquiring Limited
Partner Interests in the same month would receive depreciation and amortization
deductions, based upon the same applicable rate as if they had purchased a
direct interest in the Partnership's property. If the General Partner chooses
not to utilize such aggregate method, the General Partner may use any other
reasonable depreciation and amortization conventions to preserve the uniformity
of the intrinsic tax characteristics of any Limited Partner Interests that would
not have a material adverse effect on the Limited Partners or the Record Holders
of any class or classes of Limited Partner Interests.
(e) Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 6.2, be
characterized as Recapture Income in the same proportions and to the same extent
as such Partners (or their predecessors in interest) have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized by the
Partnership for federal income tax purposes and allocated to the Partners in
accordance with the provisions hereof shall be determined without regard to any
election under Section 754 of the Code which may be made by the Partnership;
provided, however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account those adjustments permitted or
required by Sections 734 and 743 of the Code.
(g) Each item of Partnership income, gain, loss and deduction attributable
to a transferred Partnership Interest, shall for federal income tax purposes, be
determined on an annual basis and prorated on a monthly basis and shall be
allocated to the Partners as of the opening of the New York Stock Exchange on
the first Business Day of each month; provided, however, that (i) such items for
the period beginning on the Closing Date and ending on the last day of the month
in which the Option Closing Date or the expiration of the Over-allotment Option
occurs shall be allocated to the Partners as of the opening of the New York
Stock Exchange on the first Business Day of the next succeeding month; and
provided, further, that gain or loss on a sale or other disposition of any
assets of the Partnership other than in the ordinary course of business shall be
allocated to the Partners as of the opening of the New York Stock Exchange on
the first Business Day of the month in which such gain or loss is recognized for
federal income tax purposes. The General Partner may revise, alter or otherwise
modify such methods of allocation as it determines necessary, to the extent
permitted or required by Section 706 of the Code and the regulations or rulings
promulgated thereunder.
(h) Allocations that would otherwise be made to a Limited Partner under the
provisions of this Article VI shall instead be made to the beneficial owner of
57
Limited Partner Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable to the General
Partner in its sole discretion.
SECTION 6.3 Requirement and Characterization of Distributions; Distributions to
Record Holders.
(a) Within 45 days following the end of (i) the period beginning on the
Closing Date and ending on June 30, 2001 and (ii) each Quarter commencing with
the Quarter beginning on July 1, 2001, an amount equal to 100% of Available Cash
with respect to such Quarter shall, subject to Section 17-607 of the Delaware
Act, be distributed in accordance with this Article VI by the Partnership to the
Partners as of the Record Date selected by the General Partner in its reasonable
discretion. 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 amount of Operating Surplus as
calculated with respect to the Quarter in respect of which such distribution of
Available Cash is to be made through the close of the Quarter. Any remaining
amounts of Available Cash distributed by the Partnership on such date shall,
except as otherwise provided in Section 6.5, be deemed to be "Capital Surplus."
All distributions required to be made under this Agreement shall be made subject
to Section 17-607 of the Delaware Act.
(b) Notwithstanding Section 6.3(a), in the event of the dissolution and
liquidation of the Partnership, all receipts received during or after the
Quarter in which the Liquidation Date occurs, other than from borrowings
described in (a)(ii) of the definition of Available Cash, shall be applied and
distributed solely in accordance with, and subject to the terms and conditions
of, Section 12.4.
(c) The General Partner shall have the discretion to treat taxes paid by
the Partnership on behalf of, or amounts withheld with respect to, all or less
than all of the Partners, as a distribution of Available Cash to such Partners.
(d) Each distribution in respect of a Partnership Interest shall be paid by
the Partnership, directly or through the Transfer Agent or through any other
Person or agent, only to the Record Holder of such Partnership Interest as of
the Record Date set for such distribution. Such payment shall constitute full
payment and satisfaction of the Partnership's liability in respect of such
payment, regardless of any claim of any Person who may have an interest in such
payment by reason of an assignment or otherwise.
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 required by Section
5.6(b) in respect of additional Partnership Securities issued pursuant thereto:
58
(i) First, 98% to the Unitholders holding Common Units, Pro Rata, and
2% to the General Partner 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, 98% to the Unitholders holding Common Units, Pro Rata,
and 2% to the General Partner 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, 98% to the Unitholders holding Subordinated Units, Pro
Rata, and 2% to the General Partner 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, 90% to all Unitholders, Pro Rata, 8% to the holders of
the Incentive Distribution Rights, Pro Rata, and 2% to the General Partner
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, 75% to all Unitholders, Pro Rata, 23% to the holders of the
Incentive Distribution Rights, Pro Rata, and 2% to the General Partner
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; and
(vi) Thereafter, 50% to all Unitholders, Pro Rata, 48% to the holders
of the Incentive Distribution Rights, Pro Rata, and 2% to the General
Partner;
provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution and the Second 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)(vi).
(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 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, 98% to all Unitholders, Pro Rata, and 2% to the General
Partner 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, 90% to all Unitholders, Pro Rata, and 8% to the holders
of the Incentive Distribution Rights, Pro Rata, and 2% to the General
Partner 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;
59
(iii) Third, 75% to all Unitholders, Pro Rata, and 23% to the holders
of the Incentive Distribution Rights, Pro Rata, and 2% to the General
Partner 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; and
(iv) Thereafter, 50% to all Unitholders, Pro Rata, and 48% to the
holders of the Incentive Distribution Rights, Pro Rata, and 2% to the
General Partner;
provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution and the Second 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)(iv).
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, 98%
to all Unitholders, Pro Rata, and 2% to the General Partner 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 98% to all Unitholders holding
Common Units, Pro Rata, and 2% to the General Partner until there has been
distributed in respect of each Common Unit then Outstanding an amount equal to
the Cumulative Common Unit Arrearage. Thereafter, all Available Cash shall be
distributed as if it were Operating Surplus and shall be distributed in
accordance with Section 6.4.
SECTION 6.6 Adjustment of Minimum Quarterly Distribution and Target Distribution
Levels.
(a) The Minimum Quarterly Distribution, First Target Distribution, Second
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 5.10. 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 and Second Target Distribution shall be adjusted
proportionately downward to equal the product obtained by multiplying the
otherwise applicable Minimum Quarterly Distribution, First Target Distribution
and Second Target Distribution, as the case may be, by a fraction of which the
numerator is the Unrecovered Capital of the Common Units immediately after
giving effect to such distribution and of which the denominator is the
Unrecovered Capital of the Common Units immediately prior to giving effect to
such distribution.
60
(b) The Minimum Quarterly Distribution, First Target Distribution and
Second Target Distribution shall also be subject to adjustment pursuant to
Section 6.9.
SECTION 6.7 Special Provisions Relating to the Holders of Subordinated Units.
(a) Except with respect to the right to vote on or approve matters
requiring the vote or approval of a percentage of the holders of Outstanding
Common Units and the right to participate in allocations of income, gain, loss
and deduction and distributions made with respect to Common Units, the holder of
a Subordinated Unit shall have all of the rights and obligations of a Unitholder
holding Common Units hereunder; provided, however, that immediately upon the
conversion of Subordinated Units into Common Units pursuant to Section 5.8, 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) and 6.7(b).
(b) The Unitholder holding a Subordinated Unit that has converted into a
Common Unit pursuant to Section 5.8 shall not be issued a Common Unit
Certificate pursuant to Section 4.1, and shall not be permitted to transfer its
converted Subordinated Units to a Person which is not an Affiliate of the holder
until such time as the General Partner determines, based on advice of counsel,
that a converted Subordinated 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(b), the General Partner may take whatever reasonable steps are required to
provide economic uniformity to the converted Subordinated Units in preparation
for a transfer of such converted Subordinated Units, including the application
of Sections 5.5(c)(ii) and 6.1(d)(x); provided, however, that no such steps may
be taken that would have a material adverse effect on the Unitholders holding
Common Units represented by Common Unit Certificates.
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 Articles III and 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, (ii) be entitled to any distributions other than
as provided in Sections 6.4(a)(iv), (v) and (vi), 6.4(b)(ii), (iii) and (iv),
and 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 the relevant governmental authority which causes the Partnership or
the Operating Partnership to be treated as an association taxable as a
corporation or otherwise subjects the Partnership or the Operating Partnership
61
to entity-level taxation for federal, state or local income tax purposes, the
then applicable Minimum Quarterly Distribution, First Target Distribution and
Second Target Distribution shall be adjusted to equal the product obtained by
multiplying (a) the amount thereof by (b) one minus the sum of (i) the highest
marginal federal corporate (or other entity, as applicable) income tax rate of
the Partnership or the Operating Partnership for the taxable year of the
Partnership or the Operating Partnership in which such Quarter occurs (expressed
as a percentage) plus (ii) the effective overall state and local income tax rate
(expressed as a percentage) applicable to the Partnership or the Operating
Partnership for the calendar year next preceding the calendar year in which such
Quarter occurs (after taking into account the benefit of any deduction allowable
for federal income tax purposes with respect to the payment of state and local
income taxes), but only to the extent of the increase in such rates resulting
from such legislation or interpretation. Such effective overall state and local
income tax rate shall be determined for the taxable year next preceding the
first taxable year during which the Partnership or the Operating Partnership is
taxable for federal income tax purposes as an association taxable as a
corporation or is otherwise subject to entity-level taxation by determining such
rate as if the Partnership or the Operating Partnership had been subject to such
state and local taxes during such preceding taxable year.
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
SECTION 7.1 Management.
(a) The General Partner shall conduct, direct and manage all activities of
the Partnership. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership shall be
exclusively vested in the General Partner, and no Limited Partner or Assignee
shall have any management power over the business and affairs of the
Partnership. In addition to the powers now or hereafter granted a general
partner of a limited partnership under applicable law or which are granted to
the General Partner under any other provision of this Agreement, the General
Partner, subject to Section 7.3, shall have full power and authority to do all
things and on such terms as it, in its sole discretion, may deem necessary or
appropriate to conduct the business of the Partnership, to exercise all powers
set forth in Section 2.5 and to effectuate the purposes set forth in Section
2.4, including the following:
(i) the making of any expenditures, the lending or borrowing of money,
the assumption or guarantee of, or other contracting for, indebtedness and
other liabilities, the issuance of evidences of indebtedness, including
indebtedness that is convertible into Partnership Securities, and the
incurring of any other obligations;
(ii) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(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);
62
(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
the Operating Partnership); the repayment of obligations of the Partnership
Group and the making of capital contributions to any member of the
Partnership Group;
(v) the negotiation, execution and performance of any contracts,
conveyances or other instruments (including instruments that limit the
liability of the Partnership under contractual arrangements to all or
particular assets of the Partnership, with the other party to the contract
to have no recourse against the General Partner or its assets other than
its interest in the Partnership, even if same results in the terms of the
transaction being less favorable to the Partnership than would otherwise be
the case);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees (including employees
having titles such as "president," "vice president," "secretary" and
"treasurer") and agents, outside attorneys, accountants, consultants and
contractors and the determination of their compensation and other terms of
employment or hiring;
(viii) the maintenance of such insurance for the benefit of the
Partnership Group and the Partners as it deems necessary or appropriate;
(ix) the formation of, or acquisition of an interest in, and the
contribution of property and the making of loans to, any further limited or
general partnerships, joint ventures, corporations or other relationships
(including the acquisition of interests in, and the contributions of
property to, the Operating Partnership from time to time) subject to the
restrictions set forth in Section 2.4;
(x) the control of any matters affecting the rights and obligations of
the Partnership, including the bringing and defending of actions at law or
in equity and otherwise engaging in the conduct of litigation 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);
63
(xiii) unless restricted or prohibited by Section 5.7, the purchase,
sale or other acquisition or disposition of Partnership Securities, or the
issuance of additional options, rights, warrants and appreciation rights
relating to Partnership Securities; and
(xiv) the undertaking of any action in connection with the
Partnership's ownership or operation of any Group Member, including
exercising, on behalf and for the benefit of the Partnership, the
Partnership's rights as the sole stockholder of the Operating General
Partner.
(b) Notwithstanding any other provision of this Agreement, the Operating
Partnership 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 the
Operating Partnership Agreement, the Underwriting Agreement, the Omnibus
Agreement, the Contribution 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.
Valero GP caused the initial Certificate of Limited Partnership of the
Partnership and the General Partner has caused the Certificate of Amendment to
the Certificate of Limited Partnership and the Amended and Restated Certificate
of Limited Partnership of the Partnership to be filed with the Secretary of
State of the State of Delaware in accordance with the Delaware Act and the
General Partner shall use all reasonable efforts to cause to be filed such other
certificates or documents as may be determined by the General Partner in its
sole discretion to be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware or any other state in which the Partnership may elect to do business
or own property. To the extent that such action is determined by the General
Partner in its sole discretion to be reasonable and necessary or appropriate,
the General Partner shall file amendments to and restatements of the Certificate
of Limited Partnership and do all things to maintain the Partnership as a
limited partnership (or a partnership or other entity in which the limited
partners have limited liability) under the laws of the State of Delaware or of
any other state in which the Partnership may elect to do business or own
property. Subject to the terms of Section 3.4(a), the General Partner shall not
64
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 or restatement thereof to any Limited Partner.
SECTION 7.3 Restrictions on General Partner's Authority.
(a) The General Partner may not, without written approval of the specific
act by holders of all of the Outstanding Limited Partner Interests or by other
written instrument executed and delivered by holders of all of the Outstanding
Limited Partner Interests subsequent to the date of this Agreement, take any
action in contravention of this Agreement, including, except as otherwise
provided in this Agreement, (i) committing any act that would make it impossible
to carry on the ordinary business of the Partnership; (ii) possessing
Partnership property, or assigning any rights in specific Partnership property,
for other than a Partnership purpose; (iii) admitting a Person as a Partner;
(iv) amending this Agreement in any manner; or (v) transferring its interest as
general partner of the Partnership.
(b) Except as provided in Articles XII and XIV, the General Partner may not
sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
(including by way of merger, consolidation or other combination) or approve on
behalf of the Partnership the sale, exchange or other disposition of all or
substantially all of the assets of the Operating Partnership, taken as a whole,
without the approval of holders of a Unit Majority; provided, however, that this
provision shall not preclude or limit the General Partner's ability to mortgage,
pledge, hypothecate or grant a security interest in all or substantially all of
the assets of the Partnership or the Operating Partnership and shall not apply
to any forced sale of any or all of the assets of the Partnership or the
Operating Partnership 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, (i) consent to any
amendment to the Operating Partnership Agreement or, except as expressly
permitted by Section 7.9(d), take any action permitted to be taken by a partner
of the Operating Partnership, in either case, that would have a material adverse
effect on the Partnership as a partner of the Operating Partnership or the
holders of Common Units (other than the General Partner and its Affiliates) or
(ii) except as permitted under Sections 4.6, 11.1 and 11.2, elect or cause the
Partnership to elect a successor general partner.
SECTION 7.4 Reimbursement of the General Partner.
(a) Except as provided in this Section 7.4 and elsewhere in this Agreement
or in the Operating Partnership Agreement, the General Partner shall not be
compensated for its services as general partner of any Group Member.
(b) Subject to the provisions of the Services Agreement, the General
Partner shall be reimbursed on a monthly basis, or such other reasonable basis
as the General Partner may determine in its sole discretion, for (i) all direct
and indirect expenses it incurs or payments it makes on behalf of the
Partnership (including salary, bonus, incentive compensation and other amounts
paid to any Person including Affiliates of the General Partner to perform
services for the Partnership or for the General Partner in the discharge of its
duties to the Partnership), and (ii) all other necessary or appropriate expenses
allocable to the Partnership or otherwise reasonably incurred by the General
Partner in connection with operating the Partnership's business (including
expenses allocated to the General Partner by its Affiliates). The General
65
Partner shall determine the expenses that are allocable to the Partnership in
any reasonable manner determined by the General Partner in its sole discretion.
Reimbursements pursuant to this Section 7.4 shall be in addition to any
reimbursement to the General Partner as a result of indemnification pursuant to
Section 7.7.
(c) Subject to Section 5.7, the General Partner, in its sole discretion and
without the approval of the Limited Partners (who shall have no right to vote in
respect thereof), may propose and adopt on behalf of the Partnership employee
benefit plans, employee programs and employee practices (including plans,
programs and practices involving the issuance of Partnership Securities or
options to purchase Partnership Securities), or cause the Partnership to issue
Partnership Securities in connection with, or pursuant to, any employee benefit
plan, employee program or employee practice maintained or sponsored by the
General Partner or any of its Affiliates, in each case for the benefit of
employees of the General Partner, any Group Member or any Affiliate, or any of
them, in respect of services performed, directly or indirectly, for the benefit
of the Partnership Group. The Partnership agrees to issue and sell to the
General Partner or any of its Affiliates any Partnership Securities that the
General Partner or such Affiliate is obligated to provide to any employees
pursuant to any such employee benefit plans, employee programs or employee
practices. Expenses incurred by the General Partner in connection with any such
plans, programs and practices (including the net cost to the General Partner or
such Affiliate of Partnership Securities purchased by the General Partner or
such Affiliate from the Partnership to fulfill options or awards under such
plans, programs and practices) shall be reimbursed in accordance with Section
7.4(b). Any and all obligations of the General Partner under any employee
benefit plans, employee programs or employee practices adopted by the General
Partner as permitted by this Section 7.4(c) shall constitute obligations of the
General Partner hereunder and shall be assumed by any successor General Partner
approved pursuant to Section 11.1 or 11.2 or the transferee of or successor to
all of the General Partner's General Partner Interest pursuant to Section 4.6.
SECTION 7.5 Outside Activities.
(a) After the Closing Date, the General Partner, for so long as it is the
General Partner of the Partnership (i) agrees that its sole business will be to
act as the general partner of the Partnership and any other partnership or
limited liability company of which the Partnership is, directly or indirectly, a
partner and to undertake activities that are ancillary or related thereto
(including being a limited partner in the Partnership), (ii) shall not engage in
any business or activity or incur any debts or liabilities except in connection
with or incidental to (A) its performance as general partner of one or more
Group Members or as described in or contemplated by the Registration Statement
or (B) the acquiring, owning or disposing of debt or equity securities in any
Group Member and (iii) except to the extent permitted in the Omnibus Agreement,
shall not, and shall cause its Affiliates not to, engage in any Restricted
Business.
(b) The Omnibus Agreement sets forth certain restrictions on the ability of
Valero Energy Corporation and its Affiliates to engage in Restricted Businesses.
(c) Except as specifically restricted by Section 7.5(a) and the Omnibus
Agreement, each Indemnitee (other than the General Partner) shall have the right
66
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 express or implied by law to
any Group Member or any Partner or Assignee. Neither any Group Member, any
Limited Partner nor any other Person shall have any rights by virtue of this
Agreement, the Operating Partnership Agreement or the partnership relationship
established hereby or thereby in any business ventures of any Indemnitee.
(d) Subject to the terms of Section 7.5(a), Section 7.5(b), Section 7.5(c)
and the Omnibus Agreement, but otherwise notwithstanding anything to the
contrary in this Agreement, (i) the engaging in competitive activities by any
Indemnitees (other than the General Partner) in accordance with the provisions
of this Section 7.5 is hereby approved by the Partnership and all Partners, (ii)
it shall be deemed not to be a breach of the General Partner's fiduciary duty or
any other obligation of any type whatsoever of the General Partner for the
Indemnitees (other than the General Partner) to engage in such business
interests and activities in preference to or to the exclusion of the Partnership
and (iii) except as set forth in the Omnibus Agreement, the General Partner and
the Indemnitees shall have no obligation to present business opportunities to
the Partnership.
(e) The General Partner and any of its Affiliates may acquire 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 all rights of the General Partner or Limited Partner, as applicable,
relating to such Units or Partnership Securities.
(f) The term "Affiliates" when used in Section 7.5(a) and Section 7.5(e)
with respect to the General Partner shall not include any Group Member or any
Subsidiary of the Group Member.
(g) Anything in this Agreement to the contrary notwithstanding, to the
extent that provisions of Sections 7.7, 7.8, 7.9, 7.10 or other Sections of this
Agreement purport or are interpreted to have the effect of restricting the
fiduciary duties that might otherwise, as a result of Delaware or other
applicable law, be owed by the General Partner to the Partnership and its
Limited Partners, or to constitute a waiver or consent by the Limited Partners
to any such restriction, such provisions shall be inapplicable and have no
effect in determining whether the General Partner has complied with its
fiduciary duties in connection with determinations made by it under this Section
7.5.
SECTION 7.6 Loans from the General Partner; Loans or Contributions from the
Partnership; Contracts with Affiliates; Certain Restrictions on the General
Partner.
(a) The General Partner or 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
67
terms less favorable to the borrowing party than would be charged or imposed on
the borrowing party by unrelated lenders on comparable loans made on an
arm's-length basis (without reference to the lending party's financial abilities
or guarantees). The borrowing party shall reimburse the lending party for any
costs (other than any additional interest costs) incurred by the lending party
in connection with the borrowing of such funds. For purposes of this Section
7.6(a) and Section 7.6(b), the term "Group Member" shall include any Affiliate
of a Group Member that is controlled by the Group Member. No Group Member may
lend funds to the General Partner or any of its Affiliates (other than another
Group Member).
(b) The Partnership may lend or contribute to any Group Member, and any
Group Member may borrow from the Partnership, funds on terms and conditions
established in the sole discretion of the General Partner; provided, however,
that the Partnership may not charge the Group Member interest at a rate less
than the rate that would be charged to the Group Member (without reference to
the General Partner's financial abilities or guarantees) by unrelated lenders on
comparable loans. The foregoing authority shall be exercised by the General
Partner in its sole discretion and shall not create any right or benefit in
favor of any Group Member or any other Person.
(c) The General Partner may itself, or may enter into an agreement with any
of its Affiliates to, render services to a Group Member or to the General
Partner in the discharge of its duties as general partner of the Partnership.
Any services rendered to a Group Member by the General Partner or any of its
Affiliates shall be on terms that are fair and reasonable to the Partnership;
provided, however, that the requirements of this Section 7.6(c) shall be deemed
satisfied as to (i) any transaction approved by Special Approval, (ii) any
transaction, the terms of which are no less favorable to the Partnership Group
than those generally being provided to or available from unrelated third parties
or (iii) any transaction that, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership Group), is
equitable to the Partnership Group. The provisions of Section 7.4 shall apply to
the rendering of services described in this Section 7.6(c).
(d) The Partnership Group may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and applicable
law.
(e) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the requirements
of this Section 7.6(e) shall be deemed to be satisfied as to (i) the
transactions effected pursuant to Sections 5.2 and 5.3, the Contribution
Agreement and any other transactions described in or contemplated by the
Registration Statement, (ii) any transaction approved by Special Approval, (iii)
any transaction, the terms of which are no less favorable to the Partnership
than those generally being provided to or available from unrelated third
parties, or (iv) any transaction that, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership), is equitable
to the Partnership. With respect to any contribution of assets to the
68
Partnership in exchange for Partnership Securities, the Conflicts Committee, in
determining whether the appropriate number of Partnership Securities are being
issued, may take into account, among other things, the fair market value of the
assets, the liquidated and contingent liabilities assumed, the tax basis in the
assets, the extent to which tax-only allocations to the transferor will protect
the existing partners of the Partnership against a low tax basis, and such other
factors as the Conflicts Committee deems relevant under the circumstances.
(f) The General Partner and its Affiliates will have no obligation to
permit any Group Member to use any facilities or assets of the General Partner
and its Affiliates, except as may be provided in contracts entered into from
time to time specifically dealing with such use, nor shall there be any
obligation on the part of the General Partner or its Affiliates to enter into
such contracts.
(g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of the
conflicts of interest described in the Registration Statement are hereby
approved by all Partners.
SECTION 7.7 Indemnification.
(a) To the fullest extent permitted by law but subject to the limitations
expressly provided in this Agreement, all Indemnitees shall be indemnified and
held harmless by the Partnership from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including legal fees and
expenses), judgments, fines, penalties, interest, settlements or other amounts
arising from any and all claims, demands, actions, suits or proceedings, whether
civil, criminal, administrative or investigative, in which any Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, by reason of
its status as an Indemnitee; provided, that in each case the Indemnitee acted in
good faith and in a manner that such Indemnitee reasonably believed to be in, or
(in the case of a Person other than the General Partner) not opposed to, the
best interests of the Partnership and, with respect to any criminal proceeding,
had no reasonable cause to believe its conduct was unlawful; provided, further,
no indemnification pursuant to this Section 7.7 shall be available to the
General Partner with respect to its obligations incurred pursuant to the
Underwriting Agreement or the Contribution Agreement (other than obligations
incurred by the General Partner on behalf of the Partnership or the Operating
Partnership). The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that the Indemnitee acted in a manner
contrary to that specified above. Any indemnification pursuant to this Section
7.7 shall be made only out of the assets of the Partnership, it being agreed
that the General Partner shall not be personally liable for such indemnification
and shall have no obligation to contribute or loan any monies or property to the
Partnership to enable it to effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including legal fees
and expenses) incurred by an Indemnitee who is indemnified pursuant to Section
7.7(a) in defending any claim, demand, action, suit or proceeding shall, from
time to time, be advanced by the Partnership prior to the final disposition of
such claim, demand, action, suit or proceeding upon receipt by the Partnership
of any undertaking by or on behalf of the Indemnitee to repay such amount if it
69
shall be determined that the Indemnitee is not entitled to be indemnified as
authorized in this Section 7.7.
(c) The indemnification provided by this Section 7.7 shall be in addition
to any other rights to which an Indemnitee may be entitled under any agreement,
pursuant to any vote of the holders of Outstanding Limited Partner Interests, as
a matter of law or otherwise, both as to actions in the Indemnitee's capacity as
an Indemnitee and as to actions in any other capacity (including any capacity
under the Underwriting Agreement), and shall continue as to an Indemnitee who
has ceased to serve in such capacity and shall inure to the benefit of the
heirs, successors, assigns and administrators of the Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse the General
Partner or its Affiliates for the cost of) insurance, on behalf of the General
Partner, its Affiliates and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expense that
may be incurred by such Person in connection with the Partnership's activities
or such Person's activities on behalf of the Partnership, regardless of whether
the Partnership would have the power to indemnify such Person against such
liability under the provisions of this Agreement.
(e) For purposes of this Section 7.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute "fines"
within the meaning of Section 7.7(a); and action taken or omitted by it with
respect to any employee benefit plan in the performance of its duties for a
purpose reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is in, or
not opposed to, the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 7.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership, nor
the obligations of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 7.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
70
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
SECTION 7.8 Liability of Indemnitees.
(a) Notwithstanding anything to the contrary set forth in this Agreement,
no Indemnitee shall be liable for monetary damages to the Partnership, the
Limited Partners, the Assignees 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 if such Indemnitee acted in good faith.
(b) Subject to its obligations and duties as General Partner set forth in
Section 7.1(a), the General Partner may exercise any of the powers granted to it
by this Agreement and perform any of the duties imposed upon it hereunder either
directly or by or through its agents, and the General Partner shall not be
responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
(c) To the extent that, at law or in equity, an Indemnitee has duties
(including fiduciary duties) and liabilities relating thereto to the Partnership
or to the Partners, the General Partner and any other Indemnitee acting in
connection with the Partnership's business or affairs shall not be liable to the
Partnership or to any Partner for its good faith reliance on the provisions of
this Agreement. The provisions of this Agreement, to the extent that they
restrict or otherwise modify the duties and liabilities of an Indemnitee
otherwise existing at law or in equity, are agreed by the Partners to replace
such other duties and liabilities of such Indemnitee.
(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 to the Partnership, the Limited Partners, the
General Partner, and the Partnership's and General Partner's and the Operating
General Partner's directors, officers and employees under this Section 7.8 as in
effect immediately prior to such amendment, modification or repeal with respect
to claims arising from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such claims
may arise or be asserted.
SECTION 7.9 Resolution of Conflicts of Interest.
(a) Unless otherwise expressly provided in this Agreement or the Operating
Partnership Agreement, whenever a potential conflict of interest exists or
arises between the General Partner or any of its Affiliates, on the one hand,
and the Partnership, the Operating Partnership, any Partner or any Assignee, on
the other, any resolution or course of action by the General Partner or its
Affiliates in respect of such conflict of interest shall be permitted and deemed
approved by all Partners, and shall not constitute a breach of this Agreement,
of the Operating Partnership Agreement, of any agreement contemplated herein or
therein, or of any duty stated or implied by law or equity, if the resolution or
course of action is, or by operation of this Agreement is deemed to be, fair and
reasonable to the Partnership. The General Partner shall be authorized but not
required in connection with its resolution of such conflict of interest to seek
Special Approval of such resolution. Any conflict of interest and any resolution
71
of such conflict of interest shall be conclusively deemed fair and reasonable to
the Partnership if such conflict of interest or resolution is (i) approved by
Special Approval, (ii) on terms no less favorable to the Partnership than those
generally being provided to or available from unrelated third parties or (iii)
fair to the Partnership, taking into account the totality of the relationships
between the parties involved (including other transactions that may be
particularly favorable or advantageous to the Partnership). The General Partner
may also adopt a resolution or course of action that has not received Special
Approval. The General Partner (including the Conflicts Committee in connection
with Special Approval) shall be authorized in connection with its determination
of what is "fair and reasonable" to the Partnership and in connection with its
resolution of any conflict of interest to consider (A) the relative interests of
any party to such conflict, agreement, transaction or situation and the benefits
and burdens relating to such interest; (B) any customary or accepted industry
practices and any customary or historical dealings with a particular Person; (C)
any applicable generally accepted accounting practices or principles; and (D)
such additional factors as the General Partner (including the Conflicts
Committee) determines in its sole discretion to be relevant, reasonable or
appropriate under the circumstances. Nothing contained in this Agreement,
however, is intended to nor shall it be construed to require the General Partner
(including the Conflicts Committee) to consider the interests of any Person
other than the Partnership. In the absence of bad faith by the General Partner,
the resolution, action or terms so made, taken or provided by the General
Partner with respect to such matter shall not constitute a breach of this
Agreement or any other agreement contemplated herein or a breach of any standard
of care or duty imposed herein or therein or, to the extent permitted by law,
under the Delaware Act or any other law, rule or regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "sole discretion" or "discretion," that
it deems "necessary or appropriate" or "necessary or advisable" or under a grant
of similar authority or latitude, except as otherwise provided herein, the
General Partner or such Affiliate shall be entitled to consider only such
interests and factors as it desires and shall have no duty or obligation to give
any consideration to any interest of, or factors affecting, the Partnership, the
Operating Partnership, any Limited Partner or any Assignee, (ii) it may make
such decision in its sole discretion (regardless of whether there is a reference
to "sole discretion" or "discretion") unless another express standard is
provided for, or (iii) in "good faith" or under another express standard, the
General Partner or such Affiliate shall act under such express standard and
shall not be subject to any other or different standards imposed by this
Agreement, the Operating Partnership Agreement, any other agreement contemplated
hereby or under the Delaware Act or any other law, rule or regulation. In
addition, any actions taken by the General Partner or such Affiliate consistent
with the standards of "reasonable discretion" set forth in the definitions of
Available Cash or Operating Surplus shall not constitute a breach of any duty of
the General Partner to the Partnership or the Limited Partners. The General
Partner shall have no duty, express or implied, to sell or otherwise dispose of
any asset of the Partnership Group other than in the ordinary course of
business. No borrowing by any Group Member or the approval thereof by the
General Partner shall be deemed to constitute a breach of any duty of the
General Partner to the Partnership or the Limited Partners by reason of the fact
that the purpose or effect of such borrowing is directly or indirectly to (A)
enable distributions to the General Partner or its Affiliates (including in
their capacities as Limited Partners) to exceed 2% of the total amount
distributed to all partners or (B) hasten the expiration of the Subordination
Period or the conversion of any Subordinated Units into Common Units.
72
(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
(d) The Unitholders hereby authorize the General Partner, on behalf of the
Partnership as a partner of a Group Member, to approve of actions by the general
partner of such Group Member similar to those actions permitted to be taken by
the General Partner pursuant to this Section 7.9.
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 Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers, a duly appointed attorney or attorneys-in-fact or the duly authorized
officers of the Partnership.
(d) Any standard of care and duty imposed by this Agreement or under the
Delaware Act or any applicable law, rule or regulation shall be modified, waived
or limited, to the extent permitted by law, as required to permit the General
Partner to act under this Agreement or any other agreement contemplated by this
Agreement and to make any decision pursuant to the authority prescribed in this
Agreement, so long as such action is reasonably believed by the General Partner
to be in, or not inconsistent with, the best interests of the Partnership.
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. As long as Partnership
Securities are held by any Group Member, such Partnership Securities shall not
be considered Outstanding for any purpose, except as otherwise provided herein.
The General Partner or any Affiliate of the General Partner may also purchase or
otherwise acquire and sell or otherwise dispose of Partnership Securities for
its own account, subject to the provisions of Articles IV and X.
73
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 upon the
request of the General Partner or any of its Affiliates, the Partnership shall
file with the Commission as promptly as practicable after receiving such
request, and use all reasonable efforts to cause to become effective and remain
effective for a period of not less than six months following its effective date
or such shorter period as shall terminate when all Partnership Securities
covered by such registration statement have been sold, a registration statement
under the Securities Act registering the offering and sale of the number of
Partnership Securities specified by the Holder; provided, however, that the
Partnership shall not be required to effect more than three registrations
pursuant to this Section 7.12(a); and provided further, however, that if the
Conflicts Committee determines in its good faith judgment that a postponement of
the requested registration for up to six months would be in the best interests
of the Partnership and its Partners due to a pending transaction, investigation
or other event, the filing of such registration statement or the effectiveness
thereof may be deferred for up to six months, but not thereafter. In connection
with any registration pursuant to the immediately preceding sentence, the
Partnership shall promptly prepare and file (x) such documents as may be
necessary to register or qualify the securities subject to such registration
under the securities laws of such states as the Holder shall reasonably request;
provided, however, that no such qualification shall be required in any
jurisdiction where, as a result thereof, the Partnership would become subject to
general service of process or to taxation or qualification to do business as a
foreign corporation or partnership doing business in such jurisdiction solely as
a result of such registration, and (y) such documents as may be necessary to
apply for listing or to list the Partnership Securities subject to such
registration on such National Securities Exchange as the Holder shall reasonably
request, and do any and all other acts and things that may reasonably be
necessary or advisable to enable the Holder to consummate a public sale of such
Partnership Securities in such states. Except as set forth in Section 7.12(c),
all costs and expenses of any such registration and offering (other than the
underwriting discounts and commissions) shall be paid by the Partnership,
without reimbursement by the Holder.
(b) If the Partnership shall at any time propose to file a registration
statement under the Securities Act for an offering of equity securities of the
Partnership for cash (other than an offering relating solely to an employee
benefit plan), the Partnership shall use all reasonable efforts to include such
number or amount of securities held by the Holder in such registration statement
as the Holder shall request. If the proposed offering pursuant to this Section
7.12(b) shall be an underwritten offering, then, in the event that the managing
underwriter or managing underwriters of such offering advise the Partnership and
the Holder in writing that in their opinion the inclusion of all or some of the
Holder's Partnership Securities would adversely and materially affect the
success of the offering, the Partnership shall include in such offering only
that number or amount, if any, of securities held by the Holder which, in the
opinion of the managing underwriter or managing underwriters, will not so
adversely and materially affect the offering. Except as set forth in Section
7.12(c), all costs and expenses of any such registration and offering (other
74
than the underwriting discounts and commissions) shall be paid by the
Partnership, without reimbursement by the Holder.
(c) If underwriters are engaged in connection with any registration
referred to in this Section 7.12, the Partnership shall provide indemnification,
representations, covenants, opinions and other assurance to the underwriters in
form and substance reasonably satisfactory to such underwriters. Further, in
addition to and not in limitation of the Partnership's obligation under Section
7.7, the Partnership shall, to the fullest extent permitted by law, indemnify
and hold harmless the Holder, its officers, directors and each Person who
controls the Holder (within the meaning of the Securities Act) and any agent
thereof (collectively, "Indemnified Persons") against any losses, claims,
demands, actions, causes of action, assessments, damages, liabilities (joint or
several), costs and expenses (including interest, penalties and reasonable
attorneys' fees and disbursements), resulting to, imposed upon, or incurred by
the Indemnified Persons, directly or indirectly, under the Securities Act or
otherwise (hereinafter referred to in this Section 7.12(c) as a "claim" and in
the plural as "claims") based upon, arising out of or resulting from any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which any Partnership Securities were registered
under the Securities Act or any state securities or Blue Sky laws, in any
preliminary prospectus (if used prior to the effective date of such registration
statement), or in any summary or final prospectus or in any amendment or
supplement thereto (if used during the period the Partnership is required to
keep the registration statement current), or arising out of, based upon or
resulting from the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements made therein
not misleading; provided, however, that the Partnership shall not be liable to
any Indemnified Person to the extent that any such claim arises out of, is based
upon or results from an untrue statement or alleged untrue statement or omission
or alleged omission made in such registration statement, such preliminary,
summary or final prospectus or such amendment or supplement, in reliance upon
and in conformity with written information furnished to the Partnership by or on
behalf of such Indemnified Person specifically for use in the preparation
thereof.
(d) The provisions of Section 7.12(a) and 7.12(b) shall continue to be
applicable with respect to the General Partner (and any of the General Partner's
Affiliates) after it ceases to be a 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(c) shall continue in effect thereafter.
(e) Any request to register Partnership Securities pursuant to this Section
7.12 shall (i) specify the Partnership Securities intended to be offered and
sold by the Person making the request, (ii) express such Person's present intent
to offer such shares for distribution, (iii) describe the nature or method of
the proposed offer and sale of Partnership Securities, and (iv) contain the
undertaking of such Person to provide all such information and materials and
75
take all action as may be required in order to permit the Partnership to comply
with all applicable requirements in connection with the registration of such
Partnership Securities.
SECTION 7.13 Reliance by Third Parties.
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner and any officer of Valero GP authorized by Valero GP to act on behalf of
and in the name of the Partnership has full power and authority to encumber,
sell or otherwise use in any manner any and all assets of the Partnership and to
enter into any authorized contracts on behalf of the Partnership, and such
Person shall be entitled to deal with the General Partner or any such officer as
if it were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies that may be available against such Person to contest, negate or
disaffirm any action of the General Partner or any such officer in connection
with any such dealing. In no event shall any Person dealing with the General
Partner or any such officer or its representatives be obligated to ascertain
that the terms of the Agreement have been complied with or to inquire into the
necessity or expedience of any act or action of the General Partner or any such
officer or its representatives. Each and every certificate, document or other
instrument executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (a) at the time of the execution and
delivery of such certificate, document or instrument, this Agreement was in full
force and effect, (b) the Person executing and delivering such certificate,
document or instrument was duly authorized and empowered to do so for and on
behalf of the Partnership and (c) such certificate, document or instrument was
duly executed and delivered in accordance with the terms and provisions of this
Agreement and is binding upon the Partnership.
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 8.1 Records and Accounting.
The General Partner shall keep or cause to be kept at the principal office
of the Partnership appropriate books and records with respect to the
Partnership's business, including all books and records necessary to provide to
the Limited Partners any information required to be provided pursuant to Section
3.4(a). Any books and records maintained by or on behalf of the Partnership in
the regular course of its business, including the record of the Record Holders
and Assignees of Units or other Partnership Securities, books of account and
records of Partnership proceedings, may be kept on, or be in the form of,
computer disks, hard drives, punch cards, magnetic tape, photographs,
micrographics or any other information storage device; provided, that the books
and records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial reporting purposes, on an accrual basis in accordance
with U.S. GAAP.
SECTION 8.2 Fiscal Year.
The fiscal year of the Partnership shall be a fiscal year ending December
31.
76
SECTION 8.3 Reports.
(a) As soon as practicable, but in no event later than 120 days after the
close of each fiscal year of the Partnership, the General Partner shall cause to
be mailed or furnished to each Record Holder of a Unit as of a date selected by
the General Partner in its discretion, 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 furnished to each Record Holder of a Unit,
as of a date selected by the General Partner in its discretion, a report
containing unaudited financial statements of the Partnership and such other
information as may be required by applicable law, regulation or rule of any
National Securities Exchange on which the Units are listed for trading, or as
the General Partner determines to be necessary or appropriate.
ARTICLE IX
TAX MATTERS
SECTION 9.1 Tax Returns and Information.
The Partnership shall timely file all returns of the Partnership that are
required for federal, state and local income tax purposes on the basis of the
accrual method and a taxable year ending on December 31. The tax information
reasonably required by Record Holders for federal and state income tax reporting
purposes with respect to a taxable year shall be furnished to them within 90
days of the close of the calendar year in which the Partnership's taxable year
ends. The classification, realization and recognition of income, gain, losses
and deductions and other items shall be on the accrual method of accounting for
federal income tax purposes.
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 Partner's
determination that such revocation is in the best interests of the Limited
Partners. Notwithstanding any other provision herein contained, for the purposes
of computing the adjustments under Section 743(b) of the Code, the General
Partner shall be authorized (but not required) to adopt a convention whereby the
price paid by a transferee of a Limited Partner Interest will be deemed to be
the lowest quoted closing price of the Limited Partner Interests on any National
Securities Exchange on which such Limited Partner Interests are traded during
the calendar month in which such transfer is deemed to occur pursuant to Section
6.2(g) without regard to the actual price paid by such transferee.
(b) The Partnership shall elect to deduct expenses incurred in organizing
the Partnership ratably over a sixty-month period as provided in Section 709 of
the Code.
77
(c) Except as otherwise provided herein, the General Partner shall
determine whether the Partnership should make any other elections permitted by
the Code.
SECTION 9.3 Tax Controversies.
Subject to the provisions hereof, the General Partner is designated as the
Tax Matters Partner (as defined in the Code) and is authorized and required to
represent the Partnership (at the Partnership's expense) in connection with all
examinations of the Partnership's affairs by tax authorities, including
resulting administrative and judicial proceedings, and to expend Partnership
funds for professional services and costs associated therewith. Each Partner
agrees to cooperate with the General Partner and to do or refrain from doing any
or all things reasonably required by the General Partner to conduct such
proceedings.
SECTION 9.4 Withholding.
Notwithstanding any other provision of this Agreement, the General Partner
is authorized to take any action that it determines in its discretion to be
necessary or appropriate to cause the Partnership to comply with any withholding
requirements established under the Code or any other federal, state or local law
including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of
the Code. To the extent that the Partnership is required or elects to withhold
and pay over to any taxing authority any amount resulting from the allocation or
distribution of income to any Partner or Assignee (including, without
limitation, by reason of Section 1446 of the Code), the amount withheld may at
the discretion of the General Partner be treated by the Partnership as a
distribution of cash pursuant to Section 6.3 in the amount of such withholding
from such Partner.
ARTICLE X
ADMISSION OF PARTNERS
SECTION 10.1 Admission of Initial Limited Partners.
Upon the issuance by the Partnership of Common Units, Subordinated Units
and Incentive Distribution Rights to UDS Logistics and the General Partner as
described in Section 5.2, each of UDS Logistics and the General Partner was
admitted to the Partnership as a Limited Partner in respect of the Common Units,
Subordinated Units and Incentive Distribution Rights issued to it. Upon the
issuance by the Partnership of Common Units to the Underwriters as described in
Section 5.3 in connection with the Initial Offering and the execution by each
Underwriter of a Transfer Application, the General Partner admitted the
Underwriters to the Partnership as Initial Limited Partners in respect of the
Common Units purchased by them.
SECTION 10.2 Admission of Substituted Limited Partner.
By transfer of a Limited Partner Interest in accordance with Article IV,
the transferor shall be deemed to have given the transferee the right to seek
admission as a Substituted Limited Partner subject to the conditions of, and in
the manner permitted under, this Agreement. A transferor of a Certificate
representing a Limited Partner Interest shall, however, only have the authority
to convey to a purchaser or other transferee who does not execute and deliver a
78
Transfer Application (a) the right to negotiate such Certificate to a purchaser
or other transferee and (b) the right to transfer the right to request admission
as a Substituted Limited Partner to such purchaser or other transferee in
respect of the transferred Limited Partner Interests. Each transferee of a
Limited Partner Interest (including any nominee holder or an agent acquiring
such Limited Partner Interest for the account of another Person) who executes
and delivers a Transfer Application shall, by virtue of such execution and
delivery, be an Assignee and be deemed to have applied to become a Substituted
Limited Partner with respect to the Limited Partner Interests so transferred to
such Person. Such Assignee shall become a Substituted Limited Partner (x) at
such time as the General Partner consents thereto, which consent may be given or
withheld in the General Partner's discretion, and (y) when any such admission is
shown on the books and records of the Partnership. If such consent is withheld,
such transferee shall be an Assignee. An Assignee shall have an interest in the
Partnership equivalent to that of a Limited Partner with respect to allocations
and distributions, including liquidating distributions, of the Partnership. With
respect to voting rights attributable to Limited Partner Interests that are held
by Assignees, the General Partner shall be deemed to be the Limited Partner with
respect thereto and shall, in exercising the voting rights in respect of such
Limited Partner Interests on any matter, vote such Limited Partner Interests at
the written direction of the Assignee who is the Record Holder of such Limited
Partner Interests. If no such written direction is received, such Limited
Partner Interests will not be voted. An Assignee shall have no other rights of a
Limited Partner.
SECTION 10.3 Admission of Successor General Partner.
A successor General Partner approved pursuant to Section 11.1 or 11.2 or
the transferee of or successor to all of the General Partner Interest pursuant
to Section 4.6 who is proposed to be admitted as a successor General Partner
shall be admitted to the Partnership as the General Partner, effective
immediately prior to the withdrawal or removal of the predecessor or
transferring General Partner pursuant to Section 11.1 or 11.2 or the transfer of
the General Partner Interest pursuant to Section 4.6, provided, however, that no
such successor shall be admitted to the Partnership until compliance with the
terms of Section 4.6 has occurred and such successor has executed and delivered
such other documents or instruments as may be required to effect such admission.
Any such successor shall, subject to the terms hereof, carry on the business of
the members of the Partnership Group without dissolution.
SECTION 10.4 Admission of Additional Limited Partners.
(a) A Person (other than the General Partner, an Initial Limited Partner or
a Substituted Limited Partner) who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only upon furnishing to the General
Partner (i) evidence of acceptance in form satisfactory to the General Partner
of all of the terms and conditions of this Agreement, including the power of
attorney granted in Section 2.6, and (ii) such other documents or instruments as
may be required in the discretion of the General Partner to effect such Person's
admission as an Additional Limited Partner.
(b) Notwithstanding anything to the contrary in this Section 10.4, no
Person shall be admitted as an Additional Limited Partner without the consent of
79
the General Partner, which consent may be given or withheld in the General
Partner's discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such Person is
recorded as such in the books and records of the Partnership, following the
consent of the General Partner to such admission.
SECTION 10.5 Amendment of Agreement and Certificate of Limited Partnership.
To effect the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Delaware Act to
amend the records of the Partnership to reflect such admission and, if
necessary, to prepare as soon as practicable an amendment to this Agreement and,
if required by law, the General Partner shall prepare and file an amendment to
the Certificate of Limited Partnership, and the General Partner may for this
purpose, among others, exercise the power of attorney granted pursuant to
Section 2.6.
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
SECTION 11.1 Withdrawal of the General Partner.
(a) The General Partner shall be deemed to have withdrawn from the
Partnership upon the occurrence of any one of the following events (each such
event herein referred to as an "Event of Withdrawal"):
(i) The General Partner voluntarily withdraws from the Partnership by
giving 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
80
of revocation of its charter without a reinstatement of its charter, under
the laws of its state of incorporation; (B) in the event the General
Partner is a partnership or a limited liability company, the dissolution
and commencement of winding up of the General Partner; (C) in the event the
General Partner is acting in such capacity by virtue of being a trustee of
a trust, the termination of the trust; (D) in the event the General Partner
is a natural person, his death or adjudication of incompetency; and (E)
otherwise in the event of the termination of the General Partner.
If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or
(vi)(A), (B), (C) or (E) occurs, the withdrawing General Partner shall give
notice to the Limited Partners within 30 days after such occurrence. The
Partners hereby agree that only the Events of Withdrawal described in this
Section 11.1 shall result in the withdrawal of the General Partner from the
Partnership.
(b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the period
beginning on the Closing Date and ending at 12:00 midnight, Eastern Standard
Time, on March 31, 2011, 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 of a limited partner of the
Operating Partnership or cause the Partnership or the Operating 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) at any time after 12:00 midnight, Eastern Standard Time,
on March 31, 2011, 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 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 of the other Group Members of which the General Partner is a general
partner. If, prior to the effective date of the General Partner's withdrawal, a
successor is not selected by the 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
81
Partner elected in accordance with the terms of this Section 11.1 shall be
subject to the provisions of Section 10.3.
SECTION 11.2 Removal of the General Partner.
The General Partner may be removed if such removal is approved by the
Unitholders holding at least 58% of the Outstanding Units (excludingUnits held
by the General Partner and its Affiliates). Any such action by such holders for
removal of the General Partner must also provide for the election of a successor
General Partner by the Unitholders holding a Unit Majority (excluding 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 of the other
Group Members of which the General Partner is a general partner, if any. 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 of the other Group Members of
which the General Partner is a general partner. The right of the holders of
Outstanding Units to remove the General Partner shall not exist or be exercised
unless the Partnership has received an opinion opining as to the matters covered
by a Withdrawal Opinion of Counsel. Any successor General Partner elected in
accordance with the terms of this Section 11.2 shall be subject to the
provisions of Section 10.3.
SECTION 11.3 Interest of Departing 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 a successor General Partner is
elected in accordance with the terms of Section 11.1 or 11.2, the Departing
Partner shall have the option exercisable prior to the effective date of the
departure of such Departing Partner to require its successor to purchase its
General Partner Interest and its general partner interest (or equivalent
interest) in the other Group Members, if any, 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 11.2, such successor
shall have the option, exercisable prior to the effective date of the departure
of such Departing Partner, to purchase the Combined Interest for such fair
market value of such Combined Interest of the Departing Partner. In either
event, the Departing Partner shall be entitled to receive all reimbursements due
such Departing Partner pursuant to Section 7.4, including any employee-related
liabilities (including severance liabilities), incurred in connection with the
termination of any employees employed by the Departing Partner for the benefit
of the Partnership or the other Group Members.
For purposes of this Section 11.3(a), the fair market value of a Departing
Partner's Combined Interest shall be determined by agreement between the
82
Departing Partner and its successor or, failing agreement within 30 days after
the effective date of such Departing Partner's departure, by an independent
investment banking firm or other independent expert selected by the Departing
Partner and its successor, which, in turn, may rely on other experts, and the
determination of which shall be conclusive as to such matter. If such parties
cannot agree upon one independent investment banking firm or other independent
expert within 45 days after the effective date of such departure, then the
Departing Partner shall designate an independent investment banking firm or
other independent expert, the Departing Partner's successor shall designate an
independent investment banking firm or other independent expert, and such firms
or experts shall mutually select a third independent investment banking firm or
independent expert, which third independent investment banking firm or other
independent expert shall determine the fair market value of the Combined
Interest of the Departing 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, the value of the Partnership's assets, the rights and
obligations of the Departing Partner and other factors it may deem relevant.
(b) If the Combined Interest is not purchased in the manner set forth in
Section 11.3(a), the Departing Partner (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 Partner (or its transferee) as to all debts and liabilities of the
Partnership arising on or after the date on which the Departing Partner (or its
transferee) becomes a Limited Partner. For purposes of this Agreement,
conversion of the Combined Interest of the Departing Partner to Common Units
will be characterized as if the Departing 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 11.2 and the option described in Section 11.3(a) is not
exercised by the party entitled to do so, the successor General Partner shall,
at the effective date of its admission to the Partnership, contribute to the
Partnership cash in the amount equal to 2/98th of the Net Agreed Value of the
Partnership's assets on such date. In such event, such successor General Partner
shall, subject to the following sentence, be entitled to the Percentage Interest
of all Partnership allocations and distributions to which the Departing Partner
was entitled. The successor General Partner shall cause this Agreement to be
amended to reflect that, from and after the date of such successor General
Partner's admission, the successor General Partner's interest in all Partnership
distributions and allocations shall be 2%.
SECTION 11.4 Termination of Subordination Period, Conversion of Subordinated
Units and Extinguishment of Cumulative Common Unit Arrearages.
Notwithstanding any provision of this Agreement, if the General Partner is
removed as general partner of the Partnership under circumstances where Cause
does not exist and Units held by the General Partner and its Affiliates are not
voted in favor of such removal, (i) the Subordination Period will end and all
83
Outstanding Subordinated Units will immediately and automatically convert into
Common Units on a one-for-one basis and (ii) all Cumulative Common Unit
Arrearages on the Common Units will be extinguished.
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 Partner's Limited Partner
Interest becomes a Record Holder of the Limited Partner Interest so transferred,
such transferring Limited Partner shall cease to be a Limited Partner with
respect to the Limited Partner Interest so transferred.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
SECTION 12.1 Dissolution.
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the removal or withdrawal of the General Partner, if a successor General Partner
is elected pursuant to Section 11.1 or 11.2, the Partnership shall not be
dissolved and such successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its
affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 2.7;
(b) an Event of Withdrawal of the General Partner as provided in Section
11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected and an
Opinion of Counsel is received as provided in Section 11.1(b) or 11.2 and such
successor is admitted to the Partnership pursuant to Section 10.3;
(c) an election to dissolve the Partnership by the General Partner that is
approved by the holders of a Unit Majority;
(d) the entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Delaware Act; or
(e) the sale of all or substantially all of the assets and properties of
the Partnership Group.
SECTION 12.2 Continuation of the Business of the Partnership After Dissolution.
Upon (a) dissolution of the Partnership following an Event of Withdrawal
caused by the withdrawal or removal of the General Partner as provided in
Section 11.1(a)(i) or (iii) and the failure of the Partners to select a
successor to such Departing Partner pursuant to Section 11.1 or 11.2, then
within 90 days thereafter, or (b) dissolution of the Partnership upon an event
constituting an Event of Withdrawal as defined in Section 11.1(a)(iv), (v) or
(vi), then, to the maximum extent permitted by law, within 180 days thereafter,
the holders of a Unit Majority may elect to reconstitute the Partnership and
continue its business on the same terms and conditions set forth in this
Agreement by forming a new limited partnership on terms identical to those set
84
forth in this Agreement and having as the 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:
(a) the reconstituted Partnership shall continue until dissolved in
accordance with this Article XII;
(b) 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
(c) all necessary steps shall be taken to cancel this Agreement and the
Certificate of Limited Partnership and to enter into and, as necessary, to file
a new partnership agreement and certificate of limited partnership, and the
successor general partner may for this purpose exercise the powers of attorney
granted the General Partner pursuant to Section 2.6; provided, that the right of
the holders of a Unit Majority to approve a successor General Partner and to
reconstitute and to continue the business of the Partnership shall not exist and
may not be exercised unless the Partnership has received an Opinion of Counsel
that (x) the exercise of the right would not result in the loss of limited
liability of any Limited Partner and (y) neither the Partnership, the
reconstituted limited partnership nor the Operating Partnership 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.
SECTION 12.3 Liquidator.
Upon dissolution of the Partnership, unless the Partnership is continued
under an election to reconstitute and continue the Partnership pursuant to
Section 12.2, the General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the General Partner) shall be entitled
to receive such compensation for its services as may be approved by holders of
at least a majority of the Outstanding Common Units and Subordinated Units
voting as a single class. The Liquidator (if other than the General Partner)
shall agree not to resign at any time without 15 days' prior notice and may be
removed at any time, with or without cause, by notice of removal approved by
holders of at least a majority of the Outstanding Common Units and Subordinated
Units voting as a single class. Upon dissolution, removal or resignation of the
Liquidator, a successor and substitute Liquidator (who shall have and succeed to
all rights, powers and duties of the original Liquidator) shall within 30 days
thereafter be approved by holders of at least a majority of the Outstanding
Common Units and Subordinated Units voting as a single class. The right to
approve a successor or substitute Liquidator in the manner provided herein shall
be deemed to refer also to any such successor or substitute Liquidator approved
in the manner herein provided. Except as expressly provided in this Article XII,
the Liquidator approved in the manner provided herein shall have and may
exercise, without further authorization or consent of any of the parties hereto,
all of the powers conferred upon the General Partner under the terms of this
Agreement (but subject to all of the applicable limitations, contractual and
otherwise, upon the exercise of such powers, other than the limitation on sale
set forth in Section 7.3(b)) to the extent necessary or desirable in the good
faith judgment of the Liquidator to carry out the duties and functions of the
Liquidator hereunder for and during such period of time as shall be reasonably
85
required in the good faith judgment of the Liquidator 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 the Liquidator determines to be in the best interest of the
Partners, subject to Section 17-804 of the Delaware Act and the following:
(a) Disposition of Assets. The assets may be disposed of by public or
private sale or by distribution in kind to one or more Partners on such terms as
the Liquidator and such Partner or Partners may agree. If any property is
distributed in kind, the Partner receiving the property shall be deemed for
purposes of Section 12.4(c) to have received cash equal to its fair market
value; and contemporaneously therewith, appropriate cash distributions must be
made to the other Partners. The Liquidator may, in its absolute discretion,
defer liquidation or distribution of the Partnership's assets for a reasonable
time if it determines that an immediate sale or distribution of all or some of
the Partnership's assets would be impractical or would cause undue loss to the
Partners. The Liquidator may, in its absolute discretion, distribute the
Partnership's assets, in whole or in part, in kind if it determines that a sale
would be impractical or would cause undue loss to the Partners.
(b) Discharge of Liabilities. Liabilities of the Partnership include
amounts owed to the Liquidator as compensation for serving in such capacity
(subject to the terms of Section 12.3) and amounts owed to Partners otherwise
than in respect of their distribution rights under Article VI. With respect to
any liability that is contingent, conditional or unmatured or is otherwise not
yet due and payable, the Liquidator shall either settle such claim for such
amount as it thinks appropriate or establish a reserve of cash or other assets
to provide for its payment. When paid, any unused portion of the reserve shall
be distributed as additional liquidation proceeds.
(c) Liquidation Distributions. All property and all cash in excess of that
required to discharge liabilities as provided in Section 12.4(b) shall be
distributed to the Partners in accordance with, and to the extent of, the
positive balances in their respective Capital Accounts, as determined after
taking into account all Capital Account adjustments (other than those made by
reason of distributions pursuant to this Section 12.4(c)) for the taxable year
of the Partnership during which the liquidation of the Partnership occurs (with
such date of occurrence being determined pursuant to Treasury Regulation Section
1.704-1(b)(2)(ii)(g)), and such distribution shall be made by the end of such
taxable year (or, if later, within 90 days after said date of such occurrence).
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 Partnership shall be terminated and the Certificate of Limited Partnership
and all qualifications of the Partnership as a foreign limited partnership in
86
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 Amendment to be Adopted Solely by the General Partner.
Each Partner agrees that the General Partner, without the approval of any
Partner or Assignee, may amend any provision of this Agreement and execute,
swear to, acknowledge, deliver, file and record whatever documents may be
required in connection therewith, to reflect:
(a) a change in the name of the Partnership, the location of the principal
place of business of the Partnership, the registered agent of the Partnership or
the registered office of the Partnership;
(b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;
(c) a change that, in the sole discretion of the General Partner, is
necessary or advisable to qualify or continue the qualification of the
Partnership as a limited partnership or a partnership in which the Limited
Partners have limited liability under the laws of any state or to ensure that
the Partnership and the Operating Partnership will not be treated as an
association taxable as a corporation or otherwise taxed as an entity for federal
income tax purposes;
(d) a change that, in the discretion of the General Partner, (i) does not
adversely affect the Limited Partners (including any particular class of
Partnership Interests as compared to other classes of Partnership Interests) in
87
any material respect, (ii) is necessary or advisable to (A) satisfy any
requirements, conditions or guidelines contained in any opinion, directive,
order, ruling or regulation of any federal or state agency or judicial authority
or contained in any federal or state statute (including the Delaware Act) or (B)
facilitate the trading of the Limited Partner Interests (including the division
of any class or classes of Outstanding Limited Partner Interests into different
classes to facilitate uniformity of tax consequences within such classes of
Limited Partner Interests) or comply with any rule, regulation, guideline or
requirement of any National Securities Exchange on which the Limited Partner
Interests are or will be listed for trading, compliance with any of which the
General Partner determines in its discretion to be in the best interests of the
Partnership and the Limited Partners, (iii) is necessary or advisable in
connection with action taken by the General Partner pursuant to Section 5.10 or
(iv) is required to effect the intent expressed in the Registration Statement or
the intent of the provisions of this Agreement or is otherwise contemplated by
this Agreement;
(e) a change in the fiscal year or taxable year of the Partnership and any
changes that, in the discretion of the General Partner, are necessary or
advisable as a result of a change in the fiscal year or taxable year of the
Partnership including, if the General Partner shall so determine, a change in
the definition of "Quarter" and the dates on which distributions are to be made
by the Partnership;
(f) an amendment that is necessary, in the Opinion of Counsel, to prevent
the Partnership, or the General Partner or its directors, officers, trustees or
agents from in any manner being subjected to the provisions of the Investment
Company Act of 1940, as amended, the Investment Advisers Act of 1940, as
amended, or "plan asset" regulations adopted under the Employee Retirement
Income Security Act of 1974, as amended, regardless of whether such are
substantially similar to plan asset regulations currently applied or proposed by
the United States Department of Labor;
(g) subject to the terms of Section 5.7, an amendment that, in the
discretion of the General Partner, is necessary or advisable in connection with
the authorization of issuance of any class or series of Partnership Securities
pursuant to Section 5.6;
(h) any amendment expressly permitted in this Agreement to be made by the
General Partner acting alone;
(i) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 14.3;
(j) an amendment that, in the discretion of the General Partner, is
necessary or advisable to reflect, account for and deal with appropriately the
formation by the Partnership of, or investment by the Partnership in, any
corporation, partnership, joint venture, limited liability company or other
entity, in connection with the conduct by the Partnership of activities
permitted by the terms of Section 2.4;
(k) a merger or conveyance pursuant to Section 14.3(d); or
(l) any other amendments substantially similar to the foregoing.
88
SECTION 13.2 Amendment Procedures.
Except as provided in Sections 13.1 and 13.3, all amendments to this
Agreement shall be made in accordance with the following requirements.
Amendments to this Agreement may be proposed only by or with the consent of the
General Partner, which consent may be given or withheld in its sole discretion.
A proposed amendment shall be effective upon its approval by the holders of a
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 Sections 13.1 and 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 Sections 13.1 and 13.2, no amendment
to this Agreement may (i) enlarge the obligations of any Limited Partner without
its consent, unless such shall be deemed to have occurred as a result of an
amendment approved pursuant to Section 13.3(c), (ii) enlarge the obligations of,
restrict in any way any action by or rights of, or reduce in any way the amounts
distributable, reimbursable or otherwise payable to, the General Partner or any
of its Affiliates without its consent, which consent may be given or withheld in
its sole discretion, (iii) change Section 12.1(a) or 12.1(c), or (iv) change the
term of the Partnership or, except as set forth in Section 12.1(c), give any
Person the right to dissolve the Partnership.
(c) Except as otherwise provided, and without limitation of the General
Partner's authority to adopt amendments to this Agreement without the approval
of any Partners or Assignee 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 Common Units and Subordinated 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 law.
89
(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 Limited Partner Interests of the class or
classes for which a meeting is proposed. Limited Partners shall call a special
meeting by delivering to the General Partner one or more requests in writing
stating that the signing Limited Partners wish to call a special meeting and
indicating the general or specific purposes for which the special meeting is to
be called. Within 60 days after receipt of such a call from Limited Partners or
within such greater time as may be reasonably necessary for the Partnership to
comply with any statutes, rules, regulations, listing agreements or similar
requirements governing the holding of a meeting or the solicitation of proxies
for use at such a meeting, the General Partner shall send a notice of the
meeting to the Limited Partners either directly or indirectly through the
Transfer Agent. A meeting shall be held at a time and place determined by the
General Partner on a date not less than 10 days nor more than 60 days after the
mailing of notice of the meeting. Limited Partners shall not vote on matters
that would cause the Limited Partners to be deemed to be taking part in the
management and control of the business and affairs of the Partnership so as to
jeopardize the Limited Partners' limited liability under the Delaware Act or the
law of any other state in which the Partnership is qualified to do business.
SECTION 13.5 Notice of a Meeting.
Notice of a meeting called pursuant to Section 13.4 shall be given to the
Record Holders of the class or classes of Limited Partner Interests for which a
meeting is proposed in writing by mail or other means of written communication
in accordance with Section 16.1. The notice shall be deemed to have been given
at the time when deposited in the mail or sent by other means of written
communication.
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 Limited Partner
Interests are listed for trading, in which case the rule, regulation, guideline
or requirement of such exchange shall govern) or (b) in the event that approvals
are sought without a meeting, the date by which Limited Partners are requested
in writing by the General Partner to give such approvals.
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
90
taken, unless such adjournment shall be for more than 45 days. At the adjourned
meeting, the Partnership may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than 45 days
or if a new Record Date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given in accordance with this Article XIII.
SECTION 13.8 Waiver of Notice; Approval of Meeting; Approval of Minutes.
The transactions of any meeting of Limited Partners, however called and
noticed, and whenever held, shall be as valid as if it had occurred at a meeting
duly held after regular call and notice, if a quorum is present either in person
or by proxy, and if, either before or after the meeting, Limited Partners
representing such quorum who were present in person or by proxy and entitled to
vote, sign a written waiver of notice or an approval of the holding of the
meeting or an approval of the minutes thereof. All waivers and approvals shall
be filed with the Partnership records or made a part of the minutes of the
meeting. Attendance of a Limited Partner at a meeting shall constitute a waiver
of notice of the meeting, except when the Limited Partner does not approve, at
the beginning of the meeting, of the transaction of any business because the
meeting is not lawfully called or convened; and except that attendance at a
meeting is not a waiver of any right to disapprove the consideration of matters
required to be included in the notice of the meeting, but not so included, if
the disapproval is expressly made at the meeting.
SECTION 13.9 Quorum.
The holders of a majority of the Outstanding Limited Partner Interests of
the class or classes for which a meeting has been called (including Limited
Partner Interests 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 Limited Partner Interests,
in which case the quorum shall be such greater percentage. At any meeting of the
Limited Partners duly called and held in accordance with this Agreement at which
a quorum is present, the act of Limited Partners holding Outstanding Limited
Partner Interests that in the aggregate represent a majority of the Outstanding
Limited Partner Interests entitled to vote and be present in person or by proxy
at such meeting shall be deemed to constitute the act of all Limited Partners,
unless a greater or different percentage is required with respect to such action
under the provisions of this Agreement, in which case the act of the Limited
Partners holding Outstanding Limited Partner Interests that in the aggregate
represent at least such greater or different percentage shall be required. The
Limited Partners present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Limited Partners to leave less than a quorum, if any action
taken (other than adjournment) is approved by the required percentage of
Outstanding Limited Partner Interests specified in this Agreement (including
Limited Partner Interests 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
Limited Partner Interests entitled to vote at such meeting (including Limited
Partner Interests 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.
91
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 Limited Partner
Interests (including Limited Partner Interests deemed owned by the General
Partner) that would be necessary to authorize or take such action at a meeting
at which all the Limited Partners were present and voted (unless such provision
conflicts with any rule, regulation, guideline or requirement of any National
Securities Exchange on which the Limited Partner Interests are listed for
trading, in which case the rule, regulation, guideline or requirement of such
exchange shall govern). Prompt notice of the taking of action without a meeting
shall be given to the Limited Partners who have not approved in writing. The
General Partner may specify that any written ballot submitted to Limited
Partners for the purpose of taking any action without a meeting shall be
returned to the Partnership within the time period, which shall be not less than
20 days, specified by the General Partner. If a ballot returned to the
Partnership does not vote all of the Limited Partner Interests held by the
Limited Partners the Partnership shall be deemed to have failed to receive a
ballot for the Limited Partner Interests that were not voted. If approval of the
taking of any action by the Limited Partners is solicited by any Person other
than by or on behalf of the General Partner, the written approvals shall have no
force and effect unless and until (a) they are deposited with the Partnership in
care of the General Partner, (b) approvals sufficient to take the action
proposed are dated as of a date not more than 90 days prior to the date
sufficient approvals are deposited with the Partnership and (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.
92
SECTION 13.12 Voting and Other Rights.
(a) Only those Record Holders of the Limited Partner Interests on the
Record Date set pursuant to Section 13.6 (and also subject to the limitations
contained in the definition of "Outstanding") shall be entitled to notice of,
and to vote at, a meeting of Limited Partners or to act with respect to matters
as to which the holders of the Outstanding Limited Partner Interests have the
right to vote or to act. All references in this Agreement to votes of, or other
acts that may be taken by, the Outstanding Limited Partner Interests shall be
deemed to be references to the votes or acts of the Record Holders of such
Outstanding Limited Partner Interests.
(b) With respect to Limited Partner Interests that are held for a Person's
account by another Person (such as a broker, dealer, bank, trust company or
clearing corporation, or an agent of any of the foregoing), in whose name such
Limited Partner Interests are registered, such other Person shall, in exercising
the voting rights in respect of such Limited Partner Interests on any matter,
and unless the arrangement between such Persons provides otherwise, vote such
Limited Partner Interests in favor of, and at the direction of, the Person who
is the beneficial owner, and the Partnership shall be entitled to assume it is
so acting without further inquiry. The provisions of this Section 13.12(b) (as
well as all other provisions of this Agreement) are subject to the provisions of
Section 4.3.
ARTICLE XIV
MERGER
SECTION 14.1 Authority.
The Partnership may merge or consolidate with one or more corporations,
limited liability companies, business trusts or associations, real estate
investment trusts, common law trusts or unincorporated businesses, including a
general partnership or limited partnership, formed under the laws of the State
of Delaware or any other state of the United States of America, pursuant to a
written agreement of merger or consolidation ("Merger Agreement") in accordance
with this Article XIV.
SECTION 14.2 Procedure for Merger or Consolidation.
Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the General Partner. If the General Partner shall
determine, in the exercise of its discretion, to consent to the merger or
consolidation, the General Partner shall approve the Merger Agreement, which
shall set forth:
(a) The names and jurisdictions of formation or organization of each of the
business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of the business
entity that is to survive the proposed merger or consolidation (the "Surviving
Business Entity");
(c) The terms and conditions of the proposed merger or consolidation;
93
(d) The manner and basis of exchanging or converting the equity securities
of each constituent business entity for, or into, cash, property or general or
limited partner interests, rights, securities or obligations of the Surviving
Business Entity; and (i) if any general or limited partner interests, securities
or rights of any constituent business entity are not to be exchanged or
converted solely for, or into, cash, property or general or limited partner
interests, rights, securities or obligations of the Surviving Business Entity,
the cash, property or general or limited partner interests, rights, securities
or obligations of any limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity) which the holders of such general or
limited partner interests, securities or rights are to receive in exchange for,
or upon conversion of their general or limited partner interests, securities or
rights, and (ii) in the case of securities represented by certificates, upon the
surrender of such certificates, which cash, property or general or limited
partner interests, rights, securities or obligations of the Surviving Business
Entity or any general or limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity), or evidences thereof, are to be
delivered;
(e) A statement of any changes in the constituent documents or the adoption
of new constituent documents (the articles or certificate of incorporation,
articles of trust, declaration of trust, certificate or agreement of limited
partnership or other similar charter or governing document) of the Surviving
Business Entity to be effected by such merger or consolidation;
(f) The effective time of the merger, which may be the date of the filing
of the certificate of merger pursuant to Section 14.4 or a later date specified
in or determinable in accordance with the Merger Agreement (provided, that if
the effective time of the merger is to be later than the date of the filing of
the certificate of merger, the effective time shall be fixed no later than the
time of the filing of the certificate of merger and stated therein); and
(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the General Partner.
SECTION 14.3 Approval by Limited Partners of Merger or Consolidation.
(a) Except as provided in Section 14.3(d), the General Partner, upon its
approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of Limited Partners, whether at a special meeting or by
written consent, in either case in accordance with the requirements of Article
XIII. A copy or a summary of the Merger Agreement shall be included in or
enclosed with the notice of a special meeting or the written consent.
(b) Except as provided in Section 14.3(d), the Merger Agreement shall be
approved upon receiving the affirmative vote or consent of the holders of a Unit
Majority unless the Merger Agreement contains any provision that, if contained
in an amendment to this Agreement, the provisions of this Agreement or the
Delaware Act would require for its approval the vote or consent of a greater
percentage of the Outstanding Limited Partner Interests or of any class of
Limited Partners, in which case such greater percentage vote or consent shall be
required for approval of the Merger Agreement.
94
(c) Except as provided in Section 14.3(d), after such approval by vote or
consent of the Limited Partners, and at any time prior to the filing of the
certificate of merger pursuant to Section 14.4, the merger or consolidation may
be abandoned pursuant to provisions therefor, if any, set forth in the Merger
Agreement.
(d) Notwithstanding anything else contained in this Article XIV or in this
Agreement, the General Partner is permitted, in its discretion, without Limited
Partner approval, to merge the Partnership or any Group Member into, or convey
all of the Partnership's assets to, another limited liability entity which shall
be newly formed and shall have no assets, liabilities or operations at the time
of such Merger other than those it receives from the Partnership or other Group
Member if (i) the General Partner has received an Opinion of Counsel that the
merger or conveyance, as the case may be, would not result in the loss of the
limited liability of any Limited Partner or any partner in the Operating
Partnership or cause the Partnership or Operating 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 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.
SECTION 14.4 Certificate of Merger.
Upon the required approval by the General Partner and the Unitholders of a
Merger Agreement, a certificate of merger shall be executed and filed with the
Secretary of State of the State of Delaware in conformity with the requirements
of the Delaware Act.
SECTION 14.5 Effect of Merger.
(a) At the effective time of the certificate of merger:
(i) all of the rights, privileges and powers of each of the business
entities that has merged or consolidated, and all property, real, personal
and mixed, and all debts due to any of those business entities and all
other things and causes of action belonging to each of those business
entities, shall be vested in the Surviving Business Entity and after the
merger or consolidation shall be the property of the Surviving Business
Entity to the extent they were of each constituent business entity;
(ii) the title to any real property vested by deed or otherwise in any
of those constituent business entities shall not revert and is not in any
way impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security interests
in property of any of those constituent business entities shall be
preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent business
entities shall attach to the Surviving Business Entity and may be enforced
against it to the same extent as if the debts, liabilities and duties had
been incurred or contracted by it.
95
(b) A merger or consolidation effected pursuant to this Article shall not
be deemed to result in a transfer or assignment of assets or liabilities from
one entity to another.
ARTICLE XV
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
not more than 20% of the total Limited Partner Interests of any class then
Outstanding is held by Persons other than the General Partner and its
Affiliates, the General Partner shall then have the right, which right it may
assign and transfer in whole or in part to the Partnership or any Affiliate of
the General Partner, exercisable in its sole discretion, to purchase all, but
not less than all, of such Limited Partner Interests of such class then
Outstanding held by Persons other than the General Partner and its Affiliates,
at the greater of (x) the Current Market Price as of the date three days prior
to the date that the notice described in Section 15.1(b) is mailed and (y) the
highest price paid by the General Partner or any of its Affiliates for any such
Limited Partner Interest of such class purchased during the 90-day period
preceding the date that the notice described in Section 15.1(b) is mailed. As
used in this Agreement, (i) "Current Market Price" as of any date of any class
of Limited Partner Interests listed or admitted to trading on any National
Securities Exchange means the average of the daily Closing Prices (as
hereinafter defined) per limited partner interest of such class for the 20
consecutive Trading Days (as hereinafter defined) immediately prior to such
date; (ii) "Closing Price" for any day means the last sale price on such day,
regular way, or in case no such sale takes place on such day, the average of the
closing bid and asked prices on such day, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted for trading on the principal National
Securities Exchange (other than the Nasdaq Stock Market) on which such Limited
Partner Interests of such class are listed or admitted to trading or, if such
Limited Partner Interests of such class are not listed or admitted to trading on
any National Securities Exchange (other than the Nasdaq Stock Market), the last
quoted price on such day or, if not so quoted, the average of the high bid and
low asked prices on such day in the over-the-counter market, as reported by the
Nasdaq Stock Market or such other system then in use, or, if on any such day
such Limited Partner Interests of such class are not quoted by any such
organization, the average of the closing bid and asked prices on such day as
furnished by a professional market maker making a market in such Limited Partner
Interests of such class selected by the General Partner, or if on any such day
no market maker is making a market in such Limited Partner Interests of such
class, the fair value of such Limited Partner Interests on such day as
determined reasonably and in good faith by the General Partner; and (iii)
"Trading Day" means a day on which the principal National Securities Exchange on
which such Limited Partner Interests of any class are listed or admitted to
trading is open for the transaction of business or, if Limited Partner Interests
of a class are not listed or admitted to trading on any National Securities
Exchange, a day on which banking institutions in New York City generally are
open.
(b) If the General Partner, any Affiliate of the General Partner or the
Partnership elects to exercise the right to purchase Limited Partner Interests
granted pursuant to Section 15.1(a), the General Partner shall deliver to the
Transfer Agent notice of such election to purchase (the "Notice of Election to
Purchase") and shall cause the Transfer Agent to mail a copy of such Notice of
96
Election to Purchase to the Record Holders of Limited Partner Interests of such
class (as of a Record Date selected by the General Partner) at least 10, but not
more than 60, days prior to the Purchase Date. Such Notice of Election to
Purchase shall also be published for a period of at least three consecutive days
in at least two daily newspapers of general circulation printed in the English
language and published in the Borough of Manhattan, New York. The Notice of
Election to Purchase shall specify the Purchase Date and the price (determined
in accordance with Section 15.1(a)) at which Limited Partner Interests will be
purchased and state that the General Partner, its Affiliate or the Partnership,
as the case may be, elects to purchase such Limited Partner Interests, upon
surrender of Certificates representing such Limited Partner Interests in
exchange for payment, at such office or offices of the Transfer Agent as the
Transfer Agent may specify, or as may be required by any National Securities
Exchange on which such Limited Partner Interests are listed or admitted to
trading. Any such Notice of Election to Purchase mailed to a Record Holder of
Limited Partner Interests at his address as reflected in the records of the
Transfer Agent shall be conclusively presumed to have been given regardless of
whether the owner receives such notice. On or prior to the Purchase Date, the
General Partner, its Affiliate or the Partnership, as the case may be, shall
deposit with the Transfer Agent cash in an amount sufficient to pay the
aggregate purchase price of all of such Limited Partner Interests to be
purchased in accordance with this Section 15.1. If the Notice of Election to
Purchase shall have been duly given as aforesaid at least 10 days prior to the
Purchase Date, and if on or prior to the Purchase Date the deposit described in
the preceding sentence has been made for the benefit of the holders of Limited
Partner Interests subject to purchase as provided herein, then from and after
the Purchase Date, notwithstanding that any Certificate shall not have been
surrendered for purchase, all rights of the holders of such Limited Partner
Interests (including any rights pursuant to Articles IV, V, VI, and XII) shall
thereupon cease, except the right to receive the purchase price (determined in
accordance with Section 15.1(a)) for Limited Partner Interests therefor, without
interest, upon surrender to the Transfer Agent of the Certificates representing
such Limited Partner Interests, and such Limited Partner Interests shall
thereupon be deemed to be transferred to the General Partner, its Affiliate or
the Partnership, as the case may be, on the record books of the Transfer Agent
and the Partnership, and the General Partner or any Affiliate of the General
Partner, or the Partnership, as the case may be, shall be deemed to be the owner
of all such Limited Partner Interests from and after the Purchase Date and shall
have all rights as the owner of such Limited Partner Interests (including all
rights as owner of such Limited Partner Interests pursuant to Articles IV, V, VI
and XII).
(c) At any time from and after the Purchase Date, a holder of an
Outstanding Limited Partner Interest subject to purchase as provided in this
Section 15.1 may surrender his Certificate evidencing such Limited Partner
Interest to the Transfer Agent in exchange for payment of the amount described
in Section 15.1(a), therefor, without interest thereon.
ARTICLE XVI
GENERAL PROVISIONS
SECTION 16.1 Addresses and Notices.
Any notice, demand, request, report or proxy materials required or
permitted to be given or made to a Partner or Assignee under this Agreement
shall be in writing and shall be deemed given or made when delivered in person
or when sent by first class United States mail or by other means of written
97
communication to the Partner or Assignee at the address described below. Any
notice, payment or report to be given or made to a Partner or Assignee hereunder
shall be deemed conclusively to have been given or made, and the obligation to
give such notice or report or to make such payment shall be deemed conclusively
to have been fully satisfied, upon sending of such notice, payment or report to
the Record Holder of such Partnership 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 or
Assignee at the principal office of the Partnership for a period of one year
from the date of the giving or making of such notice, payment or report to the
other Partners and Assignees. Any notice to the Partnership shall be deemed
given if received by the General Partner at the principal office of the
Partnership designated pursuant to Section 2.3. The General Partner may rely and
shall be protected in relying on any notice or other document from a Partner,
Assignee or other Person if believed by it to be genuine.
SECTION 16.2 Further Action.
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
SECTION 16.3 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
SECTION 16.4 Integration.
This Agreement constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.
SECTION 16.5 Creditors.
None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of the Partnership.
98
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 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 Unit, upon accepting
the certificate evidencing such Unit or executing and delivering a Transfer
Application as herein described, independently of the signature of any other
party.
SECTION 16.8 Applicable Law.
This Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware, without regard to the principles of conflicts of
law.
SECTION 16.9 Invalidity of Provisions.
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
SECTION 16.10 Consent of Partners.
Each Partner hereby expressly consents and agrees that, whenever in this
Agreement it is specified that an action may be taken upon the affirmative vote
or consent of less than all of the Partners, such action may be so taken upon
the concurrence of less than all of the Partners and each Partner shall be bound
by the results of such action.
[Rest of Page Intentionally Left Blank]
99
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
RIVERWALK LOGISTICS, L.P.
By: Valero GP, LLC, its
General Partner
Name: /s/ Steven A. Blank
------------------------------------
Title: Senior Vice President and
Chief Financial Officer
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.
RIVERWALK LOGISTICS, L.P.
By: Valero GP, LLC, its
General Partner
Name: /s/ Steven A. Blank
------------------------------------
Title: Senior Vice President and
Chief Financial Officer
100
EXHIBIT A
to the Third Amended and
Restated Agreement of Limited Partnership of
Valero L.P.
Certificate Evidencing Common Units
Representing Limited Partner Interests in
Valero L.P.
No. ____________ Common Units
-----------------------
In accordance with Section 4.1 of the Third Amended and Restated
Agreement of Limited Partnership of Valero L.P., as amended, supplemented or
restated from time to time (the "Partnership Agreement"), Valero L.P., a
Delaware limited partnership (the "Partnership"), hereby certifies that
___________________ (the "Holder") is the registered owner of ________ Common
Units representing limited partner interests in the Partnership (the "Common
Units") transferable on the books of the Partnership, in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed and
accompanied by a properly executed application for transfer of the Common Units
represented by this Certificate. 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 One Valero Place, San Antonio, Texas 78212. Capitalized terms used
herein but not defined shall have the meanings given them in the Partnership
Agreement.
The Holder, by accepting this Certificate, is deemed to have (i)
requested admission as, and agreed to become, a Limited Partner and to have
agreed to comply with and be bound by and to have executed the Partnership
Agreement, (ii) represented and warranted that the Holder has all right, power
and authority and, if an individual, the capacity necessary to enter into the
Partnership Agreement, (iii) granted the powers of attorney provided for in the
Partnership Agreement and (iv) made the waivers and given the consents and
approvals contained in the Partnership Agreement.
This Certificate shall not be valid for any purpose unless it has been
countersigned and registered by the Transfer Agent and Registrar.
Dated: Valero L.P.
-----------------------------
By: Riverwalk Logistics, L.P., its
General Partner
Countersigned and Registered by: By: Valero GP, LLC,
its General Partner
By:
- ------------------------------------------- -------------------------
as Transfer Agent and Registrar Name:
------------------------
By: By:
-------------------------------------- -------------------------
Authorized Signature Secretary
101
[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:
TEN COM - as tenants in common UNIF GIFT/TRANSFERS MIN ACT
TEN ENT - as tenants by the entireties ___________Custodian_____________
(Cust) (Minor)
JT TEN - as joint tenants with right Uniform Gifts/Transfers to
of survivorship under and not Minors Act ______________________
as tenants in common (State)
Additional abbreviations, though not in the above list, may also be used.
ASSIGNMENT OF COMMON UNITS
in
VALERO L.P.
IMPORTANT NOTICE REGARDING INVESTOR RESPONSIBILITIES
DUE TO TAX SHELTER STATUS OF VALERO L.P.
You have acquired an interest in Valero L.P., One Valero Place, San
Antonio, Texas 78212, whose taxpayer identification number is 74-2958817. The
Internal Revenue Service has issued Valero L.P. the following tax shelter
registration number: __________.
YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE
SERVICE IF YOU CLAIM ANY DEDUCTION, LOSS, CREDIT OR OTHER TAX BENEFIT OR REPORT
ANY INCOME BY REASON OF YOUR INVESTMENT IN VALERO L.P.
You must report the registration number as well as the name and taxpayer
identification number of Valero L.P. on Form 8271. FORM 8271 MUST BE ATTACHED TO
THE RETURN ON WHICH YOU CLAIM THE DEDUCTION, LOSS, CREDIT OR OTHER TAX BENEFIT
OR REPORT ANY INCOME BY REASON OF YOUR INVESTMENT IN VALERO L.P.
If you transfer your interest in Valero L.P. to another person, you are
required by the Internal Revenue Service to keep a list containing (a) that
person's name, address and taxpayer identification number, (b) the date on which
you transferred the interest and (c) the name, address and tax shelter
registration number of Valero L.P. If you do not want to keep such a list, you
must (1) send the information specified above to the Partnership, which will
keep the list for this tax shelter, and (2) give a copy of this notice to the
person to whom you transfer your interest. Your failure to comply with any of
the above-described responsibilities could result in the imposition of a penalty
under Section 6707(b) or 6708(a) of the Internal Revenue Code of 1986, as
amended, unless such failure is shown to be due to reasonable cause.
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT OR
THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE
INTERNAL REVENUE SERVICE.
102
FOR VALUE RECEIVED, hereby assigns, conveys, sells and transfers unto
(Please print or typewrite name (Please insert Social Security or other
identifying and address of Assignee) number of Assignee)
________________ Common Units representing limited partner interests evidenced
by this Certificate, subject to the Partnership Agreement, and does hereby
irrevocably constitute and appoint ________________ as its attorney-in-fact with
full power of substitution to transfer the same on the books of Valero L.P.
Date: NOTE: The signature to any endorsement
hereon must correspond with the name
as written upon the face of this
Certificate in every particular,
without alteration, enlargement or
change.
SIGNATURE(S) MUST BE
GUARANTEED BY A MEMBER FIRM (Signature)
OF THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC. OR BY A (Signature)
COMMERCIAL BANK OR TRUST COMPANY
SIGNATURE(S) GUARANTEED
No transfer of the Common Units evidenced hereby will be registered on the
books of the Partnership, unless the Certificate evidencing the Common Units to
be transferred is surrendered for registration or transfer and an Application
for Transfer of Common Units has been executed by a transferee either (a) on the
form set forth below or (b) on a separate application that the Partnership will
furnish on request without charge. A transferor of the Common Units shall have
no duty to the transferee with respect to execution of the transfer application
in order for such transferee to obtain registration of the transfer of the
Common Units.
103
APPLICATION FOR TRANSFER OF COMMON UNITS
The undersigned ("Assignee") hereby applies for transfer to the name of the
Assignee of the Common Units evidenced hereby.
The Assignee (a) requests admission as a Substituted Limited Partner and
agrees to comply with and be bound by, and hereby executes, the Third Amended
and Restated Agreement of Limited Partnership of Valero L.P. (the
"Partnership"), as amended, supplemented or restated to the date hereof (the
"Partnership Agreement"), (b) represents and warrants that the Assignee has all
right, power and authority and, if an individual, the capacity necessary to
enter into the Partnership Agreement, (c) appoints the General Partner of the
Partnership and, if a Liquidator shall be appointed, the Liquidator of the
Partnership as the Assignee's attorney-in-fact to execute, swear to, acknowledge
and file any document, including, without limitation, the Partnership Agreement
and any amendment thereto and the Certificate of Limited Partnership of the
Partnership and any amendment thereto, necessary or appropriate for the
Assignee's admission as a Substituted Limited Partner and as a party to the
Partnership Agreement, (d) gives the powers of attorney provided for in the
Partnership Agreement, and (e) makes the waivers and gives the consents and
approvals contained in the Partnership Agreement. Capitalized terms not defined
herein have the meanings assigned to such terms in the Partnership Agreement.
Date:
---------------------------- -----------------------------
Signature of Assignee
- ----------------------------------------------- ----------------------------
Social Security or other identifying number of Name and Address of Assignee
Assignee
- --------------------------------------------
Purchase Price including commissions, if any
Type of Entity (check one):
[ ] Individual [ ] Partnership [ ] Corporation
[ ] Trust [ ] Other (specify)
----------------
Nationality (check one):
[ ] U.S. Citizen, Resident or Domestic Entity
[ ] Foreign Corporation [ ] Non-resident Alien
If the U.S. Citizen, Resident or Domestic Entity box is checked, the
following certification must be completed.
Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the
"Code"), the Partnership must withhold tax with respect to certain transfers of
property if a holder of an interest in the Partnership is a foreign person. To
inform the Partnership that no withholding is required with respect to the
undersigned interestholder's interest in it, the undersigned hereby certifies
the following (or, if applicable, certifies the following on behalf of the
interestholder).
104
Complete Either A or B:
A. Individual Interestholder
1. I am not a non-resident alien for purposes of U.S. income taxation.
2. My U.S. taxpayer identification number (Social Security Number) is .
3. My home address is .
B. Partnership, Corporation or Other Interestholder
1. ______________________________________ is not a foreign corporation,
(Name of Interestholder)
foreign partnership, foreign trust or foreign estate (as those
terms are defined in the Code and Treasury Regulations).
2. The interestholder's U.S. employer identification number is
___________________.
3. The interestholder's office address and place of incorporation (if
applicable) is ________________________.
The interestholder agrees to notify the Partnership within sixty (60)
days of the date the interestholder becomes a foreign person.
The interestholder understands that this certificate may be disclosed
to the Internal Revenue Service by the Partnership and that any false statement
contained herein could be punishable by fine, imprisonment or both.
Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct and
complete and, if applicable, I further declare that I have authority to sign
this document on behalf of:
__________________________
Name of Interestholder
__________________________
Signature and Date
__________________________
Title (if applicable)
Note: If the Assignee is a broker, dealer, bank, trust company,
clearing corporation, other nominee holder or an agent of any of the foregoing,
and is holding for the account of any other person, this application should be
completed by an officer thereof or, in the case of a broker or dealer, by a
registered representative who is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.,
or, in the case of any other nominee holder, a person performing a similar
function. If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee owner or an agent of any of the foregoing, the above
certification as to any person for whom the Assignee will hold the Common Units
shall be made to the best of the Assignee's knowledge.
Exhibit 4.1
- --------------------------------------------------------------------------------
VALERO LOGISTICS OPERATIONS, L.P.,
ISSUER
VALERO L.P.,
GUARANTOR
AND
THE BANK OF NEW YORK,
TRUSTEE
SECOND SUPPLEMENTAL INDENTURE
DATED AS OF MARCH 18, 2003
TO
INDENTURE
DATED AS OF JULY 15, 2002
--------------
6.05% SENIOR NOTES DUE 2013
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
ARTICLE I 6.05% SENIOR NOTES DUE 2013..........................................2
SECTION 1.01 Designation of the Notes; Establishment of Form................2
SECTION 1.02 Amount.........................................................2
SECTION 1.03 Restrictions on Transfer and Exchange..........................2
SECTION 1.04 Redemption.....................................................3
SECTION 1.05 Conversion.....................................................3
SECTION 1.06 Maturity.......................................................3
SECTION 1.07 Place of Payment...............................................4
SECTION 1.08 Transfer and Exchange..........................................4
SECTION 1.09 Legends........................................................5
SECTION 1.10 Registration Rights Agreement..................................6
SECTION 1.11 Other Terms of the Notes due 2013..............................7
ARTICLE II AMENDMENTS TO THE INDENTURE.........................................7
SECTION 2.01 Future Subsidiary Guarantors...................................7
SECTION 2.02 SEC Reports; Financial Statements..............................8
ARTICLE III MISCELLANEOUS......................................................9
SECTION 3.01 Execution as Supplemental Indenture............................9
SECTION 3.02 Responsibility for Recitals, Etc...............................9
SECTION 3.03 Provisions Binding on Partnership's
and Guarantor's Successors.....................................9
SECTION 3.04 Governing Law..................................................9
SECTION 3.05 Execution and Counterparts.....................................9
SECTION 3.06 Capitalized Terms..............................................9
EXHIBIT A - FORM OF SECURITY.................................................A-1
EXHIBIT B - FORM OF CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF NOTES................................B-1
EXHIBIT C - FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS PURSUANT TO REGULATION S..........................C-1
-i-
SECOND SUPPLEMENTAL INDENTURE, dated as of March 18, 2003 (this "Second
Supplemental Indenture"), among Valero Logistics Operations, L.P., a Delaware
limited partnership having its principal office at One Valero Place, San
Antonio, Texas 78212 (the "Partnership"), Valero L.P., a Delaware limited
partnership (the "Guarantor"), and The Bank of New York, a New York banking
corporation, as trustee (the "Trustee").
RECITALS OF THE PARTNERSHIP
The Partnership, the Guarantor and the Trustee have heretofore executed and
delivered the Indenture dated as of July 15, 2002 (the "Original Indenture,"),
as amended and supplemented by the First Supplemental Indenture thereto dated as
of July 15, 2002 (the "First Supplemental Indenture") (the Original Indenture,
as supplemented from time to time, including without limitation pursuant to the
First Supplemental Indenture and pursuant to this Second Supplemental Indenture
being referred to herein as the "Indenture"), providing for the issuance from
time to time of one or more series of the Partnership's Securities, each to be
guaranteed by the Guarantor and the terms of which are to be determined as set
forth in Section 301 of the Original Indenture.
Section 901 of the Original Indenture provides, among other things, that
the Partnership, the Guarantor and the Trustee may enter into indentures
supplemental to the Original Indenture for, among other things, the purpose of
establishing the form or terms of Securities of any series as permitted by
Sections 201 and 301 of the Original Indenture.
Section 901 of the Original Indenture also permits the execution of
supplemental indentures without the consent of any Holders to, among other
things, (i) add to the covenants of the Partnership such further covenants,
restrictions, conditions or provisions as the Partnership shall consider to be
appropriate for the benefit of the Holders of all or any series of Securities,
(ii) add any additional Defaults or Events of Default in respect of, all or any
series of Securities, and (iii) change or eliminate any of the provisions of the
Indenture, provided that, any such change or elimination shall become effective
only when there is no Security Outstanding of any series created prior to the
execution of such supplemental indenture which is entitled to the benefits of
such provision.
The Partnership desires to create a series of the Securities, which series
shall be designated the "6.05% Senior Notes due 2013" (the "Notes due 2013"),
and all action on the part of the Partnership necessary to authorize the
issuance of the Notes due 2013 under the Original Indenture and this Second
Supplemental Indenture has been duly taken.
The Partnership has entered into a Registration Rights Agreement dated as
of March 18, 2003 (the "Registration Rights Agreement") relating to the Notes
due 2013 among the Partnership, the Guarantor and the Initial Purchasers named
therein.
All acts and things necessary to make the Notes due 2013, when duly issued
by the Partnership and when executed on behalf of the Partnership and completed,
authenticated and delivered by the Trustee as provided in the Original Indenture
and this Second Supplemental Indenture, the valid and binding obligations of the
Partnership and to constitute these presents a valid and binding supplemental
indenture and agreement according to its terms, have been done and performed.
Now, Therefore, This Second Supplemental Indenture Witnesseth:
That in consideration of the premises and the issuance of the Notes due
2013, the Partnership, the Guarantor and the Trustee mutually covenant and
agree, for the equal and proportionate benefit of all Holders of the Notes due
2013, as follows:
ARTICLE I
6.05% SENIOR NOTES DUE 2013
SECTION 1.01 Designation of the Notes; Establishment of Form.
A series of Securities designated "6.05% Senior Notes due 2013" is
established hereby, and the form thereof (including the notation of the
Guarantee) shall be substantially as set forth in Exhibit A hereto, which is
incorporated into and shall be deemed a part of this Second Supplemental
Indenture, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by the
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as the Partnership may deem
appropriate or as may be required or appropriate to comply with any laws or with
any rules made pursuant thereto or with the rules of any securities exchange or
automated quotation system on which the Notes due 2013 may be listed or traded,
or to conform to general usage, or as may, consistently with the Indenture, be
determined by the officers executing such Notes due 2013, as evidenced by their
execution thereof.
The Notes due 2013 will initially be issued in permanent global form,
substantially in the form set forth in Exhibit A hereto, as a Global Security,
registered in the name of the Depositary or its nominee. The Depository Trust
Company ("DTC") shall be the Depositary for such Global Securities.
The Partnership initially appoints the Trustee to act as paying agent and
Registrar with respect to the Notes due 2013.
SECTION 1.02 Amount.
The Trustee shall authenticate and deliver the Notes due 2013 for original
issue in an initial aggregate principal amount of up to $250,000,000 upon
Partnership Order for the authentication and delivery of such aggregate
principal amount of the Notes due 2013. The authorized aggregate principal
amount of the Notes due 2013 may be increased at any time hereafter and the
series comprised thereby may be reopened for issuances of additional Notes due
2013, without the consent of any Holder. The Notes due 2013 issued on the date
hereof and any such additional Notes due 2013 that may be issued hereafter shall
be part of the same series of Securities referred to herein as the "Notes due
2013."
SECTION 1.03 Restrictions on Transfer and Exchange.
(a) Rule 144A Global Notes. The Notes due 2013 offered and sold to
"qualified institutional buyers" ("QIBs" or individually, a "QIB") (which
term shall have the meaning assigned to it in Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act")) in the United
States of America in reliance on Rule 144A will be issued as permanent
Global Securities (the "Rule 144A Global Notes"), without interest coupons,
substantially in the form of Exhibit A. The Rule 144A Global Notes will be
duly executed by the Partnership, authenticated by the Trustee and
deposited with the Trustee, on behalf of DTC.
2
(b) Regulation S Global Notes. Notes offered and sold in offshore
transactions to Non-U.S. Persons (which term shall have the meaning
assigned to it in Regulation S under the Securities Act ("Regulation S") in
reliance on Regulation S will initially be issued in the form of one or
more registered notes in temporary global form, without interest coupons
(collectively, the "Regulation S Temporary Global Notes"), substantially in
the form of Exhibit A hereto. Beneficial interests in the Regulation S
Temporary Global Notes will be exchanged for beneficial interests in a
corresponding note in permanent global form (the "Regulation S Permanent
Global Notes" and, together with the Regulation S Temporary Global Notes,
the "Regulation S Global Notes") within a reasonable period after the
expiration of the Restricted Period (as defined below) upon certification
that the beneficial interests in the Regulation S Temporary Global Notes
are owned by either Non-U.S. Persons or U.S. persons who purchased such
interests pursuant to an exemption from, or in transactions not subject to,
the registration requirements of the Securities Act.
Each Regulation S Global Note will be deposited with, or on behalf of,
a custodian for DTC for credit to the respective accounts of the purchasers
(or to such other accounts as they may direct) at Morgan Guaranty Trust
Company of New York, Brussels Office, as operator of the Euroclear System
("Euroclear"), or Clearstream, societe anonyme ("Clearstream"). Prior to
the 40th day after the later of the commencement of the offering of the
Notes due 2013 and March 18, 2003 (such period through and including such
40th day, the "Restricted Period"), interests in the Regulation S Temporary
Global Notes may only be held through Euroclear or Clearstream (as indirect
participants in DTC) unless exchanged for interests in the Rule 144A Global
Notes.
Notwithstanding Section 305 of the Original Indenture and Section 1.08
of this Second Supplemental Indenture, in no event shall beneficial
interests in a Regulation S Temporary Global Note be transferred or
exchanged for Notes due 2013 in certificated form prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar of
any certificates required pursuant to Rule 903(b)(3)(ii)(B) of Regulation
S.
SECTION 1.04 Redemption.
(a) There shall be no sinking fund for the retirement of the Notes due
2013 or other mandatory redemption obligation in respect thereof.
(b) The Partnership, at its option, may redeem the Notes due 2013 at
any time and from time to time, in accordance with the provisions of the
Notes due 2013 and Article XI of the Indenture.
SECTION 1.05 Conversion.
The Notes due 2013 shall not be convertible into any other securities.
SECTION 1.06 Maturity.
The Stated Maturity of the Notes due 2013 shall be March 15, 2013.
3
SECTION 1.07 Place of Payment.
Any Notes due 2013 that may be issued in certificated, non-global form
shall be payable at the corporate trust office of the Trustee in The City of New
York, which office, on the date of this Second Supplemental Indenture, is
located at 101 Barclay Street, New York, New York 10286. The Notes due 2013 may
be presented for registration of transfer or exchange at the office of the
Trustee at which its corporate trust business is principally administered in the
United States, which office, on the date of this Second Supplemental Indenture,
is located at 101 Barclay Street, New York, New York 10286. Notices and demands
to or upon the Partnership and the Guarantor in respect of the Notes due 2013
may be served at such office.
SECTION 1.08 Transfer and Exchange.
(i) Transfer and Exchange of Notes in Certificated Form. In addition to the
requirements set forth in Section 305 of the Original Indenture, the Notes due
2013 in certificated form that are Registrable Securities under the Registration
Rights Agreement (the "Transfer Restricted Securities") presented or surrendered
for registration of transfer or exchange pursuant to Section 305 of the Original
Indenture shall be accompanied by the following additional information and
documents, as applicable, upon which the Registrar may conclusively rely:
(a) if such Transfer Restricted Securities are being delivered to the
Registrar by a Holder for registration in the name of such Holder, without
transfer, a certification from such Holder to that effect (in substantially
the form of Exhibit B hereto); or
(b) if such Transfer Restricted Securities are being transferred (1)
to a QIB in accordance with Rule 144A under the Securities Act or (2)
pursuant to an exemption from registration in accordance with Rule 144
under the Securities Act (and based upon an opinion of counsel if the
Partnership or the Trustee so requests) or (3) pursuant to an effective
registration statement under the Securities Act, a certification that that
effect from such holder (in substantially the form of Exhibit B hereto); or
(c) if such Transfer Restricted Securities are being transferred
pursuant to an exemption from registration in accordance with Rule 904 of
Regulation S under the Securities Act, certifications to that effect from
such Holder (in substantially the form of Exhibits B and C hereto) and an
opinion of counsel to that effect if the Partnership or the Trustee so
requests; or
(d) if such Transfer Restricted Securities are being transferred in
reliance on and in compliance with another exemption from the registration
requirements of the Securities Act, a certification to that effect from
such Holder (in substantially the form of Exhibit B hereto) and an opinion
of counsel to that effect if the Partnership or the Trustee so requests.
(ii) Transfer and Exchange of Global Notes. The transfer and exchange
of the Notes due 2013 or beneficial interests therein shall be effected through
the Depositary, in accordance with Section 305 of the Original Indenture and
Article I of this Second Supplemental Indenture (including the restrictions on
transfer set forth therein and herein) and the rules and procedures of the
Depositary therefor, which shall include restrictions on transfer comparable to
those set forth therein and herein to the extent required by the Securities Act;
provided, however, that transfers and exchanges of beneficial interests in a
Regulation S Temporary Global Note may be made pursuant to such restrictions
only (1) to a Person that is not a U.S. person or for the account or benefit of
a Person that is not a U.S. person (other than an Initial Purchaser under the
Registration Rights Agreement) within the meaning of Regulation S under the
Securities Act or (2) to a QIB, in each case that holds such interests through
Euroclear or Clearstream.
4
SECTION 1.09 Legends.
(i) Excepted as permitted by the following paragraphs (ii) and (iii)
immediately below, each certificate evidencing the 144A Global Notes or
Regulation S Global Notes (each a "Global Note") or Notes due 2013 in
certificated form (and all Notes issued in exchange therefor or substitution
thereof) shall bear a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON
AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT; (2) AGREES THAT IT WILL
NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF
THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES
ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE ISSUER HEREOF OR ONE OF ITS SUBSIDIARIES (B)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE), (C) FOR SO LONG AS THE NOTES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (D) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR (E) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
PROVIDED THAT THE FOREGOING AGREEMENT OF THE HOLDER IS SUBJECT TO ANY
REQUIREMENT OF LAW THAT THE DISPOSITION OF THE PROPERTY OF THE HOLDER
OR ANY INVESTOR ACCOUNTS FOR WHICH THE HOLDER IS ACTING SHALL AT ALL
TIMES BE AND REMAIN WITHIN ITS OR THEIR CONTROL; AND (3) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH
ANY TRANSFER OF THIS SECURITY PRIOR TO EXPIRATION OF THE HOLDING PERIOD
APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K)
UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO
THE MANNER OF SUCH TRANSFER AND SUBMIT THIS SECURITY TO THE BANK OF NEW
YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE).
Any Regulation S Temporary Global Note shall also bear a legend
substantially in the following form:
5
THIS NOTE IS A GLOBAL SECURITY ISSUED IN RELIANCE ON REGULATION S
PROMULGATED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). PRIOR TO THE EXPIRATION OF THE RESTRICTED PERIOD
WHICH SHALL EXTEND FOR A PERIOD OF FORTY (40) DAYS AFTER THE DATE ON
WHICH THE NOTES EVIDENCED HEREBY ARE FIRST OFFERED TO PERSONS OTHER
THAN DISTRIBUTORS IN RELIANCE ON REGULATION S OR THE DATE OF CLOSING OF
THE OFFERING, WHICHEVER IS LATER, BENEFICIAL INTEREST HEREIN MAY NOT BE
HELD BY ANY PERSON OTHER THAN (1) A NON-U.S. PERSON OR (2) A U.S.
PERSON WHO PURCHASED SUCH INTEREST IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT PURSUANT TO RULE 144A PROMULGATED
THEREUNDER. BENEFICIAL INTERESTS HEREIN ARE NOT EXCHANGEABLE FOR
PHYSICAL NOTES OTHER THAN IN ACCORDANCE WITH THE TERMS OF THE
INDENTURE. THE TERMS OF THIS LEGEND ARE USED AS USED IN REGULATION S
UNDER THE SECURITIES ACT.
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global Note)
pursuant to Rule 144 under the Securities Act or an effective registration
statement under the Securities Act, which shall be certified by the Trustee and
Registrar upon which each may conclusively rely:
(a) in the case of any Transfer Restricted Security in definitive
form, the Registrar shall permit the Holder thereof to exchange such
Transfer Restricted Security for a Note in definitive form that does not
bear the legend(s) set forth in (i) above and rescind any restriction on
the transfer of such Transfer Restricted Security; and
(b) in the case of any Transfer Restricted Security represented by a
Global Note, such Transfer Restricted Security shall not be required to
bear the legend(s) set forth in (i) above if all other interests in such
Global Note have been or are concurrently being sold or transferred
pursuant to Rule 144 under the Securities Act or pursuant to an effective
registration statement under the Securities Act, but such Transfer
Restricted Security shall continue to be subject to the provisions of
Section 305 of the Original Indenture and this Section 1.09 of this Second
Supplemental Indenture.
(iii) Notwithstanding the foregoing, upon consummation of the Exchange
Offer (as defined in the Registration Rights Agreement), the Partnership shall
issue, the Guarantor shall execute, and, upon receipt of a Partnership Order in
accordance with Section 303 of the Original Indenture, the Trustee shall
authenticate Notes due 2013 ("Exchange Notes") in exchange for Notes due 2013
accepted for exchange in the Exchange Offer, which Exchange Notes shall not bear
the legend(s) set forth in (i) above, and the Registrar shall rescind any
restriction on the transfer of the Exchange Notes, in each case unless the
Holder of Notes due 2013 is either (A) a broker-dealer tendering Notes due 2013
acquired directly from the Partnership, (B) a Person participating in the
Exchange Offer for purposes of distributing the Exchange Notes or (C) a Person
who is an "affiliate" (as defined in Rule 144 under the Securities Act) of the
Partnership. The Partnership shall identify to the Trustee such Holders of the
Notes due 2013 in a written certification signed by an Officer of the General
Partner and, absent certificate from the Partnership to such effect, the Trustee
shall assume that there are not such Holders.
SECTION 1.10 Registration Rights Agreement.
Holders of the Notes due 2013 shall have the benefit of the Partnership's
registration obligations with respect to the Notes due 2013, and such Holders
shall also have certain obligations to indemnify the Partnership under certain
circumstances, all as more fully set forth in the Registration Rights Agreement.
6
SECTION 1.11 Other Terms of the Notes due 2013.
Without limiting the foregoing provisions of this Article I, the terms of
the Notes due 2013 shall be as provided in the form thereof set forth in Exhibit
A hereto and as provided in the Indenture.
In accordance with the provisions of Article II of the First Supplemental
Indenture, the amendments and supplements contained in such Article II shall
apply to the Notes due 2013 and shall be for the benefit of the Notes due 2013
and the Holders thereof. The Notes due 2013 shall constitute Securities of an
Other Affected Series (as defined in the Original Indenture, as amended and
supplemented by the First Supplemental Indenture).
ARTICLE II
AMENDMENTS TO THE INDENTURE
SECTION 2.01 Future Subsidiary Guarantors. The amendments and supplements
contained in this Section 2.01 shall apply to the Notes due 2013 (which shall
constitute Securities of an Other Affected Series (as defined in the Original
Indenture, as amended and supplemented by the First Supplemental Indenture)), to
the Notes due 2012 referred to in the First Supplemental Indenture and to the
Securities of each Other Affected Series to which the amendments and supplements
contained in Article II of the First Supplemental Indenture shall be made
applicable, and not to any other series of Securities issued under the
Indenture, and (except as aforesaid) any covenants, guarantees and other
agreements provided herein are expressly being included solely for the benefit
of (i) the Notes due 2013 and the Holders thereof, the Notes due 2012 and the
Holders thereof and (ii) any Securities of any Other Affected Series and the
Holders thereof. These amendments and supplements shall be effective only for so
long as there remain Outstanding any Notes due 2013, any Notes due 2012 or any
Securities of any Other Affected Series, as the case may be.
Section 1011 of the Original Indenture, as amended and supplemented by the
First Supplemental Indenture, is amended and restated in its entirety as set
forth below:
"SECTION 1011 Subsidiary Guarantors.
The Partnership shall cause each Subsidiary of the Partnership that
guarantees or becomes a co-obligor in respect of any Funded Debt of the
Partnership (including, without limitation, following any release of such
Subsidiary pursuant to Section 1012 from any guarantee previously provided
by it under this Section 1011) to (A) cause the Notes due 2012 and any
Securities of any Other Affected Series to be equally and ratably
guaranteed by such Subsidiary, but only to the extent that the Notes due
2012 and such Securities of any Other Affected Series are not already
guaranteed by such Subsidiary on reasonably comparable terms and (B)
promptly execute and deliver to the Trustee a supplemental indenture in
substantially the form attached as Exhibit B to the First Supplemental
Indenture pursuant to which such Subsidiary will guarantee payment of the
Notes due 2012 and any Securities of any Other Affected Series."
Section 1012 of the Original Indenture, as amended and supplemented by the
First Supplemental Indenture, is amended and restated in its entirety as set
forth below:
7
"SECTION 1012 Release of Guaranty.
Notwithstanding anything to the contrary in Section 1011, in the event
that any Subsidiary that has guaranteed the Notes due 2012 and/or the
Securities of such Other Affected Series pursuant to Section 1011 shall no
longer be a guarantor of any Funded Debt of the Partnership other than the
Notes due 2012 and/or the Securities of such Other Affected Series, and so
long as no Default or Event of Default with respect to the Notes due 2012
or the Securities of such Other Affected Series shall have occurred or be
continuing, such Subsidiary, upon giving written notice to the Trustee to
the foregoing effect, shall be deemed to be released from all of its
obligations in respect of the Notes due 2012 and/or the Securities of such
Other Affected Series, and its guarantee thereof and this Indenture without
further act or deed and such guarantee of such Subsidiary shall be
terminated and of no further force or effect. Following the receipt by the
Trustee of any such notice, the Partnership shall cause this Indenture to
be amended as provided in Section 901 to evidence such release and
termination; provided, however, that the failure to so amend this Indenture
shall not affect the validity of the release and termination of such
guarantee of such Subsidiary."
SECTION 2.02 SEC Reports; Financial Statements.
The amendments and supplements contained in this Section 2.02 shall apply
to the Notes due 2013 only and not to any other series of Securities issued
under the Original Indenture, and any covenants, guarantees and other agreements
provided herein are expressly being included solely for the benefit of the Notes
due 2013 and the Holders thereof. These amendments and supplements shall be
effective only for so long as there remain Outstanding any Notes due 2013.
Article X of the Original Indenture is amended by inserting the following
new section in its entirety:
"SECTION 1014 SEC Reports; Financial Statements.
(a) Notwithstanding that the Partnership and the Guarantor may not be
required to remain subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Partnership and the Guarantor shall file
with the Commission and provide the Trustee with, and the Trustee shall
mail to any Holder of Notes due 2013 requesting copies of, such annual and
quarterly reports and such information, documents and other reports
specified in Sections 13 and 15(d) of the Exchange Act within 15 days after
the date it is required (or would otherwise have been required) to file
such reports, information and documents.
(b) In addition, regardless of whether required by the rules and
regulations of the Commission, the Partnership and the Guarantor shall file
a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such filing). In
addition, the Partnership and the Guarantor shall furnish to the Holders of
Notes due 2013 and to prospective investors, upon the requests of Holders
of Notes due 2013, any information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act of 1933, as amended (the
"Securities Act"), so long as the Notes due 2013 are not freely
transferable under the Securities Act.
8
(c) The Partnership and the Guarantor shall provide the Trustee with a
sufficient number of copies of all reports and other documents and
information that the Trustee may be required to deliver to Holders of Notes
due 2013 under clause (a) of this Section 1014.
(d) Delivery of such reports, information and documents to the Trustee
is for informational purposes only and the Trustee's receipt of such shall
not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the
Partnership's compliance with any of its covenants hereunder (as to which
the Trustee is entitled to rely exclusively on Officers' Certificates)."
ARTICLE III
MISCELLANEOUS
SECTION 3.01 Execution as Supplemental Indenture. This Second Supplemental
Indenture is executed and shall be construed as an indenture supplemental to the
Original Indenture and, as provided in the Original Indenture, this Second
Supplemental Indenture forms a part thereof. Except as herein expressly
otherwise defined, the use of the terms and expressions herein is in accordance
with the definitions, uses and constructions contained in the Original
Indenture.
SECTION 3.02 Responsibility for Recitals, Etc. The recitals herein and in
the Notes due 2013 (except in the Trustee's certificate of authentication) shall
be taken as the statements of the Partnership, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no representations
as to the validity or sufficiency of this Second Supplemental Indenture or of
the Notes due 2013. The Trustee shall not be accountable for the use or
application by the Partnership of the Notes due 2013 or of the proceeds thereof.
SECTION 3.03 Provisions Binding on Partnership's and Guarantor's
Successors. All the covenants, stipulations, promises and agreements in this
Second Supplemental Indenture contained by each of the Partnership and the
Guarantor shall bind its respective successors and assigns whether so expressed
or not.
SECTION 3.04 Governing Law. THIS SECOND SUPPLEMENTAL INDENTURE AND EACH
NOTE DUE 2013 SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
SECTION 3.05 Execution and Counterparts. This Second Supplemental Indenture
may be executed with counterpart signature pages or in any number of
counterparts, each of which shall be an original but such counterparts shall
together constitute but one and the same instrument.
SECTION 3.06 Capitalized Terms. Capitalized terms not otherwise defined in
this Second Supplemental Indenture shall have the respective meanings assigned
to them in the Original Indenture.
(The remainder of this page is intentionally blank.)
9
IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental
Indenture to be duly executed, all as of the day and year Second above written.
Partnership:
-----------
VALERO LOGISTICS OPERATIONS, L.P.
By: Valero GP, Inc.,
Its General Partner
By: /s/ Curtis V. Anastasio
-----------------------------------------------
Name: Curtis V. Anastasio
Title: Chief Executive Officer and President
Guarantor:
---------
VALERO L.P.
By: Riverwalk Logistics, L.P.
Its General Partner
By: Valero GP, LLC,
Its General Partner
By: /s/ Curtis V. Anastasio
-------------------------------------------------
Name: Curtis V. Anastasio
Title: Chief Executive Officer and President
Trustee:
-------
THE BANK OF NEW YORK, AS TRUSTEE
By:
-----------------------------------------------------
Name:
Title:
10
EXHIBIT A
[FORM OF SECURITY][FACE OF SECURITY]
[THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE TRANSFERRED TO, OR REGISTERED OR
EXCHANGED FOR SECURITIES REGISTERED IN THE NAME OF, ANY PERSON OTHER THAN THE
DEPOSITARY OR A NOMINEE THEREOF AND NO SUCH TRANSFER MAY BE REGISTERED, EXCEPT
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. EVERY SECURITY
AUTHENTICATED AND DELIVERED UPON REGISTRATION OF, TRANSFER OF, OR IN EXCHANGE
FOR OR IN LIEU OF, THIS SECURITY SHALL BE A GLOBAL SECURITY SUBJECT TO THE
FOREGOING, EXCEPT IN SUCH LIMITED CIRCUMSTANCES.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION, TO THE PARTNERSHIP OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]1
[THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF. U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT;
(2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD
APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE
SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE ISSUER HEREOF OR ONE OF ITS SUBSIDIARIES (B) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE), (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144A, (D) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR (E) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
PROVIDED THAT THE FOREGOING AGREEMENT OF THE HOLDER IS SUBJECT TO ANY
REQUIREMENT OF LAW THAT THE DISPOSITION OF THE PROPERTY OF THE HOLDER OR ANY
INVESTOR ACCOUNTS FOR WHICH THE HOLDER IS ACTING SHALL AT ALL TIMES BE AND
REMAIN WITHIN ITS OR THEIR CONTROL; AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY PRIOR TO
EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED
HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION),
THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS SECURITY TO THE BANK OF
NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE).]2
[THIS NOTE IS A GLOBAL SECURITY ISSUED IN RELIANCE ON REGULATION S
PROMULGATED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). PRIOR TO THE EXPIRATION OF THE RESTRICTED PERIOD WHICH SHALL EXTEND FOR A
PERIOD OF FORTY (40) DAYS AFTER THE DATE ON WHICH THE NOTES EVIDENCED HEREBY ARE
FIRST OFFERED TO PERSONS OTHER THAN DISTRIBUTORS IN RELIANCE ON REGULATION S OR
THE DATE OF CLOSING OF THE OFFERING, WHICHEVER IS LATER, BENEFICIAL INTEREST
HEREIN MAY NOT BE HELD BY ANY PERSON OTHER THAN (1) A NON-U.S. PERSON OR (2) A
U.S. PERSON WHO PURCHASED SUCH INTEREST IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT PURSUANT TO RULE 144A PROMULGATED
THEREUNDER. BENEFICIAL INTERESTS HEREIN ARE NOT EXCHANGEABLE FOR PHYSICAL NOTES
OTHER THAN IN ACCORDANCE WITH THE TERMS OF THE INDENTURE. THE TERMS OF THIS
LEGEND ARE USED AS USED IN REGULATION S UNDER THE SECURITIES ACT.]3
VALERO LOGISTICS OPERATIONS, L.P.
6.05% SENIOR NOTE DUE 2013
NO. ______________
U.S.$_______________
[, WHICH AMOUNT MAY BE INCREASED OR
DECREASED BY THE SCHEDULE OF INCREASES AND
DECREASES IN GLOBAL SECURITY ATTACHED
HERETO.]1
A-1
- ---------------
1 Insert in Global Securities only.
2 Insert in Transfer Restricted Securities only.
3 Insert in Temporary Regulation S Global Security only.
DECREASED BY THE
SCHEDULE OF
INCREASES AND
DECREASES IN GLOBAL
SECURITY ATTACHED
HERETO.]1
CUSIP NO. ______________
VALERO LOGISTICS OPERATIONS, L.P., a Delaware limited partnership (herein
called the "Partnership," which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to ________________________________________, or registered assigns, the
principal sum of __________________________ United States Dollars[, which amount
may be increased or decreased by the Schedule of Increases and Decreases in
Global Security attached hereto,]1 on March 15, 2013, and to pay interest
thereon from March 18, 2003, or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, semi-annually on March 15 and
September 15 in each year, commencing September 15, 2003 at the rate of 6.05%
per annum, until the principal hereof is paid or made available for payment, and
at the rate of 6.05% per annum on any overdue principal and premium and on any
overdue installment of interest. The amount of interest payable for any period
shall be computed on the basis of twelve 30-day months and a 360-day year. The
amount of interest payable for any partial period shall be computed on the basis
of a 360-day year of twelve 30-day months and the days elapsed in any partial
month. In the event that any date on which interest is payable on this Security
is not a Business Day, then a payment of the interest payable on such date will
be made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay) with the same force and
effect as if made on the date the payment was originally payable. A "Business
Day" shall mean, when used with respect to any Place of Payment, each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in that Place of Payment are authorized or obligated by law,
executive order or regulation to close. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
such Indenture, be paid to the Person in whose name this Security (or one or
more Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest, which shall be the March 1 or September 1
(whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly provided
for shall forthwith cease to be payable to the Holder on such Regular Record
Date and may either be paid to the Person in whose name this Security (or one or
more Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities of this series
not less than 10 days prior to any Special Record Date, or be paid at such time
in any other lawful manner not inconsistent with the requirements of any
securities exchange or automated quotation system on which the Securities of
this series may be listed or traded, and upon such notice as may be required by
such exchange or automated quotation system, all as more fully provided in such
Indenture.
[Payment of the principal of (and premium, if any) and interest on this
Security will be made by transfer of immediately available funds to a bank
account in the Borough of Manhattan, The City of New York designated by the
Holder in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts.]4
[Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Partnership maintained for
that purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that payment
of interest may be made at the option of the Partnership by United States Dollar
check mailed to the addresses of the Persons entitled thereto as such addresses
shall appear in the Security Register or by transfer to a United States Dollar
account maintained by the payee with a bank in The City of New York (so long as
the applicable Paying Agent has received proper transfer instructions in writing
by the Record Date prior to the applicable Interest Payment Date).]5
A-2
- ---------------
4 Insert in Global Securities only.
5 Insert in Definitive Securities only.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
The Partnership hereby irrevocably undertakes to the Holder hereof to
exchange this Security in accordance with the terms of the Indenture without
charge.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
A-3
IN WITNESS WHEREOF, the Partnership has caused this instrument to be duly
executed.
Dated:
-------------------------------------
VALERO LOGISTICS OPERATIONS, L.P.
By: Valero GP, Inc.
Its General Partner
By:
---------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
Dated:
--------------------------------------
THE BANK OF NEW YORK, AS TRUSTEE
By:
-----------------------------------------------
Authorized Signatory
A-4
EXHIBIT A
[FORM OF REVERSE SECURITY]
VALERO LOGISTICS OPERATIONS, L.P.
6.05% SENIOR NOTE DUE 2013
This Security is one of a duly authorized issue of senior securities of the
Partnership (herein called the "Securities"), issued and to be issued in one or
more series under an Indenture dated as of July 15, 2002, as amended and
supplemented by the First Supplemental Indenture dated as of July 15, 2002 and
as further amended and supplemented by the Second Supplemental Indenture thereto
dated as of March 18, 2003 (such Indenture, as so amended and supplemented being
referred to herein as the "Indenture"), among the Partnership, the Guarantor
(defined below) and The Bank of New York, as Trustee (the "Trustee," which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, obligations, duties and immunities
thereunder of the Partnership, the Guarantor, the Trustee and the Holders of the
Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered. As provided in the Indenture, the Securities may be
issued in one or more series, which different series may be issued in various
aggregate principal amounts, may mature at different times, may bear interest,
if any, at different rates, may be subject to different redemption provisions,
if any, may be subject to different sinking, purchase or analogous funds, if
any, may be subject to different covenants and Events of Default and may
otherwise vary as in the Indenture provided or permitted. This Security is one
of the series designated on the face hereof.
This Security is the senior unsecured obligation of the Partnership and is
guaranteed pursuant to a guarantee (the "Guarantee") by Valero L.P., a Delaware
limited partnership (the "Guarantor"). The Guarantee is the senior unsecured
obligation of the Guarantor.
The Securities of this series are subject to redemption upon not less than
30 nor more than 60 days' notice by mail, at any time as a whole or from time to
time in part, at the election of the Partnership at a Redemption Price equal to
the greater of (1) 100% of the principal amount of this Security then
Outstanding to be redeemed, or (2) the sum of the present values of the
remaining scheduled payments of principal and interest thereon (exclusive of the
payment of interest accrued to the Redemption Date) computed by discounting such
payments from their respective scheduled dates of payment to the Redemption Date
on a semiannual basis (assuming a 360-day year consisting of twelve 30-day
months) at a rate equal to the sum of 37.5 basis points plus the Adjusted
Treasury Rate on the third Business Day prior to the Redemption Date, as
calculated by an Independent Investment Banker, plus accrued and unpaid
interest, up to, but not including, the Redemption Date.
For purposes of determining the Redemption Price, the following definitions
are applicable:
"Adjusted Treasury Rate" means the yield, under the heading which
represents the average for the week immediately preceding the week of
publication, appearing in the then most recently published statistical release
designated "H.15(519)" or any successor publication which is published weekly by
the Board of Governors of the Federal Reserve System and which contains yields
on actively traded U.S. Treasury securities adjusted to constant maturity under
the caption "Treasury Constant Maturities," for the maturity corresponding to
the Comparable Treasury Issue (if no maturity is within three months before or
after the remaining term of this Security, yields for the two published
maturities most closely corresponding to the Comparable Treasury Issue will be
determined and the Adjusted Treasury Rate will be interpolated or extrapolated
from such yields on a straight line basis, rounding to the nearest month); or if
such release (or any successor release) is not published during the week
including or immediately preceding the calculation date or does not contain such
yields, the rate per annum equal to the semiannual equivalent yield to maturity
of the Comparable Treasury Issue, calculated using a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such Redemption Date.
"Comparable Treasury Issue" means the U.S. Treasury security selected by an
Independent Investment Banker as having a maturity comparable to the remaining
term of this Security that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to the remaining term of this Security,
or, if, in the reasonable judgment of the Independent Investment Banker, there
is no such security, then the Comparable Treasury Issue will mean the U.S.
Treasury security or securities selected by the Independent Investment Banker as
having an actual or interpolated maturity or maturities comparable to the
remaining term of this Security.
A-5
"Comparable Treasury Price" means (1) the average of five Reference
Treasury Dealer Quotations for the third Business Day prior to the applicable
Redemption Date, after excluding the highest and lowest Reference Treasury
Dealer Quotations, or (2) if the Independent Investment Banker obtains fewer
than five such Reference Treasury Dealer Quotations, the average of all such
quotations.
"Independent Investment Banker" means J.P. Morgan Securities Inc. and any
successor firm selected by the Partnership, or if any such firm is unwilling or
unable to serve as such, an independent investment banking institution of
national standing appointed by the Partnership.
"Reference Treasury Dealer" means each of up to five dealers to be selected
by the Partnership; provided that if any of the foregoing ceases to be, and has
no affiliate that is, a primary U.S. governmental securities dealer (a "Primary
Treasury Dealer"), the Partnership will substitute for it another Primary
Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date for this Security, the
average, as determined by the Independent Investment Banker, of the bid and
asked prices for the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) quoted in writing to the Independent
Investment Banker and the Partnership at 5:00 p.m., New York City time, on the
third Business Day preceding such Redemption Date.
In the case of any redemption of Securities, interest installments due on
or prior to the Redemption Date will be payable to the Holders of such
Securities, or one or more predecessor Securities, of record at the close of
business on the relevant record date referred to on the face hereof. Securities
(or portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption of this Security in part only, a new Security or
Securities of this series and of like tenor for the unredeemed portion hereof
will be issued in the name of the Holder hereof upon the cancellation hereof.
If an Event of Default with respect to the Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
Upon the occurrence of a Change of Control, the Partnership will make an
offer to purchase all or any part (equal to $1,000 or an integral multiple
thereof) of each Holder's Securities of this series (the "Change of Control
Offer") at a price in cash equal to 100% of the aggregate principal amount
thereof plus accrued and unpaid interest, if any, thereon to the date of
purchase. Within 30 days following any Change of Control, the Partnership will
mail a notice to each such Holder of Securities of this series setting forth the
procedures governing the Change of Control Offer as required by the Indenture
and information regarding such other matters as is required under and as more
fully provided in Section 1013 of the Indenture. As more fully provided in
Section 1013 of the Indenture, the Holder of this Security may elect to have
this Security or a portion hereof in an authorized denomination purchased by
completing the form entitled "Option of Holder to Elect Purchase" appearing
below and tendering this Security pursuant to the Change of Control Offer.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Partnership and the Guarantor and any Subsidiary Guarantor and the rights of the
Holders of the Securities of each series to be affected under the Indenture at
any time by the Partnership and the Guarantor and any Subsidiary Guarantor and
the Trustee with the consent of the Holders of a majority in principal amount of
the Securities at the time Outstanding of all series to be affected (voting as
one class). The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities of each series at
the time Outstanding, on behalf of the Holders of all Securities of such series,
to waive compliance by the Partnership or the Guarantor with certain provisions
of the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof, whether or not notation of such consent
or waiver is made upon this Security.
A-6
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity and the Trustee
shall not have received from the Holders of a majority in principal amount of
Securities of this series at the time Outstanding a direction inconsistent with
such request, and shall have failed to institute any such proceeding, for 60
days after receipt of such notice, request and offer of indemnity. The foregoing
shall not apply to any suit instituted by the Holder of this Security for the
enforcement of any payment of principal hereof or any premium or interest hereon
on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Partnership, which
is absolute and unconditional, to pay the principal of and any premium and
interest on this Security at the times, place(s) and rate, and in the coin or
currency, herein prescribed.
[This Global Security or portion hereof may not be exchanged for Definitive
Securities of this series except in the limited circumstances provided in the
Indenture.
The holders of beneficial interests in this Global Security will not be
entitled to receive physical delivery of Definitive Securities except as
described in the Indenture and will not be considered the Holders hereof for any
purpose under the Indenture.]6
[As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registerable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Partnership in The City of New York, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Partnership and the Security Registrar duly executed by, the Holder hereof or
his attorney duly authorized in writing, and thereupon one or more new
Securities of this series and of like tenor, of authorized denominations and for
a like aggregate principal amount, will be issued to the designated transferee
or transferees.]7
The Securities of this series are issuable only in registered form, without
coupons, in denominations of U.S. $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
the Securities of this series are exchangeable for a like aggregate principal
amount of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Partnership may require payment of a sum sufficient to cover
any transfer tax or other similar governmental charge payable in connection
therewith.
Prior to due presentment of this Security for registration of transfer, the
Partnership, the Trustee and any agent of the Partnership or the Trustee may
treat the Person in whose name this Security is registered as the owner hereof
for all purposes, regardless of whether this Security be overdue, and neither
the Partnership, the Trustee nor any such agent shall be affected by notice to
the contrary.
The Holder of this Security is entitled to the benefits of the
Registration Rights Agreement dated as of March 18, 2003 (the "Registration
Rights Agreement") by and among the Partnership, the Guarantor and the Initial
Purchasers named therein and such Holders shall also have certain obligations to
indemnify the Partnership under certain circumstances, all as more fully set
forth in the Registration Rights Agreement. In certain events, the Partnership
shall be required to pay to each affected Holder additional interest on the
Securities, on the terms and subject to the conditions of the Registration
Rights Agreement.8
A-7
- ---------------
6 Insert in Global Securities only.
7 Insert in Definitive Securities only.
Obligations of the Partnership under the Indenture and the Securities
thereunder, including this Security, are non-recourse to Valero GP, Inc. (the
"General Partner") and the general partner of the Guarantor, as applicable, and
their Affiliates (other than the Partnership and the Guarantor), and payable
only out of cash flow and assets of the Partnership or the Guarantor, as the
case may be. The Trustee, and each Holder of a Security by their respective
acceptance hereof, will be deemed to have agreed in the Indenture that (1)
neither the General Partner, the general partner of the Guarantor nor their
respective assets (nor any of its Affiliates other than the Partnership and the
Guarantor, nor their respective assets) shall be liable for any of the
obligations of the Partnership or the Guarantor under the Indenture or such
Securities, including this Security, and (2) no director, officer, employee,
stockholder or unitholder, as such, of the Partnership, the Guarantor, the
Trustee, the General Partner, the general partner of the Guarantor or any
Affiliate of any of the foregoing entities shall have any personal liability in
respect of the obligations of the Partnership or the Guarantor under the
Indenture or such Securities by reason of his, her or its status.
The Indenture provides that the Partnership and the Guarantor (a) will be
discharged from any and all obligations in respect of the Securities (except for
certain obligations described in the Indenture), or (b) need not comply with
certain restrictive covenants of the Indenture, in each case if the Partnership
deposits, in trust, with the Trustee money or U.S. Government Obligations (or a
combination thereof) which through the payment of interest thereon and principal
thereof in accordance with their terms will provide money, in an amount
sufficient to pay all the principal of and interest of the Securities, but such
money need not be segregated from other funds except to the extent required by
law.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
[FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
- --------------------------------------------------------------------------------
(Please Print or Typewrite Name and Address of Assignee)
the within instrument of VALERO LOGISTICS OPERATIONS, L.P. and does hereby
irrevocably constitute and appoint ________________________ Attorney to transfer
said instrument on the books of the within-named Partnership, with full power of
substitution in the premises.
Please Insert Social Security or
Other Identifying Number of Assignee:
- --------------------------------------- --------------------------------------
Dated:
-------------------------------- --------------------------------------
(Signature)
Signature Guarantee: ___________________________________________________________
(Participant in a Recognized Signature
Guaranty Medallion Program)
A-8
- ---------------
8 Include this paragraph only in Transfer Restricted Securities.
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever.]9
A-9
- ---------------
9 Insert this assignment form as a separate page in Definitive Securities only.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Partnership
pursuant to Section 1013 of the Indenture, check the box below:
___ Section 1013
If you want to elect to have only part of the Security purchased by the
Partnership pursuant to Section 1013 of the Indenture, state the amount you
elect to have purchased.
$ Your Signature:
---------------- --------------------------------------------
(sign exactly as your name appears on the
face of the Note)
Date: Tax Identification No.:
----------- -------------------------------------
Signature Guarantee:
----------------------------------------
GUARANTEE
The Guarantor (which term includes any successor Person in such capacity
under the Indenture), has fully, unconditionally and absolutely guaranteed, to
the extent set forth in the Indenture and subject to the provisions in the
Indenture, the due and punctual payment of the principal of, and premium, if
any, and interest on the Securities and all other amounts due and payable under
the Indenture and the Securities by the Partnership.
The obligations of the Guarantor to the Holders of Securities and to the
Trustee pursuant to the Guarantees and the Indenture are expressly set forth in
Article XIV of the Indenture and reference is hereby made to the Indenture for
the precise terms of the Guarantee.
Guarantor:
VALERO L.P.
By: Riverwalk Logistics, L.P.
Its General Partner
By: Valero GP, LLC,
Its General Partner
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
A-10
EXHIBIT A
[SCHEDULE OF INCREASES OR DECREASES
IN GLOBAL SECURITY
The following increases or decreases in this Global Security have been
made:
Amount of Amount of Principal Amount
Decrease in Increase in of this Global Signature of
Principal Principal Amount Security following authorized officer
Amount of this of this such decrease of Trustee or
Date of Exchange Global Security Global Security (or increase) Depositary]*
- ---------------- --------------- --------------- ------------- ------------
- -----------------------
*Insert in Global Securities only.
A-11
EXHIBIT B
FORM OF CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF NOTES
Re: 6.05% Senior Notes due 2013 of Valero Logistics Operations, L.P. (the
"Notes"). -----
This Certificate relates to $____ principal amount of Notes held in** _____
book-entry or **_____ definitive form by _____________________ (the
"Transferor").
The Transferor has requested the Trustee by written order to exchange or
register the transfer of a Note or Notes.
In connection with such request and in respect of each such Note, the
Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above-captioned Notes and that the transfer of this
Note does not require registration under the Securities Act (as defined below)
because:**
__ Such Note is being acquired for the Transferor's own account without
transfer.
__ Such Note is being transferred (i) to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"), in accordance with Rule 144A under the Securities Act or (ii)
pursuant to an exemption from registration in accordance with Rule 904 of
Regulation S under the Securities Act (and in the case of clause (ii), based
upon an opinion of counsel if the Partnership or the Trustee so requests,
together with a certification in substantially the form of Exhibit C to the
Indenture).
__ Such Note is being transferred (i) pursuant to an exemption from
registration in accordance with Rule 144 under the Securities Act (and based
upon an opinion of counsel if the Partnership or the Trustee so requests) or
(ii) pursuant to an effective registration statement under the Securities Act.
__ Such Note is being transferred in reliance on and in compliance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Partnership or the Trustee so requests).
[INSERT NAME OF TRANSFEROR]
By:
-----------------------------------------------
Name:
Title:
Address:
Date:
---------------
**Check appropriate box.
B-1
EXHIBIT D
FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS PURSUANT TO REGULATION S
-----------------, -----
The Bank of New York, as Registrar
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed sale of certain 6.05% Senior Notes due 2013
(the "Notes") of Valero Logistics Operations, L.P. (the "Partnership"), we
represent that:
(i) the offer of the Notes was not made to a person in the United States;
(ii) at the time the buy order was originated, the transferee was outside
the United States or we and any person acting on our behalf reasonably
believed that the transferee was outside the United States;
(iii)no directed selling efforts have been made by us in the United States
in contravention of Rule 903(a) or Rule 904(b) of Regulation S under
the U.S. Securities Act of 1933, as applicable; and
(iv) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Partnership are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S under the U.S. Securities Act of 1933.
Very truly yours,
------------------------
[Name]
By:
-------------------
Name:
Title:
Address:
D-2
Exhibit 10.1
HANDLING AND THROUGHPUT AGREEMENT
This Handling and Throughput Agreement ("Agreement"), dated as of March 18,
2003, is by and between Valero Logistics Operations, L.P., a Delaware limited
partnership ("Valero Logistics"), and Valero Marketing and Supply Company, a
Delaware corporation ("Valero Marketing").
RECITALS:
WHEREAS, pursuant to the terms of the Contribution Agreements (defined
below), Valero Logistics is acquiring by way of contribution specified crude oil
tanks, foundations, tank valves, tank gauges, pressure equipment, temperature
equipment and related assets in Corpus Christi (West Plant) and Texas City,
Texas and Benicia, California from certain affiliates of Valero Marketing
(collectively, the "Contributed Assets"); and
WHEREAS, Valero Marketing has agreed to enter into this Agreement pursuant
to which Valero Marketing will pay to Valero Logistics a specified fee during
the term of this Agreement for all volumes of Specified Feedstocks (as defined
below) Delivered to any of the Refineries (as defined below); and
WHEREAS, concurrently with the execution and delivery of this Agreement,
the Contribution Agreements, Lease and Access Agreement (as defined below) and
Services and Secondment Agreement (as defined below) (collectively with this
Agreement, the "Transaction Agreements") are being executed and delivered;
NOW, THEREFORE, in consideration of the covenants and obligations contained
in the Transaction Agreements, the parties to this Agreement hereby agree as
follows:
Definitions. Capitalized terms used throughout this Agreement and not
otherwise defined herein shall have the meanings set forth below.
"Accounting Firm" shall have the meaning assigned to such term in Section
7(c).
"Additional Specified Feedstocks" shall have the meaning assigned to such
term in Section 2(e).
"Agreement" shall have the meaning assigned to such term in the preamble.
"Applicable Law" shall mean any applicable statute, law, regulation,
ordinance, rule, judgment, rule of law, order, decree, permit, approval,
concession, grant, franchise, license, agreement, requirement, or other
governmental restriction or any similar form of decision of, or any provision or
condition of any permit, license or other operating authorization issued under
any of the foregoing by, or any determination by any Governmental Authority
having or asserting jurisdiction over the matter or matters in question, whether
now or hereafter in effect and in each case as amended (including without
limitation, all of the terms and provisions of the common law of such
Governmental Authority), as interpreted and enforced at the time in question.
1
"Arbitrable Dispute" shall mean any and all disputes, Claims,
counterclaims, demands, causes of action, controversies and other matters in
question between Valero Logistics and Valero Marketing arising out of or
relating to this Agreement or the alleged breach hereof, or in any way relating
to the subject matter of this Agreement or the relationship between Valero
Logistics and Valero Marketing created by this Agreement regardless of whether
(a) allegedly extra-contractual in nature, (b) sounding in contract, tort or
otherwise, (c) provided for by Applicable Law or otherwise or (d) seeking
damages or any other relief, whether at law, in equity or otherwise.
"Available Capacity" shall mean the then existing capacity to store and
transport Specified Feedstocks at the Contributed Assets; provided that if
Valero Logistics enters into handling and throughput agreements with third
parties at the Contributed Assets after the effective date hereof, the Available
Capacity shall be the then existing capacity to store and transport Specified
Feedstocks at the Contributed Assets less the Third Party Committed Capacity.
"Barrel" shall mean 42 U.S. gallons at 60(Degree) Fahrenheit.
"Benicia Refinery" shall mean the crude oil refinery and related facilities
and equipment owned and operated by Valero California in Benicia, California, as
same may be modified, upgraded or otherwise changed during the term of this
Agreement.
"California Contribution Agreement" shall have the meaning assigned to such
term in the definition of Contribution Agreements.
"Claim" shall mean any existing or threatened future claim, demand, suit,
action, investigation, proceeding, governmental action or cause of action of any
kind or character (in each case, whether civil, criminal, investigative or
administrative), known or unknown, under any theory, including those based on
theories of contract, tort, statutory liability, strict liability, employer
liability, premises liability, products liability, breach of warranty or
malpractice.
"Claimant" shall have the meaning assigned to such term in Section 8(f).
"Contribution Agreements" shall mean collectively, the Contribution
Agreement, dated of even date herewith, among Valero Texas, Valero Logistics and
certain affiliates of Valero Logistics (the "Texas Contribution Agreement"), and
that certain Contribution Agreement, dated of even date herewith, among Valero
California, Valero Logistics and certain affiliates of Valero Logistics (the
"California Contribution Agreement").
"Contributed Assets" shall have the meaning assigned to such term in the
recitals.
"Controlled Affiliates" shall mean an entity that directly or indirectly
through one or more intermediaries is controlled by VEC, excluding the
Partnership Parties and Subsidiaries. For the purposes of this definition,
"control" (including with correlative meaning, the term "controlled by"), as
used with respect to any such entity, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such entity, whether through the ownership of voting securities, by
agreement or otherwise.
2
"Corpus Christi Refinery" shall mean the crude oil refinery and related
facilities and equipment owned and operated by Valero Texas in Corpus Christi
(West Plant), Texas, as same may be modified, upgraded or otherwise changed
during the term of this Agreement.
"CPI" means, with respect to the Benicia Refinery, the Consumer Price Index
- - All Urban Consumers - All Items Index applicable to San Francisco-Oakland-San
Jose and, with respect to the Corpus Christi Refinery and Texas City Refinery,
the Consumer Price Index - All Urban Consumers - All Items Index -applicable to
Houston, Texas. The CPI most recently published by the Department of Labor -
Bureau of Labor Statistics for the calendar year in which the adjustment to the
MP Throughput Fee is then being calculated shall be used. If the Department of
Labor - Bureau of Labor Statistics ceases publishing the CPI, then the Parties
shall negotiate in good faith to select a substitute index that shall be used in
place of the CPI. If the parties are unable to agree upon an appropriate
substitute index, each party shall submit its recommendation for a substitute
index to the Chaired Professor in Oil and Gas Law at the law school at Southern
Methodist University in Dallas, Texas for his final and binding selection of a
substitute index or indices. The parties shall each pay 1/2 of his fees as
invoiced.
"Crude Oil" shall mean crude oil and gas oil.
"Delivered" or "Deliver" (when the capitalized form of the word is used)
shall mean the receipt, handling, blending (if applicable) and re-delivery of
Specified Feedstocks by or on behalf of Valero Logistics.
"Force Majeure Event" shall mean an event or condition the effect of which
is to render a party unable to perform its obligations (other than payment
obligations) at or in connection with a specific Refinery in accordance with
this Agreement, which event or condition is caused by or results from acts of
God, strikes, lockouts or other industrial disturbances, acts of the public
enemy, wars, blockades, insurrections, riots, storms, floods, washouts, arrests,
the order of any court or Governmental Authority having jurisdiction while the
same is in force and effect, civil disturbances, explosions, breakage, accident
to machinery, storage tanks or lines of pipe, inability to obtain or unavoidable
delay in obtaining material, equipment, right of way easements, franchises, or
permits, and any other causes whether of the kind herein enumerated or
otherwise, but in each case not reasonably within the control of the party
claiming suspension and which by the exercise of due diligence such party is
unable to prevent or overcome.
"Governmental Authority" shall mean any federal, state, local or foreign
government or any provincial, departmental or other political subdivision
thereof, or any entity, body or authority exercising executive, legislative,
judicial, regulatory, administrative or other governmental functions or any
court, department, commission, board, bureau, agency, instrumentality or
administrative body of any of the foregoing.
"Incremental Costs" shall have the meaning assigned to such term in Section
2(f).
3
"Incremental Cost Certificate" shall have the meaning assigned to such term
in Section 2(f).
"Lease and Access Agreements" shall mean those certain Lease and Access
Agreements, dated of even date herewith, between (i) Valero Texas and Valero
Logistics granting a ground lease for the Contributed Assets under the Texas
Contribution Agreement and rights of access, ingress and egress at the Corpus
Christi Refinery and Texas City Refinery and (ii) Valero California and Valero
Logistics granting a ground lease for the Contributed Assets under the
California Contribution Agreement and rights of access, ingress and egress at
the Benicia Refinery.
"Measurement Period" shall mean a Monthly Measurement Period.
"Monthly Measurement Period" shall mean each of (a) the period commencing
on the date of this Agreement and extending through and including the end of the
month in which this Agreement commences and (b) each subsequent calendar month
during the term of this Agreement.
"MP Fee Statement" shall have the meaning assigned to such term in Section
1(c).
"MP Throughput Fee" for any Measurement Period shall mean, the aggregate
sum of the fees payable by Valero Marketing to Valero Logistics for 100% of the
Specified Feedstocks Delivered to the Refineries during such Measurement Period
in accordance with this Agreement, which fee shall be calculated as specified in
Section 1(a).
"Notice of Disagreement" shall have the meaning assigned to such term in
Section 7(b).
"Partnership Parties" shall mean Valero Logistics, Valero GP, VLI and VLI
GP.
"Planned Capacity" shall mean the capacity requirements at each of the
Refineries as identified on Schedule 1 hereto through the fourth anniversary of
the effective date hereof. Planned Capacity for subsequent 12-month periods
during the Term shall be the capacity requirements of each of the Refineries for
each subsequent 12-month period as reasonably and in good faith estimated by
Valero Marketing and identified in writing by Valero Marketing to Valero
Logistics at least 12 months in advance, provided that in no event shall it mean
more capacity than the existing physical capacity to store and transport
Specified Feedstocks at the Contributed Assets (without accounting for any Third
Party Committed Capacity).
"Prime Rate" shall mean the prime rate per annum established by JPMorgan
Chase Bank or, if JPMorgan Chase Bank or its successor no longer establishes a
prime rate for any reason, the prime rate per annum established by the largest
U.S. bank measured by deposits from time to time as its base rate on corporate
loans, automatically fluctuating upward or downward with each announcement of
such prime rate.
"Refineries" shall mean the Benicia Refinery, Corpus Christi Refinery and
Texas City Refinery, and "Refinery" shall mean any one of those refineries.
4
"Refinery Event" means an event or circumstance at a Refinery or other
event or circumstance caused by Valero Marketing or any Controlled Affiliate
that, among other things, impairs or impedes the ability of Valero Logistics to
cause Delivery of Specified Feedstocks to such Refinery in the volumes nominated
by Valero Marketing, which event or circumstance is not the result of any breach
by Valero Logistics of its obligations hereunder or any act initiated by Valero
Logistics.
"Respondent" shall have the meaning assigned to such term in Section 8(f).
"Scheduled Maintenance" means maintenance scheduled by Valero Logistics on
any of the Contributed Assets that impairs or impedes the ability of Valero
Logistics to Deliver Specified Feedstocks to a Refinery in the volumes nominated
by Valero Marketing, provided that notice is given in accordance with Section
2(g).
"Scheduled Maintenance Event" means Scheduled Maintenance of which Valero
Marketing has been notified in accordance with Section 2(g).
"Services and Secondment Agreement" shall mean that certain Services and
Secondment Agreement, of even date herewith, among Valero Logistics, Valero
Texas and Valero California.
"Specified Feedstocks" shall mean the Crude Oil, residual fuel oil,
deasphalted oil, vacuum gas oil, vacuum tower bottoms, and light cycle oil.
"Subsidiary" shall mean any entity in which Valero Logistics, directly or
indirectly through one or more intermediaries, has an ownership interest.
"Texas City Refinery" shall mean the crude oil refinery and related
facilities and equipment owned and operated by Valero Texas in Texas City,
Texas, as same may be modified, upgraded or otherwise changed during the term of
this Agreement.
"Texas Contribution Agreement" shall have the meaning assigned to such term
in the definition of Contribution Agreement.
"Third Party Committed Capacity" shall mean the storage capacity of the
Contributed Assets that Valero Logistics contractually commits to provide to any
third parties pursuant to throughput and handling agreements in accordance with
the provisions of Section 2(d).
"Throughput Fee per Barrel" shall have the meaning assigned to such term in
Section 1(a).
"Transaction Agreements" shall have the meaning assigned to such term in
the recitals.
"Valero California" shall mean Valero Refining Company-California, a
Delaware corporation.
"Valero GP" shall mean Valero GP, Inc., a Delaware corporation and general
partner of Valero Logistics.
5
"Valero Logistics" shall have the meaning assigned to such term in the
preamble.
"Valero Marketing" shall have the meaning assigned to such term in the
preamble.
"Valero Texas" shall mean Valero Refining-Texas, L.P., a Texas limited
partnership.
"VEC" shall mean Valero Energy Corporation, a Delaware corporation.
"VLI" shall mean Valero L.P., a Delaware limited partnership.
"VLI GP" shall mean Riverwalk Logistics, L.P., a Delaware limited
partnership that is the general partner of VLI.
Section 1. MP Throughput Fee and Related Matters
(a) MP Throughput Fee Calculation. In consideration for Valero Logistics'
Delivery of Specified Feedstocks for Valero Marketing to the Refineries as
provided herein, Valero Marketing agrees during the term, and subject to the
terms and conditions, of this Agreement, to pay to Valero Logistics the MP
Throughput Fee for 100% of the Specified Feedstocks Delivered to the Refineries.
The MP Throughput Fee shall be calculated based on 100% of the volumes of
Specified Feedstocks delivered to the Refineries during each Measurement Period
as follows:
the sum of V times F for each of the Refineries, where "V" is the total
volume of the Specified Feedstocks (measured in barrels) Delivered during
the applicable Measurement Period to the particular Refinery, and "F" is
the applicable fee per barrel payable by Valero Marketing for Specified
Feedstocks Delivered to such Refinery during the applicable Measurement
Period, determined in accordance with Section 1(b) (such fee per barrel,
the "Throughput Fee per Barrel").
For purposes of determining "V", all quantities of Specified Feedstocks shall be
calculated in barrels at 60(Degree) Fahrenheit in accordance with recognized
temperature correction tables.
(b) Throughput Fee per Barrel. The Throughput Fee per Barrel for 100% of
the Specified Feedstocks Delivered to a Refinery during any Measurement Period
occurring during 2003 shall be the fee specified in the table below for each
barrel (with any volume of less than one-half barrel being rounded down to the
nearest whole number of barrels and any volume of one-half barrel or more being
rounded up to the next highest whole number) of such Specified Feedstocks:
6
For Specified Feedstocks Throughput Fee Per Barrel
Delivered to: During 2003
-----------
Benicia Refinery $ 0.296
Texas City Refinery 0.121
Corpus Christi Refinery 0.203
For 100% of the Specified Feedstocks Delivered to the Refineries during any
Measurement Period occurring after 2003, the Throughput Fee per Barrel for
Specified Products Delivered to each of the Refineries shall be adjusted as of
each anniversary of the effective date of this Agreement by an amount equal to
the product of (i) the applicable fee specified in the table above for such
Refinery multiplied by (ii) an amount equal to 75% of a fraction, of which (A)
the numerator is equal to the CPI applicable to each Refinery and (B) the
denominator is the CPI applicable to such Refinery and in effect for
November/December 2002, which is 193 for the Benicia Refinery and 159.2 for the
Corpus Christi and Texas City Refineries.
(c) Payment of MP Throughput Fee. As promptly as practicable after the end
of each Measurement Period during the term of this Agreement (commencing with
the first Measurement Period ending after the effective date hereof), and in any
event not later than the last business day of the calendar month following such
Measurement Period, Valero Marketing shall calculate the MP Throughput Fee
payable to Valero Logistics in respect of such Measurement Period. Valero
Marketing shall deliver to Valero Logistics at the address specified below a
statement showing in reasonable detail the calculation of the MP Throughput Fee
due in respect of such Measurement Period (such statement, the "MP Fee
Statement") together with payment in full of the amount of the MP Throughput Fee
reflected in the applicable MP Fee Statement, on or before the close of business
on the last business day in the month immediately following such Measurement
Period:
Attention: Valero Logistics Operations, L.P.
6000 North Loop 1604 West
San Antonio, Texas 78249
Attention: Curt Anastasio
Payment shall be made to such account as directed by Valero Logistics from time
to time. Notwithstanding payment in full of all amounts reflected in a MP Fee
Statement to be due and payable by Valero Marketing in respect of a particular
Measurement Period, the calculation of the MP Throughput Fee due in respect of
each Measurement Period shall be subject to the dispute procedures specified in
Section 7. If Valero Marketing fails to provide an MP Fee Statement as provided
above, Valero Logistics may prepare an MP Fee Statement based on its reasonable
estimate thereof for the identified Measurement Period and Valero Marketing
shall cause the amount set forth in such estimated MP Fee Statement to be paid
within [10][5] business days of receipt thereof. Any estimated MP Throughput
Fees shall be adjusted as soon thereafter as actual data is available and
payments made shall be adjusted accordingly by mutual agreement of Valero
Marketing and Valero Logistics promptly thereafter. Valero Marketing shall
provide Valero Logistics with at least 48 hours prior notice of any proving or
testing of any meters utilized in the measurement of Specified Feedstocks
hereunder and Valero Logistics shall be allowed to have a representative(s)
witness any such proving or testing.
7
(d) MP Throughput Fee on All Feedstock Volumes. The MP Throughput Fee shall
be paid in respect of 100% of the Specified Feedstocks Delivered to any of the
Refineries during the applicable Measurement Period, subject to the other
provisions of this Agreement. If Specified Feedstocks are delivered to any of
the Refineries during any Measurement Period hereunder other than by or on
behalf of Valero Logistics, except as provided in Sections 2(e) (Refinery
Expansions) and 2(f) (Incremental Costs), Valero Marketing shall pay to Valero
Logistics an amount equal to the number of Barrels of Specified Feedstocks so
delivered to the Refineries outside of this Agreement multiplied by the
Throughput Fee per Barrel applicable to delivery to the identified Refinery(ies)
as liquidated damages for Valero Marketing's failure to comply with its
obligations under Section 2(a)(i) ("Delivery Liquidated Damages"). Payment of
Delivery Liquidated Damages (if any) shall be made at the same time as the MP
Throughput Fee for the applicable Measurement Period in accordance with Section
1(c). The parties acknowledge that the calculation of Delivery Liquidated
Damages set forth above is a fair and reasonable calculation of the damages that
Valero Logistics would suffer if Valero Marketing were to breach its obligations
under Section 2(a)(i).
(e) Taxes, Assessments and Governmental Charges. Valero Marketing shall be
responsible for and agrees to pay to the extent related to Specified Feedstocks
handled hereunder (i) all applicable environmental federal, state and local
fees, assessments, handling permits and taxes, and (ii) all applicable federal,
state and local taxes, duties, import fees and other assessments levied by any
governmental body on Specified Feedstocks handled hereunder.
Section 2. Obligation of Valero Logistics and Valero Marketing
(a) Valero Marketing Commitment to Use Valero Logistics Services and Other
Commitments. Valero Marketing undertakes and agrees as follows:
(i) Valero Marketing shall use the handling and throughput services
and facilities of Valero Logistics for 100 percent of the Specified
Feedstocks delivered, or tendered for delivery at, the Refineries, subject
to the terms of this Agreement;
(ii) Valero Marketing shall operate in all material respects in
accordance with Applicable Law and prudent industry practices;
(iii) Valero Marketing shall be solely responsible for (A) scheduling
the purchase and delivery to Valero Logistics of Specified Feedstocks; (B)
management, reporting and control of Specified Feedstock inventory in the
Contributed Assets; (C) processing and disposal of tank bottoms, water
sludge and Specified Feedstocks in accordance with Applicable Law; and (D)
supply of any chemicals necessary or desirable in connection with the
Specified Feedstocks (including any storage thereof).
8
(b) Valero Logistics Operational Undertakings. Valero Logistics
undertakes and agrees as follows:
(i) Valero Logistics shall operate and maintain the Contributed
Assets in all material respects in accordance with Applicable Law and
prudent industry practices (including the API 653 inspection program)
and, except for those permits that Valero Marketing is required to
obtain under Section 1(e), shall use its reasonable commercial efforts
to procure and maintain all permits necessary or appropriate under
Applicable Law for Valero Logistics to comply with this Agreement;
(ii) Valero Logistics shall:
(A) accept from Valero Marketing custody of all volumes of
Specified Feedstocks nominated by Valero Marketing for delivery to
Valero Logistics under this Agreement; provided that (I) Valero
Marketing shall schedule such delivery nominations in accordance with
the scheduling practices maintained by Valero Logistics at the
Contributed Assets (as such customary scheduling practices may be
modified from time to time by mutual agreement of the parties during
the term of this Agreement), (II) Valero Marketing's nominations shall
specify the method by which the nominated volumes will be delivered to
Valero Logistics, and (III) Valero Marketing may not nominate for
delivery under this Agreement volumes of Specified Feedstock that
exceed the then Available Capacity;
(B) maintain all volumes delivered by or on behalf of Valero
Marketing to Valero Logistics in accordance with accepted industry
practices; and
(C) segregate and blend Specified Feedstocks held by Valero
Logistics on behalf of Valero Marketing at any of the Refineries in
accordance with Valero Marketing's instructions furnished in writing
(or otherwise confirmed in writing) to Valero Logistics from time to
time; and
(iii) Valero Logistics shall Deliver to Valero Marketing or its
designee custody of all Specified Feedstocks delivered to Valero
Logistics under this Agreement (A) to the applicable Refinery at which
the Valero Marketing nominated delivery is to be made, and (B) in
accordance with Valero Marketing's nominations for delivery (to the
extent commercially reasonable, subject to Valero Logistics'
scheduling practices maintained at the Contributed Assets,
bottlenecking and maintenance requirements at the applicable
Contributed Assets and related facilities). Valero Logistics is not
required to Deliver or coordinate the Delivery of Specified Feedstocks
between or among any of the Refineries or any other facilities owned
or operated by any Controlled Affiliate.
9
(c) Title to Specified Feedstocks. Valero Marketing warrants and represents
that Valero Marketing shall be the sole legal and beneficial owner of all
Specified Feedstocks Delivered hereunder, and that all such Specified Feedstocks
shall be free from all liens and encumbrances until after such time as the
Specified Feedstocks are Delivered by Valero Logistics pursuant to this
Agreement. Title to any and all Specified Feedstocks delivered to Valero
Logistics under this Agreement shall remain in Valero Marketing (or its
designee) at all times and Valero Logistics shall execute such certificates or
other statements as Valero Marketing may request from time to time that confirm
that Valero Logistics does not have title to such Specified Feedstocks.
(d) Valero Logistics May Provide Services to Third Parties. Valero
Logistics may enter into agreements with any third party to provide terminaling,
storage, handling or throughput services at the Contributed Assets, provided
that any such agreements shall include industry standard procedures that address
multi-party usage of the Contributed Assets and shall specify that Valero
Marketing has priority over any such third party with respect to the storage and
delivery of Specified Feedstocks nominated from time to time during the term of
this Agreement by Valero Marketing up to the Planned Capacity.
(e) Refinery Expansions - Valero Logistics Option for Incremental Feedstock
Capacity. If Valero Texas or Valero California, or one or more of their
respective affiliates, expend significant capital to upgrade or modify any of
the Refineries and, as a result, such Refinery requires expanded or modernized
tankage or related facilities to accommodate additional volumes of Specified
Feedstocks in excess of Available Capacity ("Additional Specified Feedstocks")
required at such upgraded or modified Refinery, Valero Marketing shall give
Valero Logistics the first opportunity to provide such incremental feedstock
handling and throughput capacity and, if Valero Logistics elects to pursue such
opportunity, Valero Marketing shall enter into good faith negotiations with
Valero Logistics to determine if and, if so, the terms and conditions upon
which, Valero Logistics will construct or cause to be constructed the new tanks
or related facilities required for incremental Specified Feedstock volumes to be
used at such upgraded or modified Refinery, provided that Valero Logistics shall
not be under any obligation or duty to agree to provide or operate any of such
new tanks or related facilities. If Valero Logistics does not exercise its
option under this subsection (e), Valero Marketing may pursue other handling and
feedstock capacity to accommodate the Additional Specified Feedstocks without
violating this Agreement; provided that the parties hereto shall otherwise
remain obligated to this Agreement with respect to all Specified Feedstocks
delivered to the Refineries other than the Additional Specified Feedstocks as to
which Valero Logistics does not exercise its option to provide services
hereunder.
10
(f) Valero Logistics Responsibility for Certain Incremental Costs. Valero
Logistics undertakes and agrees that if (a) it is unable to perform its handling
and throughput services for Specified Feedstocks at any of the Refineries other
than by reason of (i) a Force Majeure Event, (ii) a Scheduled Maintenance Event,
(iii) a Refinery Event or (iv) the inability of Valero Logistics to Deliver
Specified Feedstocks to the Refinery due to nominations by Valero Marketing that
exceed the greater of the then applicable Planned Capacity and the Available
Capacity at such Refinery and (b) such failure results in increased costs
incurred by the Refinery or Valero Marketing, as the case may be, to store,
handle, blend and deliver Specified Feedstock to the Refinery during the
continuation of such failure, Valero Logistics shall reimburse the owner of such
Refinery or Valero Marketing, as the case may be, for the reasonable,
incremental costs so incurred to store, handle, blend and deliver the Specified
Feedstocks ("Incremental Costs"); provided, however, that Valero Logistics shall
not be required to make such reimbursement unless and until the owner of such
Refinery or Valero Marketing, as the case may be, furnishes to Valero Logistics
a certificate from an authorized officer setting forth in reasonable detail with
supporting documentation the calculation of the Incremental Costs for which
reimbursement is sought (an "Incremental Cost Certificate"). Valero Logistics
shall not receive the applicable Throughput Fee per Barrel for any of the
Specified Feedstocks that are delivered to any of the Refineries by someone
other than Valero Logistics in the event of the failure of Valero Logistics to
perform handling and throughput services for Specified Feedstocks for a reason
other than those set forth in (a)(i), (ii), (iii) or (iv) of this Section 2(f).
For purposes of subsection (a)(iv) above, Available Capacity shall be deemed to
be the then existing capacity of the Contributed Assets associated with a
specific Refinery without accounting for the adverse impact of any event other
than an event described in subsection (a)(i), (ii) or (iii) above. If Valero
Logistics is unable to perform its handling and throughput services for
Specified Feedstocks at any of the Refineries, the owner of the Refinery or
Valero Marketing, as the case may be, may pursue other handling and throughput
services or capacity to accommodate Specified Feedstocks at such Refinery to the
extent that Valero Logistics cannot accommodate them under this Agreement
without violating this Agreement until such time as Valero Logistics is able to
resume performance of its obligations under this Agreement at the particular
Refinery. Only Incremental Costs reasonably incurred by Valero Marketing shall
be reimbursable hereunder and Valero Marketing shall use its commercially
reasonable efforts to mitigate such Incremental Costs.
11
(g) Notice of Scheduled Maintenance. Valero Logistics undertakes and agrees
to provide notice to Valero Marketing of Scheduled Maintenance in accordance
with the following:
(i) with respect to Scheduled Maintenance that renders less than 30%
of the capacity of the Contributed Assets at a Refinery unable to be
utilized for Specified Feedstocks for longer than four consecutive hours,
written notice of such Scheduled Maintenance must be furnished to Valero
Marketing not less than 10 days before commencing same (except for
emergency maintenance, notice of which must be furnished as promptly as
practicable); and
(ii) with respect to Scheduled Maintenance that renders more than 30%
of the capacity of the Contributed Assets at a Refinery unable to be
utilized for Specified Feedstocks for longer than four consecutive hours,
written notice of such Scheduled Maintenance must be furnished to Valero
Marketing not less than 45 days before commencing same (except for
emergency maintenance, notice of which must be furnished as promptly as
practicable). Valero Logistics must use its reasonable best efforts to
coordinate such Scheduled Maintenance with scheduled turnarounds at the
applicable Refinery.
(h) Specified Feedstock Quality; Insurance.
(i) If any Specified Feedstocks delivered by Valero Marketing to
Valero Logistics under this Agreement do not meet the industry
standard specifications for such Specified Feedstock at the time
of delivery, Valero Marketing shall, at its sole cost and
expense, be responsible for any cleaning or repairs of damages
that result from the delivery to Valero Logistics of any such
off-specification Specified Feedstocks.
12
(ii) If any Specified Feedstocks re-delivered by Valero Logistics
under this Agreement do not meet the industry standard
specifications for such Specified Feedstock at the time of such
re-delivery as a result of some contamination or other damage to
the Specified Feedstocks after delivery to Valero Logistics as a
result of an act or omission of Valero Logistics or if Specified
Feedstocks delivered to Valero Logistics hereunder are
subsequently lost or damaged prior to re-delivery to the Refinery
as a result of an act or omission of Valero Logistics, Valero
Logistics shall, at its sole cost and expense, be responsible for
(A) any cleaning or repairs of damage that result from the
re-delivery to Valero Marketing (or the Refinery, as applicable)
of any such contaminated or damaged Specified Feedstocks and (B)
any replacement costs for any Specified Feedstocks lost or
damaged, less any salvage value; provided that Valero Logistics
shall not be liable in any event for more than the actual cost of
the lost or damaged Specified Feedstocks to Valero Marketing
under this subsection (B) and Valero Logistics shall be permitted
a reasonable and customary loss allowance of 0.25% or actual loss
of Specified Feedstocks, whichever is less, when calculating
damages under this subsection (B). Notwithstanding the foregoing,
Valero Logistics shall not be liable in any event under this
Section (h)(ii) for any losses or damages to the extent such
losses or damages result from (x) any failure of equipment or
facilities owned or operated by Valero Marketing or any
Controlled Affiliate, (y) a Force Majeure Event or (z) the
delivery of Specified Feedstocks by Valero Marketing to Valero
Logistics that do not meet the industry standard specifications
for such Specified Feedstock at the time of delivery.
(iii)Insurance on Specified Feedstocks, if any be desired by Valero
Marketing, shall be carried by Valero Marketing at its own
expense and for the benefit of Valero Marketing.
(iv) Valero Logistics agrees that during the terms of this Agreement
it shall maintain property and casualty insurance (including
pollution insurance coverage) on the Contributed Assets in
accordance with customary industry practices and with a licensed,
reputable carrier. Valero Marketing acknowledges that initially
such insurance may be maintained under an umbrella policy of VEC
with Valero Logistics as a named insured (and for which Valero
Logistics shall reimburse VEC for its proportionate cost), but
Valero Logistics agrees that it will endeavor in good faith to
obtain insurance in its own name if commercially and economically
practicable.
13
Section 3. Agreement not to Challenge MP Throughput Fees
Valero Marketing agrees not to challenge, nor to cause or permit any of its
Controlled Affiliates to challenge, nor to encourage or recommend to any other
person that it challenge, in any forum, the MP Throughput Fees. Valero Marketing
agrees neither to protest or to file a complaint, nor to cause or permit any of
its Controlled Affiliates to protest or to file a complaint, concerning
regulatory filings made by Valero Logistics and its Subsidiaries for tankage,
terminaling or related services (provided that the services described in any
such filing by Valero Logistics would not, if carried out by Valero Logistics,
adversely impact Valero Logistics' ability to perform its obligations under this
Agreement).
Section 4. Effectiveness and Term
This Agreement shall be effective as of the date first set forth above. The
Agreement shall extend for a term of 10 years from such date and shall terminate
at 12:01 a.m. San Antonio, Texas, time on the tenth anniversary of such date,
unless extended as provided herein. The parties hereto agree that if Valero
Marketing delivers to Valero Logistics written notice for extension, which
notice shall be given not later than twelve months prior to the tenth
anniversary of this Agreement, the term of this Agreement may be extended for an
additional five years expiring at 12:01 a.m. San Antonio time on the fifteenth
anniversary of this Agreement.
Section 5. Notices
All notices, requests, demands, and other communications pertaining to this
Agreement shall be delivered personally, or by registered or certified mail
(postage prepaid and return receipt requested), or by express carrier or
delivery service, or by telecopy, to the parties hereto at the addresses below
(or at such other addresses as shall be specified by notice under this Section
5):
(i) if to Valero Marketing:
Valero Marketing and Supply Company
One Valero Place
San Antonio, Texas 78212
Attn: Mr. Bill Klesse
Telecopy: 210-370-2660
(ii) if to any of the Partnership Parties or a Subsidiary:
Valero Logistics Operations, L.P.
6000 North Loop 1604 West
San Antonio, Texas 78249
Attn: Mr. Curt Anastasio
Telecopy: 210-370-2304
14
Section 6. Successors and Assigns
This Agreement shall inure to the benefit of, and shall be binding upon,
Valero Marketing and Valero Logistics and their respective successors and
permitted assigns. Successors shall include any entity (corporation, limited
liability company, partnership or other entity), or any person which succeeds to
a controlling interest in, or all of the economic interest of, Valero Marketing
or Valero Logistics, as applicable. The parties hereto agree to require their
respective successors, if any, to expressly assume, in a form of agreement
acceptable to the other parties, the obligations under this Agreement.
Section 7. Dispute Procedures
(a) Review of Information. During the 24-month period following receipt of
any MP Fee Statement or any Incremental Cost Certificate, Valero Marketing
agrees, at no cost to Valero Logistics, to give Valero Logistics, its
independent public accountants and authorized representatives reasonable access
to its premises, employees and other facilities and to its books and records
(and those of its Controlled Affiliates) to review the accounting records of
Valero Marketing and any applicable Controlled Affiliates, any working papers of
independent public accountants of Valero Marketing and its Controlled Affiliates
prepared in connection with the MP Fee Statement or the Incremental Cost
Certificate (as the case may be) and such additional information as Valero
Logistics, its independent public accountants or other authorized
representatives may reasonably request for the purpose of reviewing, verifying
and auditing the calculation of (i) the MP Throughput Fee due in respect of the
Measurement Period covered by the MP Fee Statement and, if the calculation is
not correct, to determine the amount of any difference; or (ii) the Incremental
Costs covered by the Incremental Cost Certificate. In this connection, Valero
Marketing and Valero Logistics and their respective independent public
accountants and other authorized representatives shall, and Valero Marketing
shall cause its Controlled Affiliates to, cooperate with each other.
(b) Notice of Disagreement. If, in connection with the period of review and
consultation provided for in Section 7(a), Valero Logistics has reason to
believe that Valero Marketing has not correctly calculated the amount of the MP
Throughput Fee due in respect of any such Measurement Period in accordance with
this Agreement or any Incremental Costs, then within 24 months following its
receipt of the MP Fee Statement or any Incremental Cost Certificate, Valero
Logistics may give Valero Marketing a written notice of its disagreement (a
"Notice of Disagreement"). If such Notice of Disagreement is not timely given by
Valero Logistics, the MP Throughput Fee specified in the MP Fee Statement for
such Measurement Period or the Incremental Costs identified in the Incremental
Cost Certificate shall be final and binding on the parties. Any Notice of
Disagreement shall specify in reasonable detail (if known) Valero Logistics'
calculation of such MP Throughput Fee or any Incremental Costs, as the case may
be. If a Notice of Disagreement is received by Valero Marketing in a timely
manner, then the determination of (i) whether Valero Marketing has correctly
calculated the amount of any such MP Throughput Fee with respect to such
Measurement Period or the Incremental Costs in accordance with this Agreement
and (ii) if it has not, the amount of the difference shall become final and
binding upon all parties hereto on the earlier of (A) the date the appropriate
officers of Valero Marketing and Valero GP (on behalf of Valero Logistics)
resolve in writing any differences they have with respect to the matters
specified in the Notice of Disagreement and (B) the date any disputed matters
are finally resolved in writing by the Accounting Firm pursuant to Section 7(c),
as applicable.
15
(c) Settling of Disagreements. If a Notice of Disagreement is delivered,
within 15 days thereafter, a senior officer of Valero Marketing and Valero GP
(on behalf of Valero Logistics) shall meet or communicate by telephone at a
mutually acceptable time and location, and thereafter as often as they
reasonably deem necessary and shall negotiate in good faith to attempt to
resolve any differences which they may have with respect to matters specified in
the Notice of Disagreement. During the 30-day period commencing upon Valero
Marketing's receipt of the Notice of Disagreement, Valero Marketing, its
independent public accountants and other authorized representatives shall have
access to the working papers of the other party relating to the Notice of
Disagreement and the working papers of such other party's independent public
accountants and other authorized representatives prepared in connection with the
Notice of Disagreement. If such differences are not resolved within the 30-day
period following Valero Marketing's receipt of the Notice of Disagreement,
Valero Marketing and Valero Logistics shall, within 40 days after Valero
Marketing's receipt of the Notice of Disagreement, submit to a dispute
resolution group of an independent public accounting firm (the "Accounting
Firm") for review and resolution any and all matters that remain in dispute and
that were properly included in the Notice of Disagreement, in the form of a
written brief. The scope of the Accounting Firm's review shall include
determining whether there has been a shortfall or overpayment with respect to
such Measurement Period or Incremental Costs and, if so, the amount thereof. The
Accounting Firm shall be such recognized independent public accounting firm as
shall be agreed upon by Valero Marketing and Valero Logistics in writing. If the
parties are unable to agree upon such Accounting Firm within 40 days after
Valero Marketing's receipt of the Notice of Disagreement, either party may
petition to the American Arbitration Association for appointment of such
Accounting Firm. The costs of petitioning for the appointment of such Accounting
Firm by the American Arbitration Association shall be shared equally by the
parties. The Accounting Firm's decision shall be accompanied by a certificate of
the Accounting Firm that it reached its decision in accordance with the
provisions of this Section 7(c). The parties agree to use their respective
commercially reasonably best efforts to cause the Accounting Firm to render a
decision resolving the matters submitted to the Accounting Firm within 30 days
following submission. The parties agree that judgment may be entered upon the
determination of the Accounting Firm in any District Court in Bexar County,
Texas. The fees and expenses of the Accounting Firm shall be borne by Valero
Marketing and Valero Logistics in inverse proportion as they may prevail on
matters resolved by the Accounting Firm, which proportionate allocations shall
also be determined by the Accounting Firm at the time the determination of the
Accounting Firm is rendered on the merits of the matters submitted. Any fees and
disbursements of independent public accountants or other authorized
representatives of Valero Marketing or Valero Logistics incurred in connection
with their preparation or review of the MP Fee Statement, Incremental Cost
Certificate or the applicable Notice of Disagreement shall be borne by the party
retaining such independent public accountants or other authorized
representatives, as the case may be.
16
(d) If it is finally determined pursuant to this Section 7 that there is a
difference in the final MP Throughput Fee and the amount paid by Valero
Marketing pursuant to Section 1(c) in respect of such Measurement Period, then
(i) if the final MP Throughput Fee, as finally determined in accordance with
this Section 7, exceeds the amount paid to Valero Logistics by Valero Marketing
pursuant to Section 1(c), then Valero Marketing shall pay to Valero Logistics
the amount of such excess, plus interest on the amount of such excess from (and
including) the date payment for such Measurement Period was made pursuant to
Section 1(c), to (but excluding) the date of payment pursuant to this Section
7(d) at the Prime Rate, or (ii) if the final MP Throughput Fee is less than the
amount paid to Valero Logistics by Valero Marketing pursuant to Section 1(c),
then Valero Logistics shall pay to Valero Marketing the amount of such
deficiency, plus interest on the amount of such deficiency from (and including)
the date payment for such Measurement Period was made pursuant to Section 1(c),
to (but excluding) the date of payment pursuant to this Section 7(d) at the
Prime Rate. Any payment shall be made within 10 business days of the date on
which the final MP Throughput Fee or Incremental Costs is deemed to be finally
determined pursuant to this Section 7.
Section 8. Miscellaneous
(a) Valero Intention as to Refineries. Valero Marketing represents to the
Partnership Parties that, as of the date of this Agreement, its Controlled
Affiliates do not intend to close or dispose of any of the Refineries or to
cause any changes that would have a material adverse effect on the operation of
any of the Refineries. Valero Marketing shall (or cause its Controlled
Affiliates to) provide Valero Logistics with prior written notice of any
proposed or contemplated sale of any of the Refineries as soon as such sale is
proposed or contemplated but not less then 30 days prior to any such sale.
Valero Marketing also represents that, as of the date hereof, it is responsible
for the purchase of all Specified Feedstocks for processing at the Refineries.
If, subsequent to the date of this Agreement, Valero Marketing's role as the
purchaser of Specified Feedstocks is changed such that another Controlled
Affiliate (including without limitation a Controlled Affiliate that owns a
Refinery) is responsible for purchasing Specified Feedstocks for any Refinery,
then Valero Marketing shall cause such Controlled Affiliate to agree, and Valero
Logistics will agree, to modify this Agreement to add such Controlled Affiliate
to this Agreement so that such Controlled Affiliate will be obligated to perform
Valero Marketing's obligations hereunder with respect to such Refinery.
(b) Amendments and Waivers. No amendment or modification of this Agreement
shall be valid unless it is in writing and signed by the parties hereto and, in
the case of any material amendment or modification adverse to Valero Logistics,
approved by the Conflicts Committee of Valero GP. No waiver of any provision of
this Agreement shall be valid unless it is in writing and signed by the party
against whom the waiver is sought to be enforced. No failure or delay in
exercising any right hereunder, and no course of conduct, shall operate as a
waiver of any provision of this Agreement. No single or partial exercise of a
right hereunder shall preclude further or complete exercise of that right or any
other right hereunder.
17
(c) Permitted Assignments; Sale of Refinery. Subject to the other
provisions of this Agreement, neither this Agreement nor any of the rights or
obligations hereunder shall be assigned without the prior written consent of
Valero Marketing (in the case of any assignment by Valero Logistics) or Valero
Logistics (in the case of any assignment by Valero Marketing). However, Valero
Logistics may make an assignment to an equally credit-worthy affiliate of Valero
Logistics upon written notice to Valero Marketing; and Valero Marketing may make
an assignment to an equally credit-worthy affiliate of Valero Marketing upon
written notice to Valero Logistics. Furthermore, if all or substantially all of
the assets of any Refinery are sold to an entity that is not a Controlled
Affiliate, Valero Marketing shall cause the purchaser of such assets to assume
all of the obligations of Valero Marketing under this Agreement (including
without limitation those under Section 8(a)) in the event that Valero Marketing
or a Controlled Affiliate is at any time no longer responsible for the purchase
of all Specified Feedstocks for processing at such sold Refinery. Any attempt to
make an assignment otherwise than as permitted by the foregoing shall be null
and void. Any assignment agreed to by Valero Marketing or Valero Logistics, as
applicable, shall not relieve the assignor of its obligations under this
Agreement.
(d) Severability. If any provision of this Agreement shall be held invalid
or unenforceable by a court or regulatory body of competent jurisdiction, the
remainder of this Agreement shall remain in full force and effect.
(e) No Inconsistent Actions. No party hereto shall undertake any course of
action inconsistent with the provisions of this Agreement. Without limiting the
foregoing sentence, no party hereto shall enter into, modify, amend, or waive
any contract right or obligation if such action would conflict with or impair
the rights and protections granted to any other party under this Agreement.
(f) Arbitration Provision. Except as provided in Section 7, any and all
Arbitrable Disputes must be resolved through the use of binding arbitration
using three arbitrators, in accordance with the Commercial Arbitration Rules of
the American Arbitration Association, as supplemented to the extent necessary to
determine any procedural appeal questions by the Federal Arbitration Act (Title
9 of the United States Code). If there is any inconsistency between this Section
and the Commercial Arbitration Rules or the Federal Arbitration Act, the terms
of this Section 8(f) will control the rights and obligations of the parties.
Arbitration must be initiated within the applicable time limits set forth in
this Agreement and not thereafter or if no time limit is given, within the time
period allowed by the applicable statute of limitations. Arbitration may be
initiated by a party ("Claimant") serving written notice on the other party
("Respondent") that the Claimant elects to refer the Arbitrable Dispute to
binding arbitration. Claimant's notice initiating binding arbitration must
identify the arbitrator Claimant has appointed. The Respondent shall respond to
Claimant within 30 days after receipt of Claimant's notice, identifying the
arbitrator Respondent has appointed. If the Respondent fails for any reason to
name an arbitrator within the 30-day period, Claimant shall petition to the
American Arbitration Association for appointment of an arbitrator for
Respondent's account. The two arbitrators so chosen shall select a third
arbitrator within 30 days after the second arbitrator has been appointed. The
Claimant will pay the compensation and expenses of the arbitrator named by or
for it, and the Respondent will pay the compensation and expenses of the
arbitrator named by or for it. The costs of petitioning for the appointment of
an arbitrator, if any, shall be paid by Respondent. The Claimant and Respondent
will each pay one-half of the compensation and expenses of the third arbitrator.
All arbitrators must (a) be neutral parties who have never been officers,
directors or employees of Valero Marketing, Valero Logistics or any of their
respective affiliates and (b) have not less than seven years experience in the
energy industry. The hearing will be conducted in San Antonio, Texas and
commence within 30 days after the selection of the third arbitrator. Valero
Marketing, Valero Logistics and the arbitrators should proceed diligently and in
good faith in order that the award may be made as promptly as possible. Except
as provided in the Federal Arbitration Act, the decision of the arbitrators will
be binding on and non-appealable by the parties hereto. The arbitrators shall
have no right to grant or award indirect, consequential, punitive or exemplary
damages of any kind.
18
(g) No Consequential Damages; Implied Warranties. NEITHER VALERO MARKETING
NOR VALERO LOGISTICS SHALL BE LIABLE TO THE OTHER FOR SPECIAL, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) UNDER THIS
AGREEMENT, NO MATTER HOW SUCH DAMAGES MAY HAVE OCCURRED OR BEEN CAUSED,
INCLUDING WHETHER OR NOT SUCH DAMAGES ARE THE RESULT OF THE NEGLIGENCE OF (BUT
NOT THE INTENTIONAL MISCONDUCT OF) EITHER VALERO MARKETING, VALERO LOGISTICS,
ANY CONTROLLED AFFILIATE OR ANY OF THE PARTNERSHIP PARTIES. EXCEPT AS EXPRESSLY
SET FORTH IN THE TRANSACTION AGREEMENTS, THERE ARE NO GUARANTEES OR WARRANTIES
OR REPRESENTATIONS BY EITHER PARTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTIBILITY OR FITNESS FOR A
PARTICULAR PURPOSE, WHETHER ARISING BY OPERATION OF LAW OR OTHERWISE. TO THE
EXTENT THAT A REMEDY IS SET FORTH IN THIS AGREEMENT FOR A PARTICULAR BREACH OF
THIS AGREEMENT, SUCH REMEDY SHALL BE THE SOLE AND EXCLUSIVE REMEDY FOR ANY CLAIM
FOR DAMAGE OR OTHERWISE ARISING FROM OR RELATED TO SUCH BREACH OF THIS
AGREEMENT.
(h) Governing Law. This Agreement shall be governed by the laws of the
State of Texas. In the event of litigation concerning this Agreement, proper
venue shall be in San Antonio, Bexar County, State of Texas.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
19
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as
of the date first written above.
VALERO MARKETING AND SUPPLY COMPANY
By: /s/ Michael S. Ciskowski
--------------------------------------------------
Name: Michael S. Ciskowski
Title: Senior Vice President
VALERO LOGISTICS OPERATIONS, L.P.
By: Valero GP, Inc., its general partner
By: /s/ Curtis V. Anastasio
---------------------------------------------
Name: Curtis V. Anastasio
Title: Chief Executive Officer and President
20
Exhibit 10.2
SERVICES AND SECONDMENT AGREEMENT
This Services and Secondment Agreement ("Agreement"), dated as of March 18,
2003 (the "Effective Date"), is entered into between VALERO REFINING
COMPANY-CALIFORNIA ("VRC-CA"), a Delaware corporation, and VALERO LOGISTICS
OPERATIONS, L.P. (the "OLP"), a Delaware limited partnership.
RECITALS:
WHEREAS, pursuant to that certain Contribution Agreement of even date
herewith, VRC-CA has contemporaneously with this Agreement contributed the Tank
Assets (as such term is defined in the Contribution Agreement) (the "Tank
Assets") to the OLP; and
WHEREAS, VRC-CA will provide to the OLP the operational and maintenance
resources and services necessary to operate, manage and maintain the Tank
Assets;
WHEREAS, in connection with the provision of the operational and
maintenance resources and services under this Agreement, VRC-CA desires to
second to OLP certain personnel employed or contracted by VRC-CA in connection
with the Tank Assets.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, VRC-CA and OLP hereby
agree as follows:
ARTICLE 1
DEFINITIONS; INTERPRETATION; USE OF SECONDING AFFILIATES
1.1 Definitions. As used in this Agreement, (a) the terms defined in this
Agreement will have the meanings so specified, and (b) capitalized terms not
defined in this Agreement will have the meanings ascribed to those terms on
Exhibit A to this Agreement.
1.2 Interpretation. In this Agreement, unless a clear contrary intention
appears: (a) the singular includes the plural and vice versa; (b) reference to
any Person includes such Person's successors and assigns but, in the case of a
Party, only if such successors and assigns are permitted by this Agreement, and
reference to a Person in a particular capacity excludes such Person in any other
capacity; (c) reference to any gender includes each other gender; (d) reference
to any agreement (including this Agreement), document or instrument means such
agreement, document, or instrument as amended or modified and in effect from
time to time in accordance with the terms thereof and, if applicable, the terms
of this Agreement; (e) reference to any Section means such Section of this
Agreement, and references in any Section or definition to any clause means such
clause of such Section or definition; (f) "hereunder," "hereof," "hereto" and
words of similar import will be deemed references to this Agreement as a whole
and not to any particular Section or other provision hereof or thereof; (g)
"including" (and with correlative meaning "include") means including without
limiting the generality of any description preceding such term; and (h) relative
to the determination of any period of time, "from" means "from and including,"
"to" means "to but excluding" and "through" means "through and including."
1.3 Legal Representation of Parties. This Agreement was negotiated by the
Parties with the benefit of legal representation, and any rule of construction
or interpretation requiring this Agreement to be construed or interpreted
against any Party merely because such Party drafted all or a part of such
Agreement will not apply to any construction or interpretation hereof or
thereof.
1.4 Titles and Headings. Section titles and headings in this Agreement are
inserted for convenience of reference only and are not intended to be a part of,
or to affect the meaning or interpretation of, this Agreement.
ARTICLE 2
OPERATIONAL AND MAINTENANCE SERVICES
2.1 Operational and Routine Maintenance Expenses
VRC-CA shall second the Provided Personnel to the OLP to provide the OLP
with those operational and routine maintenance services in connection with the
Tank Assets that are identified on Exhibit D to this Agreement ("Operational
Services"). OLP will reimburse VRC-CA in an annual amount of $1,300,000 for the
Operational Services (the "Services Reimbursement"). The Services Reimbursement
shall be paid in twelve equal monthly installments. On the first day of each
month, VRC-CA shall send an invoice to OLP for the Service Reimbursement and
other expenses due under Section 2.4 for that month. OLP shall pay such invoice
by the twentieth (20th) day of each month. VRC-CA may increase the Services
Reimbursement on each anniversary date of this Agreement by an amount not to
exceed the proportionate increase in the Consumer Price Index-All Urban
Consumers, All Items Index applicable to San Francisco-Oakland-San Jose ("CPI"),
for the immediately preceding measurement year as published by the Department of
Labor--Bureau of Labor Statistics. If the Department of Labor - Bureau of Labor
Statistics ceases publishing the CPI, then the parties shall negotiate in good
faith to select a substitute index that shall be used in place of the CPI. If
the parties are unable to agree upon an appropriate substitute index, each party
shall submit its recommendation for a substitute index to the Chaired Professor
in Oil and Gas Law at the law school at Southern Methodist University in Dallas,
Texas for his final and binding selection of a substitute index or indices. The
parties shall each pay 1/2 of his fees as invoiced.
2.2 Adjustments.
(a) At least 30 days prior to each annual anniversary of the Effective
Date, OLP will have the right to submit to VRC-CA a proposal to reduce the
amount of the Services Reimbursement for that year if OLP believes, in good
faith, that the Operational Services performed by the Provided Personnel for the
benefit of OLP for the 12-month period in question result in actual costs to
VRC-CA that are, in the aggregate, less than the Services Reimbursement for that
year. If OLP submits such a proposal to VRC-CA, VRC-CA agrees that it will
negotiate in good faith with OLP to determine if the Services Reimbursement for
that year should be reduced and, if so, by how much.
2
(b) Following the fifth anniversary of the Effective Date, VRC-CA shall
have the right, no more frequently than one time in any 36-month period, to
submit to OLP a proposal to increase the amount of the Services Reimbursement
for that year if VRC-CA believes, in good faith, that the Operational Services
performed by the Provided Personnel for the benefit of OLP for the period(s) in
question result in actual costs to VRC-CA and its Affiliates in excess of the
Services Reimbursement for that period. If VRC-CA submits such a proposal to
OLP, OLP agrees that it will negotiate in good faith with VRC-CA to determine if
the Services Reimbursement should be increased and, if so, by how much.
(c) If the Services Reimbursement is modified pursuant to clauses (a) or
(b) above, once modified, it shall continue as the Services Reimbursement,
adjusted in accordance with Section 2.1 (CPI), until such time as the Parties
may agree (if at all) to a subsequent modification.
(d) If the parties are unable to agree on a modification to the Services
Reimbursement under Section 2.2(a) or (b) above, either party may submit the
disagreement to mediation pursuant to the terms of Section 6.17 of this
Agreement. Any final determination under Section 6.17 of the adjusted Services
Reimbursement will be applied on a retroactive basis for the period as to which
the Services Reimbursement adjustment was then sought.
2.3 Provided Personnel
Among other items, the Services Reimbursement includes all reasonable costs
and expenses for the Provided Personnel, including, but not limited to:
(i) Salaries and wages (including payroll and withholding taxes
associated therewith) of employees seconded to OLP (the "Provided
Personnel") to the extent, but only to the extent, such employees
are seconded to and perform services for OLP; and
(ii) the cost of employee benefits relating to Provided Personnel,
including 401(k) (and any matching 401(k) contributions),
pension, life insurance, disability insurance, retiree medical,
and health insurance benefits, to the extent, but only to the
extent, such costs represent the pro rata portion of the employee
benefit costs directly attributable to the Period of Secondment
(as defined in Section 3.2 hereof).
The costs and expenses described in (i) and (ii) above are referred to as
"Provided Personnel Expenses."
2.4 Maintenance and Other Expenses. In addition to the Services
Reimbursement, OLP will reimburse VRC-CA monthly for the reasonable and
necessary maintenance and other expenses incurred by VRC-CA or any of its
Affiliates that (i) are not Operational Services; (ii) are not directly paid by
OLP or any of the Partnership Entities to third parties; and (iii) are allocable
to the Tank Assets, including but not limited to those services and expenses
(the "Other Services") listed on Exhibit E hereto. OLP shall reimburse VRC-CA
for all reasonable and necessary (x) out-of-pocket expenses incurred by VRC-CA
or any of its Affiliates exclusively in connection with the Other Services
provided to the Tank Assets, (y) actual costs of any item purchased by VRC-CA or
any of its Affiliates exclusively in connection with the Other Services, and (z)
other expenses incurred by VRC-CA or any of its Affiliates in connection with
the Other Services, including, but not limited to, payments to third parties for
services rendered in connection with the Other Services.
3
2.5 Cancellation or Reduction of Services
OLP may terminate or reduce the level of any of the Operational Services
and/or the Other Services on 30 days' prior written notice to VRC-CA. In the
event OLP terminates the Operational Services and/or the Other Services, OLP
shall pay VRC-CA the monthly installment for the last month (or portion thereof)
in which it received services plus any amounts outstanding to VRC-CA and third
party vendors for Other Services. Upon payment thereof, OLP shall have no
further payment obligations. In the event that OLP reduces the level of any of
the Operational and Other Services, the parties will negotiate in good faith to
determine an appropriate Services Reimbursement for the remaining services.
ARTICLE 3
SECONDMENT
3.1 Provided Personnel. Subject to the terms of this Agreement, VRC-CA
agrees to second to OLP, and OLP agrees to accept the Secondment of, those
certain specifically identified individuals listed in Exhibit B (the "Provided
Personnel Schedule") for the purpose of performing job functions related to the
Tank Assets. The Provided Personnel will be temporary employees of OLP during
the Period of Secondment and shall, at all times during the Period of
Secondment, work under the direction, supervision and control of OLP. Provided
Personnel shall have no authority or apparent authority to act on behalf of
VRC-CA during the Period of Secondment. The Provided Personnel Schedule sets
forth the names of the Provided Personnel seconded by VRC-CA, the job functions
of the Provided Personnel, and the starting and ending dates for the Period of
Secondment of the Provided Personnel. Individuals may be added or removed from
the Provided Personnel Schedule from time to time by the execution by the
Parties of a completed "Addition/Removal/Change of Responsibility of Provided
Personnel" form, the form of which is attached to this Agreement as Exhibit C,
which will be fully binding on the Parties for all purposes under this
Agreement. Those rights and obligations of the Parties under this Agreement that
relate to individuals that were on the Provided Personnel Schedule but then
later removed from the Provided Personnel Schedule, which rights and obligations
accrued before the removal of such individual, will survive the removal of such
individual from the Provided Personnel Schedule to the extent necessary to
enforce such rights and obligations.
3.2 Period of Secondment. VRC-CA will second, or cause its applicable
Seconding Affiliate to second, to OLP such Provided Personnel on the start date
set forth on the Provided Personnel Schedule and continuing, during the period
(and only during the period) that the Provided Personnel are performing services
for OLP, until the earlier of:
(a) the end of the term of this Agreement;
(b) the end date set forth for the Provided Personnel on the Provided
Personnel Schedule (or another end date for such Provided
Personnel as mutually agreed in writing by the Parties) (the "End
Date");
4
(c) a withdrawal, departure, resignation or termination of such
Provided Personnel under Section 3.3; or
(d) a termination of Secondment of such Provided Personnel under
Section 3.4.
The period of time that any Provided Personnel is provided by VRC-CA to OLP
is referred to in this Agreement as the "Period of Secondment." At the end of
the Period of Secondment for any Provided Personnel, such Provided Personnel
will no longer be subject to the direction by OLP of the Provided Personnel's
day-to-day activities. The Parties acknowledge that certain of the Provided
Personnel may also provide services to VRC-CA in connection with its operations
("Shared Provided Personnel") and the Parties intend that such Shared Provided
Personnel shall only be seconded to OLP during those times that the Shared
Provided Personnel are performing services for OLP hereunder.
3.3 Withdrawal, Departure or Resignation. VRC-CA will use reasonable
efforts to prevent any early withdrawal, departure or resignation of any
Provided Personnel prior to the End Date for such Provided Personnel's Period of
Secondment. If any Provided Personnel tenders his resignation to VRC-CA as an
employee of VRC-CA, VRC-CA will promptly notify OLP. During the Period of
Secondment of any Provided Personnel, VRC-CA will not voluntarily withdraw or
terminate any Provided Personnel except with the written consent of OLP (which
may be through the execution of a completed "Addition/Removal/Change of
Responsibility of Provided Personnel" form as set forth on Exhibit C), such
consent not to be unreasonably withheld. VRC-CA will indemnify, defend and hold
harmless OLP, its directors, officers and employees against all Losses arising
out of or in any way connected with or related to the termination of employment
of the Provided Personnel by VRC-CA EVEN THOUGH SUCH LOSS MAY BE CAUSED BY THE
NEGLIGENCE OF ONE OR MORE OF THE PARTNERSHIP ENTITIES, except to the extent that
such Losses arise out of or result from the sole negligence, gross negligence or
willful misconduct of any of the Partnership Entities. Upon the termination of
employment, the Provided Personnel will cease performing services for OLP.
3.4 Termination of Secondment. OLP will have the right to terminate the
Secondment to OLP of any Provided Personnel for any reason at any time. Upon the
termination of any Provided Personnel's Period of Secondment, VRC-CA will be
solely liable for any costs or expenses associated with the termination of the
Secondment, except as otherwise specifically set forth in this Agreement. VRC-CA
will indemnify, defend and hold harmless OLP, its directors, officers and
employees against all Losses arising out of or in any way connected with the
termination of Secondment of the Provided Personnel by VRC-CA EVEN THOUGH SUCH
LOSS MAY BE CAUSED BY THE NEGLIGENCE OF ONE OR MORE OF THE PARTNERSHIP ENTITIES,
except to the extent that such Losses arise out of or result from the sole
negligence, gross negligence or willful misconduct of any of the Partnership
Entities. Upon the termination of a Secondment, the Provided Personnel will
cease performing services for OLP.
5
3.5 Supervision. During the Period of Secondment, OLP shall:
(a) be ultimately and fully responsible for the daily work assignments of
the Provided Personnel (and with respect to Shared Provided Personnel,
during those times that the Shared Provided Personnel are performing
services for OLP hereunder), including supervision of their the
day-to-day work activities and performance consistent with the
purposes stated in Section 3.1 and the job functions set forth in the
Provided Personnel Schedule;
(b) set the hours of work and the holidays and vacation schedules (other
than with respect to Shared Provided Personnel, as to which OLP and
VRC-CA shall jointly determine) for Provided Personnel; and
(c) have the right to determine training which will be received by the
Provided Personnel.
In the course and scope of performing any Provided Personnel job functions,
the Provided Personnel will be integrated into the organization of OLP, will
report into OLP's management structure, and will be under the direct management
and supervision of Valero GP, LLC on behalf of the OLP. Valero GP, LLC on behalf
of the OLP, shall designate one of its full-time employees who will be
responsible for the supervisory function set forth in this Section 3.5 on behalf
of OLP.
3.6 Provided Personnel Qualifications; Approval. VRC-CA will provide such
suitably qualified and experienced Provided Personnel as VRC-CA is able to make
available to OLP, and OLP will have the right to approve such Provided
Personnel.
ARTICLE 4
ALLOCATION; RECORDS
4.1 Allocation; Records. VRC-CA will use commercially reasonable efforts to
maintain an allocation schedule reflecting the direct and indirect costs of the
Provided Personnel Expenses based on the services that the Provided Personnel
have provided to OLP in relation to the Tank Assets. OLP will use commercially
reasonable efforts to keep and maintain books/records reflecting hours worked
and costs and expenses incurred in connection with each of the Provided
Personnel. OLP and its representatives will have the right to audit such records
and such other records as OLP may reasonably require in connection with its
verification of the Provided Personnel Expenses during regular business hours
and on reasonable prior notice. Based on these records, OLP may request the
adjustments under Section 2.2 above.
4.2 Agent. Provided Personnel Expenses remain the primary legal
responsibility of OLP as the employer of the Provided Personnel during the
Secondment Period. VRC-CA agrees to act as agent for OLP in paying the Provided
Personnel Expenses of the employees temporarily assigned under this Secondment
Agreement. VRC-CA agrees to indemnify and hold OLP harmless from any and all
Losses incurred by OLP or any of the other Partnership Entities related to
VRC-CA's failure to carry out its duties as agent for the payment of Provided
Personnel Expenses as set forth above.
6
ARTICLE 5
TERM
The term of this Agreement will commence on the Effective Date and will
continue for an initial period of ten years. Upon the expiration of the initial
10-year period, the term of this Agreement shall automatically extend for an
additional five year period, unless either Party provides at least 30 days'
prior written notice to the other Party prior to the expiration of such initial
period that the Party wishes for this Agreement to expire at the end of the
initial ten year period. After the initial five-year renewal period, the term of
this Agreement shall automatically extend for additional five year periods,
unless either Party provides at least prior written notice at least 30 days
prior to the expiration of the applicable five year period, that the Party
wishes for this Agreement to expire at the end of such five year period. Upon
proper notice by a Party to the other Party, in accordance with this Article 5,
that the Party wishes for this Agreement to expire on the expiration of the
applicable five or ten year period, this Agreement shall not automatically
extend, but shall instead expire upon the expiration of the five or ten year
period and only those provisions that, by their terms, expressly survive this
Agreement shall so survive. Notwithstanding the foregoing, OLP may terminate
this agreement at any time upon 30 days prior written notice to VRC-CA and only
those provisions that, by their terms, expressly survive this Agreement shall so
survive.
ARTICLE 6
GENERAL PROVISIONS
6.1 Accuracy of Recitals. The paragraphs contained in the recitals to this
Agreement are incorporated in this Agreement by this reference, and the Parties
to this Agreement acknowledge the accuracy thereof.
6.2 Notices. Any notice, demand, or communication required or permitted
under this Agreement shall be in writing and delivered personally, by reputable
courier, or by telecopier, and shall be deemed to have been duly given as of the
date and time reflected on the delivery receipt if delivered personally or sent
by reputable courier service, or on the automatic telecopier receipt if sent by
telecopier, addressed as follows:
Valero Logistics Operations, L.P.
6000 North Loop 1604 West
San Antonio, Texas 78249
Attn: Mr. Curt Anastasio
Telecopy: 210-370-2304
VRC-CA: One Valero Place
San Antonio, Texas 78212
Attn: Mr. Bill Klesse
Telecopy: 210-370-2660
A Party may change its address for the purposes of notices hereunder by giving
notice to the other Party specifying such changed address in the manner
specified in this Section 6.2.
7
6.3 Further Assurances. The Parties agree to execute such additional
instruments, agreements and documents, and to take such other actions, as may be
necessary to effect the purposes of this Agreement.
6.4 Modifications. Any actions or agreement by the Parties to modify this
Agreement, in whole or in part, shall be binding upon the Parties, so long as
such modification shall be in writing and shall be executed by all Parties with
the same formality with which this Agreement was executed.
6.5 No Third Party Beneficiaries. No Person not a Party to this Agreement
will have any rights under this Agreement as a third party beneficiary or
otherwise, including, without limitation, Provided Personnel.
6.6 Relationship of the Parties. Nothing in this Agreement will constitute
the Partnership Entities, VRC-CA or its Affiliates as members of any
partnership, joint venture, association, syndicate or other entity.
6.7 Assignment. Neither Party will, without the prior written consent of
the other Party, which consent shall not be unreasonably withheld, assign,
mortgage, pledge or otherwise convey this Agreement or any of its rights or
duties hereunder; provided, however, that either Party may assign or convey this
Agreement without the prior written consent of the other Party to an Affiliate.
Unless written consent is not required under this Section 6.7, any attempted or
purported assignment, mortgage, pledge or conveyance by a Party without the
written consent of the other Party shall be void and of no force and effect. No
assignment, mortgage, pledge or other conveyance by a Party shall relieve the
Party of any liabilities or obligations under this Agreement.
6.8 Binding Effect. This Agreement will be binding upon, and will inure to
the benefit of, the Parties and their respective successors, permitted assigns
and legal representatives.
6.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original, and all of which
together shall constitute one and the same Agreement. Each Party may execute
this Agreement by signing any such counterpart.
6.10 Time of the Essence. Time is of the essence in the performance of this
Agreement.
6.11 Governing Law. This Agreement shall be deemed to be a contract made
under, and for all purposes shall be construed in accordance with and governed
by, the laws of the State of Texas excluding its conflicts of laws principles
that would apply the laws of another jurisdiction.
6.12 Delay or Partial Exercise Not Waiver. No failure or delay on the part
of any Party to exercise any right or remedy under this Agreement will operate
as a waiver thereof; nor shall any single or partial exercise of any right or
remedy under this Agreement preclude any other or further exercise thereof or
the exercise of any other right or remedy granted hereby or any related
document. The waiver by either Party of a breach of any provisions of this
Agreement will not constitute a waiver of a similar breach in the future or of
any other breach or nullify the effectiveness of such provision.
8
6.13 Entire Agreement. This Agreement constitutes and expresses the entire
agreement between the Parties with respect to the subject matter hereof. All
previous discussions, promises, representations and understandings relative
thereto are hereby merged in and superseded by this Agreement.
6.14 Waiver. To be effective, any waiver or any right under this Agreement
will be in writing and signed by a duly authorized officer or representative of
the Party bound thereby.
6.15 Signatories Duly Authorized. Each of the signatories to this Agreement
represents that he is duly authorized to execute this Agreement on behalf of the
Party for which he is signing, and that such signature is sufficient to bind the
Party purportedly represented.
6.16 Incorporation of Exhibits by References. Any reference herein to any
exhibit to this Agreement will incorporate it herein, as if it were set out in
full in the text of this Agreement.
6.17 Arbitration. Any disputes hereunder, including the inability of the
Parties to agree to an adjustment to the Services Reimbursements pursuant to the
provisions of Section 2.2, must be resolved through the use of binding
arbitration using three arbitrators, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, as supplemented to
the extent necessary to determine any procedural appeal questions by the Federal
Arbitration Act (Title 9 of the United States Code). If there is any
inconsistency between this Section and the Commercial Arbitration Rules or the
Federal Arbitration Act, the terms of this Section 6.17 will control the rights
and obligations of the parties. Arbitration must be initiated within the
applicable time limits set forth in this Agreement and not thereafter or if no
time limit is given, within the time period allowed by the applicable statute of
limitations. Arbitration may be initiated by a party ("Claimant") serving
written notice on the other party ("Respondent") that the Claimant elects to
refer a particular dispute to binding arbitration. Claimant's notice initiating
binding arbitration must identify the arbitrator Claimant has appointed. The
Respondent shall respond to Claimant within 30 days after receipt of Claimant's
notice, identifying the arbitrator Respondent has appointed. If the Respondent
fails for any reason to name an arbitrator within the 30-day period, Claimant
shall petition to the American Arbitration Association for appointment of an
arbitrator for Respondent's account. The two arbitrators so chosen shall select
a third arbitrator within 30 days after the second arbitrator has been
appointed. The Claimant will pay the compensation and expenses of the arbitrator
named by or for it, and the Respondent will pay the compensation and expenses of
the arbitrator named by or for it. The costs of petitioning for the appointment
of an arbitrator, if any, shall be paid by Respondent. The Claimant and
Respondent will each pay one-half of the compensation and expenses of the third
arbitrator. All arbitrators must (a) be neutral parties who have never been
officers, directors or employees of any of the Partnership Entities, VRC-CA or
its Affiliates and (b) have not less than seven years experience in the energy
industry. The hearing will be conducted in San Antonio, Texas and commence
within 30 days after the selection of the third arbitrator. The Parties and the
arbitrators should proceed diligently and in good faith in order that the award
may be made as promptly as possible. Except as provided in the Federal
Arbitration Act, the decision of the arbitrators will be binding on and
non-appealable by the parties hereto. The arbitrators shall have no right to
grant or award indirect, consequential, punitive or exemplary damages of any
kind.
[Signature page follows]
9
AS WITNESS HEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives on the date herein above
mentioned.
VALERO REFINING COMPANY-CALIFORNIA
By: /s/ Michael S. Ciskowski
---------------------------
Name: Michael S. Ciskowski
Title: Senior Vice President
VALERO LOGISTICS OPERATIONS, L.P.
By: Valero GP, Inc.
By: /s/ Curtis V. Anastasio
-----------------------
Name: Curtis V. Anastasio
Title: Chief Executive Officer and President
10
EXHIBIT A
Definitions
"Affiliate" means, with respect to any Person, (a) any other Person
directly or indirectly controlling, controlled by or under common control with
such Person, (b) any Person owning or controlling fifty percent (50%) or more of
the voting interests of such Person, (c) any officer or director of such Person,
or (d) any Person who is the officer, director, trustee, or holder of fifty
percent (50%) or more of the voting interest of any Person described in clauses
(a) through (c). For purposes of this definition, the term "controls," "is
controlled by" or "is under common control with" shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. For purposes of this Agreement, no
Partnership Entities shall be deemed to be an Affiliate of VRC-CA no shall
VRC-CA be deemed to be an Affiliate of any Partnership Entities.
"Agreement" shall mean this Services and Secondment Agreement, including
all Exhibits and amendments to this Agreement.
"Claimant" has the meaning set forth in Section 6.17.
"Effective Date" has the meaning set forth in the preamble to this
Agreement.
"General Partner" means Riverwalk Logistics, L.P, a Delaware limited
partnership.
"Losses" means any and all costs, expenses (including reasonable attorneys'
fees), claims, demands, losses, liabilities, obligations, actions, lawsuits and
other proceedings, judgments and awards.
"OLP" has the meaning set forth in the preamble to this Agreement.
"OLP-GP" means Valero GP, Inc., a Delaware corporation and general partner
of the OLP.
"Operational Services" has the meaning set forth in Section 2.1. of this
Agreement.
"Other Services" has the meaning set forth in Section 2.4 of this
Agreement.
"Partnership" means Valero L.P., a Delaware limited partnership.
"Partnership Entities" means the Partnership, Valero GP, OLP-GP, and OLP.
"Parties" has the meaning set forth in the preamble to this Agreement.
"Period of Secondment" has the meaning set forth in Section 3.2.
11
"Person" means any individual or any partnership, corporation, limited
liability company, trust, or other legal entity.
"Provided Personnel" has the meaning set forth in Section 2.3.
"Provided Personnel Expenses" has the meaning set forth in Section 2.3.
"Provided Personnel Schedule" has the meaning set forth in Section 3.1.
"Respondent" has the meaning set forth in Section 6.17.
"Secondment" means each assignment of any Provided Personnel to OLP from
VRC-CA in accordance with the terms of this Agreement.
"Services Reimbursement" has the meaning set forth in Section 2.1. of this
Agreement.
"Shared Provided Personnel" has the meaning set forth in Section 3.2.
"Tank Assets" has the meaning set forth in the Recitals to this Agreement.
"Valero GP" has the meaning set forth in the preamble to this Agreement.
"VRC-CA" has the meaning set forth in the preamble to this Agreement.
12
EXHIBIT B
Provided Personnel
In reference to that certain Services and Secondment Agreement, dated
[DATE] (the "Secondment Agreement", terms with initial capital letters used but
not defined herein shall have the meanings ascribed to such terms in the
Secondment Agreement), between VALERO REFINING COMPANY-CALIFORNIA, a Delaware
corporation, and VALERO LOGISTICS OPERATIONS, L.P., a Delaware limited
partnership. All information on this form must be filled in for this form to be
valid.
- -------- ------------------ ------------------------ --------------- ----------
VRC-CA Name of Provided Title and Job Functions Start Date End Date
Provided
Personnel
- -------- ------------------ ------------------------ --------------- ----------
- -------- ------------------ ------------------------ --------------- ----------
- -------- ------------------ ------------------------ --------------- ----------
- -------- ------------------ ------------------------ --------------- ----------
13
EXHIBIT C
Addition/Removal/Change of Responsibility of Provided Personnel Form
In reference to that certain Secondment Agreement, dated [DATE] (the
"Secondment Agreement", terms with initial capital letters used but not defined
herein shall have the meanings ascribed to such terms in the Secondment
Agreement), VALERO REFINING COMPANY-CALIFORNIA, a Delaware corporation, and
VALERO LOGISTICS OPERATIONS, L.P.
In accordance with Section 2.1 of the Secondment Agreement, the Parties
hereto wish to add remove, or change the responsibilities of the following
individual or individuals to the Provided Personnel Schedule (all information
must be filled in for this form to be valid):
Provided Personnel
- --------- ----------------- ------------------------- ------------- ------------
VRC-CA Name of Provided Title and Job Functions Start Date End Date
Personnel
- --------- ----------------- ------------------------- ------------- ------------
- --------- ----------------- ------------------------- ------------- ------------
- --------- ----------------- ------------------------- ------------- ------------
- --------- ----------------- ------------------------- ------------- ------------
- --------- ----------------- ------------------------- ------------- ------------
- --------- ----------------- ------------------------- ------------- ------------
- --------- ----------------- ------------------------- ------------- ------------
VALERO LOGISTICS OPERATIONS, L.P.
VALERO REFINING COMPANY-CALIFORNIA
By: Valero GP, Inc.,
Its General Partner
By: ______________________________ By: ___________________________
Name: ______________________________ Name: ___________________________
Title: ______________________________ Title: ___________________________
14
EXHIBIT D
Routine tank shell, tank valves & foundation maintenance & repairs
Routine maintenance and repairs on tank gauges & temperature calibration
equipment
HS&E oversight (emergency response, safety inspections & permitting, firewater
inspection, SPCC management, & OPA 90' Compliance)
Operations & oversight associated with gauging, level monitoring, reporting,
water draw and tank valve operations
Cathodic protection monitoring, maintenance & repairs
Security and surveillance
Tank foundation grading and vegetation control
Dike Wall Maintenance & Repairs
Firewater system maintenance & repairs associated with tank fire protection
Such other routine maintenance and operational services as Valero Logistics may
require in connection with the ownership and operation of the Tank Assets
consistent with VRC-CA's past practices at the Tank Assets.
15
EXHIBIT E
API 653 External Inspections (5-year schedule)
API 653 Internal Inspections(10-year schedule)
API 653 Maintenance & Repairs (10-year schedule)
Tank Cleaning Fees associated with API 653 Schedule
Tank painting and insulation repairs
16
Exhibit 10.3
SERVICES AND SECONDMENT AGREEMENT
This Services and Secondment Agreement ("Agreement"), dated as of March 18,
2003 (the "Effective Date"), is entered into between VALERO REFINING-TEXAS, L.P.
("VR-TX"), a Texas limited partnership, and VALERO LOGISTICS OPERATIONS, L.P.
(the "OLP"), a Delaware limited partnership.
RECITALS:
WHEREAS, pursuant to that certain Contribution Agreement of even date
herewith, VR-TX has contemporaneously with this Agreement contributed the Tank
Assets (as such term is defined in the Contribution Agreement) located at
VR-TX's Texas City, Texas refinery and its Corpus Christi (West Plant), Texas
refinery (the "Tank Assets") to the OLP; and
WHEREAS, VR-TX will provide to the OLP the operational and maintenance
resources and services necessary to operate, manage and maintain the Tank
Assets;
WHEREAS, in connection with the provision of the operational and
maintenance resources and services under this Agreement, VR-TX desires to second
to OLP certain personnel employed or contracted by VR-TX in connection with the
Tank Assets.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, VR-TX and OLP hereby
agree as follows:
ARTICLE 1
DEFINITIONS; INTERPRETATION; USE OF SECONDING AFFILIATES
1.1 Definitions. As used in this Agreement, (a) the terms defined in this
Agreement will have the meanings so specified, and (b) capitalized terms not
defined in this Agreement will have the meanings ascribed to those terms on
Exhibit A to this Agreement.
1.2 Interpretation. In this Agreement, unless a clear contrary intention
appears: (a) the singular includes the plural and vice versa; (b) reference to
any Person includes such Person's successors and assigns but, in the case of a
Party, only if such successors and assigns are permitted by this Agreement, and
reference to a Person in a particular capacity excludes such Person in any other
capacity; (c) reference to any gender includes each other gender; (d) reference
to any agreement (including this Agreement), document or instrument means such
agreement, document, or instrument as amended or modified and in effect from
time to time in accordance with the terms thereof and, if applicable, the terms
of this Agreement; (e) reference to any Section means such Section of this
Agreement, and references in any Section or definition to any clause means such
clause of such Section or definition; (f) "hereunder," "hereof," "hereto" and
words of similar import will be deemed references to this Agreement as a whole
and not to any particular Section or other provision hereof or thereof; (g)
"including" (and with correlative meaning "include") means including without
limiting the generality of any description preceding such term; and (h) relative
to the determination of any period of time, "from" means "from and including,"
"to" means "to but excluding" and "through" means "through and including."
1.3 Legal Representation of Parties. This Agreement was negotiated by the
Parties with the benefit of legal representation, and any rule of construction
or interpretation requiring this Agreement to be construed or interpreted
against any Party merely because such Party drafted all or a part of such
Agreement will not apply to any construction or interpretation hereof or
thereof.
1.4 Titles and Headings. Section titles and headings in this Agreement are
inserted for convenience of reference only and are not intended to be a part of,
or to affect the meaning or interpretation of, this Agreement.
ARTICLE 2
OPERATIONAL AND MAINTENANCE SERVICES
2.1 Operational and Routine Maintenance Expenses
VR-TX shall second the Provided Personnel to the OLP to provide the OLP
with those operational and routine maintenance services in connection with the
Tank Assets that are identified on Exhibit D to this Agreement ("Operational
Services"). OLP will reimburse VR-TX in an annual amount of $2,200,000 for the
Operational Services (the "Services Reimbursement"). The Services Reimbursement
shall be paid in twelve equal monthly installments. On the first day of each
month, VR-TX shall send an invoice to OLP for the Service Reimbursement and
other expenses due under Section 2.4 for that month. OLP shall pay such invoice
by the twentieth (20th) day of each month. VR-TX may increase the Services
Reimbursement on each anniversary date of this Agreement by an amount not to
exceed the proportionate increase in the Consumer Price Index-All Urban
Consumers, All Items Index applicable to Houston, Texas ("CPI"), for the
immediately preceding measurement year as published by the Department of
Labor--Bureau of Labor Statistics. If the Department of Labor - Bureau of Labor
Statistics ceases publishing the CPI, then the parties shall negotiate in good
faith to select a substitute index that shall be used in place of the CPI. If
the parties are unable to agree upon an appropriate substitute index, each party
shall submit its recommendation for a substitute index to the Chaired Professor
in Oil and Gas Law at the law school at Southern Methodist University in Dallas,
Texas for his final and binding selection of a substitute index or indices. The
parties shall each pay 1/2 of his fees as invoiced.
2.2 Adjustments.
(a) At least 30 days prior to each annual anniversary of the Effective
Date, OLP will have the right to submit to VR-TX a proposal to reduce the amount
of the Services Reimbursement for that year if OLP believes, in good faith, that
the Operational Services performed by the Provided Personnel for the benefit of
OLP for the 12-month period in question result in actual costs to VR-TX that
are, in the aggregate, less than the Services Reimbursement for that year. If
OLP submits such a proposal to VR-TX, VR-TX agrees that it will negotiate in
good faith with OLP to determine if the Services Reimbursement for that year
should be reduced and, if so, by how much.
2
(b) Following the fifth anniversary of the Effective Date, VR-TX shall have
the right, no more frequently than one time in any 36-month period, to submit to
OLP a proposal to increase the amount of the Services Reimbursement for that
year if VR-TX believes, in good faith, that the Operational Services performed
by the Provided Personnel for the benefit of OLP for the period(s) in question
result in actual costs to VR-TX and its Affiliates in excess of the Services
Reimbursement for that period. If VR-TX submits such a proposal to OLP, OLP
agrees that it will negotiate in good faith with VR-TX to determine if the
Services Reimbursement should be increased and, if so, by how much.
(c) If the Services Reimbursement is modified pursuant to clauses (a) or
(b) above, once modified, it shall continue as the Services Reimbursement,
adjusted in accordance with Section 2.1 (CPI), until such time as the Parties
may agree (if at all) to a subsequent modification.
(d) If the parties are unable to agree on a modification to the Services
Reimbursement under Section 2.2(a) or (b) above, either party may submit the
disagreement to mediation pursuant to the terms of Section 6.17 of this
Agreement. Any final determination under Section 6.17 of the adjusted Services
Reimbursement will be applied on a retroactive basis for the period as to which
the Services Reimbursement adjustment was then sought.
2.3 Provided Personnel
Among other items, the Services Reimbursement includes all reasonable costs
and expenses for the Provided Personnel, including, but not limited to:
(i) Salaries and wages (including payroll and withholding taxes
associated therewith) of employees seconded to OLP (the "Provided
Personnel") to the extent, but only to the extent, such employees
are seconded to and perform services for OLP; and
(ii) the cost of employee benefits relating to Provided Personnel,
including 401(k) (and any matching 401(k) contributions),
pension, life insurance, disability insurance, retiree medical,
and health insurance benefits, to the extent, but only to the
extent, such costs represent the pro rata portion of the employee
benefit costs directly attributable to the Period of Secondment
(as defined in Section 3.2 hereof).
The costs and expenses described in (i) and (ii) above are referred to as
"Provided Personnel Expenses."
2.4 Maintenance and Other Expenses. In addition to the Services
Reimbursement, OLP will reimburse VR-TX monthly for the reasonable and necessary
maintenance and other expenses incurred by VR-TX or any of its Affiliates that
(i) are not Operational Services; (ii) are not directly paid by OLP or any of
the Partnership Entities to third parties; and (iii) are allocable to the Tank
Assets, including but not limited to those services and expenses (the "Other
Services") listed on Exhibit E hereto. OLP shall reimburse VR-TX for all
reasonable and necessary (x) out-of-pocket expenses incurred by VR-TX or any of
its Affiliates exclusively in connection with the Other Services provided to the
Tank Assets, (y) actual costs of any item purchased by VR-TX or any of its
Affiliates exclusively in connection with the Other Services, and (z) other
expenses incurred by VR-TX or any of its Affiliates in connection with the Other
Services, including, but not limited to, payments to third parties for services
rendered in connection with the Other Services.
3
2.5 Cancellation or Reduction of Services
OLP may terminate or reduce the level of any of the Operational Services
and/or the Other Services on 30 days' prior written notice to VR-TX. In the
event OLP terminates the Operational Services and/or the Other Services, OLP
shall pay VR-TX the monthly installment for the last month (or portion thereof)
in which it received services plus any amounts outstanding to VR-TX and third
party vendors for Other Services. Upon payment thereof, OLP shall have no
further payment obligations. In the event that OLP reduces the level of any of
the Operational and Other Services, the parties will negotiate in good faith to
determine an appropriate Services Reimbursement for the remaining services.
ARTICLE 3
SECONDMENT
3.1 Provided Personnel. Subject to the terms of this Agreement, VR-TX
agrees to second to OLP, and OLP agrees to accept the Secondment of, those
certain specifically identified individuals listed in Exhibit B (the "Provided
Personnel Schedule") for the purpose of performing job functions related to the
Tank Assets. The Provided Personnel will be temporary employees of OLP during
the Period of Secondment and shall, at all times during the Period of
Secondment, work under the direction, supervision and control of OLP. Provided
Personnel shall have no authority or apparent authority to act on behalf of
VR-TX during the Period of Secondment. The Provided Personnel Schedule sets
forth the names of the Provided Personnel seconded by VR-TX, the job functions
of the Provided Personnel, and the starting and ending dates for the Period of
Secondment of the Provided Personnel. Individuals may be added or removed from
the Provided Personnel Schedule from time to time by the execution by the
Parties of a completed "Addition/Removal/Change of Responsibility of Provided
Personnel" form, the form of which is attached to this Agreement as Exhibit C,
which will be fully binding on the Parties for all purposes under this
Agreement. Those rights and obligations of the Parties under this Agreement that
relate to individuals that were on the Provided Personnel Schedule but then
later removed from the Provided Personnel Schedule, which rights and obligations
accrued before the removal of such individual, will survive the removal of such
individual from the Provided Personnel Schedule to the extent necessary to
enforce such rights and obligations.
3.2 Period of Secondment. VR-TX will second, or cause its applicable
Seconding Affiliate to second, to OLP such Provided Personnel on the start date
set forth on the Provided Personnel Schedule and continuing, during the period
(and only during the period) that the Provided Personnel are performing services
for OLP, until the earlier of:
(a) the end of the term of this Agreement;
4
(b) the end date set forth for the Provided Personnel on the Provided
Personnel Schedule (or another end date for such Provided Personnel as
mutually agreed in writing by the Parties) (the "End Date");
(c) a withdrawal, departure, resignation or termination of such Provided
Personnel under Section 3.3; or
(d) a termination of Secondment of such Provided Personnel under Section
3.4.
The period of time that any Provided Personnel is provided by VR-TX to OLP
is referred to in this Agreement as the "Period of Secondment." At the end of
the Period of Secondment for any Provided Personnel, such Provided Personnel
will no longer be subject to the direction by OLP of the Provided Personnel's
day-to-day activities. The Parties acknowledge that certain of the Provided
Personnel may also provide services to VR-TX in connection with its operations
("Shared Provided Personnel") and the Parties intend that such Shared Provided
Personnel shall only be seconded to OLP during those times that the Shared
Provided Personnel are performing services for OLP hereunder.
3.3 Withdrawal, Departure or Resignation. VR-TX will use reasonable efforts
to prevent any early withdrawal, departure or resignation of any Provided
Personnel prior to the End Date for such Provided Personnel's Period of
Secondment. If any Provided Personnel tenders his resignation to VR-TX as an
employee of VR-TX, VR-TX will promptly notify OLP. During the Period of
Secondment of any Provided Personnel, VR-TX will not voluntarily withdraw or
terminate any Provided Personnel except with the written consent of OLP (which
may be through the execution of a completed "Addition/Removal/Change of
Responsibility of Provided Personnel" form as set forth on Exhibit C), such
consent not to be unreasonably withheld. VR-TX will indemnify, defend and hold
harmless OLP, its directors, officers and employees against all Losses arising
out of or in any way connected with or related to the termination of employment
of the Provided Personnel by VR-TX EVEN THOUGH SUCH LOSS MAY BE CAUSED BY THE
NEGLIGENCE OF ONE OR MORE OF THE PARTNERSHIP ENTITIES, except to the extent that
such Losses arise out of or result from the sole negligence, gross negligence or
willful misconduct of any of the Partnership Entities. Upon the termination of
employment, the Provided Personnel will cease performing services for OLP.
3.4 Termination of Secondment. OLP will have the right to terminate the
Secondment to OLP of any Provided Personnel for any reason at any time. Upon the
termination of any Provided Personnel's Period of Secondment, VR-TX will be
solely liable for any costs or expenses associated with the termination of the
Secondment, except as otherwise specifically set forth in this Agreement. VR-TX
will indemnify, defend and hold harmless OLP, its directors, officers and
employees against all Losses arising out of or in any way connected with the
termination of Secondment of the Provided Personnel by VR-TX EVEN THOUGH SUCH
LOSS MAY BE CAUSED BY THE NEGLIGENCE OF ONE OR MORE OF THE PARTNERSHIP ENTITIES,
except to the extent that such Losses arise out of or result from the sole
negligence, gross negligence or willful misconduct of any of the Partnership
Entities. Upon the termination of a Secondment, the Provided Personnel will
cease performing services for OLP.
5
3.5 Supervision. During the Period of Secondment, OLP shall:
(a) be ultimately and fully responsible for the daily work assignments of
the Provided Personnel (and with respect to Shared Provided Personnel,
during those times that the Shared Provided Personnel are performing
services for OLP hereunder), including supervision of their the
day-to-day work activities and performance consistent with the
purposes stated in Section 3.1 and the job functions set forth in the
Provided Personnel Schedule;
(b) set the hours of work and the holidays and vacation schedules (other
than with respect to Shared Provided Personnel, as to which OLP and
VR-TX shall jointly determine) for Provided Personnel; and
(c) have the right to determine training which will be received by the
Provided Personnel.
In the course and scope of performing any Provided Personnel job functions,
the Provided Personnel will be integrated into the organization of OLP, will
report into OLP's management structure, and will be under the direct management
and supervision of Valero GP, LLC on behalf of the OLP. Valero GP, LLC, on
behalf of the OLP, shall designate one of its full-time employees who will be
responsible for the supervisory function set forth in this Section 3.5 on behalf
of OLP.
3.6 Provided Personnel Qualifications; Approval. VR-TX will provide such
suitably qualified and experienced Provided Personnel as VR-TX is able to make
available to OLP, and OLP will have the right to approve such Provided
Personnel.
ARTICLE 4
ALLOCATION; RECORDS
4.1 Allocation; Records. VR-TX will use commercially reasonable efforts to
maintain an allocation schedule reflecting the direct and indirect costs of the
Provided Personnel Expenses based on the services that the Provided Personnel
have provided to OLP in relation to the Tank Assets. OLP will use commercially
reasonable efforts to keep and maintain books/records reflecting hours worked
and costs and expenses incurred in connection with each of the Provided
Personnel. OLP and its representatives will have the right to audit such records
and such other records as OLP may reasonably require in connection with its
verification of the Provided Personnel Expenses during regular business hours
and on reasonable prior notice. Based on these records, OLP may request the
adjustments under Section 2.2 above.
4.2 Agent. Provided Personnel Expenses remain the primary legal
responsibility of OLP as the employer of the Provided Personnel during the
Secondment Period. VR-TX agrees to act as agent for OLP in paying the Provided
Personnel Expenses of the employees temporarily assigned under this Secondment
Agreement. VR-TX agrees to indemnify and hold OLP harmless from any and all
Losses incurred by OLP or any of the other Partnership Entities related to
VR-TX's failure to carry out its duties as agent for the payment of Provided
Personnel Expenses as set forth above.
6
ARTICLE 5
TERM
The term of this Agreement will commence on the Effective Date and will
continue for an initial period of ten years. Upon the expiration of the initial
10-year period, the term of this Agreement shall automatically extend for an
additional five year period, unless either Party provides at least 30 days'
prior written notice to the other Party prior to the expiration of such initial
period that the Party wishes for this Agreement to expire at the end of the
initial ten year period. After the initial five-year renewal period, the term of
this Agreement shall automatically extend for additional five year periods,
unless either Party provides at least prior written notice at least 30 days
prior to the expiration of the applicable five year period, that the Party
wishes for this Agreement to expire at the end of such five year period. Upon
proper notice by a Party to the other Party, in accordance with this Article 5,
that the Party wishes for this Agreement to expire on the expiration of the
applicable five or ten year period, this Agreement shall not automatically
extend, but shall instead expire upon the expiration of the five or ten year
period and only those provisions that, by their terms, expressly survive this
Agreement shall so survive. Notwithstanding the foregoing, OLP may terminate
this agreement at any time upon 30 days prior written notice to VR-TX and only
those provisions that, by their terms, expressly survive this Agreement shall so
survive.
ARTICLE 6
GENERAL PROVISIONS
6.1 Accuracy of Recitals. The paragraphs contained in the recitals to this
Agreement are incorporated in this Agreement by this reference, and the Parties
to this Agreement acknowledge the accuracy thereof.
6.2 Notices. Any notice, demand, or communication required or permitted
under this Agreement shall be in writing and delivered personally, by reputable
courier, or by telecopier, and shall be deemed to have been duly given as of the
date and time reflected on the delivery receipt if delivered personally or sent
by reputable courier service, or on the automatic telecopier receipt if sent by
telecopier, addressed as follows:
Valero Logistics Operations, L.P.
6000 North Loop 1604 West
San Antonio, Texas 78249
Attn: Mr. Curt Anastasio
Telecopy: 210-370-2304
VR-TX: One Valero Place
San Antonio, Texas 78212
Attn: Mr. Bill Klesse
Telecopy: 210-370-2660
7
A Party may change its address for the purposes of notices hereunder by giving
notice to the other Party specifying such changed address in the manner
specified in this Section 6.2.
6.3 Further Assurances. The Parties agree to execute such additional
instruments, agreements and documents, and to take such other actions, as may be
necessary to effect the purposes of this Agreement.
6.4 Modifications. Any actions or agreement by the Parties to modify this
Agreement, in whole or in part, shall be binding upon the Parties, so long as
such modification shall be in writing and shall be executed by all Parties with
the same formality with which this Agreement was executed.
6.5 No Third Party Beneficiaries. No Person not a Party to this Agreement
will have any rights under this Agreement as a third party beneficiary or
otherwise, including, without limitation, Provided Personnel.
6.6 Relationship of the Parties. Nothing in this Agreement will constitute
the Partnership Entities, VR-TX or its Affiliates as members of any partnership,
joint venture, association, syndicate or other entity.
6.7 Assignment. Neither Party will, without the prior written consent of
the other Party, which consent shall not be unreasonably withheld, assign,
mortgage, pledge or otherwise convey this Agreement or any of its rights or
duties hereunder; provided, however, that either Party may assign or convey this
Agreement without the prior written consent of the other Party to an Affiliate.
Unless written consent is not required under this Section 6.7, any attempted or
purported assignment, mortgage, pledge or conveyance by a Party without the
written consent of the other Party shall be void and of no force and effect. No
assignment, mortgage, pledge or other conveyance by a Party shall relieve the
Party of any liabilities or obligations under this Agreement.
6.8 Binding Effect. This Agreement will be binding upon, and will inure to
the benefit of, the Parties and their respective successors, permitted assigns
and legal representatives.
6.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original, and all of which
together shall constitute one and the same Agreement. Each Party may execute
this Agreement by signing any such counterpart.
6.10 Time of the Essence. Time is of the essence in the performance of this
Agreement.
6.11 Governing Law. This Agreement shall be deemed to be a contract made
under, and for all purposes shall be construed in accordance with and governed
by, the laws of the State of Texas excluding its conflicts of laws principles
that would apply the laws of another jurisdiction.
6.12 Delay or Partial Exercise Not Waiver. No failure or delay on the part
of any Party to exercise any right or remedy under this Agreement will operate
as a waiver thereof; nor shall any single or partial exercise of any right or
remedy under this Agreement preclude any other or further exercise thereof or
the exercise of any other right or remedy granted hereby or any related
document. The waiver by either Party of a breach of any provisions of this
Agreement will not constitute a waiver of a similar breach in the future or of
any other breach or nullify the effectiveness of such provision.
8
6.13 Entire Agreement. This Agreement constitutes and expresses the entire
agreement between the Parties with respect to the subject matter hereof. All
previous discussions, promises, representations and understandings relative
thereto are hereby merged in and superseded by this Agreement.
6.14 Waiver. To be effective, any waiver or any right under this Agreement
will be in writing and signed by a duly authorized officer or representative of
the Party bound thereby.
6.15 Signatories Duly Authorized. Each of the signatories to this Agreement
represents that he is duly authorized to execute this Agreement on behalf of the
Party for which he is signing, and that such signature is sufficient to bind the
Party purportedly represented.
6.16 Incorporation of Exhibits by References. Any reference herein to any
exhibit to this Agreement will incorporate it herein, as if it were set out in
full in the text of this Agreement.
6.17 Arbitration. Any disputes hereunder, including the inability of the
Parties to agree to an adjustment to the Services Reimbursements pursuant to the
provisions of Section 2.2, must be resolved through the use of binding
arbitration using three arbitrators, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, as supplemented to
the extent necessary to determine any procedural appeal questions by the Federal
Arbitration Act (Title 9 of the United States Code). If there is any
inconsistency between this Section and the Commercial Arbitration Rules or the
Federal Arbitration Act, the terms of this Section 6.17 will control the rights
and obligations of the parties. Arbitration must be initiated within the
applicable time limits set forth in this Agreement and not thereafter or if no
time limit is given, within the time period allowed by the applicable statute of
limitations. Arbitration may be initiated by a party ("Claimant") serving
written notice on the other party ("Respondent") that the Claimant elects to
refer a particular dispute to binding arbitration. Claimant's notice initiating
binding arbitration must identify the arbitrator Claimant has appointed. The
Respondent shall respond to Claimant within 30 days after receipt of Claimant's
notice, identifying the arbitrator Respondent has appointed. If the Respondent
fails for any reason to name an arbitrator within the 30-day period, Claimant
shall petition to the American Arbitration Association for appointment of an
arbitrator for Respondent's account. The two arbitrators so chosen shall select
a third arbitrator within 30 days after the second arbitrator has been
appointed. The Claimant will pay the compensation and expenses of the arbitrator
named by or for it, and the Respondent will pay the compensation and expenses of
the arbitrator named by or for it. The costs of petitioning for the appointment
of an arbitrator, if any, shall be paid by Respondent. The Claimant and
Respondent will each pay one-half of the compensation and expenses of the third
arbitrator. All arbitrators must (a) be neutral parties who have never been
officers, directors or employees of any of the Partnership Entities, VR-TX or
its Affiliates and (b) have not less than seven years experience in the energy
industry. The hearing will be conducted in San Antonio, Texas and commence
within 30 days after the selection of the third arbitrator. The Parties and the
arbitrators should proceed diligently and in good faith in order that the award
may be made as promptly as possible. Except as provided in the Federal
Arbitration Act, the decision of the arbitrators will be binding on and
non-appealable by the parties hereto. The arbitrators shall have no right to
grant or award indirect, consequential, punitive or exemplary damages of any
kind.
[Signature page follows]
9
IN WITNESS HEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives on the date herein above mentioned.
VALERO REFINING-TEXAS, L.P.
By: Valero Corporate Services Company,
its general partner
By: /s/ Michael S. Ciskowski
------------------------
Name: Michael S. Ciskowski
Title: Senior Vice President
VALERO LOGISTICS OPERATIONS, L.P.
By: Valero GP, Inc., its general partner
By: /s/ Curtis V. Anastasio
-----------------------
Name: Curtis V. Anastasio
Title: Chief Executive Officer and President
10
EXHIBIT A
Definitions
"Affiliate" means, with respect to any Person, (a) any other Person
directly or indirectly controlling, controlled by or under common control with
such Person, (b) any Person owning or controlling fifty percent (50%) or more of
the voting interests of such Person, (c) any officer or director of such Person,
or (d) any Person who is the officer, director, trustee, or holder of fifty
percent (50%) or more of the voting interest of any Person described in clauses
(a) through (c). For purposes of this definition, the term "controls," "is
controlled by" or "is under common control with" shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. For purposes of this Agreement, no
Partnership Entities shall be deemed to be an Affiliate of VR-TX no shall VR-TX
be deemed to be an Affiliate of any Partnership Entities.
"Agreement" shall mean this Services and Secondment Agreement, including
all Exhibits and amendments to this Agreement.
"Claimant" has the meaning set forth in Section 6.17.
"Effective Date" has the meaning set forth in the preamble to this
Agreement.
"General Partner" means Riverwalk Logistics, L.P, a Delaware limited
partnership.
"Losses" means any and all costs, expenses (including reasonable attorneys'
fees), claims, demands, losses, liabilities, obligations, actions, lawsuits and
other proceedings, judgments and awards.
"OLP" has the meaning set forth in the preamble to this Agreement.
"OLP-GP" means Valero GP, Inc., a Delaware corporation and general partner
of the OLP.
"Operational Services" has the meaning set forth in Section 2.1. of this
Agreement.
"Other Services" has the meaning set forth in Section 2.4 of this
Agreement.
"Partnership" means Valero L.P., a Delaware limited partnership.
"Partnership Entities" means the Partnership, Valero GP, OLP-GP, and OLP.
"Parties" has the meaning set forth in the preamble to this Agreement.
"Period of Secondment" has the meaning set forth in Section 3.2.
11
"Person" means any individual or any partnership, corporation, limited
liability company, trust, or other legal entity.
"Provided Personnel" has the meaning set forth in Section 2.3.
"Provided Personnel Expenses" has the meaning set forth in Section 2.3.
"Provided Personnel Schedule" has the meaning set forth in Section 3.1.
"Respondent" has the meaning set forth in Section 6.17.
"Secondment" means each assignment of any Provided Personnel to OLP from
VR-TX in accordance with the terms of this Agreement.
"Services Reimbursement" has the meaning set forth in Section 2.1. of this
Agreement.
"Shared Provided Personnel" has the meaning set forth in Section 3.2.
"Tank Assets" has the meaning set forth in the Recitals to this Agreement.
"Valero GP" has the meaning set forth in the preamble to this Agreement.
"VR-TX" has the meaning set forth in the preamble to this Agreement.
12
EXHIBIT B
Provided Personnel
In reference to that certain Services and Secondment Agreement, dated
[DATE] (the "Secondment Agreement", terms with initial capital letters used but
not defined herein shall have the meanings ascribed to such terms in the
Secondment Agreement), between VALERO REFINING-TEXAS, L.P., a Texas limited
partnership, and VALERO LOGISTICS OPERATIONS, L.P., a Delaware limited
partnership. All information on this form must be filled in for this form to be
valid.
- ------ ----------------- ----------------------- ---------- ---------
VR-TX Name of Provided Title and Job Functions Start Date End Date
Personnel
- ------ ----------------- ----------------------- ---------- ---------
- ------ ----------------- ----------------------- ---------- ---------
- ------ ----------------- ----------------------- ---------- ---------
- ------ ----------------- ----------------------- ---------- ---------
13
EXHIBIT C
Addition/Removal/Change of Responsibility of Provided Personnel Form
In reference to that certain Secondment Agreement, dated [DATE] (the
"Secondment Agreement", terms with initial capital letters used but not defined
herein shall have the meanings ascribed to such terms in the Secondment
Agreement), VALERO REFINING-TEXAS, L.P., a Texas limited partnership, and VALERO
LOGISTICS OPERATIONS, L.P.
In accordance with Section 2.1 of the Secondment Agreement, the Parties
hereto wish to add remove, or change the responsibilities of the following
individual or individuals to the Provided Personnel Schedule (all information
must be filled in for this form to be valid):
Provided Personnel
- ----- ----------------- ------------------------ ------------ -------------
VR-TX Name of Provided Title and Job Functions Start Date End Date
Personnel
- ----- ----------------- ------------------------ ------------ -------------
- ----- ----------------- ------------------------ ------------ -------------
- ----- ----------------- ------------------------ ------------ -------------
- ----- ----------------- ------------------------ ------------ -------------
VALERO LOGISTICS OPERATIONS, L.P. VALERO REFINING-TEXAS, L.P.
By: Valero GP, Inc., By: Valero Corporate Services Company,
Its General Partner Its General Partner
By: ________________________ By: ______________________________
Name: ________________________ Name: ______________________________
Title: ________________________ Title: ______________________________
14
EXHIBIT D
Routine tank shell, tank valves & foundation maintenance & repairs
Routine maintenance and repairs on tank gauges & temperature calibration
equipment
HS&E oversight (emergency response, safety inspections & permitting, firewater
inspection, SPCC management, & OPA 90' Compliance)
Operations & oversight associated with gauging, level monitoring, reporting,
water draw and tank valve operations
Cathodic protection monitoring, maintenance & repairs
Security and surveillance
Tank foundation grading and vegetation control
Dike Wall Maintenance & Repairs
Firewater system maintenance & repairs associated with tank fire protection
Such other routine maintenance and operational services as Valero Logistics may
require in connection with the ownership and operation of the Tank Assets
consistent with VR-TX's past practices at the Tank Assets.
15
EXHIBIT E
API 653 External Inspections (5-year schedule)
API 653 Internal Inspections (10-year schedule)
API 653 Maintenance & Repairs (10-year schedule)
Tank Cleaning Fees associated with API 653 Schedule
Tank painting and insulation repairs
16
Exhibit 10.4
THROUGHPUT COMMITMENT AGREEMENT
This Throughput Commitment Agreement ("Agreement") is dated as of this 18th
day of March, 2003, by and among Valero Marketing and Supply Company, a Delaware
corporation ("VMSC"), Valero Logistics Operations, L.P., a Delaware limited
partnership (the "Operating Partnership"), and Valero L.P., a Delaware limited
partnership (the "MLP").
RECITALS:
WHEREAS, pursuant to the terms and conditions of the Contribution
Agreement, dated effective as of March 6, 2003 (the "Contribution Agreement"),
by and among the Operating Partnership, the MLP and certain of its affiliates
and Valero Pipeline Company, a Delaware corporation and an affiliate of VMSC
("VPC"), certain refined product pipeline, storage and terminalling assets (the
"Contributed Assets") were contributed by VPC to the Operating Partnership in
exchange for limited partner interests therein (the "Contribution"); and
WHEREAS, the Operating Partnership is substantially dependent upon VMSC for
the volumes of Refined Petroleum Products transported through, or otherwise
handled at, the Contributed Assets such that a significant reduction in VMSC's
use of the Contributed Assets would likely result in a correspondingly
significant reduction in the financial and commercial success of the Operating
Partnership in connection with the Contributed Assets; and
WHEREAS, in connection with the Contribution, VPC agreed, as a condition to
the closing of the transactions contemplated by the Contribution Agreement, to
cause VMSC to enter into this Agreement; and
WHEREAS, VMSC desires to enter into this Agreement for the benefit of the
Operating Partnership;
AGREEMENT:
NOW, THEREFORE, in consideration of the covenants and obligations contained
herein and in the agreements relating to the Contribution, the parties to this
Agreement hereby agree as follows:
Section 1. Definitions. Capitalized terms used throughout this Agreement
and not otherwise defined herein shall have the meanings set forth below.
"Annual Measurement Period" shall mean each of (a) the period from April 1,
2003 through December 31, 2003, (b) each calendar year during the term of this
Agreement and (c) the period ending on the last day of the calendar year during
which this Agreement terminates and beginning on the first day of the calendar
year in which such termination occurs.
"Applicable Law" shall mean any applicable statute, law, regulation,
ordinance, rule, judgment, rule of law, order, decree, permit, approval,
concession, grant, franchise, license, agreement, requirement, or other
governmental restriction or any similar form of decision of, or any provision or
condition of any permit, license or other operating authorization issued under
any of the foregoing by, or any determination by any Governmental Authority
having or asserting jurisdiction over the matter or matters in question, whether
now or hereafter in effect and in each case as amended (including without
limitation, all of the terms and provisions of the common law of such
Governmental Authority), as interpreted and enforced at the time in question.
"Arbitrable Dispute" shall mean any and all disputes, Claims,
counterclaims, demands, causes of action, controversies and other matters in
question between any of the Partnership Parties, on the one hand, and VMSC, on
the other hand, arising out of or relating to this Agreement or the alleged
breach hereof, or in any way relating to the subject matter of this Agreement or
the relationship between any of the Partnership Parties, on the one hand, and
VMSC, on the other hand, created by this Agreement regardless of whether (a)
allegedly extra-contractual in nature, (b) sounding in contract, tort or
otherwise, (c) provided for by Applicable Law or otherwise or (d) seeking
damages or any other relief, whether at law, in equity or otherwise.
"Claim" shall mean any existing or threatened future claim, demand, suit,
action, investigation, proceeding, governmental action or cause of action of any
kind or character (in each case, whether civil, criminal, investigative or
administrative), known or unknown, under any theory, including those based on
theories of contract, tort, statutory liability, strict liability, employer
liability, premises liability, products liability, breach of warranty or
malpractice.
"Controlled Affiliates" shall mean an entity that directly or indirectly
through one or more intermediaries is controlled by Valero Energy Corporation
(including, without limitation, VMSC), excluding the Partnership Parties and
Subsidiaries. For the purposes of this definition, "control" (including with
correlative meaning, the term "controlled by"), as used with respect to any such
entity, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such entity,
whether through the ownership of voting securities, by agreement or otherwise.
"Corpus Refinery" shall mean the East and West Plants of the refinery
located in Corpus Christi, Texas owned and operated by a Controlled Affiliate.
"Corpus Refinery Production" shall mean all of the Refined Products
transported from the Corpus Refinery, whether transported by pipeline, truck or
other means.
"Edinburg Pipeline" shall mean the refined products pipeline that
originates in Corpus Christi, Texas and terminates in Edinburg, Texas.
"Governmental Authority" shall mean any federal, state, local or foreign
government or any provincial, departmental or other political subdivision
thereof, or any entity, body or authority exercising executive, legislative,
judicial, regulatory, administrative or other governmental functions or any
court, department, commission, board, bureau, agency, instrumentality or
administrative body of any of the foregoing.
"Houston Pipeline" shall mean the refined products pipeline that originates
in Corpus Christi, Texas, and terminates in Houston, Texas.
2
"Measurement Period" shall mean an Annual Measurement Period or a Quarterly
Measurement Period.
"Partnership Parties" shall mean the Operating Partnership, the MLP,
Riverwalk Logistics, L.P., a Delaware limited partnership (the "General
Partner"), Valero GP, LLC, a Delaware limited liability company ("Valero LLC"),
Valero GP, Inc., a Delaware corporation ("Valero GP").
"Pipeline Committed Volumes" shall have the meaning set forth on Schedule 1
hereto.
"Pipeline Shortfall Obligation" shall have the meaning set forth on
Schedule 1 hereto.
"Prime Rate" shall mean the prime rate per annum established by The Chase
Manhattan Bank, or if The Chase Manhattan Bank no longer establishes a prime
rate for any reason, the prime rate per annum established by the largest U.S.
bank measured by deposits from time to time as its base rate on corporate loans,
automatically fluctuating upward or downward with each announcement of such
prime rate.
"Quarterly Measurement Period" shall mean each of (a) the period from April
1, 2003 through June 30, 2003 and (b) each calendar quarter during the term of
this Agreement that does not end on December 31.
"Refined Products" shall mean gasoline and distillates.
"Refined Product Pipelines" shall mean, collectively, the Corpus Christi to
Houston Pipeline, the Corpus Christi to San Antonio Pipeline and the Corpus
Christi to Edinburg Pipeline that were contributed by VPC to the Operating
Partnership pursuant to the Contribution Agreement.
"Refined Product Terminals" shall mean, collectively, the refined products
terminals located in Edinburg, Texas and San Antonio, Texas and the asphalt
terminal located in Houston, Texas that were contributed by VPC to the Operating
Partnership pursuant to the Contribution Agreement.
"Refineries" shall mean the Three Rivers Refinery and the Corpus Refinery.
"San Antonio Pipeline" shall mean the bi-directional refined products
pipeline that originates in Corpus Christi, Texas and terminates in San Antonio,
Texas, and, for purposes of provisions of this Agreement, consists of two
segments, the "San Antonio North Segment" that extends from the Three Rivers
Refinery to San Antonio and the "San Antonio South Segment" that extends from
the Three Rivers Refinery south to Corpus Christi.
"Shortfall" for any Measurement Period shall mean:
(a) with respect to each Refined Product Pipelines, the excess of the
Pipeline Committed Volumes (as such number may be reduced pursuant to
Section 3) under this Agreement for each Refined Product Pipelines over the
sum of the number of barrels of Refined Product (or raffinate with respect
to the San Antonio South Segment) actually transported by VMSC in each such
Refined Product Pipelines during such Measurement Period (as further
specified on Schedule 1 hereto), and
3
(b) with respect to Refined Product Terminals, the excess of the
Terminal Committed Volumes for each Refined Product Terminal (as such
number may be reduced pursuant to Section 3) under this Agreement over the
number of barrels of Refined Product (or asphalt with respect to the
Houston Asphalt Terminal) actually terminalled by VMSC in each such Refined
Product Terminals during such Measurement Period.
"Shortfall Obligation" with respect to any Measurement Period shall mean
the sum of the Pipeline Shortfall Obligation and the Terminal Shortfall
Obligation.
"Subsidiary" shall mean any entity in which the Operating Partnership,
directly or indirectly through one or more intermediaries, has an ownership
interest.
"Terminal Committed Volumes" shall have the meaning set forth on Schedule 1
hereto.
"Terminal Shortfall Obligation" shall have the meaning set forth on
Schedule 1 hereto.
"Three Rivers Refinery" shall mean the refinery located near Three Rivers,
Texas owned and operated by a Controlled Affiliate.
"Three Rivers Refinery Production" shall mean all of the Refined Products
transported from the Three Rivers Refinery, whether transported by pipeline,
truck or other means.
Section 2. Agreement to Use Pipelines and Terminals
During the term of this Agreement and subject to the terms and conditions
of this Agreement, VMSC agrees as follows:
(a) Refined Product Pipelines. Subject to Section 3, calculated on an
average basis over each Measurement Period, VMSC will, and will cause its
Controlled Affiliates to, transport in the Refined Product Pipelines the
Pipeline Committed Volumes.
(b) Terminalling Assets. Subject to Section 3, calculated on an average
basis over each Measurement Period, VMSC will, and will cause its Controlled
Affiliates to, utilize the Refined Product Terminals for terminalling services
for the Terminal Committed Volumes.
(c) Transport Through Multiple Pipelines. No barrel of Refined Products
that has already been transported in one Refined Product Pipeline and that has
been counted as a barrel transported in the Refined Product Pipelines for
purposes of Section 2(a) shall be counted again as a barrel transported for
purposes of Section 2(a), notwithstanding that it is transported in one or more
additional Refined Product Pipelines.
Section 3. Exceptions to VMSC' Obligations
(a) Failure of Operating Partnership to Provide Services. VMSC shall not be
deemed to have failed to satisfy its obligations under Section 2(a) or (b), as
applicable, if VMSC and its Controlled Affiliates are unable to ship or terminal
the required volumes solely because of the inability of the Operating
Partnership to transport or terminal volumes of Refined Products made available
for shipment or terminalling by VMSC and its Controlled Affiliates, whether
because of operational difficulties with the Refined Product Pipelines or
Refined Product Terminals or otherwise
4
(b) Force Majeure. The failure or omission by VMSC to carry out or observe
any of the terms or provisions of this Agreement shall not give rise to any
claim for Shortfall Obligations, if such failure or omission shall arise or
result from or be caused by any event or condition caused by or resulting from
acts of God, strikes, lockouts or other industrial disturbances, acts of the
public enemy, wars, blockades, insurrections, riots, storms, floods, washouts,
arrests, the order of any court or governmental authority having jurisdiction
while the same is in force and effect, civil disturbances, explosions, breakage,
accident to machinery, storage tanks or lines of pipe, inability to obtain or
unavoidable delay in obtaining material, equipment, right of way easements,
franchises, or permits, and any other causes whether of the kind herein
enumerated or otherwise, but in each case not reasonably within the control of
the party claiming suspension and which by the exercise of due diligence such
party is unable to prevent or overcome.
Section 4. Agreement to Remain Shipper
With respect to any Refined Products that are produced at a Refinery and
transported in any Refined Product Pipeline or handled at any Refined Product
Terminal, VMSC agrees that it will, and will cause its Controlled Affiliates to,
continue their historical commercial practice of VMSC or its customers owning
such Refined Products from such point as such Refined Products leave the
Refinery until at least such point as they will not be further transported in a
Refined Product Pipeline or handled at a Refined Product Terminal and to
continue VMSC (or its customers) acting in the capacity of the shipper of any
such Refined Products for their own account at all times that such Refined
Products are in a Refined Product Pipeline or being handled at a Refined Product
Terminal.
Section 5. Agreement not to Challenge Tariff Rates or Terminal Charges
(a) VMSC agrees not to challenge, nor to cause its Controlled Affiliates to
challenge, nor to encourage or recommend to any other person that it challenge,
in any forum, existing or future interstate or intrastate tariff rates
(including joint tariffs) of the Operating Partnership and its Subsidiaries for
transportation of Refined Products on the Refined Product Pipelines. VMSC agrees
neither to protest nor to file a complaint, nor to cause its Controlled
Affiliates to protest or to file a complaint, concerning regulatory filings of
the Operating Partnership and its Subsidiaries to change interstate or
intrastate tariff rates (including joint tariffs) for transportation of Refined
Products on the Refined Product Pipelines. VMSC agrees not to seek, nor to cause
its Controlled Affiliates to seek, nor to encourage or recommend to any other
person that it seek regulatory review of, or the imposition of regulatory
jurisdiction over, the contractual rates charged by the Operating Partnership
and its Subsidiaries for terminalling services at the Refined Product Terminals
or to challenge, in any forum, such rates or changes to such rates.
5
(b) Subject to the specific provisions of Section 5(c) below, the
Partnership Parties agree that if they desire to increase the then current
tariffs on any of the Refined Product Pipelines, they shall provide VMSC with
notice at least 30 days prior to the date on which the Partnership Parties wish
to make the increase effective and VMSC and the Partnership Parties shall
negotiate in good faith regarding such proposed tariff increase. If VMSC and the
Partnership Parties are unable to agree on a tariff increase, the dispute shall
be an Arbitrable Dispute subject to resolution under Section 10(f).
Notwithstanding the foregoing, the Partnership Parties may adjust the tariffs on
each of the Refined Product Pipelines without the necessity of complying with
the foregoing provisions of this Section 5(b) by amounts equal to the
adjustments that would be permitted under the Federal Energy Regulatory
Commission (FERC)'s Oil Pipeline Rate Methodologies and Procedures as set forth
in 18 CFR Part 342.3 (annual indexing) if such Refined Product Pipelines were
subject to FERC jurisdiction.
(c) The Partnership Parties and VPC have identified a 60-mile segment of
the Edinburg Pipeline (from Seeligson Pump Station north to Origin Station) that
may require repair and/or replacement (as further provided in the Contribution
Agreement) to allow the Edinburg Pipeline to continue operating at its defined
operating capacity. If shipments by VMSC on the Edinburg Pipeline are reduced as
a result of such repairs or replacements, the Partnership Parties may increase
the tariff for the Edinburg Pipeline to the extent necessary to compensate the
Partnership Parties for the reduced throughput during such repair period.
Following the earlier to occur of the completion of such repairs and such time
at which a reasonably prudent pipeline operator could operate the Edinburg
Pipeline at a capacity level equal to the Edinburg Pipeline's then defined
operating capacity, the Partnership Parties and VMSC shall negotiate in good
faith a decrease(s) to the tariff. If the Partnership Parties and VMSC are
unable to agree on a tariff decrease, the dispute shall be an Arbitrable Dispute
subject to resolution under Section 10(f).
(d) The obligations of VMSC under this Section 5 were a material
consideration to the Operating Partnership for entering into the Contribution
Agreement and the Operating Partnership has entered into the Contribution
Agreement in reliance upon the performance of VMSC's obligations under this
Section 5.
Section 6. Effectiveness and Term
This Agreement shall be effective as of March __, 2003. The Agreement shall
extend for a term of seven years from such date and shall terminate at 12:01
a.m. San Antonio, Texas, time on the seventh anniversary of such date, unless
extended by written mutual agreement of the parties hereto.
Section 7. Notices
All notices, requests, demands, and other communications pertaining to this
Agreement shall be delivered personally, or by registered or certified mail
(postage prepaid and return receipt requested), or by express carrier or
delivery service, or by telecopy, to the parties hereto at the addresses below
(or at such other addresses as shall be specified by notice under this Section
7):
6
(i) if to VMSC:
Valero Marketing & Supply Company
One Valero Place
San Antonio, Texas 78212
Attn: Chief Operating Officer
Telecopy: (210) 370-2660
(ii) if to the Operating Partnership, the MLP, the General Partner or
Valero LLC:
Valero, L.P.
6000 North Loop 1604 West
San Antonio, Texas 78249
Attn: President
Telecopy: (210) 370-2304
Section 8. Successors and Assigns
This Agreement shall inure to the benefit of, and shall be binding upon,
VMSC, the Operating Partnership and the MLP and their respective successors and
permitted assigns. Successors shall include any corporation (limited liability
or otherwise), any partnership (limited or otherwise), or any person which
succeeds to a controlling interest in, or all of the economic interest of, VMSC,
the Operating Partnership or the MLP, as applicable. The parties hereto agree to
require their respective successors, if any, to expressly assume, in a form of
agreement acceptable to the other parties, the obligations under this Agreement.
Section 9. Certification and Shortfall Payment
(a) Certification. Not later than 45 days after the end of each Measurement
Period, the chief financial officer of VMSC shall deliver a certificate (the
"Certificate") to the Operating Partnership certifying whether or not there has
been a Shortfall with respect to such Measurement Period and if so, the amount
of any Shortfall Obligation that VMSC is obligated to pay with respect to such
Measurement Period pursuant to Section 9(e).
The Certificate shall further set forth calculations and other information
evidencing compliance with each of Section 2(a) and Section 2(b), and, if any
exception provided for pursuant to Section 3 of this Agreement is being relied
upon, (i) specifying which provision of Section 3 is applicable, (ii) specifying
in reasonable detail the basis for reliance on such provision, (iii) specifying
in reasonable detail the volume of Refined Products, as applicable, by which the
applicable Section 2 obligation should be reduced by reason of the applicable
provision of Section 3, and (iv) specifying in reasonable detail the basis for
such volume reduction calculation.
(b) Review of Information. During the 45-day period following receipt of
the Certificate, the Operating Partnership and its independent public
accountants will be permitted to review the accounting records of VMSC and any
applicable Controlled Affiliates, any working papers of independent public
accountants of VMSC and its Controlled Affiliates prepared in connection with
the Certificate and such additional information as the Operating Partnership or
its independent public accountants shall reasonably request for the purpose of
determining whether VMSC has correctly calculated whether there is a Shortfall
with respect to the Measurement Period covered by the Certificate and, if so,
the amount of any Shortfall Obligation for such Measurement Period. In this
connection, VMSC and the Operating Partnership and their respective independent
public accountants shall, and VMSC shall cause its Controlled Affiliates to,
cooperate with each other.
7
(c) Notice of Disagreement. If, in connection with the period of review and
consultation provided for in Section 9(b), the Operating Partnership has reason
to believe that VMSC has not correctly calculated the amount of any Shortfall or
Shortfall Obligation with respect to such Measurement Period in accordance with
this Agreement, then within 45 days following receipt of the Compliance
Certificate, the Operating Partnership may give VMSC a written notice of its
disagreement (a "Notice of Disagreement"). If such Notice of Disagreement is not
timely given by the Operating Partnership, VMSC will not have any liability
under this Section 9. Any Notice of Disagreement shall specify in reasonable
detail the Operating Partnership's calculation of the Shortfall and Shortfall
Obligation. If a Notice of Disagreement is received by VMSC in a timely manner,
then the determination of whether VMSC has correctly calculated the amount of
any Shortfall or Shortfall Obligation with respect to such Measurement Period in
accordance with this Agreement, and, if it has not, the amount of the Shortfall
or Shortfall Obligation shall become final and binding upon all parties hereto
on either (i) the date the chief financial officers of VMSC and the General
Partnership (on behalf of the Operating Partnership) resolve in writing any
differences they have with respect to the matters specified in the Notice of
Disagreement or (ii) the date any disputed matters are finally resolved in
writing by the Accounting Firm pursuant to Section 9(d), as applicable.
(d) Settling of Disagreements. If a Notice of Disagreement is delivered,
within 15 days thereafter, the chief financial officers of VMSC and the General
Partnership (on behalf of the Operating Partnership) shall meet or communicate
by telephone at a mutually acceptable time and place, and thereafter as often as
they reasonably deem necessary and shall negotiate in good faith to attempt to
resolve any differences which they may have with respect to matters specified in
the Notice of Disagreement. During the 30-day period following delivery of the
Notice of Disagreement, VMSC and its independent public accountants shall have
access to the working papers of the Operating Partnership relating to the Notice
of Disagreement and the working papers of the Operating Partnership's
independent public accountants prepared in connection with the Notice of
Disagreement. If such differences are not resolved within 30 days following
delivery of the Notice of Disagreement, VMSC and the Operating Partnership
shall, within 45 days following the delivery of the Notice of Disagreement,
submit to a dispute resolution group of an independent public accounting firm
(the "Accounting Firm") for review and resolution any and all matters which
remain in dispute and which were properly included in the Notice of
Disagreement, in the form of a written brief. The scope of the Accounting Firm's
review shall include determining whether there has been a Shortfall with respect
to such Measurement Period and, if so, the amount of the Shortfall Obligation
with respect to such Measurement Period. The Accounting Firm shall be such
nationally recognized independent public accounting firm as shall be agreed upon
by VMSC and the Operating Partnership in writing. The Accounting Firm's decision
shall be accompanied by a certificate of the Accounting Firm that it reached its
decision in accordance with the provisions of this Section 9(d). The parties
agree to use commercially reasonably best efforts to cause the Accounting Firm
to render a decision resolving the matters submitted to the Accounting Firm
within 30 days following submission. The parties agree that judgment may be
entered upon the determination of the Accounting Firm in any District Court in
Bexar County, Texas. The fees and expenses of the Accounting Firm shall be borne
by VMSC and the Operating Partnership in inverse proportion as they may prevail
on matters resolved by the Accounting Firm, which proportionate allocations
shall also be determined by the Accounting Firm at the time the determination of
the Accounting Firm is rendered on the merits of the matters submitted. Any fees
and disbursements of independent public accountants of VMSC or the Operating
Partnership incurred in connection with their preparation or review of the
Compliance Certificate or the Notice of Disagreement shall be borne by the party
retaining such independent public accountants.
8
(e) (i) If it is finally determined pursuant to this Section 9 that there
is a Shortfall Obligation with respect to any Quarterly Measurement Period
(including any Shortfall Obligation carried forward from a prior Quarterly
Measurement Period), VMSC shall promptly pay such Shortfall Obligation to the
Operating Partnership; provided, however, that if the amount of such Shortfall
Obligation with respect to any Quarterly Measurement Period is less than $2.5
million, VMSC is not obligated to pay such Shortfall Obligation at such time, in
which event such Shortfall Obligation shall be carried forward to the next
Quarterly Measurement Period in the Annual Measurement Period containing such
Quarterly Measurement Period.
(ii) If it is finally determined pursuant to this Section 9 that there
is a Shortfall Obligation with respect to any Annual Measurement Period,
then (A) if the amount of such Shortfall Obligation exceeds the amount of
the Shortfall Obligations for the three prior Quarterly Measurement Periods
actually paid by VMSC, then VMSC shall promptly pay the amount of such
excess to the Operating Partnership and (B) if the amount of the Shortfall
Obligations for the three prior Quarterly Measurement Periods actually paid
by VMSC exceeds the amount of such Shortfall Obligation, then the Operating
Partnership shall promptly pay the amount of such excess to VMSC.
(iii) If it is finally determined pursuant to this Section 9 that
there is no Shortfall Obligation with respect to any Annual Measurement
Period, then the Operating Partnership shall promptly refund to VMSC any
Shortfall Obligations actually paid by VMSC for the three prior Quarterly
Measurement Periods.
(f) Payment. Any payment by VMSC of a Shortfall Obligation required
pursuant to Section 9(e) shall be made in immediately available funds, plus
interest on such amount at the Prime Rate from the 45th day after the end of the
Measurement Period in which such Shortfall Obligation arose to the date of
payment. Any refund by the Operating Partnership of any payment by VMSC of a
Shortfall Obligation shall be made in immediately available funds, plus interest
on such amount at the Prime Rate from the date of payment of such Shortfall
Obligation to the date of refund.
9
Section 10. Miscellaneous
(a) VMSC Intention as to Refineries. VMSC represents to the Partnership
Parties that, as of the date of this Agreement, it does not intend to close or
dispose of any of the Refineries or to cause any changes that would have a
material adverse effect on the operation of any of the Refineries. Furthermore,
any such sale of one or more of the Refineries shall not eliminate or diminish
VMSC's obligations under Section 2.
(b) Amendments and Waivers. No amendment or modification of this Agreement
shall be valid unless it is in writing and signed by the parties hereto and, in
the case of any amendment or modification materially adverse to the Operating
Partnership, approved by the Conflicts Committee of the MLP. No waiver of any
provision of this Agreement shall be valid unless it is in writing and signed by
the party against whom the waiver is sought to be enforced, and, in the case of
any waiver by the Operating Partnership, approved by the Conflicts Committee of
the MLP. No failure or delay in exercising any right hereunder, and no course of
conduct, shall operate as a waiver of any provision of this Agreement. No single
or partial exercise of a right hereunder shall preclude further or complete
exercise of that right or any other right hereunder.
(c) Permitted Assignments. Neither this Agreement nor any of the rights or
obligations hereunder shall be assigned without the prior written consent of
VMSC (in the case of any assignment by the Operating Partnership or the MLP) or
the Operating Partnership, with the approval of the Conflicts Committee (in the
case of any assignment by VMSC); provided, however, that the Operating
Partnership may make such an assignment to an affiliate of the Operating
Partnership. Any attempt to make an assignment otherwise than as permitted by
the foregoing shall be null and void. Any assignment agreed to by VMSC or the
Operating Partnership, as applicable, shall not relieve the assignor of its
obligations under this Agreement.
(d) Severability. If any provision of this Agreement shall be held invalid
or unenforceable by a court or regulatory body of competent jurisdiction, the
remainder of this Agreement shall remain in full force and effect.
(e) No Inconsistent Actions. No party hereto shall undertake any course of
action inconsistent with the provisions of this Agreement. Without limiting the
foregoing sentence, no party hereto shall enter into, modify, amend, or waive
any contract right or obligation if such action would conflict with or impair
the rights and protections granted to any other party under this Agreement.
10
(f) Arbitration Provision. Except as provided in Section 9, any and all
Arbitrable Disputes must be resolved through the use of binding arbitration
using three arbitrators, in accordance with the Commercial Arbitration Rules of
the American Arbitration Association, as supplemented to the extent necessary to
determine any procedural appeal questions by the Federal Arbitration Act (Title
9 of the United States Code). If there is any inconsistency between this Section
and the Commercial Arbitration Rules or the Federal Arbitration Act, the terms
of this Section will control the rights and obligations of the parties.
Arbitration must be initiated within the applicable time limits set forth in
this Agreement and not thereafter or if no time limit is given, within the time
period allowed by the applicable statute of limitations. Arbitration may be
initiated by a party ("Claimant") serving written notice on the other party
("Respondent") that the Claimant elects to refer the Arbitrable Dispute to
binding arbitration. Claimant's notice initiating binding arbitration must
identify the arbitrator Claimant has appointed. The Respondent shall respond to
Claimant within 30 days after receipt of Claimant's notice, identifying the
arbitrator Respondent has appointed. If the Respondent fails for any reason to
name an arbitrator within the 30 day period, Claimant shall petition to the
American Arbitration Association for appointment of an arbitrator for
Respondent's account. The two arbitrators so chosen shall select a third
arbitrator within 30 days after the second arbitrator has been appointed. The
Claimant will pay the compensation and expenses of the arbitrator named by or
for it, and the Respondent will pay the compensation and expenses of the
arbitrator named by or for it. The costs of petitioning for the appointment of
an arbitrator, if any, shall be paid by Respondent. The Claimant and Respondent
will each pay one-half of the compensation and expenses of the third arbitrator.
All arbitrators must (a) be neutral parties who have never been officers,
directors or employees of VMSC, the Operating Partnership or any of their
affiliates and (b) have not less than seven years experience in the energy
industry. The hearing will be conducted in San Antonio, Texas and commence
within 30 days after the selection of the third arbitrator. VMSC, the Operating
Partnership and the arbitrators should proceed diligently and in good faith in
order that the award may be made as promptly as possible. Except as provided in
the Federal Arbitration Act, the decision of the arbitrators will be binding on
and non-appealable by the parties hereto. The arbitrators shall have no right to
grant or award indirect, consequential, punitive or exemplary damages of any
kind.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as
of the date first written above.
VALERO MARKETING AND SUPPLY COMPANY
By: /s/ William R. Klesse
---------------------------------------------
Name: William R. Klesse
Title: Executive Vice President
VALERO LOGISTICS OPERATIONS, L.P.
By: Valero GP, Inc.,
its general partner
By: /s/ Curtis V. Anastasio
----------------------------------------
Name: Curtis V. Anastasio
Title: President and Chief Executive Officer
VALERO L.P.
By: Riverwalk Logistics, L.P.,
its general partner
By: Valero GP, LLC,
its general partner
By: /s/ Curtis V. Anastasio
--------------------------------------
Name: Curtis V. Anastasio
Title: President and Chief Executive Officer
12
SCHEDULE 1
----------
REFINED PRODUCT TERMINALS
- -------------------------
- ---------------- ---------------------------- ---------------------------- ------------------------
Terminal Volumes Terminal Committed Volume Applicable Terminal Fee
(by Quarter) by Terminal
- ---------------- ---------------------------- ---------------------------- ------------------------
- ---------------- ---------------------------- ---------------------------- ------------------------
Edinburg If total throughput equals No committed volumes
or exceeds, on average,
20,000 BPD for specific
Quarterly Measurement
Period
- ---------------- ---------------------------- ---------------------------- ------------------------
- ---------------- ---------------------------- ---------------------------- ------------------------
Edinburg If total throughput is 7% of Corpus Refinery $.252 per barrel
less than, on average, Production
20,000 BPD for specific
Quarterly Measurement
Period
- ---------------- ---------------------------- ---------------------------- ------------------------
- ---------------- ---------------------------- ---------------------------- ------------------------
Houston Asphalt N/A 7% of Corpus Refinery $1.75 per barrel
production of Asphalt
- ---------------- ---------------------------- ---------------------------- ------------------------
- ---------------- ---------------------------- ---------------------------- ------------------------
San Antonio N/A 75% of Volumes of Refined $.252 per barrel
Products actually
throughput through the San
Antonio North Segment
- ---------------- ---------------------------- ---------------------------- ------------------------
Where:
- -----
"Terminal Committed Volumes" means the sum (for each Quarterly Measurement
Period) of the Terminal Committed Volume identified above for the Edinburg
Terminal and the San Antonio Terminal and the Houston Asphalt Terminal.
The "Terminal Shortfall Obligations" for each (Quarterly Measurement Period)
means the sum of the following:
The Edinburg Shortfall Obligation + the San Antonio Shortfall Obligation + the
Houston Asphalt Shortfall Obligation
Where:
- -----
"Edinburg Shortfall Obligation" means the product of (1) the Applicable Terminal
Fee identified above for the Edinburg Terminal multiplied by (2) the Shortfall
for the applicable Quarterly Measurement Period for the Edinburg Terminal.
13
"San Antonio Shortfall Obligation" means the product of (1) the Applicable
Terminal Fee identified above for the San Antonio Terminal multiplied by (2) the
Shortfall for the applicable Quarterly Measurement Period for the San Antonio
Terminal.
"Houston Asphalt Shortfall Obligation" means the product of (1) the Applicable
Terminal Fee identified above for the Houston Asphalt Terminal multiplied by (2)
the Shortfall for the applicable Quarterly Measurement Period for the Houston
Asphalt Terminal.
REFINED PRODUCT PIPELINES
- -------------------------
- ---------------------------------------- --------------------------------------
Refined Product Pipeline Pipeline Committed Volumes by
Pipeline
- ---------------------------------------- --------------------------------------
Houston Pipeline and Edinburg Pipeline: No committed volumes
If aggregate throughput on both lines
on a combined basis equals or exceeds,
on average, 110,000 BPD for specific
Quarterly Measurement Period
- ---------------------------------------- --------------------------------------
Houston Pipeline and Edinburg Pipeline: 40% of Corpus Refinery Production
If aggregate throughput on both lines
on a combined basis is less than, on
average, 110,000 BPD for specific
Quarterly Measurement Period
- ---------------------------------------- --------------------------------------
San Antonio North Segment 25% of Three Rivers Refinery
Production
- ---------------------------------------- --------------------------------------
San Antonio South Segment 90% of Three Rivers Refinery's
production of Raffinate
- ---------------------------------------- --------------------------------------
"Pipeline Committed Volumes" means the sum (for each Quarterly Measurement
Period) of the Pipeline Committed Volume (if any) identified above for (1) the
Houston and Edinburg Pipelines (combined) and (2) the San Antonio North Segment
and (3) the San Antonio South Segment.
The "Pipeline Shortfall Obligations" for each (Quarterly Measurement Period)
means the sum of the following:
The Houston/Edinburg Shortfall Obligation + the San Antonio North Shortfall
Obligation + the San Antonio South Shortfall Obligation
14
Where:
- -----
"Houston/Edinburg Shortfall Obligation" means the product of (1) the
Houston/Edinburg Weighted Average Tariff multiplied by (2) the Shortfall
for the applicable Quarterly Measurement Period for the Houston and
Edinburg Pipelines.
Where: The "Houston/Edinburg Weighted Average Tariff" means the sum of (A)
[the then applicable tariff on the Houston Pipeline multiplied by the
Houston Pipeline 2003 Projected Throughput] divided by the Combined 2003
Projected Throughput and (B) [the then applicable tariff on the Edinburg
Pipeline multiplied by the Edinburg Pipeline 2003 Projected Throughput]
divided by the Combined 2003 Projected Throughput
Where: The "Houston Pipeline 2003 Projected Throughput" equals an average
100,150 barrels per day; the "Edinburg Pipeline 2003 Projected Throughput"
equals an average 23,000 barrels per day; and the Combined 2003 Projected
Throughput equals an average 123,150 barrels per day.
"San Antonio North Shortfall Obligation" means the product of (1) the then
applicable tariff on the San Antonio North Segment multiplied by (2) the
Shortfall for the applicable Quarterly Measurement Period for the San Antonio
North Segment.
"San Antonio South Shortfall Obligation" means the product of (1) the then
applicable tariff on the San Antonio South Segment multiplied by (2) the
Shortfall for the applicable Quarterly Measurement Period for the San Antonio
South Segment.
Exhibit 10.5
TERMINALLING AGREEMENT
THIS AGREEMENT is made and entered into by and between Valero Logistics
Operations, L.P., a Delaware limited partnership ("VLI"), and Valero Marketing
and Supply Company, a Delaware corporation ("VMSC" or "Customer"), as of the
18th day of March, 2003.
I. FACILITIES. VLI agrees to provide Customer with storage and handling
services for petroleum products (the "Products") at the Edinburg
terminal located at 222 West Ingle Road, Edinburg, Texas (the
"Terminal"). The amount of storage space provided to the Customer
shall be determined by storage space availability at the Terminal and
Customer's Product terminalling requirements. Customer shall not have
exclusive rights to the use of the Terminal and VLI may enter into
terminalling arrangements with third parties.
II. PRODUCTS. Initially, Products handled will include:
#2 low sulfur diesel fuel
#2 high sulfur diesel fuel
regular and premium grades of motor fuel
and such other Products as VLI and Customer may agree to in writing
from time to time.
III. CHARGES.
(a) Terminal Fees. Customer shall pay a terminal fee of $0.006 per
gallon for all Products throughput by or on behalf of Customer
through the Terminal ("Terminal Fee").
Additive Fees. In addition to the Terminal Fee, Customer shall
pay to VLI a $0.0029 per gallon fee for generic gasoline additive
should Customer elect to receive additives in the Product. This
additive fee includes $0.0012 for injection services, $0.0010 for
VAR (volume additive reporting and recordkeeping) and $0.0007 for
the additive. If Customer (or its customers) request a
proprietary additive in lieu of the generic additive and the
Customer (or its customers) purchases the additive directly and
provides it to VLI, the additive fee will be reduced by $0.0007
per gallon.
(b) Monthly Invoice. The Terminal Fee and Additive Fee will be
assessed monthly based on the actual quantity of Customer's
Product delivered into the Terminal by truck, pipeline or vessel
for the prior month. (c) Payment. Customer shall pay all Fees
invoiced hereunder to such account as directed by VLI from time
to time within 10 business days of receipt of invoice from VLI.
(c) Payment. Customer shall pay all Fees invoiced hereunder to such
account as directed by VLI from time to time within 10 business
days of receipt of invoice from VLI.
IV. PRODUCT QUALITY CONTROL. Product received hereunder shall conform to
all federal, state and local specifications at the time of receipt at
the Terminal. Product delivered by VLI from storage shall conform to
federal, state, and local specifications in effect at the time of
delivery.
V. DELIVERIES NOTICE. Customer shall give VLI at least twenty-four hours
prior notice of the expected arrival of each shipment of Product and
VLI shall in its sole discretion accept or reject each shipment based
on storage space available at the Terminal and the Customer's
projected thruput.
VI. DETERMINATION OF QUANTITIES.
a) The quantity of Product delivered into the Terminal shall be
measured by the applicable Terminal receipt meters. All
quantities of Product delivered into Customer's (or its
customers') transport trucks, railcars, or vessels shall be
measured by VLI's loading rack meters, which shall be calibrated
as required by law and which shall, if requested by Customer, be
calibrated by an independent licensed inspector, satisfactory to
Customer (the costs of any independent inspector shall be borne
by Customer unless the meters are determined to be inaccurate by
more than 0.25% of volume, in which case the costs shall be
shared on a 50/50 basis between VLI and Customer). All quantities
shall be adjusted in volume to sixty degrees (60(Degree)
Fahrenheit) in accordance with the applicable parts of the latest
revision of the ASTMIP Petroleum Measurement Tables (American
Edition).
b) VLI shall keep accurate records of the receipt, storage and
delivery of Product hereunder and shall account for Product at
such time and in such manner as shall be reasonably requested by
Customer.
VII. CUSTODY AND RESPONSIBILITY.
a) Product stored for the Customer may be commingled at the Terminal
with the fungible Product received by VLI from other customers.
b) At the time Customer's Product passes the outlet flange of the
receipt meter connection between the pipeline and/or delivering
truck or railcar and the Terminal's receiving line, the Customer
shall be deemed to have delivered custody of the Product to VLI
for storage. At the time Customer's Product passes the outlet
flange of the delivery meter on the pipeline, truck, railcar or
other vessel into which delivery of Customer's Product has been
scheduled, VLI shall be deemed to have delivered custody of the
Product to Customer.
2
c) VLI's obligation to Customer with respect to Product stored
hereunder shall be to deliver to Customer, upon Customer's
request, and in accordance with the terms of this Agreement, a
quantity of Product meeting the applicable specifications (as
described in Section IV of this Agreement), no greater than the
quantity of Product originally delivered by Customer to VLI for
storage.
d) Customer shall be responsible for losses of Product caused or
occasioned by Customer's negligence or the negligence of
Customer's agents, servants, or employees. VLI shall be
responsible for all other losses of Customer's Product while in
VLI's care, custody and control; provided that VLI shall not be
responsible for actual measured losses in volume of Product which
are less than one-quarter of one percent (0.25%) of receipts
during the period for which accounting is made, provided such
lost volume cannot be identified somewhere else in the Terminal
or pipeline system, such as a transfer to another tank in the
Terminal, as remaining in a pipeline, etc. Such lost volume which
cannot be identified shall be deducted from any claims for
losses.
e) Insurance on Products, if any be desired by Customer, shall be
carried by Customer at its own expense and for the benefit of
Customer. VLI agrees that during the terms of this Agreement it
shall maintain property and casualty insurance (including
pollution insurance coverage) on the Terminal in accordance with
customary terminal industry practices and with a licensed,
reputable carrier. Customer acknowledges that initially such
insurance may be maintained under an umbrella policy of Valero
Energy Corporation with VLI as a named insured (and for which VLI
shall reimburse Valero Energy Corporation for its proportionate
cost), but VLI agrees that it will endeavor in good faith to
obtain insurance in its own name if commercially and economically
practicable.
VIII.GENERIC ADDITIVE. VLI and Customer agree that VLI shall provide an
additive for use by Customer and Customer's customers who do not
require a proprietary additive for all refined products, other than
distillates and asphalt products. The additive shall be properly
registered with the EPA. VLI shall determine a treat rate consistent
with the additive manufacturer's specifications. VLI shall place
sufficient additive into the Product delivered to Customer so as to
comply with the EPA regulations, as such regulations may be modified,
replaced or introduced from time to time.
IX. TANK TRUCK LOADING. For tank truck loading, each carrier shall execute
VLI's form Terminal Access Agreement, which will include (i) VLI's
insurance requirements, (ii) methods for approval of drivers for
loading and (iii) requirements for compliance with various
governmental regulations.
X. INDEMNIFICATION. To the fullest extent permitted by law and except as
specified otherwise elsewhere in the Agreement:
a) Customer shall defend, indemnify and hold harmless VLI, its
directors, officers, employees and agents from and against any
loss, damage, claim, suit liability, judgment and expense
(including attorneys fees and other costs of litigation) arising
out of injury, disease or death of any persons, damage to or loss
of any property, or fines or penalties to the extent caused by or
resulting from negligence of Customer, its employees or agents,
in the exercise of any of the rights granted hereunder or in the
operations, loading or unloading of any motor vehicle, vessel or
rail car owned or hired by Customer, its employees or agents,
except to the extent that such injury, death, damage to or loss
of property or fine or penalty may be caused by or resulting from
negligence on the part of VLI, its employees or agents.
3
b) VLI shall defend, indemnify and hold harmless Customer, its
directors, officers, employees and agents from and against any
loss, damage, claim, suit, liability, judgment and expense
(including attorneys fees and other costs of litigation) arising
out of injury, disease or death of any persons, damage to or loss
of any property or fines or penalties caused by or resulting from
negligence of VLI, its employees or agents, in the performance of
this Agreement, except to the extent that such injury, death,
damage to or loss of property may be caused by or resulting from
negligence on the part of Customer, its employees or agents.
c) VLI or Customer, as soon as practicable after receiving notice of
any suit brought against it within this indemnity, will furnish
to the other party full particulars and shall render all
reasonable assistance requested by the other party in the
defense.
XI. COMPLIANCE WITH LAWS AND REGULATIONS. Both parties agree to comply
fully in the performance of this Agreement with all applicable
federal, state and local governmental laws, regulations and rules (the
"Regulations"). Each party further agrees to defend, indemnify and
hold harmless the other from and against any loss, damage, claim,
suit, liability, judgment, fines, penalties, and expenses (including
attorneys fees and other costs of litigation) arising out of a
violation by such party of the Regulations, except to the extent such
fine, charge or assessment is caused by the other party.
XII. GENERAL FUELS ENVIRONMENTAL REQUIREMENTS. Both parties shall comply
with all environmental requirements applicable to fuels, whether
imposed by federal, state, or local governments. This obligation
includes, but is not limited to, the requirements described in this
section.
a) REID VAPOR PRESSURE (RVP) REQUIREMENTS. Both parties shall
cooperate on reasonable basis with each other in order to comply
with all regulatory requirements established for each RVP season
or specified by Customer, as applicable, for the RVP season. This
includes that both parties shall make available the appropriate
RVP Product for the appropriate RVP destination. The p.s.i.
requirement for RVP for particular Product may be revised by the
government in the future and both parties shall keep current with
such requirements. If the Terminal is located in or within 150
miles of a low RVP area, VLI shall prominently display maps
showing the high and low RVP areas.
4
b) DIESEL FUEL REQUIREMENTS. Both parties shall comply with all
high/low sulfur diesel fuel requirements, including, but not
limited to, the obligation to prevent contamination or other
mixing of low sulfur diesel Product with high sulfur diesel
Product and the appropriate marking of the dispensing arms by VLI
at its Terminal as to which arms contain low sulfur and high
sulfur diesel Product. Both parties shall also comply with the
appropriate transfer documentation requirements, including, that
the bills of lading, or other PTD (Product Transfer Document),
shall include all of the information required by law or
regulation to be provided to the recipient and include the
warning that high sulfur diesel is for off-highway usage only.
c) PTD REQUIREMENTS. Both parties shall comply with the PTD
requirements for Conventional Gasoline for all non-RFG or RBOB
gasoline (as required by federal law). Both parties shall also
place enough information on the PTD so that the recipient (a
carrier or other representative of each party) has all of the
information required by law or regulation for it to comply with
PTD requirements.
d) RFG REQUIREMENTS. Both parties shall comply with all regulatory
requirements established for Reformulated Gasoline (RFG), if
applicable.
e) OVERSIGHT PROGRAM REQUIRED FOR ALL FUELS PROGRAMS. Both parties
shall establish an oversight program in compliance with federal
regulations so that in its distributor and/or ethanol or
oxygenate blender capacity under federal fuels regulations, each
is able to satisfy an affirmative defense to presumptive
liability under the RVP program, the low/high sulfur diesel fuel
program, the dye concentration program (for tax exempt
distillate) and/or the reformulated gasoline program for the
shipments that both parties make for each other or its customers
which are subject to such programs. Both parties shall conduct
periodic sampling and testing of sulfur and dye concentration if
they handle diesel fuel. The program shall include periodic
review of PTD's to ensure they and the shipments they represent
are in compliance with all applicable laws and regulations and
shipped to the appropriate areas. Both parties shall provide each
other with copies of its oversight program and sampling results
and both parties shall also immediately notify each other as to
any sampling results or other information it may have, which
would indicate a violation or suspected violation of any law or
regulation. Customer or its subsidiaries shall be able to utilize
any of the information obtained from this program as if it were
Customer's own information. Should VLI handle different levels of
RVP Product during the summer RVP season, VLI shall have a
customer access system whereby Customer, obtaining Product for
any destination within a low RVP area, shall be locked out from
access from high RVP Product.
5
XIII.HOURS OF OPERATION. The Terminal will be accessible at any time to
persons properly authorized by VLI to operate the motorized entrance
gate and the automated metering system.
XIV. PERIOD OF AGREEMENT. This Agreement shall become effective and shall
remain in force for five year(s) commencing on March 18, 2003. Unless
cancelled at the end of the initial term by 30 days prior notice from
either party, this Agreement will continue thereafter on a
year-to-year basis until cancelled at the end of a renewal period by
30 days prior notice from either party.
XV. TAXES. Customer shall pay any and all license fees and excise taxes on
Customer's Product received and stored hereunder and on the storage,
handling, loading, and unloading thereof, which VLI may be required to
pay under any applicable federal, state, county, or municipal law,
ordinances, or regulations now in effect or hereafter enacted.
Customer shall be responsible for, and in its name shall effect
compliance with all governmental tax requirements with respect to
Customer's Product. VLI will pay, or cause to be paid, and shall
indemnify and defend Customer and Customer's affiliates from and
against, all taxes and assessments lawfully levied and imposed with
respect to its ownership and/or operation of the Terminal.
XVI. FORCE MAJEURE. Except as otherwise specifically provided in any part
of this Agreement, the failure or omission by either party to carry
out or observe any of the terms or provisions of this Agreement shall
not give rise to any claim by one party against another, if such
failure or omission shall arise or result from or be caused by any
event or condition caused by or resulting from acts of God, strikes,
lockouts or other industrial disturbances, acts of the public enemy,
wars, blockades, insurrections, riots, storms, floods, washouts,
arrests, the order of any court or governmental authority having
jurisdiction while the same is in force and effect, civil
disturbances, explosions, breakage, accident to machinery, storage
tanks or lines of pipe, inability to obtain or unavoidable delay in
obtaining material, equipment, right of way easements, franchises, or
permits, and any other causes whether of the kind herein enumerated or
otherwise, but in each case not reasonably within the control of the
party claiming suspension and which by the exercise of due diligence
such party is unable to prevent or overcome.
XVII.NOTICES. All notices, requests, demands, and other communications
pertaining to this Agreement shall be delivered personally, or by
registered or certified mail (postage prepaid and return receipt
requested), or by express carrier or delivery service, or by telecopy,
to the parties hereto at the addresses below (or at such other
addresses as shall be specified by notice under this Section XVII):
6
if to Customer:
Valero Marketing and Supply Company
One Valero Place
San Antonio, Texas 78212
Attn: Mr. Bill Klesse
Telecopy: 210-370-2660
if to VLI:
Valero Logistics Operations, L.P.
6000 North Loop 1604 West
San Antonio, Texas 78249
Attn: Mr. Curt Anastasio
Telecopy: 210-370-2304
XVIII. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of, and shall be binding upon, Customer and VLI and their respective
successors and permitted assigns; provided however, that this
Agreement and the obligations of the parties hereunder shall not be
assignable by any party hereto, by operation of law or otherwise,
without the express prior written consent of the other party, except
that either party may assign this Agreement without such consent,
including the performance thereof, in whole or in part, to an
affiliate or wholly owned subsidiary or to a successor as a result of
a merger, consolidation or sale or transfer of all or substantially
all of the applicable party's assets. The parties hereto agree to
require their respective successors, if any, to expressly assume, in a
form of agreement acceptable to the other parties, the obligations
under this Agreement.
XIX. SEVERABILITY. If any provision of this Agreement shall be held invalid
or unenforceable by a court or regulatory body of competent
jurisdiction, the remainder of this Agreement shall remain in full
force and effect.
XX. NO CONSEQUENTIAL DAMAGES; IMPLIED WARRANTIES. NEITHER CUSTOMER NOR VLI
SHALL BE LIABLE TO THE OTHER FOR SPECIAL, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) UNDER THIS AGREEMENT,
NO MATTER HOW SUCH DAMAGES MAY HAVE OCCURRED OR BEEN CAUSED, INCLUDING
WHETHER OR NOT SUCH DAMAGES ARE THE RESULT OF THE NEGLIGENCE OF (BUT
NOT THE INTENTIONAL MISCONDUCT OF) EITHER CUSTOMER OR VLI OR ANY OF
THEIR RESPECTIVE AFFILIATES. EXCEPT AS EXPRESSLY SET FORTH HEREIN,
THERE ARE NO GUARANTEES OR WARRANTIES OR REPRESENTATIONS BY EITHER
PARTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTIES OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE,
WHETHER ARISING BY OPERATION OF LAW OR OTHERWISE, WITH RESPECT TO THIS
AGREEMENT. TO THE EXTENT THAT A REMEDY IS SET FORTH IN THIS AGREEMENT
FOR A PARTICULAR BREACH OF THIS AGREEMENT, SUCH REMEDY SHALL BE THE
SOLE AND EXCLUSIVE REMEDY FOR ANY CLAIM FOR DAMAGE OR OTHERWISE
ARISING FROM OR RELATED TO SUCH BREACH OF THIS AGREEMENT.
VLI'S LIABILITY WITH RESPECT TO ANY PRODUCTS DELIVERED HEREUNDER THAT
ARE SUBSEQUENTLY LOST OR DAMAGED SHALL BE LIMITED TO THE THEN CURRENT
REPLACEMENT COST AT THE TERMINAL OF SUCH LOST OR DAMAGED PRODUCT;
REGARDLESS OF HOW SUCH LOSS OR DAMAGE MAY HAVE OCCURRED OR BEEN
CAUSED, INCLUDING WHETHER OR NOT SUCH LOSS OR DAMAGE IS THE RESULT OF
THE NEGLIGENCE (BUT NOT THE INTENTIONAL MISCONDUCT OF) VLI.
7
XXI. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas. In the event of litigation concerning this Agreement,
proper venue shall be in San Antonio, Bexar County, State of Texas.
XXII.DEFINITIONS. A "gallon" means a United States standard gallon of 231
cubic inches at sixty degrees (60(Degree) Fahrenheit). A "barrel"
means forty-two (42) United States standard gallons.
XXIII. DEFAULT. Except as otherwise specifically provided for under the
terms of this Agreement, if either party fails to perform any of the
covenants or obligations imposed on it by this Agreement (the
"Defaulting Party"), then the party to whom the covenant or obligation
was due (the "Non-Defaulting Party") may (without waiving any other
remedy for breach hereof), notify in writing the Defaulting Party,
stating specifically the nature of the default (the "Default Notice").
The Defaulting Party will have 30 days after receipt of the Default
Notice (the "Cure Period") in which to remedy the cause or causes
stated in the Default Notice, or provide adequate security to fully
indemnify the Non-Defaulting Party for any and all consequences of the
breach, or to dispute the claim of breach. If the Defaulting Party
disputes the claim of breach ("Notice of Dispute"), then the
Defaulting Party shall notify the Non-Defaulting Party in writing of
its dispute within ten days after receipt of the Default Notice. If
the Defaulting Party either cures the default or provides adequate
security within the Cure Period or delivers a Notice of Dispute in a
timely manner, then this Agreement shall remain in full force and
effect pending resolution of such dispute with respect to a default
addressed by the Defaulting Party. If the Defaulting Party fails to
cure the default, to provide adequate security, or timely deliver a
Notice of Dispute, or the parties are unable to resolve a dispute
addressed in a Notice of Dispute within 60 days after receipt of the
Notice of Dispute, then the Non-Defaulting Party may terminate this
Agreement immediately upon giving written notice of termination to the
Defaulting Party.
XXIV.WAIVER; ENTIRE AGREEMENT. No waiver by any party of any breach of any of
the covenants or conditions herein contained to be performed by another
party shall be construed as a waiver of any succeeding breach of the same
or any other covenant or condition. The entire Agreement is contained
herein and there are no oral understandings, representations or
warranties affecting it. This Agreement may not be terminated or changed
except in writing.
8
XXV. RIGHT TO AUDIT. Customer and its duly authorized representatives shall
have access to the accounting records and other documents maintained by
VLI which relate to services provided to Customer under this Agreement
and Customer shall have the right to audit such records at any reasonable
times during the term hereof and within three years after the termination
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the _____ day of March, 2003.
VALERO MARKETING AND SUPPLY COMPANY
By: /s/ Michael S. Ciskowski
----------------------------------------------
Name: Michael S. Ciskowski
Title: Senior Vice President
VALERO LOGISTICS OPERATIONS, L.P.
By: Valero GP, Inc., its general partner
By: /s/ Curtis V. Anastasio
---------------------------------------------
Name: Curtis V. Anastasio
Title: Chief Executive Officer and President
9
Exhibit 10.6
TERMINALLING AGREEMENT
THIS AGREEMENT is made and entered into by and between Valero Logistics
Operations, L.P., a Delaware limited partnership ("VLI"), and Valero Marketing
and Supply Company, a Delaware corporation ("VMSC" or "Customer"), as of the
18th day of March, 2003.
I. FACILITIES. VLI agrees to provide Customer with storage and handling
services for petroleum products (the "Products") at the Houston
Asphalt terminal located at 7220 J W Peavy, Houston, Texas (the
"Terminal"). The amount of storage space provided to the Customer
shall be determined by storage space availability at the Terminal and
Customer's Product terminalling requirements. Customer shall not have
exclusive rights to the use of the Terminal and VLI may enter into
terminalling arrangements with third parties.
II. PRODUCTS. Initially, Products handled will include:
asphalt and asphalt-related products
and such other Products as VLI and Customer may agree to in writing
from time to time.
III. CHARGES.
(a) Terminal Fees. Customer shall pay a terminal fee of $1.75 per
barrel, conventional asphalt only, $2.20 per barrel PMA-grade
asphalt for all Products throughput by or on behalf of Customer
through the Terminal ("Terminal Fee").
(b) Monthly Invoice. The Terminal Fee will be assessed monthly
based on the actual quantity of Customer's Product delivered into
the Terminal by truck, pipeline or vessel for the prior month.
(c) Payment. Customer shall pay all Fees invoiced hereunder to
such account as directed by VLI from time to time within 10
business days of receipt of invoice from VLI.
IV. PRODUCT QUALITY CONTROL. Product received hereunder shall conform to
all federal, state and local specifications at the time of receipt at
the Terminal. Product delivered by VLI from storage shall conform to
federal, state, and local specifications in effect at the time of
delivery.
V. DELIVERIES NOTICE. Customer shall give VLI at least twenty-four hours
prior notice of the expected arrival of each shipment of Product and
VLI shall in its sole discretion accept or reject each shipment based
on storage space available at the Terminal and the Customer's
projected thruput.
VI. DETERMINATION OF QUANTITIES.
a) The quantity of Product delivered into the Terminal shall be
measured by the applicable Terminal receipt meters. All
quantities of Product delivered into Customer's (or its
customers') transport trucks, railcars, or vessels shall be
measured by VLI's loading rack meters, which shall be calibrated
as required by law and which shall, if requested by Customer, be
calibrated by an independent licensed inspector, satisfactory to
Customer (the costs of any independent inspector shall be borne
by Customer unless the meters are determined to be inaccurate by
more than 0.25% of volume, in which case the costs shall be
shared on a 50/50 basis between VLI and Customer). All quantities
shall be adjusted in volume to sixty degrees (60(Degree)
Fahrenheit) in accordance with the applicable parts of the latest
revision of the ASTMIP Petroleum Measurement Tables (American
Edition).
b) VLI shall keep accurate records of the receipt, storage and
delivery of Product hereunder and shall account for Product at
such time and in such manner as shall be reasonably requested by
Customer.
VII. CUSTODY AND RESPONSIBILITY.
a) Product stored for the Customer may be commingled at the Terminal
with the fungible Product received by VLI from other customers.
b) At the time Customer's Product passes the outlet flange of the
receipt meter connection between the pipeline and/or delivering truck
or railcar and the Terminal's receiving line, the Customer shall be
deemed to have delivered custody of the Product to VLI for storage. At
the time Customer's Product passes the outlet flange of the delivery
meter on the pipeline, truck, railcar or other vessel into which
delivery of Customer's Product has been scheduled, VLI shall be deemed
to have delivered custody of the Product to Customer.
c) VLI's obligation to Customer with respect to Product stored
hereunder shall be to deliver to Customer, upon Customer's request,
and in accordance with the terms of this Agreement, a quantity of
Product meeting the applicable specifications (as described in Section
IV of this Agreement), no greater than the quantity of Product
originally delivered by Customer to VLI for storage.
2
d) Customer shall be responsible for losses of Product caused or
occasioned by Customer's negligence or the negligence of Customer's
agents, servants, or employees. VLI shall be responsible for all other
losses of Customer's Product while in VLI's care, custody and control;
provided that VLI shall not be responsible for actual measured losses
in volume of Product which are less than one-quarter of one percent
(0.25%) of receipts during the period for which accounting is made,
provided such lost volume cannot be identified somewhere else in the
Terminal or pipeline system, such as a transfer to another tank in the
Terminal, as remaining in a pipeline, etc. Such lost volume which
cannot be identified shall be deducted from any claims for losses.
e) Insurance on Products, if any be desired by Customer, shall be
carried by Customer at its own expense and for the benefit of
Customer. VLI agrees that during the terms of this Agreement it shall
maintain property and casualty insurance (including pollution
insurance coverage) on the Terminal in accordance with customary
terminal industry practices and with a licensed, reputable carrier.
Customer acknowledges that initially such insurance may be maintained
under an umbrella policy of Valero Energy Corporation with VLI as a
named insured (and for which VLI shall reimburse Valero Energy
Corporation for its proportionate cost), but VLI agrees that it will
endeavor in good faith to obtain insurance in its own name if
commercially and economically practicable.
VIII.GENERIC ADDITIVE. VLI and Customer agree that VLI shall provide an
additive for use by Customer and Customer's customers who do not
require a proprietary additive for all refined products, other than
distillates and asphalt products. The additive shall be properly
registered with the EPA. VLI shall determine a treat rate consistent
with the additive manufacturer's specifications. VLI shall place
sufficient additive into the Product delivered to Customer so as to
comply with the EPA regulations, as such regulations may be modified,
replaced or introduced from time to time.
IX. TANK TRUCK LOADING. For tank truck loading, each carrier shall execute
VLI's form Terminal Access Agreement, which will include (i) VLI's
insurance requirements, (ii) methods for approval of drivers for
loading and (iii) requirements for compliance with various
governmental regulations.
X. INDEMNIFICATION. To the fullest extent permitted by law and except as
specified otherwise elsewhere in the Agreement:
a) Customer shall defend, indemnify and hold harmless VLI, its
directors, officers, employees and agents from and against any
loss, damage, claim, suit liability, judgment and expense
(including attorneys fees and other costs of litigation) arising
out of injury, disease or death of any persons, damage to or loss
of any property, or fines or penalties to the extent caused by or
resulting from negligence of Customer, its employees or agents,
in the exercise of any of the rights granted hereunder or in the
operations, loading or unloading of any motor vehicle, vessel or
rail car owned or hired by Customer, its employees or agents,
except to the extent that such injury, death, damage to or loss
of property or fine or penalty may be caused by or resulting from
negligence on the part of VLI, its employees or agents.
b) VLI shall defend, indemnify and hold harmless Customer, its
directors, officers, employees and agents from and against any
3
loss, damage, claim, suit, liability, judgment and expense
(including attorneys fees and other costs of litigation) arising
out of injury, disease or death of any persons, damage to or loss
of any property or fines or penalties caused by or resulting from
negligence of VLI, its employees or agents, in the performance of
this Agreement, except to the extent that such injury, death,
damage to or loss of property may be caused by or resulting from
negligence on the part of Customer, its employees or agents.
c) VLI or Customer, as soon as practicable after receiving notice of
any suit brought against it within this indemnity, will furnish
to the other party full particulars and shall render all
reasonable assistance requested by the other party in the
defense.
XI. COMPLIANCE WITH LAWS AND REGULATIONS. Both parties agree to comply
fully in the performance of this Agreement with all applicable
federal, state and local governmental laws, regulations and rules (the
"Regulations"). Each party further agrees to defend, indemnify and
hold harmless the other from and against any loss, damage, claim,
suit, liability, judgment, fines, penalties, and expenses (including
attorneys fees and other costs of litigation) arising out of a
violation by such party of the Regulations, except to the extent such
fine, charge or assessment is caused by the other party.
XII. GENERAL FUELS ENVIRONMENTAL REQUIREMENTS. Both parties shall comply
with all environmental requirements applicable to fuels, whether
imposed by federal, state, or local governments. This obligation
includes, but is not limited to, the requirements described in this
section.
a) REID VAPOR PRESSURE (RVP) REQUIREMENTS. Both parties shall
cooperate on reasonable basis with each other in order to comply
with all regulatory requirements established for each RVP season
or specified by Customer, as applicable, for the RVP season. This
includes that both parties shall make available the appropriate
RVP Product for the appropriate RVP destination. The p.s.i.
requirement for RVP for particular Product may be revised by the
government in the future and both parties shall keep current with
such requirements. If the Terminal is located in or within 150
miles of a low RVP area, VLI shall prominently display maps
showing the high and low RVP areas.
b) DIESEL FUEL REQUIREMENTS. Both parties shall comply with all
high/low sulfur diesel fuel requirements, including, but not
limited to, the obligation to prevent contamination or other
mixing of low sulfur diesel Product with high sulfur diesel
Product and the appropriate marking of the dispensing arms by VLI
at its Terminal as to which arms contain low sulfur and high
sulfur diesel Product. Both parties shall also comply with the
appropriate transfer documentation requirements, including, that
the bills of lading, or other PTD (Product Transfer Document),
shall include all of the information required by law or
regulation to be provided to the recipient and include the
warning that high sulfur diesel is for off-highway usage only.
4
c) PTD REQUIREMENTS. Both parties shall comply with the PTD
requirements for Conventional Gasoline for all non-RFG or RBOB
gasoline (as required by federal law). Both parties shall also
place enough information on the PTD so that the recipient (a
carrier or other representative of each party) has all of the
information required by law or regulation for it to comply with
PTD requirements.
d) RFG REQUIREMENTS. Both parties shall comply with all regulatory
requirements established for Reformulated Gasoline (RFG), if
applicable.
e) OVERSIGHT PROGRAM REQUIRED FOR ALL FUELS PROGRAMS. Both parties
shall establish an oversight program in compliance with federal
regulations so that in its distributor and/or ethanol or
oxygenate blender capacity under federal fuels regulations, each
is able to satisfy an affirmative defense to presumptive
liability under the RVP program, the low/high sulfur diesel fuel
program, the dye concentration program (for tax exempt
distillate) and/or the reformulated gasoline program for the
shipments that both parties make for each other or its customers
which are subject to such programs. Both parties shall conduct
periodic sampling and testing of sulfur and dye concentration if
they handle diesel fuel. The program shall include periodic
review of PTD's to ensure they and the shipments they represent
are in compliance with all applicable laws and regulations and
shipped to the appropriate areas. Both parties shall provide each
other with copies of its oversight program and sampling results
and both parties shall also immediately notify each other as to
any sampling results or other information it may have, which
would indicate a violation or suspected violation of any law or
regulation. Customer or its subsidiaries shall be able to utilize
any of the information obtained from this program as if it were
Customer's own information. Should VLI handle different levels of
RVP Product during the summer RVP season, VLI shall have a
customer access system whereby Customer, obtaining Product for
any destination within a low RVP area, shall be locked out from
access from high RVP Product.
XIII.HOURS OF OPERATION. The Terminal will be accessible at any time to
persons properly authorized by VLI to operate the motorized entrance
gate and the automated metering system.
XIV. PERIOD OF AGREEMENT. This Agreement shall become effective and shall
remain in force for five year(s) commencing on March 18, 2003. Unless
cancelled at the end of the initial term by 30 days prior notice from
either party, this Agreement will continue thereafter on a
year-to-year basis until cancelled at the end of a renewal period by
30 days prior notice from either party.
5
XV. TAXES. Customer shall pay any and all license fees and excise taxes on
Customer's Product received and stored hereunder and on the storage,
handling, loading, and unloading thereof, which VLI may be required to
pay under any applicable federal, state, county, or municipal law,
ordinances, or regulations now in effect or hereafter enacted.
Customer shall be responsible for, and in its name shall effect
compliance with all governmental tax requirements with respect to
Customer's Product. VLI will pay, or cause to be paid, and shall
indemnify and defend Customer and Customer's affiliates from and
against, all taxes and assessments lawfully levied and imposed with
respect to its ownership and/or operation of the Terminal.
XVI. FORCE MAJEURE. Except as otherwise specifically provided in any part
of this Agreement, the failure or omission by either party to carry
out or observe any of the terms or provisions of this Agreement shall
not give rise to any claim by one party against another, if such
failure or omission shall arise or result from or be caused by any
event or condition caused by or resulting from acts of God, strikes,
lockouts or other industrial disturbances, acts of the public enemy,
wars, blockades, insurrections, riots, storms, floods, washouts,
arrests, the order of any court or governmental authority having
jurisdiction while the same is in force and effect, civil
disturbances, explosions, breakage, accident to machinery, storage
tanks or lines of pipe, inability to obtain or unavoidable delay in
obtaining material, equipment, right of way easements, franchises, or
permits, and any other causes whether of the kind herein enumerated or
otherwise, but in each case not reasonably within the control of the
party claiming suspension and which by the exercise of due diligence
such party is unable to prevent or overcome.
XVII.NOTICES. All notices, requests, demands, and other communications
pertaining to this Agreement shall be delivered personally, or by
registered or certified mail (postage prepaid and return receipt
requested), or by express carrier or delivery service, or by telecopy,
to the parties hereto at the addresses below (or at such other
addresses as shall be specified by notice under this Section XVII):
if to Customer:
Valero Marketing and Supply Company
One Valero Place
San Antonio, Texas 78212
Attn: Mr. Bill Klesse
Telecopy: 210-370-2660
6
if to VLI:
Valero Logistics Operations, L.P.
6000 North Loop 1604 West
San Antonio, Texas 78249
Attn: Mr. Curt Anastasio
Telecopy: 210-370-2304
XVIII. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of, and shall be binding upon, Customer and VLI and their respective
successors and permitted assigns; provided however, that this
Agreement and the obligations of the parties hereunder shall not be
assignable by any party hereto, by operation of law or otherwise,
without the express prior written consent of the other party, except
that either party may assign this Agreement without such consent,
including the performance thereof, in whole or in part, to an
affiliate or wholly owned subsidiary or to a successor as a result of
a merger, consolidation or sale or transfer of all or substantially
all of the applicable party's assets. The parties hereto agree to
require their respective successors, if any, to expressly assume, in a
form of agreement acceptable to the other parties, the obligations
under this Agreement.
XIX. SEVERABILITY. If any provision of this Agreement shall be held invalid
or unenforceable by a court or regulatory body of competent
jurisdiction, the remainder of this Agreement shall remain in full
force and effect.
XX. NO CONSEQUENTIAL DAMAGES; IMPLIED WARRANTIES. NEITHER CUSTOMER NOR VLI
SHALL BE LIABLE TO THE OTHER FOR SPECIAL, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) UNDER THIS AGREEMENT,
NO MATTER HOW SUCH DAMAGES MAY HAVE OCCURRED OR BEEN CAUSED, INCLUDING
WHETHER OR NOT SUCH DAMAGES ARE THE RESULT OF THE NEGLIGENCE OF (BUT
NOT THE INTENTIONAL MISCONDUCT OF) EITHER CUSTOMER OR VLI OR ANY OF
THEIR RESPECTIVE AFFILIATES. EXCEPT AS EXPRESSLY SET FORTH HEREIN,
THERE ARE NO GUARANTEES OR WARRANTIES OR REPRESENTATIONS BY EITHER
PARTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTIES OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE,
WHETHER ARISING BY OPERATION OF LAW OR OTHERWISE, WITH RESPECT TO THIS
AGREEMENT. TO THE EXTENT THAT A REMEDY IS SET FORTH IN THIS AGREEMENT
FOR A PARTICULAR BREACH OF THIS AGREEMENT, SUCH REMEDY SHALL BE THE
SOLE AND EXCLUSIVE REMEDY FOR ANY CLAIM FOR DAMAGE OR OTHERWISE
ARISING FROM OR RELATED TO SUCH BREACH OF THIS AGREEMENT.
VLI'S LIABILITY WITH RESPECT TO ANY PRODUCTS DELIVERED HEREUNDER THAT
ARE SUBSEQUENTLY LOST OR DAMAGED SHALL BE LIMITED TO THE THEN CURRENT
REPLACEMENT COST AT THE TERMINAL OF SUCH LOST OR DAMAGED PRODUCT;
REGARDLESS OF HOW SUCH LOSS OR DAMAGE MAY HAVE OCCURRED OR BEEN
CAUSED, INCLUDING WHETHER OR NOT SUCH LOSS OR DAMAGE IS THE RESULT OF
THE NEGLIGENCE (BUT NOT THE INTENTIONAL MISCONDUCT OF) VLI.
7
XXI. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas. In the event of litigation concerning this Agreement,
proper venue shall be in San Antonio, Bexar County, State of Texas.
XXII.DEFINITIONS. A "gallon" means a United States standard gallon of 231
cubic inches at sixty degrees (60(Degree) Fahrenheit). A "barrel"
means forty-two (42) United States standard gallons.
XXIII. DEFAULT. Except as otherwise specifically provided for under the
terms of this Agreement, if either party fails to perform any of the
covenants or obligations imposed on it by this Agreement (the
"Defaulting Party"), then the party to whom the covenant or obligation
was due (the "Non-Defaulting Party") may (without waiving any other
remedy for breach hereof), notify in writing the Defaulting Party,
stating specifically the nature of the default (the "Default Notice").
The Defaulting Party will have 30 days after receipt of the Default
Notice (the "Cure Period") in which to remedy the cause or causes
stated in the Default Notice, or provide adequate security to fully
indemnify the Non-Defaulting Party for any and all consequences of the
breach, or to dispute the claim of breach. If the Defaulting Party
disputes the claim of breach ("Notice of Dispute"), then the
Defaulting Party shall notify the Non-Defaulting Party in writing of
its dispute within ten days after receipt of the Default Notice. If
the Defaulting Party either cures the default or provides adequate
security within the Cure Period or delivers a Notice of Dispute in a
timely manner, then this Agreement shall remain in full force and
effect pending resolution of such dispute with respect to a default
addressed by the Defaulting Party. If the Defaulting Party fails to
cure the default, to provide adequate security, or timely deliver a
Notice of Dispute, or the parties are unable to resolve a dispute
addressed in a Notice of Dispute within 60 days after receipt of the
Notice of Dispute, then the Non-Defaulting Party may terminate this
Agreement immediately upon giving written notice of termination to the
Defaulting Party.
XXIV.WAIVER; ENTIRE AGREEMENT. No waiver by any party of any breach of any
of the covenants or conditions herein contained to be performed by
another party shall be construed as a waiver of any succeeding breach
of the same or any other covenant or condition. The entire Agreement
is contained herein and there are no oral understandings,
representations or warranties affecting it. This Agreement may not be
terminated or changed except in writing.
XXV. RIGHT TO AUDIT. Customer and its duly authorized representatives shall
have access to the accounting records and other documents maintained
by VLI which relate to services provided to Customer under this
Agreement and Customer shall have the right to audit such records at
any reasonable times during the term hereof and within three years
after the termination of this Agreement.
8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered as of the _____ day of March, 2003.
VALERO MARKETING AND SUPPLY COMPANY
By: /s/ Michael S. Ciskowski
-----------------------------------
Name: Michael S. Ciskowski
Title: Senior Vice President
VALERO LOGISTICS OPERATIONS, L.P.
By: Valero GP, Inc., its general partner
By: /s/ Curtis V. Anastasio
-----------------------------------
Name: Curtis V. Anastasio
Title: Chief Executive Officer and President
Exhibit 10.7
TERMINALLING AGREEMENT
THIS AGREEMENT is made and entered into by and between Valero Logistics
Operations, L.P., a Delaware limited partnership ("VLI"), and Valero Marketing
and Supply Company, a Delaware corporation ("VMSC" or "Customer"), as of the
18th day of March, 2003.
I. FACILITIES. VLI agrees to provide Customer with storage and handling
services for petroleum products (the "Products") at the Houston Hobby
Airport terminal located at 8376 Monroe, Houston, Texas (the
"Terminal"). The amount of storage space provided to the Customer
shall be determined by storage space availability at the Terminal and
Customer's Product terminalling requirements. Customer shall not have
exclusive rights to the use of the Terminal and VLI may enter into
terminalling arrangements with third parties.
II. PRODUCTS. Initially, Products handled will include:
jet fuel
and such other Products as VLI and Customer may agree to in writing
from time to time.
III. CHARGES.
(a) Terminal Fees. Customer shall pay a terminal fee of $0.006
per gallon for all Products throughput by or on behalf of
Customer through the Terminal ("Terminal Fee").
Filtering Fee. In addition to the Terminal Fee, Customer shall
pay to VLI a $.0071 per gallon filtering fee.
(b) Monthly Invoice. The Terminal Fee and Filtering Fee will be
assessed monthly based on the actual quantity of Customer's
Product delivered into the Terminal by truck, pipeline or
vessel for the prior month.
(c) Payment. Customer shall pay all Fees invoiced hereunder to
such account as directed by VLI from time to time within 10
business days of receipt of invoice from VLI.
IV. PRODUCT QUALITY CONTROL. Product received hereunder shall conform to
all federal, state and local specifications at the time of receipt at
the Terminal. Product delivered by VLI from storage shall conform to
federal, state, and local specifications in effect at the time of
delivery.
V. DELIVERIES NOTICE. Customer shall give VLI at least twenty-four hours
prior notice of the expected arrival of each shipment of Product and
VLI shall in its sole discretion accept or reject each shipment based
on storage space available at the Terminal and the Customer's
projected thruput.
VI. DETERMINATION OF QUANTITIES.
a) The quantity of Product delivered into the Terminal shall be
measured by the applicable Terminal receipt meters. All
quantities of Product delivered into Customer's (or its
customers') transport trucks, railcars, or vessels shall be
measured by VLI's loading rack meters, which shall be calibrated
as required by law and which shall, if requested by Customer, be
calibrated by an independent licensed inspector, satisfactory to
Customer (the costs of any independent inspector shall be borne
by Customer unless the meters are determined to be inaccurate by
more than 0.25% of volume, in which case the costs shall be
shared on a 50/50 basis between VLI and Customer). All quantities
shall be adjusted in volume to sixty degrees (60(Degree)
Fahrenheit) in accordance with the applicable parts of the latest
revision of the ASTMIP Petroleum Measurement Tables (American
Edition).
b) VLI shall keep accurate records of the receipt, storage and
delivery of Product hereunder and shall account for Product at
such time and in such manner as shall be reasonably requested by
Customer.
VII. CUSTODY AND RESPONSIBILITY.
a) Product stored for the Customer may be commingled at the Terminal
with the fungible Product received by VLI from other customers.
b) At the time Customer's Product passes the outlet flange of the
receipt meter connection between the pipeline and/or delivering
truck or railcar and the Terminal's receiving line, the Customer
shall be deemed to have delivered custody of the Product to VLI
for storage. At the time Customer's Product passes the outlet
flange of the delivery meter on the pipeline, truck, railcar or
other vessel into which delivery of Customer's Product has been
scheduled, VLI shall be deemed to have delivered custody of the
Product to Customer.
c) VLI's obligation to Customer with respect to Product stored
hereunder shall be to deliver to Customer, upon Customer's
request, and in accordance with the terms of this Agreement, a
quantity of Product meeting the applicable specifications (as
described in Section IV of this Agreement), no greater than the
quantity of Product originally delivered by Customer to VLI for
storage.
d) Customer shall be responsible for losses of Product caused or
occasioned by Customer's negligence or the negligence of
Customer's agents, servants, or employees. VLI shall be
responsible for all other losses of Customer's Product while in
2
VLI's care, custody and control; provided that VLI shall not be
responsible for actual measured losses in volume of Product which
are less than one-quarter of one percent (0.25%) of receipts
during the period for which accounting is made, provided such
lost volume cannot be identified somewhere else in the Terminal
or pipeline system, such as a transfer to another tank in the
Terminal, as remaining in a pipeline, etc. Such lost volume which
cannot be identified shall be deducted from any claims for
losses.
e) Insurance on Products, if any be desired by Customer, shall be
carried by Customer at its own expense and for the benefit of
Customer. VLI agrees that during the terms of this Agreement it
shall maintain property and casualty insurance (including
pollution insurance coverage) on the Terminal in accordance with
customary terminal industry practices and with a licensed,
reputable carrier. Customer acknowledges that initially such
insurance may be maintained under an umbrella policy of Valero
Energy Corporation with VLI as a named insured (and for which VLI
shall reimburse Valero Energy Corporation for its proportionate
cost), but VLI agrees that it will endeavor in good faith to
obtain insurance in its own name if commercially and economically
practicable.
VIII.GENERIC ADDITIVE. VLI and Customer agree that VLI shall provide
an additive for use by Customer and Customer's customers who do
not require a proprietary additive for all refined products,
other than distillates and asphalt products. The additive shall
be properly registered with the EPA. VLI shall determine a treat
rate consistent with the additive manufacturer's specifications.
VLI shall place sufficient additive into the Product delivered to
Customer so as to comply with the EPA regulations, as such
regulations may be modified, replaced or introduced from time to
time.
IX. TANK TRUCK LOADING. For tank truck loading, each carrier shall
execute VLI's form Terminal Access Agreement, which will include
(i) VLI's insurance requirements, (ii) methods for approval of
drivers for loading and (iii) requirements for compliance with
various governmental regulations.
X. INDEMNIFICATION. To the fullest extent permitted by law and
except as specified otherwise elsewhere in the Agreement:
a) Customer shall defend, indemnify and hold harmless VLI, its
directors, officers, employees and agents from and against
any loss, damage, claim, suit liability, judgment and
expense (including attorneys fees and other costs of
litigation) arising out of injury, disease or death of any
persons, damage to or loss of any property, or fines or
penalties to the extent caused by or resulting from
negligence of Customer, its employees or agents, in the
exercise of any of the rights granted hereunder or in the
operations, loading or unloading of any motor vehicle,
vessel or rail car owned or hired by Customer, its employees
or agents, except to the extent that such injury, death,
damage to or loss of property or fine or penalty may be
caused by or resulting from negligence on the part of VLI,
its employees or agents.
3
b) VLI shall defend, indemnify and hold harmless Customer, its
directors, officers, employees and agents from and against
any loss, damage, claim, suit, liability, judgment and
expense (including attorneys fees and other costs of
litigation) arising out of injury, disease or death of any
persons, damage to or loss of any property or fines or
penalties caused by or resulting from negligence of VLI, its
employees or agents, in the performance of this Agreement,
except to the extent that such injury, death, damage to or
loss of property may be caused by or resulting from
negligence on the part of Customer, its employees or agents.
c) VLI or Customer, as soon as practicable after receiving
notice of any suit brought against it within this indemnity,
will furnish to the other party full particulars and shall
render all reasonable assistance requested by the other
party in the defense.
XI. COMPLIANCE WITH LAWS AND REGULATIONS. Both parties agree to
comply fully in the performance of this Agreement with all
applicable federal, state and local governmental laws,
regulations and rules (the "Regulations"). Each party further
agrees to defend, indemnify and hold harmless the other from and
against any loss, damage, claim, suit, liability, judgment,
fines, penalties, and expenses (including attorneys fees and
other costs of litigation) arising out of a violation by such
party of the Regulations, except to the extent such fine, charge
or assessment is caused by the other party.
XII. GENERAL FUELS ENVIRONMENTAL REQUIREMENTS. Both parties shall
comply with all environmental requirements applicable to fuels,
whether imposed by federal, state, or local governments. This
obligation includes, but is not limited to, the requirements
described in this section.
a) REID VAPOR PRESSURE (RVP) REQUIREMENTS. Both parties shall
cooperate on reasonable basis with each other in order to
comply with all regulatory requirements established for each
RVP season or specified by Customer, as applicable, for the
RVP season. This includes that both parties shall make
available the appropriate RVP Product for the appropriate
RVP destination. The p.s.i. requirement for RVP for
particular Product may be revised by the government in the
future and both parties shall keep current with such
requirements. If the Terminal is located in or within 150
miles of a low RVP area, VLI shall prominently display maps
showing the high and low RVP areas.
b) DIESEL FUEL REQUIREMENTS. Both parties shall comply with all
high/low sulfur diesel fuel requirements, including, but not
limited to, the obligation to prevent contamination or other
mixing of low sulfur diesel Product with high sulfur diesel
Product and the appropriate marking of the dispensing arms
by VLI at its Terminal as to which arms contain low sulfur
4
and high sulfur diesel Product. Both parties shall also
comply with the appropriate transfer documentation
requirements, including, that the bills of lading, or other
PTD (Product Transfer Document), shall include all of the
information required by law or regulation to be provided to
the recipient and include the warning that high sulfur
diesel is for off-highway usage only.
c) PTD REQUIREMENTS. Both parties shall comply with the PTD
requirements for Conventional Gasoline for all non-RFG or
RBOB gasoline (as required by federal law). Both parties
shall also place enough information on the PTD so that the
recipient (a carrier or other representative of each party)
has all of the information required by law or regulation for
it to comply with PTD requirements.
d) RFG REQUIREMENTS. Both parties shall comply with all
regulatory requirements established for Reformulated
Gasoline (RFG), if applicable.
e) OVERSIGHT PROGRAM REQUIRED FOR ALL FUELS PROGRAMS. Both
parties shall establish an oversight program in compliance
with federal regulations so that in its distributor and/or
ethanol or oxygenate blender capacity under federal fuels
regulations, each is able to satisfy an affirmative defense
to presumptive liability under the RVP program, the low/high
sulfur diesel fuel program, the dye concentration program
(for tax exempt distillate) and/or the reformulated gasoline
program for the shipments that both parties make for each
other or its customers which are subject to such programs.
Both parties shall conduct periodic sampling and testing of
sulfur and dye concentration if they handle diesel fuel. The
program shall include periodic review of PTD's to ensure
they and the shipments they represent are in compliance with
all applicable laws and regulations and shipped to the
appropriate areas. Both parties shall provide each other
with copies of its oversight program and sampling results
and both parties shall also immediately notify each other as
to any sampling results or other information it may have,
which would indicate a violation or suspected violation of
any law or regulation. Customer or its subsidiaries shall be
able to utilize any of the information obtained from this
program as if it were Customer's own information. Should VLI
handle different levels of RVP Product during the summer RVP
season, VLI shall have a customer access system whereby
Customer, obtaining Product for any destination within a low
RVP area, shall be locked out from access from high RVP
Product.
XIII.HOURS OF OPERATION. The Terminal will be accessible at any time
to persons properly authorized by VLI to operate the motorized
entrance gate and the automated metering system.
5
XIV. PERIOD OF AGREEMENT. This Agreement shall become effective and
shall remain in force for five year(s) commencing on March 18,
2003. Unless cancelled at the end of the initial term by 30 days
prior notice from either party, this Agreement will continue
thereafter on a year-to-year basis until cancelled at the end of
a renewal period by 30 days prior notice from either party.
XV. TAXES. Customer shall pay any and all license fees and excise
taxes on Customer's Product received and stored hereunder and on
the storage, handling, loading, and unloading thereof, which VLI
may be required to pay under any applicable federal, state,
county, or municipal law, ordinances, or regulations now in
effect or hereafter enacted. Customer shall be responsible for,
and in its name shall effect compliance with all governmental tax
requirements with respect to Customer's Product. VLI will pay, or
cause to be paid, and shall indemnify and defend Customer and
Customer's affiliates from and against, all taxes and assessments
lawfully levied and imposed with respect to its ownership and/or
operation of the Terminal.
XVI. FORCE MAJEURE. Except as otherwise specifically provided in any
part of this Agreement, the failure or omission by either party
to carry out or observe any of the terms or provisions of this
Agreement shall not give rise to any claim by one party against
another, if such failure or omission shall arise or result from
or be caused by any event or condition caused by or resulting
from acts of God, strikes, lockouts or other industrial
disturbances, acts of the public enemy, wars, blockades,
insurrections, riots, storms, floods, washouts, arrests, the
order of any court or governmental authority having jurisdiction
while the same is in force and effect, civil disturbances,
explosions, breakage, accident to machinery, storage tanks or
lines of pipe, inability to obtain or unavoidable delay in
obtaining material, equipment, right of way easements,
franchises, or permits, and any other causes whether of the kind
herein enumerated or otherwise, but in each case not reasonably
within the control of the party claiming suspension and which by
the exercise of due diligence such party is unable to prevent or
overcome.
XVII.NOTICES. All notices, requests, demands, and other communications
pertaining to this Agreement shall be delivered personally, or by
registered or certified mail (postage prepaid and return receipt
requested), or by express carrier or delivery service, or by
telecopy, to the parties hereto at the addresses below (or at
such other addresses as shall be specified by notice under this
Section XVII):
if to Customer:
Valero Marketing and Supply Company
One Valero Place
San Antonio, Texas 78212
Attn: Mr. Bill Klesse
Telecopy: 210-370-2660
6
if to VLI:
Valero Logistics Operations, L.P.
6000 North Loop 1604 West
San Antonio, Texas 78249
Attn: Mr. Curt Anastasio
Telecopy: 210-370-2304
XVIII. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of, and
shall be binding upon, Customer and VLI and their respective successors and
permitted assigns; provided however, that this Agreement and the
obligations of the parties hereunder shall not be assignable by any party
hereto, by operation of law or otherwise, without the express prior written
consent of the other party, except that either party may assign this
Agreement without such consent, including the performance thereof, in whole
or in part, to an affiliate or wholly owned subsidiary or to a successor as
a result of a merger, consolidation or sale or transfer of all or
substantially all of the applicable party's assets. The parties hereto
agree to require their respective successors, if any, to expressly assume,
in a form of agreement acceptable to the other parties, the obligations
under this Agreement.
XIX. SEVERABILITY. If any provision of this Agreement shall be held invalid or
unenforceable by a court or regulatory body of competent jurisdiction, the
remainder of this Agreement shall remain in full force and effect.
XX. NO CONSEQUENTIAL DAMAGES; IMPLIED WARRANTIES. NEITHER CUSTOMER NOR VLI
SHALL BE LIABLE TO THE OTHER FOR SPECIAL, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) UNDER THIS AGREEMENT, NO
MATTER HOW SUCH DAMAGES MAY HAVE OCCURRED OR BEEN CAUSED, INCLUDING WHETHER
OR NOT SUCH DAMAGES ARE THE RESULT OF THE NEGLIGENCE OF (BUT NOT THE
INTENTIONAL MISCONDUCT OF) EITHER CUSTOMER OR VLI OR ANY OF THEIR
RESPECTIVE AFFILIATES. EXCEPT AS EXPRESSLY SET FORTH HEREIN, THERE ARE NO
GUARANTEES OR WARRANTIES OR REPRESENTATIONS BY EITHER PARTY OF ANY KIND,
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF
MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE, WHETHER ARISING BY
OPERATION OF LAW OR OTHERWISE, WITH RESPECT TO THIS AGREEMENT. TO THE
EXTENT THAT A REMEDY IS SET FORTH IN THIS AGREEMENT FOR A PARTICULAR BREACH
OF THIS AGREEMENT, SUCH REMEDY SHALL BE THE SOLE AND EXCLUSIVE REMEDY FOR
ANY CLAIM FOR DAMAGE OR OTHERWISE ARISING FROM OR RELATED TO SUCH BREACH OF
THIS AGREEMENT.
VLI'S LIABILITY WITH RESPECT TO ANY PRODUCTS DELIVERED HEREUNDER THAT ARE
SUBSEQUENTLY LOST OR DAMAGED SHALL BE LIMITED TO THE THEN CURRENT
REPLACEMENT COST AT THE TERMINAL OF SUCH LOST OR DAMAGED PRODUCT;
REGARDLESS OF HOW SUCH LOSS OR DAMAGE MAY HAVE OCCURRED OR BEEN CAUSED,
INCLUDING WHETHER OR NOT SUCH LOSS OR DAMAGE IS THE RESULT OF THE
NEGLIGENCE (BUT NOT THE INTENTIONAL MISCONDUCT OF) VLI.
7
XXI. GOVERNING LAW. This Agreement shall be governed by the laws of the State of
Texas. In the event of litigation concerning this Agreement, proper venue
shall be in San Antonio, Bexar County, State of Texas.
XXII.DEFINITIONS. A "gallon" means a United States standard gallon of 231 cubic
inches at sixty degrees (60(Degree) Fahrenheit). A "barrel" means forty-two
(42) United States standard gallons.
XXIII. DEFAULT. Except as otherwise specifically provided for under the terms of
this Agreement, if either party fails to perform any of the covenants or
obligations imposed on it by this Agreement (the "Defaulting Party"), then
the party to whom the covenant or obligation was due (the "Non-Defaulting
Party") may (without waiving any other remedy for breach hereof), notify in
writing the Defaulting Party, stating specifically the nature of the
default (the "Default Notice"). The Defaulting Party will have 30 days
after receipt of the Default Notice (the "Cure Period") in which to remedy
the cause or causes stated in the Default Notice, or provide adequate
security to fully indemnify the Non-Defaulting Party for any and all
consequences of the breach, or to dispute the claim of breach. If the
Defaulting Party disputes the claim of breach ("Notice of Dispute"), then
the Defaulting Party shall notify the Non-Defaulting Party in writing of
its dispute within ten days after receipt of the Default Notice. If the
Defaulting Party either cures the default or provides adequate security
within the Cure Period or delivers a Notice of Dispute in a timely manner,
then this Agreement shall remain in full force and effect pending
resolution of such dispute with respect to a default addressed by the
Defaulting Party. If the Defaulting Party fails to cure the default, to
provide adequate security, or timely deliver a Notice of Dispute, or the
parties are unable to resolve a dispute addressed in a Notice of Dispute
within 60 days after receipt of the Notice of Dispute, then the
Non-Defaulting Party may terminate this Agreement immediately upon giving
written notice of termination to the Defaulting Party.
XXIV.WAIVER; ENTIRE AGREEMENT. No waiver by any party of any breach of any of
the covenants or conditions herein contained to be performed by another
party shall be construed as a waiver of any succeeding breach of the same
or any other covenant or condition. The entire Agreement is contained
herein and there are no oral understandings, representations or warranties
affecting it. This Agreement may not be terminated or changed except in
writing.
8
XXV. RIGHT TO AUDIT. Customer and its duly authorized representatives shall have
access to the accounting records and other documents maintained by VLI
which relate to services provided to Customer under this Agreement and
Customer shall have the right to audit such records at any reasonable times
during the term hereof and within three years after the termination of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the _____ day of March, 2003.
VALERO MARKETING AND SUPPLY COMPANY
By: /s/ Michael S. Ciskowski
---------------------------------------------
Name: Michael S. Ciskowski
Title: Senior Vice President
VALERO LOGISTICS OPERATIONS, L.P.
By: Valero GP, Inc., its general partner
By: /s/ Curtis V. Anastasio
---------------------------------------------
Name: Curtis V. Anastasio
Title: Chief Executive Officer and President
Exhibit 10.8
TERMINALLING AGREEMENT
THIS AGREEMENT is made and entered into by and between Valero Logistics
Operations, L.P., a Delaware limited partnership ("VLI"), and Valero Marketing
and Supply Company, a Delaware corporation ("VMSC" or "Customer"), as of the
18th day of March, 2003.
I. FACILITIES. VLI agrees to provide Customer with storage and handling
services for petroleum products (the "Products") at the Placedo
terminal located at 16521 US Hwy 87 South, Placedo, Texas (the
"Terminal"). The amount of storage space provided to the Customer
shall be determined by storage space availability at the Terminal and
Customer's Product terminalling requirements. Customer shall not have
exclusive rights to the use of the Terminal and VLI may enter into
terminalling arrangements with third parties.
II. PRODUCTS. Initially, Products handled will include:
#2 low sulfur diesel fuel
#2 high sulfur diesel fuel
regular and premium grades of motor fuel
and such other Products as VLI and Customer may agree to in writing
from time to time.
III. CHARGES.
(a) Terminal Fees. Customer shall pay a terminal fee of $0.006
per gallon for all Products throughput by or on behalf of
Customer through the Terminal ("Terminal Fee").
Additive Fees. In addition to the Terminal Fee, Customer
shall pay to VLI a $0.0029 per gallon fee for generic
gasoline additive should Customer elect to receive additives
in the Product. This additive fee includes $0.0012 for
injection services, $0.0010 for VAR (volume additive
reporting and recordkeeping) and $0.0007 for the additive.
If Customer (or its customers) request a proprietary
additive in lieu of the generic additive and the Customer
(or its customers) purchases the additive directly and
provides it to VLI, the additive fee will be reduced by
$0.0007 per gallon.
(b) Monthly Invoice. The Terminal Fee and Additive Fee will be
assessed monthly based on the actual quantity of Customer's
Product delivered into the Terminal by truck, pipeline or
vessel for the prior month.
(c) Payment. Customer shall pay all Fees invoiced hereunder to
such account as directed by VLI from time to time within 10
business days of receipt of invoice from VLI.
IV. PRODUCT QUALITY CONTROL. Product received hereunder shall conform to
all federal, state and local specifications at the time of receipt at
the Terminal. Product delivered by VLI from storage shall conform to
federal, state, and local specifications in effect at the time of
delivery.
V. DELIVERIES NOTICE. Customer shall give VLI at least twenty-four hours
prior notice of the expected arrival of each shipment of Product and
VLI shall in its sole discretion accept or reject each shipment based
on storage space available at the Terminal and the Customer's
projected thruput.
VI. DETERMINATION OF QUANTITIES.
a) The quantity of Product delivered into the Terminal shall be
measured by the applicable Terminal receipt meters. All
quantities of Product delivered into Customer's (or its
customers') transport trucks, railcars, or vessels shall be
measured by VLI's loading rack meters, which shall be calibrated
as required by law and which shall, if requested by Customer, be
calibrated by an independent licensed inspector, satisfactory to
Customer (the costs of any independent inspector shall be borne
by Customer unless the meters are determined to be inaccurate by
more than 0.25% of volume, in which case the costs shall be
shared on a 50/50 basis between VLI and Customer). All quantities
shall be adjusted in volume to sixty degrees (60(Degree)
Fahrenheit) in accordance with the applicable parts of the latest
revision of the ASTMIP Petroleum Measurement Tables (American
Edition).
b) VLI shall keep accurate records of the receipt, storage and
delivery of Product hereunder and shall account for Product at
such time and in such manner as shall be reasonably requested by
Customer.
VII. CUSTODY AND RESPONSIBILITY.
a) Product stored for the Customer may be commingled at the Terminal
with the fungible Product received by VLI from other customers.
b) At the time Customer's Product passes the outlet flange of the
receipt meter connection between the pipeline and/or delivering
truck or railcar and the Terminal's receiving line, the Customer
shall be deemed to have delivered custody of the Product to VLI
for storage. At the time Customer's Product passes the outlet
flange of the delivery meter on the pipeline, truck, railcar or
other vessel into which delivery of Customer's Product has been
scheduled, VLI shall be deemed to have delivered custody of the
Product to Customer.
2
c) VLI's obligation to Customer with respect to Product stored
hereunder shall be to deliver to Customer, upon Customer's
request, and in accordance with the terms of this Agreement, a
quantity of Product meeting the applicable specifications (as
described in Section IV of this Agreement), no greater than the
quantity of Product originally delivered by Customer to VLI for
storage.
d) Customer shall be responsible for losses of Product caused or
occasioned by Customer's negligence or the negligence of
Customer's agents, servants, or employees. VLI shall be
responsible for all other losses of Customer's Product while in
VLI's care, custody and control; provided that VLI shall not be
responsible for actual measured losses in volume of Product which
are less than one-quarter of one percent (0.25%) of receipts
during the period for which accounting is made, provided such
lost volume cannot be identified somewhere else in the Terminal
or pipeline system, such as a transfer to another tank in the
Terminal, as remaining in a pipeline, etc. Such lost volume which
cannot be identified shall be deducted from any claims for
losses.
e) Insurance on Products, if any be desired by Customer, shall be
carried by Customer at its own expense and for the benefit of
Customer. VLI agrees that during the terms of this Agreement it
shall maintain property and casualty insurance (including
pollution insurance coverage) on the Terminal in accordance with
customary terminal industry practices and with a licensed,
reputable carrier. Customer acknowledges that initially such
insurance may be maintained under an umbrella policy of Valero
Energy Corporation with VLI as a named insured (and for which VLI
shall reimburse Valero Energy Corporation for its proportionate
cost), but VLI agrees that it will endeavor in good faith to
obtain insurance in its own name if commercially and economically
practicable.
VIII.GENERIC ADDITIVE. VLI and Customer agree that VLI shall provide an
additive for use by Customer and Customer's customers who do not
require a proprietary additive for all refined products, other than
distillates and asphalt products. The additive shall be properly
registered with the EPA. VLI shall determine a treat rate consistent
with the additive manufacturer's specifications. VLI shall place
sufficient additive into the Product delivered to Customer so as to
comply with the EPA regulations, as such regulations may be modified,
replaced or introduced from time to time.
IX. TANK TRUCK LOADING. For tank truck loading, each carrier shall execute
VLI's form Terminal Access Agreement, which will include (i) VLI's
insurance requirements, (ii) methods for approval of drivers for
loading and (iii) requirements for compliance with various
governmental regulations.
X. INDEMNIFICATION. To the fullest extent permitted by law and except as
specified otherwise elsewhere in the Agreement:
a) Customer shall defend, indemnify and hold harmless VLI, its
directors, officers, employees and agents from and against any
3
loss, damage, claim, suit liability, judgment and expense
(including attorneys fees and other costs of litigation) arising
out of injury, disease or death of any persons, damage to or loss
of any property, or fines or penalties to the extent caused by or
resulting from negligence of Customer, its employees or agents,
in the exercise of any of the rights granted hereunder or in the
operations, loading or unloading of any motor vehicle, vessel or
rail car owned or hired by Customer, its employees or agents,
except to the extent that such injury, death, damage to or loss
of property or fine or penalty may be caused by or resulting from
negligence on the part of VLI, its employees or agents.
b) VLI shall defend, indemnify and hold harmless Customer, its
directors, officers, employees and agents from and against any
loss, damage, claim, suit, liability, judgment and expense
(including attorneys fees and other costs of litigation) arising
out of injury, disease or death of any persons, damage to or loss
of any property or fines or penalties caused by or resulting from
negligence of VLI, its employees or agents, in the performance of
this Agreement, except to the extent that such injury, death,
damage to or loss of property may be caused by or resulting from
negligence on the part of Customer, its employees or agents.
c) VLI or Customer, as soon as practicable after receiving notice of
any suit brought against it within this indemnity, will furnish
to the other party full particulars and shall render all
reasonable assistance requested by the other party in the
defense.
XI. COMPLIANCE WITH LAWS AND REGULATIONS. Both parties agree to comply
fully in the performance of this Agreement with all applicable
federal, state and local governmental laws, regulations and rules (the
"Regulations"). Each party further agrees to defend, indemnify and
hold harmless the other from and against any loss, damage, claim,
suit, liability, judgment, fines, penalties, and expenses (including
attorneys fees and other costs of litigation) arising out of a
violation by such party of the Regulations, except to the extent such
fine, charge or assessment is caused by the other party.
XII. GENERAL FUELS ENVIRONMENTAL REQUIREMENTS. Both parties shall comply
with all environmental requirements applicable to fuels, whether
imposed by federal, state, or local governments. This obligation
includes, but is not limited to, the requirements described in this
section.
a) REID VAPOR PRESSURE (RVP) REQUIREMENTS. Both parties shall
cooperate on reasonable basis with each other in order to comply
with all regulatory requirements established for each RVP season
or specified by Customer, as applicable, for the RVP season. This
includes that both parties shall make available the appropriate
RVP Product for the appropriate RVP destination. The p.s.i.
requirement for RVP for particular Product may be revised by the
government in the future and both parties shall keep current with
4
such requirements. If the Terminal is located in or within 150
miles of a low RVP area, VLI shall prominently display maps
showing the high and low RVP areas.
b) DIESEL FUEL REQUIREMENTS. Both parties shall comply with all
high/low sulfur diesel fuel requirements, including, but not
limited to, the obligation to prevent contamination or other
mixing of low sulfur diesel Product with high sulfur diesel
Product and the appropriate marking of the dispensing arms by VLI
at its Terminal as to which arms contain low sulfur and high
sulfur diesel Product. Both parties shall also comply with the
appropriate transfer documentation requirements, including, that
the bills of lading, or other PTD (Product Transfer Document),
shall include all of the information required by law or
regulation to be provided to the recipient and include the
warning that high sulfur diesel is for off-highway usage only.
c) PTD REQUIREMENTS. Both parties shall comply with the PTD
requirements for Conventional Gasoline for all non-RFG or RBOB
gasoline (as required by federal law). Both parties shall also
place enough information on the PTD so that the recipient (a
carrier or other representative of each party) has all of the
information required by law or regulation for it to comply with
PTD requirements.
d) RFG REQUIREMENTS. Both parties shall comply with all regulatory
requirements established for Reformulated Gasoline (RFG), if
applicable.
e) OVERSIGHT PROGRAM REQUIRED FOR ALL FUELS PROGRAMS. Both parties
shall establish an oversight program in compliance with federal
regulations so that in its distributor and/or ethanol or
oxygenate blender capacity under federal fuels regulations, each
is able to satisfy an affirmative defense to presumptive
liability under the RVP program, the low/high sulfur diesel fuel
program, the dye concentration program (for tax exempt
distillate) and/or the reformulated gasoline program for the
shipments that both parties make for each other or its customers
which are subject to such programs. Both parties shall conduct
periodic sampling and testing of sulfur and dye concentration if
they handle diesel fuel. The program shall include periodic
review of PTD's to ensure they and the shipments they represent
are in compliance with all applicable laws and regulations and
shipped to the appropriate areas. Both parties shall provide each
other with copies of its oversight program and sampling results
and both parties shall also immediately notify each other as to
any sampling results or other information it may have, which
would indicate a violation or suspected violation of any law or
regulation. Customer or its subsidiaries shall be able to utilize
any of the information obtained from this program as if it were
Customer's own information. Should VLI handle different levels of
RVP Product during the summer RVP season, VLI shall have a
5
customer access system whereby Customer, obtaining Product for
any destination within a low RVP area, shall be locked out from
access from high RVP Product.
XIII.HOURS OF OPERATION. The Terminal will be accessible at any time to
persons properly authorized by VLI to operate the motorized entrance
gate and the automated metering system.
XIV. PERIOD OF AGREEMENT. This Agreement shall become effective and shall
remain in force for five year(s) commencing on March 18, 2003. Unless
cancelled at the end of the initial term by 30 days prior notice from
either party, this Agreement will continue thereafter on a
year-to-year basis until cancelled at the end of a renewal period by
30 days prior notice from either party.
XV. TAXES. Customer shall pay any and all license fees and excise taxes on
Customer's Product received and stored hereunder and on the storage,
handling, loading, and unloading thereof, which VLI may be required to
pay under any applicable federal, state, county, or municipal law,
ordinances, or regulations now in effect or hereafter enacted.
Customer shall be responsible for, and in its name shall effect
compliance with all governmental tax requirements with respect to
Customer's Product. VLI will pay, or cause to be paid, and shall
indemnify and defend Customer and Customer's affiliates from and
against, all taxes and assessments lawfully levied and imposed with
respect to its ownership and/or operation of the Terminal.
XVI. FORCE MAJEURE. Except as otherwise specifically provided in any part
of this Agreement, the failure or omission by either party to carry
out or observe any of the terms or provisions of this Agreement shall
not give rise to any claim by one party against another, if such
failure or omission shall arise or result from or be caused by any
event or condition caused by or resulting from acts of God, strikes,
lockouts or other industrial disturbances, acts of the public enemy,
wars, blockades, insurrections, riots, storms, floods, washouts,
arrests, the order of any court or governmental authority having
jurisdiction while the same is in force and effect, civil
disturbances, explosions, breakage, accident to machinery, storage
tanks or lines of pipe, inability to obtain or unavoidable delay in
obtaining material, equipment, right of way easements, franchises, or
permits, and any other causes whether of the kind herein enumerated or
otherwise, but in each case not reasonably within the control of the
party claiming suspension and which by the exercise of due diligence
such party is unable to prevent or overcome.
XVII.NOTICES. All notices, requests, demands, and other communications
pertaining to this Agreement shall be delivered personally, or by
registered or certified mail (postage prepaid and return receipt
requested), or by express carrier or delivery service, or by telecopy,
to the parties hereto at the addresses below (or at such other
addresses as shall be specified by notice under this Section XVII):
6
if to Customer:
Valero Marketing and Supply Company
One Valero Place
San Antonio, Texas 78212
Attn: Mr. Bill Klesse
Telecopy: 210-370-2660
if to VLI:
Valero Logistics Operations, L.P.
6000 North Loop 1604 West
San Antonio, Texas 78249
Attn: Mr. Curt Anastasio
Telecopy: 210-370-2304
XVIII. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of, and
shall be binding upon, Customer and VLI and their respective successors and
permitted assigns; provided however, that this Agreement and the
obligations of the parties hereunder shall not be assignable by any party
hereto, by operation of law or otherwise, without the express prior written
consent of the other party, except that either party may assign this
Agreement without such consent, including the performance thereof, in whole
or in part, to an affiliate or wholly owned subsidiary or to a successor as
a result of a merger, consolidation or sale or transfer of all or
substantially all of the applicable party's assets. The parties hereto
agree to require their respective successors, if any, to expressly assume,
in a form of agreement acceptable to the other parties, the obligations
under this Agreement.
XIX. SEVERABILITY. If any provision of this Agreement shall be held invalid or
unenforceable by a court or regulatory body of competent jurisdiction, the
remainder of this Agreement shall remain in full force and effect.
XX. NO CONSEQUENTIAL DAMAGES; IMPLIED WARRANTIES. NEITHER CUSTOMER NOR VLI
SHALL BE LIABLE TO THE OTHER FOR SPECIAL, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) UNDER THIS AGREEMENT, NO
MATTER HOW SUCH DAMAGES MAY HAVE OCCURRED OR BEEN CAUSED, INCLUDING WHETHER
OR NOT SUCH DAMAGES ARE THE RESULT OF THE NEGLIGENCE OF (BUT NOT THE
INTENTIONAL MISCONDUCT OF) EITHER CUSTOMER OR VLI OR ANY OF THEIR
RESPECTIVE AFFILIATES. EXCEPT AS EXPRESSLY SET FORTH HEREIN, THERE ARE NO
GUARANTEES OR WARRANTIES OR REPRESENTATIONS BY EITHER PARTY OF ANY KIND,
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF
MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE, WHETHER ARISING BY
OPERATION OF LAW OR OTHERWISE, WITH RESPECT TO THIS AGREEMENT. TO THE
EXTENT THAT A REMEDY IS SET FORTH IN THIS AGREEMENT FOR A PARTICULAR BREACH
OF THIS AGREEMENT, SUCH REMEDY SHALL BE THE SOLE AND EXCLUSIVE REMEDY FOR
ANY CLAIM FOR DAMAGE OR OTHERWISE ARISING FROM OR RELATED TO SUCH BREACH OF
THIS AGREEMENT. VLI'S LIABILITY WITH RESPECT TO ANY PRODUCTS DELIVERED
HEREUNDER THAT ARE SUBSEQUENTLY LOST OR DAMAGED SHALL BE LIMITED TO THE
THEN CURRENT REPLACEMENT COST AT THE TERMINAL OF SUCH LOST OR DAMAGED
PRODUCT; REGARDLESS OF HOW SUCH LOSS OR DAMAGE MAY HAVE OCCURRED OR BEEN
CAUSED, INCLUDING WHETHER OR NOT SUCH LOSS OR DAMAGE IS THE RESULT OF THE
NEGLIGENCE (BUT NOT THE INTENTIONAL MISCONDUCT OF) VLI.
7
XXI. GOVERNING LAW. This Agreement shall be governed by the laws of the State of
Texas. In the event of litigation concerning this Agreement, proper venue
shall be in San Antonio, Bexar County, State of Texas.
XXII.DEFINITIONS. A "gallon" means a United States standard gallon of 231 cubic
inches at sixty degrees (60(Degree) Fahrenheit). A "barrel" means forty-two
(42) United States standard gallons.
XXIII. DEFAULT. Except as otherwise specifically provided for under the terms of
this Agreement, if either party fails to perform any of the covenants or
obligations imposed on it by this Agreement (the "Defaulting Party"), then
the party to whom the covenant or obligation was due (the "Non-Defaulting
Party") may (without waiving any other remedy for breach hereof), notify in
writing the Defaulting Party, stating specifically the nature of the
default (the "Default Notice"). The Defaulting Party will have 30 days
after receipt of the Default Notice (the "Cure Period") in which to remedy
the cause or causes stated in the Default Notice, or provide adequate
security to fully indemnify the Non-Defaulting Party for any and all
consequences of the breach, or to dispute the claim of breach. If the
Defaulting Party disputes the claim of breach ("Notice of Dispute"), then
the Defaulting Party shall notify the Non-Defaulting Party in writing of
its dispute within ten days after receipt of the Default Notice. If the
Defaulting Party either cures the default or provides adequate security
within the Cure Period or delivers a Notice of Dispute in a timely manner,
then this Agreement shall remain in full force and effect pending
resolution of such dispute with respect to a default addressed by the
Defaulting Party. If the Defaulting Party fails to cure the default, to
provide adequate security, or timely deliver a Notice of Dispute, or the
parties are unable to resolve a dispute addressed in a Notice of Dispute
within 60 days after receipt of the Notice of Dispute, then the
Non-Defaulting Party may terminate this Agreement immediately upon giving
written notice of termination to the Defaulting Party.
XXIV.WAIVER; ENTIRE AGREEMENT. No waiver by any party of any breach of any of
the covenants or conditions herein contained to be performed by another
party shall be construed as a waiver of any succeeding breach of the same
or any other covenant or condition. The entire Agreement is contained
herein and there are no oral understandings, representations or warranties
affecting it. This Agreement may not be terminated or changed except in
writing.
8
XXV. RIGHT TO AUDIT. Customer and its duly authorized representatives shall have
access to the accounting records and other documents maintained by VLI
which relate to services provided to Customer under this Agreement and
Customer shall have the right to audit such records at any reasonable times
during the term hereof and within three years after the termination of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the _____ day
of March, 2003.
VALERO MARKETING AND SUPPLY COMPANY
By: /s/ Michael S. Ciskowski
---------------------------------------------
Name: Michael S. Ciskowski
Title: Senior Vice President
VALERO LOGISTICS OPERATIONS, L.P.
By: Valero GP, Inc., its general partner
By: /s/ Curtis V. Anastasio
------------------------------------------------
Name: Curtis V. Anastasio
Title: Chief Executive Officer and President
Exhibit 10.9
TERMINALLING AGREEMENT
THIS AGREEMENT is made and entered into by and between Valero Logistics
Operations, L.P., a Delaware limited partnership ("VLI"), and Valero Marketing
and Supply Company, a Delaware corporation ("VMSC" or "Customer"), as of the
18th day of March, 2003.
I. FACILITIES. VLI agrees to provide Customer with storage and handling
services for petroleum products (the "Products") at the San Antonio
terminal located in San Antonio, Texas (the "Terminal"). The amount of
storage space provided to the Customer shall be determined by storage
space availability at the Terminal and Customer's Product terminalling
requirements. Customer shall not have exclusive rights to the use of
the Terminal and VLI may enter into terminalling arrangements with
third parties.
II. PRODUCTS. Initially, Products handled will include:
#2 low sulfur diesel fuel
#2 high sulfur diesel fuel
regular and premium grades of motor fuel
and such other Products as VLI and Customer may agree to in writing
from time to time.
III. CHARGES.
(a) Terminal Fees. Customer shall pay a terminal fee of $0.006
per gallon for all Products throughput by or on behalf of
Customer through the Terminal ("Terminal Fee").
Additive Fees. In addition to the Terminal Fee, Customer shall
pay to VLI a $0.0029 per gallon fee for generic gasoline additive
should Customer elect to receive additives in the Product. This
additive fee includes $0.0012 for injection services, $0.0010 for
VAR (volume additive reporting and recordkeeping) and $0.0007 for
the additive. If Customer (or its customers) request a
proprietary additive in lieu of the generic additive and the
Customer (or its customers) purchases the additive directly and
provides it to VLI, the additive fee will be reduced by $0.0007
per gallon.
(b) Monthly Invoice. The Terminal Fee and Additive Fee will be
assessed monthly based on the actual quantity of Customer's
Product delivered into the Terminal by truck, pipeline or vessel
for the prior month.
(c) Payment. Customer shall pay all Fees invoiced hereunder to
such account as directed by VLI from time to time within 10
business days of receipt of invoice from VLI.
IV. PRODUCT QUALITY CONTROL. Product received hereunder shall conform to
all federal, state and local specifications at the time of receipt at
the Terminal. Product delivered by VLI from storage shall conform to
federal, state, and local specifications in effect at the time of
delivery.
V. DELIVERIES NOTICE. Customer shall give VLI at least twenty-four hours
prior notice of the expected arrival of each shipment of Product and
VLI shall in its sole discretion accept or reject each shipment based
on storage space available at the Terminal and the Customer's
projected thruput.
VI. DETERMINATION OF QUANTITIES.
a) The quantity of Product delivered into the Terminal shall be
measured by the applicable Terminal receipt meters. All quantities of
Product delivered into Customer's (or its customers') transport
trucks, railcars, or vessels shall be measured by VLI's loading rack
meters, which shall be calibrated as required by law and which shall,
if requested by Customer, be calibrated by an independent licensed
inspector, satisfactory to Customer (the costs of any independent
inspector shall be borne by Customer unless the meters are determined
to be inaccurate by more than 0.25% of volume, in which case the costs
shall be shared on a 50/50 basis between VLI and Customer). All
quantities shall be adjusted in volume to sixty degrees (60(Degree)
Fahrenheit) in accordance with the applicable parts of the latest
revision of the ASTMIP Petroleum Measurement Tables (American
Edition).
b) VLI shall keep accurate records of the receipt, storage and
delivery of Product hereunder and shall account for Product at such
time and in such manner as shall be reasonably requested by Customer.
VII. CUSTODY AND RESPONSIBILITY.
a) Product stored for the Customer may be commingled at the Terminal
with the fungible Product received by VLI from other customers.
b) At the time Customer's Product passes the outlet flange of the
receipt meter connection between the pipeline and/or delivering truck
or railcar and the Terminal's receiving line, the Customer shall be
deemed to have delivered custody of the Product to VLI for storage. At
the time Customer's Product passes the outlet flange of the delivery
meter on the pipeline, truck, railcar or other vessel into which
delivery of Customer's Product has been scheduled, VLI shall be deemed
to have delivered custody of the Product to Customer.
2
c) VLI's obligation to Customer with respect to Product stored
hereunder shall be to deliver to Customer, upon Customer's request,
and in accordance with the terms of this Agreement, a quantity of
Product meeting the applicable specifications (as described in Section
IV of this Agreement), no greater than the quantity of Product
originally delivered by Customer to VLI for storage.
d) Customer shall be responsible for losses of Product caused or
occasioned by Customer's negligence or the negligence of Customer's
agents, servants, or employees. VLI shall be responsible for all other
losses of Customer's Product while in VLI's care, custody and control;
provided that VLI shall not be responsible for actual measured losses
in volume of Product which are less than one-quarter of one percent
(0.25%) of receipts during the period for which accounting is made,
provided such lost volume cannot be identified somewhere else in the
Terminal or pipeline system, such as a transfer to another tank in the
Terminal, as remaining in a pipeline, etc. Such lost volume which
cannot be identified shall be deducted from any claims for losses.
e) Insurance on Products, if any be desired by Customer, shall be
carried by Customer at its own expense and for the benefit of
Customer. VLI agrees that during the terms of this Agreement it shall
maintain property and casualty insurance (including pollution
insurance coverage) on the Terminal in accordance with customary
terminal industry practices and with a licensed, reputable carrier.
Customer acknowledges that initially such insurance may be maintained
under an umbrella policy of Valero Energy Corporation with VLI as a
named insured (and for which VLI shall reimburse Valero Energy
Corporation for its proportionate cost), but VLI agrees that it will
endeavor in good faith to obtain insurance in its own name if
commercially and economically practicable.
VIII.GENERIC ADDITIVE. VLI and Customer agree that VLI shall provide an
additive for use by Customer and Customer's customers who do not
require a proprietary additive for all refined products, other than
distillates and asphalt products. The additive shall be properly
registered with the EPA. VLI shall determine a treat rate consistent
with the additive manufacturer's specifications. VLI shall place
sufficient additive into the Product delivered to Customer so as to
comply with the EPA regulations, as such regulations may be modified,
replaced or introduced from time to time.
IX. TANK TRUCK LOADING. For tank truck loading, each carrier shall execute
VLI's form Terminal Access Agreement, which will include (i) VLI's
insurance requirements, (ii) methods for approval of drivers for
loading and (iii) requirements for compliance with various
governmental regulations.
X. INDEMNIFICATION. To the fullest extent permitted by law and except as
specified otherwise elsewhere in the Agreement:
3
a) Customer shall defend, indemnify and hold harmless VLI, its
directors, officers, employees and agents from and against any loss,
damage, claim, suit liability, judgment and expense (including
attorneys fees and other costs of litigation) arising out of injury,
disease or death of any persons, damage to or loss of any property, or
fines or penalties to the extent caused by or resulting from
negligence of Customer, its employees or agents, in the exercise of
any of the rights granted hereunder or in the operations, loading or
unloading of any motor vehicle, vessel or rail car owned or hired by
Customer, its employees or agents, except to the extent that such
injury, death, damage to or loss of property or fine or penalty may be
caused by or resulting from negligence on the part of VLI, its
employees or agents.
b) VLI shall defend, indemnify and hold harmless Customer, its
directors, officers, employees and agents from and against any loss,
damage, claim, suit, liability, judgment and expense (including
attorneys fees and other costs of litigation) arising out of injury,
disease or death of any persons, damage to or loss of any property or
fines or penalties caused by or resulting from negligence of VLI, its
employees or agents, in the performance of this Agreement, except to
the extent that such injury, death, damage to or loss of property may
be caused by or resulting from negligence on the part of Customer, its
employees or agents.
c) VLI or Customer, as soon as practicable after receiving notice of
any suit brought against it within this indemnity, will furnish to the
other party full particulars and shall render all reasonable
assistance requested by the other party in the defense.
XI. COMPLIANCE WITH LAWS AND REGULATIONS. Both parties agree to comply
fully in the performance of this Agreement with all applicable
federal, state and local governmental laws, regulations and rules (the
"Regulations"). Each party further agrees to defend, indemnify and
hold harmless the other from and against any loss, damage, claim,
suit, liability, judgment, fines, penalties, and expenses (including
attorneys fees and other costs of litigation) arising out of a
violation by such party of the Regulations, except to the extent such
fine, charge or assessment is caused by the other party.
XII. GENERAL FUELS ENVIRONMENTAL REQUIREMENTS. Both parties shall comply
with all environmental requirements applicable to fuels, whether
imposed by federal, state, or local governments. This obligation
includes, but is not limited to, the requirements described in this
section.
4
a) REID VAPOR PRESSURE (RVP) REQUIREMENTS. Both parties shall
cooperate on reasonable basis with each other in order to comply with
all regulatory requirements established for each RVP season or
specified by Customer, as applicable, for the RVP season. This
includes that both parties shall make available the appropriate RVP
Product for the appropriate RVP destination. The p.s.i. requirement
for RVP for particular Product may be revised by the government in the
future and both parties shall keep current with such requirements. If
the Terminal is located in or within 150 miles of a low RVP area, VLI
shall prominently display maps showing the high and low RVP areas.
b) DIESEL FUEL REQUIREMENTS. Both parties shall comply with all
high/low sulfur diesel fuel requirements, including, but not limited
to, the obligation to prevent contamination or other mixing of low
sulfur diesel Product with high sulfur diesel Product and the
appropriate marking of the dispensing arms by VLI at its Terminal as
to which arms contain low sulfur and high sulfur diesel Product. Both
parties shall also comply with the appropriate transfer documentation
requirements, including, that the bills of lading, or other PTD
(Product Transfer Document), shall include all of the information
required by law or regulation to be provided to the recipient and
include the warning that high sulfur diesel is for off-highway usage
only.
c) PTD REQUIREMENTS. Both parties shall comply with the PTD
requirements for Conventional Gasoline for all non-RFG or RBOB
gasoline (as required by federal law). Both parties shall also place
enough information on the PTD so that the recipient (a carrier or
other representative of each party) has all of the information
required by law or regulation for it to comply with PTD requirements.
d) RFG REQUIREMENTS. Both parties shall comply with all regulatory
requirements established for Reformulated Gasoline (RFG), if
applicable.
e) OVERSIGHT PROGRAM REQUIRED FOR ALL FUELS PROGRAMS. Both parties
shall establish an oversight program in compliance with federal
regulations so that in its distributor and/or ethanol or oxygenate
blender capacity under federal fuels regulations, each is able to
satisfy an affirmative defense to presumptive liability under the RVP
program, the low/high sulfur diesel fuel program, the dye
concentration program (for tax exempt distillate) and/or the
reformulated gasoline program for the shipments that both parties make
for each other or its customers which are subject to such programs.
Both parties shall conduct periodic sampling and testing of sulfur and
dye concentration if they handle diesel fuel. The program shall
include periodic review of PTD's to ensure they and the shipments they
represent are in compliance with all applicable laws and regulations
and shipped to the appropriate areas. Both parties shall provide each
other with copies of its oversight program and sampling results and
both parties shall also immediately notify each other as to any
sampling results or other information it may have, which would
indicate a violation or suspected violation of any law or regulation.
Customer or its subsidiaries shall be able to utilize any of the
information obtained from this program as if it were Customer's own
information. Should VLI handle different levels of RVP Product during
the summer RVP season, VLI shall have a customer access system whereby
Customer, obtaining Product for any destination within a low RVP area,
shall be locked out from access from high RVP Product.
5
XIII.HOURS OF OPERATION. The Terminal will be accessible at any time to
persons properly authorized by VLI to operate the motorized entrance
gate and the automated metering system.
XIV. PERIOD OF AGREEMENT. This Agreement shall become effective and shall
remain in force for five year(s) commencing on March 18, 2003. Unless
cancelled at the end of the initial term by 30 days prior notice from
either party, this Agreement will continue thereafter on a
year-to-year basis until cancelled at the end of a renewal period by
30 days prior notice from either party.
XV. TAXES. Customer shall pay any and all license fees and excise taxes on
Customer's Product received and stored hereunder and on the storage,
handling, loading, and unloading thereof, which VLI may be required to
pay under any applicable federal, state, county, or municipal law,
ordinances, or regulations now in effect or hereafter enacted.
Customer shall be responsible for, and in its name shall effect
compliance with all governmental tax requirements with respect to
Customer's Product. VLI will pay, or cause to be paid, and shall
indemnify and defend Customer and Customer's affiliates from and
against, all taxes and assessments lawfully levied and imposed with
respect to its ownership and/or operation of the Terminal.
XVI. FORCE MAJEURE. Except as otherwise specifically provided in any part
of this Agreement, the failure or omission by either party to carry
out or observe any of the terms or provisions of this Agreement shall
not give rise to any claim by one party against another, if such
failure or omission shall arise or result from or be caused by any
event or condition caused by or resulting from acts of God, strikes,
lockouts or other industrial disturbances, acts of the public enemy,
wars, blockades, insurrections, riots, storms, floods, washouts,
arrests, the order of any court or governmental authority having
jurisdiction while the same is in force and effect, civil
disturbances, explosions, breakage, accident to machinery, storage
tanks or lines of pipe, inability to obtain or unavoidable delay in
obtaining material, equipment, right of way easements, franchises, or
permits, and any other causes whether of the kind herein enumerated or
otherwise, but in each case not reasonably within the control of the
party claiming suspension and which by the exercise of due diligence
such party is unable to prevent or overcome.
XVII.NOTICES. All notices, requests, demands, and other communications
pertaining to this Agreement shall be delivered personally, or by
registered or certified mail (postage prepaid and return receipt
requested), or by express carrier or delivery service, or by telecopy,
to the parties hereto at the addresses below (or at such other
addresses as shall be specified by notice under this Section XVII):
6
if to Customer:
Valero Marketing and Supply Company
One Valero Place
San Antonio, Texas 78212
Attn: Mr. Bill Klesse
Telecopy: 210-370-2660
if to VLI:
Valero Logistics Operations, L.P.
6000 North Loop 1604 West
San Antonio, Texas 78249
Attn: Mr. Curt Anastasio
Telecopy: 210-370-2304
XVIII. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of, and shall be binding upon, Customer and VLI and their respective
successors and permitted assigns; provided however, that this
Agreement and the obligations of the parties hereunder shall not be
assignable by any party hereto, by operation of law or otherwise,
without the express prior written consent of the other party, except
that either party may assign this Agreement without such consent,
including the performance thereof, in whole or in part, to an
affiliate or wholly owned subsidiary or to a successor as a result of
a merger, consolidation or sale or transfer of all or substantially
all of the applicable party's assets. The parties hereto agree to
require their respective successors, if any, to expressly assume, in a
form of agreement acceptable to the other parties, the obligations
under this Agreement.
XIX. SEVERABILITY. If any provision of this Agreement shall be held invalid
or unenforceable by a court or regulatory body of competent
jurisdiction, the remainder of this Agreement shall remain in full
force and effect.
XX. NO CONSEQUENTIAL DAMAGES; IMPLIED WARRANTIES. NEITHER CUSTOMER NOR VLI
SHALL BE LIABLE TO THE OTHER FOR PECIAL, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) UNDER THIS AGREEMENT,
NO MATTER HOW SUCH DAMAGES MAY HAVE OCCURRED OR BEEN CAUSED, INCLUDING
WHETHER OR NOT SUCH DAMAGES ARE THE RESULT OF THE NEGLIGENCE OF (BUT
NOT THE INTENTIONAL MISCONDUCT OF) EITHER CUSTOMER OR VLI OR ANY OF
THEIR RESPECTIVE AFFILIATES. EXCEPT AS EXPRESSLY SET FORTH HEREIN,
THERE ARE NO GUARANTEES OR WARRANTIES OR REPRESENTATIONS BY EITHER
PARTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTIES OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE,
WHETHER ARISING BY OPERATION OF LAW OR OTHERWISE, WITH RESPECT TO THIS
AGREEMENT. TO THE EXTENT THAT A REMEDY IS SET FORTH IN THIS AGREEMENT
FOR A PARTICULAR BREACH OF THIS AGREEMENT, SUCH REMEDY SHALL BE THE
SOLE AND EXCLUSIVE REMEDY FOR ANY CLAIM FOR DAMAGE OR OTHERWISE
ARISING FROM OR RELATED TO SUCH BREACH OF THIS AGREEMENT.
7
VLI'S LIABILITY WITH RESPECT TO ANY PRODUCTS DELIVERED HEREUNDER THAT
ARE SUBSEQUENTLY LOST OR DAMAGED SHALL BE LIMITED TO THE THEN CURRENT
REPLACEMENT COST AT THE TERMINAL OF SUCH LOST OR DAMAGED PRODUCT;
REGARDLESS OF HOW SUCH LOSS OR DAMAGE MAY HAVE OCCURRED OR BEEN
CAUSED, INCLUDING WHETHER OR NOT SUCH LOSS OR DAMAGE IS THE RESULT OF
THE NEGLIGENCE (BUT NOT THE INTENTIONAL MISCONDUCT OF) VLI.
XXI. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas. In the event of litigation concerning this Agreement,
proper venue shall be in San Antonio, Bexar County, State of Texas.
XXII.DEFINITIONS. A "gallon" means a United States standard gallon of 231
cubic inches at sixty degrees (60(Degree) Fahrenheit). A "barrel"
means forty-two (42) United States standard gallons.
XXIII. DEFAULT. Except as otherwise specifically provided for under the
terms of this Agreement, if either party fails to perform any of the
covenants or obligations imposed on it by this Agreement (the
"Defaulting Party"), then the party to whom the covenant or obligation
was due (the "Non-Defaulting Party") may (without waiving any other
remedy for breach hereof), notify in writing the Defaulting Party,
stating specifically the nature of the default (the "Default Notice").
The Defaulting Party will have 30 days after receipt of the Default
Notice (the "Cure Period") in which to remedy the cause or causes
stated in the Default Notice, or provide adequate security to fully
indemnify the Non-Defaulting Party for any and all consequences of the
breach, or to dispute the claim of breach. If the Defaulting Party
disputes the claim of breach ("Notice of Dispute"), then the
Defaulting Party shall notify the Non-Defaulting Party in writing of
its dispute within ten days after receipt of the Default Notice. If
the Defaulting Party either cures the default or provides adequate
security within the Cure Period or delivers a Notice of Dispute in a
timely manner, then this Agreement shall remain in full force and
effect pending resolution of such dispute with respect to a default
addressed by the Defaulting Party. If the Defaulting Party fails to
cure the default, to provide adequate security, or timely deliver a
Notice of Dispute, or the parties are unable to resolve a dispute
addressed in a Notice of Dispute within 60 days after receipt of the
Notice of Dispute, then the Non-Defaulting Party may terminate this
Agreement immediately upon giving written notice of termination to the
Defaulting Party.
8
XXIV.WAIVER; ENTIRE AGREEMENT. No waiver by any party of any breach of any
of the covenants or conditions herein contained to be performed by
another party shall be construed as a waiver of any succeeding breach
of the same or any other covenant or condition. The entire Agreement
is contained herein and there are no oral understandings,
representations or warranties affecting it. This Agreement may not be
terminated or changed except in writing.
XXV. RIGHT TO AUDIT. Customer and its duly authorized representatives shall
have access to the accounting records and other documents maintained
by VLI which relate to services provided to Customer under this
Agreement and Customer shall have the right to audit such records at
any reasonable times during the term hereof and within three years
after the termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the 18th day of March, 2003.
VALERO MARKETING AND SUPPLY COMPANY
By: /s/ Michael S. Ciskowski
-----------------------------------------
Name: Michael S. Ciskowski
Title: Senior Vice President
VALERO LOGISTICS OPERATIONS, L.P.
By: Valero GP, Inc., its general partner
By: /s/ Curtis V. Anastasio
-----------------------------------------
Name: Curtis V. Anastasio
Title: Chief Executive Officer and President
9
Exhibit 10.10
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT dated March 18, 2003 (the "Agreement")
is entered into by and among Valero Logistics Operations, L.P., a Delaware
limited partnership (the "OLP"), Valero L.P., a Delaware limited partnership
(the "Guarantor"), and J.P. Morgan Securities Inc., Barclays Capital Inc.,
Mizuho International plc, RBC Dominion Securities Corporation, Scotia Capital
(USA) Inc., Sun Trust Capital Markets, Tokyo-Mitsubishi International plc (the
"Initial Purchasers").
The OLP, the Guarantor and the Initial Purchasers are parties to the
Purchase Agreement dated March 12, 2003 (the "Purchase Agreement"), which
provides for the sale by the OLP to the Initial Purchasers of $250,000,000
aggregate principal amount of the OLP's 6.05% Senior Notes due 2013 (the
"Securities") which will be guaranteed on a senior unsecured basis by the
Guarantor. As an inducement to the Initial Purchasers to enter into the Purchase
Agreement, the OLP and the Guarantor have agreed to provide to the Initial
Purchasers and their direct and indirect transferees the registration rights set
forth in this Agreement. The execution and delivery of this Agreement is a
condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following respective meanings:
"Business Day" shall mean any day that is not a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to remain closed.
"Closing Date" shall mean the Closing Date as defined in the Purchase
Agreement.
"Consummated" shall mean, for purposes of this Agreement and the Exchange
Offer, the delivery by the OLP to the registrar under the Indenture of Exchange
Securities in the same aggregate principal amount as the aggregate principal
amount of Registrable Securities that were tendered by Holders thereof pursuant
to the Exchange Offer.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Exchange Offer" shall mean the exchange offer by the OLP and the Guarantor
of Exchange Securities for Registrable Securities pursuant to Section 2(a)
hereof.
"Exchange Offer Registration" shall mean a registration under the
Securities Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another appropriate
form) and all amendments and supplements to such registration statement, in each
case including the Prospectus contained therein, all exhibits thereto and any
document incorporated by reference therein.
"Exchange Securities" shall mean senior notes issued by the OLP and
guaranteed by the Guarantor under the Indenture containing terms identical to
the Securities (except that the Exchange Securities will not be subject to
restrictions on transfer or to any increase in annual interest rate for failure
to comply with this Agreement) and to be offered to Holders of Securities in
exchange for Securities pursuant to the Exchange Offer.
"Guarantor" shall have the meaning set forth in the preamble to this
Agreement and shall also include the Guarantor's successors.
"Holders" shall mean the Initial Purchasers, for so long as they own any
Registrable Securities, and each of their successors, assigns and direct and
indirect transferees who acquire Registrable Securities from time to time;
provided that for purposes of Sections 6 and 8 of this Agreement, the term
"Holders" shall include Participating Broker-Dealers.
"Initial Purchasers" shall have the meaning set forth in the preamble to
this Agreement.
"Indenture" shall mean the Indenture relating to the Securities dated as of
July 15, 2002 among the OLP, the Guarantor and The Bank of New York, as trustee,
as the same may be amended from time to time in accordance with the terms
thereof, including but not limited to the amendments effected thereto by the
First Supplemental Indenture dated as of July 15, 2002 and the Second
Supplemental Indenture dated as of March __, 2003, in each case among the OLP,
the Guarantor and The Bank of New York, as trustee.
"Majority Holders" shall mean the Holders of a majority of the aggregate
principal amount of outstanding Registrable Securities; provided that whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities owned directly or
indirectly by the OLP or any of its affiliates (as such term is defined in Rule
405 under the 1933 Act) (other than the Initial Purchasers or subsequent Holders
of Registrable Securities if such subsequent holders are deemed to be such
affiliates solely by reason of their holding of such Registrable Securities)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage or amount.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Offer Period" shall have the meaning set forth in Section 2(a)(ii) hereof.
"OLP" shall have the meaning set forth in the preamble to this Agreement
and shall also include the OLP's successors.
2
"Participating Broker-Dealers" shall have the meaning set forth in Section
7 hereof.
"Person" shall mean an individual, partnership, limited liability company,
corporation, trust or unincorporated organization, or a government or agency or
political subdivision thereof.
"Purchase Agreement" shall have the meaning set forth in the preamble to
this Agreement.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to such prospectus, and in each case including
any document incorporated by reference therein.
"Registrable Securities" shall mean the Securities; provided that the
Securities shall cease to be Registrable Securities (i) when a Registration
Statement with respect to such Securities has been declared effective under the
Securities Act and such Securities have been exchanged or disposed of pursuant
to such Registration Statement, (ii) when such Securities are eligible to be
sold pursuant to Rule 144(k) (or any similar provision then in force, but not
Rule 144A) under the Securities Act or (iii) when such Securities cease to be
outstanding.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the OLP and the Guarantor with this Agreement,
including without limitation: (i) all SEC, stock exchange or NASD registration
and filing fees, (ii) all fees and expenses incurred in connection with
compliance with state securities or blue sky laws (including reasonable fees and
disbursements of counsel for any Underwriters or Holders in connection with blue
sky qualification of any Exchange Securities or Registrable Securities), (iii)
all expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any Prospectus
and any amendments or supplements thereto, any underwriting agreements,
securities sales agreements or other similar agreements and any other documents
relating to the performance of and compliance with this Agreement, (iv) all
rating agency fees, (v) all fees and disbursements relating to the qualification
of the Indenture under applicable securities laws, (vi) the fees and
disbursements of the Trustee and its counsel, (vii) the fees and disbursements
of counsel for the OLP and the Guarantor and, in the case of a Shelf
Registration Statement, the fees and disbursements of one counsel for the
Holders (which counsel shall be selected by the Majority Holders and which
counsel may also be counsel for the Initial Purchasers) and (viii) the fees and
disbursements of the independent public accountants of the OLP and the
Guarantor, including the expenses of any special audits or "comfort" letters
required by or incident to the performance of and compliance with this
Agreement, but excluding fees and expenses of counsel to the Underwriters (other
than fees and expenses set forth in clause (ii) above) or the Holders and
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of Registrable Securities by a Holder.
3
"Registration Statement" shall mean any registration statement of the OLP
and the Guarantor that covers any of the Exchange Securities or Registrable
Securities pursuant to the provisions of this Agreement and all amendments and
supplements to any such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and any document incorporated by reference therein.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities" shall have the meaning set forth in the preamble to this
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Shelf Registration" shall mean a registration effected pursuant to Section
2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration statement
of the OLP and the Guarantor that covers all the Registrable Securities (but no
other securities unless approved by the Holders whose Registrable Securities are
to be covered by such Shelf Registration Statement) on an appropriate form under
Rule 415 under the Securities Act, or any similar rule that may be adopted by
the SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and any document incorporated by
reference therein.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as
amended from time to time.
"Trustee" shall mean the trustee with respect to the Securities under the
Indenture.
"Underwriter" shall have the meaning set forth in Section 5 hereof.
"Underwritten Offering" shall mean an offering in which Registrable
Securities are sold to an Underwriter for reoffering to the public.
2. Registration Under the Securities Act.
(a) Registered Exchange Offer. Except as set forth in Section 2(b), the OLP
and the Guarantor agree to file under the Securities Act, as soon as practicable
but in no event later than 90 days after the Closing Date, an Exchange Offer
Registration Statement covering an offer to the Holders to exchange all the
Registrable Securities for Exchange Securities. The OLP and the Guarantor agree
to use their best efforts to cause the Exchange Offer Registration Statement to
be declared effective by the SEC under the Securities Act as soon as
practicable, but no later than 180 days after the Closing Date. The OLP and the
4
Guarantor further agree to use their best efforts to cause the Exchange Offer to
be Consummated promptly, but no later than 210 days after the Closing Date, hold
the Exchange Offer open for at least 20 Business Days and exchange Exchange
Securities for all Registrable Securities that have been properly tendered and
not withdrawn on or prior to the expiration of the Exchange Offer.
The OLP and the Guarantor shall commence the Exchange Offer by mailing the
related Prospectus, appropriate letters of transmittal and other accompanying
documents to each Holder stating, in addition to such other disclosures as are
required by applicable law:
(i) that the Exchange Offer is being made pursuant to this Agreement and that
all Registrable Securities validly tendered and not properly withdrawn will
be accepted for exchange;
(ii) the period for which the Exchange Offer will be held open (which shall be a
period of at least than 20 Business Days from the date such notice is
mailed) (the "Offer Period");
(iii)that any Registrable Security not tendered will remain outstanding and
continue to accrue interest but will not retain any rights under this
Agreement;
(iv) that any Holder electing to have a Registrable Security exchanged pursuant
to the Exchange Offer will be required to surrender such Registrable
Security, together with the appropriate letters of transmittal, to the
institution and at the address (located in the Borough of Manhattan, The
City of New York) and in the manner specified in the notice, prior to the
close of business on the last Business Day of the Offer Period; and
(v) that any Holder will be entitled to withdraw its election, not later than
the close of business on the last Business Day of the Offer Period, by
sending to the institution and at the address (located in the Borough of
Manhattan, The City of New York) specified in the notice, a telegram,
telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable Securities delivered for
exchange and a statement that such Holder is withdrawing its election to
have such Securities exchanged.
As a condition to participating in the Exchange Offer, a Holder will be
required to represent to the OLP and the Guarantor that (i) any Exchange
Securities to be received by it will be acquired in the ordinary course of its
business, (ii) at the time of the commencement of the Exchange Offer it has no
arrangement or understanding with any Person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Securities in
violation of the provisions of the Securities Act, (iii) it is not an
"affiliate" (within the meaning of Rule 405 under Securities Act) of the OLP or
the Guarantor, (iv) if such Holder is a broker-dealer that will receive Exchange
5
Securities for its own account in exchange for Registrable Securities that were
acquired as a result of market-making or other trading activities, then such
Holder will deliver a Prospectus in connection with any resale of such Exchange
Securities and (v) it is not acting on behalf of any person who could not truly
make the representations set forth in clauses (i) through (iv) of this
paragraph.
As soon as practicable after the Offer Period, the OLP and the
Guarantor shall:
(i) accept for exchange Registrable Securities or portions thereof validly
tendered and not properly withdrawn pursuant to the Exchange Offer;
and
(ii) deliver, or cause to be delivered, to the Trustee for cancellation all
Registrable Securities or portions thereof so accepted for exchange by
the OLP and issue, and cause the Trustee to promptly authenticate and
deliver to each Holder, Exchange Securities equal in principal amount
to the principal amount of the Registrable Securities surrendered by
such Holder.
The OLP and the Guarantor shall use their best efforts to Consummate the
Exchange Offer as provided above and shall comply with the applicable
requirements of the Securities Act, the Exchange Act and all other applicable
laws and regulations in connection with the Exchange Offer. The Exchange Offer
shall not be subject to any conditions, other than that the Exchange Offer does
not violate any applicable law or applicable interpretations of the Staff of the
SEC.
(b) Shelf Registration. In the event that (i) on or prior to the time the
Exchange Offer is Consummated, the OLP or the Guarantor determines that existing
SEC interpretations are changed such that the Exchange Securities received by
Holders in the Exchange Offer are not or would not be, upon receipt,
transferable by each such Holder without restriction under the Securities Act,
(ii) the Exchange Offer has not been Consummated within 210 days following the
Closing Date, (iii) the Exchange Offer has been Consummated and in the opinion
of counsel for the Initial Purchasers a Registration Statement must be filed and
a Prospectus must be delivered by the Initial Purchasers in connection with any
offering or sale of Registrable Securities (other than Registrable Securities
held by Holders described in Section 7), or (iv) any applicable law or
interpretations do not permit any Holder to Participate in the Exchange Offer,
the OLP and the Guarantor shall, in lieu of (or, in the case of clause (iii) of
this sentence, in addition to) conducting the Exchange Offer contemplated by
Section 2(a), file as soon as practicable after such determination, date or
notice of such opinion of counsel is given to the OLP and the Guarantor, as the
case may be, but no later than 45 days after the time such obligation to file
arises, a Shelf Registration Statement providing for the sale of all the
Registrable Securities by the Holders thereof and use their best efforts to have
such Shelf Registration Statement declared effective by the SEC under the
Securities Act no later than 90 days after such Shelf Registration Statement is
filed and to keep such Shelf Registration Statement continuously effective until
the expiration of the period referred to in Rule 144(k) under the Securities Act
with respect to the Registrable Securities or such shorter period that will
terminate when all the Registrable Securities covered by such Shelf Registration
Statement have been sold pursuant to such Shelf Registration Statement, cease to
6
be outstanding or cease to be Registrable Securities. The OLP and the Guarantor
further agree to supplement or amend the Shelf Registration Statement and the
related Prospectus if required by the rules, regulations or instructions
applicable to the registration form used by the OLP for such Shelf Registration
Statement or by the Securities Act or by any other rules and regulations
thereunder for shelf registration or if reasonably requested by a Holder with
respect to information relating to such Holder, to take any action reasonably
necessary to enable such Holder to use the Prospectus forming a part thereof for
resales of Registrable Securities, including, without limitation, any action
necessary to identify such Holder as a selling securityholder in the Shelf
Registration Statement, and to use their best efforts to cause any such
amendment to be declared effective by the SEC under the Securities Act and such
Shelf Registration Statement and Prospectus to become usable as soon as
thereafter practicable. The OLP and the Guarantor agree to furnish to the
Holders copies of any such supplement or amendment promptly after its being used
or filed with the SEC.
(c) Registration Expenses. The OLP and the Guarantor shall pay all
Registration Expenses in connection with the registration pursuant to Section
2(a) and Section 2(b) hereof. Each Holder shall pay all underwriting discounts
and commissions and transfer taxes, if any, relating to the sale or disposition
of such Holder's Registrable Securities pursuant to the Shelf Registration
Statement.
3. Additional Interest.
(a) In the event that (i) the OLP and the Guarantor have not filed the
Exchange Offer Registration Statement or Shelf Registration Statement with the
SEC on or before the date on which such Registration Statement is required to be
so filed pursuant to Section 2(a) or 2(b), respectively, (ii) such Exchange
Offer Registration Statement or Shelf Registration Statement has not been
declared effective by the SEC under the Securities Act on or before the date on
which such Registration Statement is required to be declared effective under the
Securities Act pursuant to Section 2(a) or 2(b), respectively, (iii) the
Exchange Offer has not been Consummated within 210 days after the Closing Date
or (iv) the Exchange Offer Registration Statement or Shelf Registration
Statement required by Section 2(a) or 2(b) hereof is filed and declared
effective by the SEC under the Securities Act but shall thereafter either be
withdrawn by the OLP or the Guarantor or shall become subject to an effective
stop order issued pursuant to Section 8(d) of the Securities Act suspending the
effectiveness of such Registration Statement (except as specifically permitted
herein) without being succeeded immediately by a post-effective amendment to
such Registration Statement or an additional Registration Statement filed and
declared effective by the SEC under the Securities Act (each such event referred
to in clauses (i) through (iv) is referred to herein as a "Registration Default"
and each period during which a Registration Default has occurred and is
continuing until the Securities become freely tradable under the Securities Act
is referred to herein as, a "Registration Default Period"), then the interest
rate on the Registrable Securities will be increased by 0.25% (25 basis points)
per annum during the first 90 days of the Registration Default Period, and by
0.50% (50 basis points) per annum thereafter for the remaining portion of the
Registration Default Period. The interest rate will not at any time be increased
by more than 0.50% (50 basis points) per annum. In addition, the interest rate
on the Registrable Securities will revert to the interest rate prior to any
increase pursuant to this Section 3(a) at such time as all Registration Defaults
are cured.
7
(b) The OLP or the Guarantor shall notify the Trustee within three Business
Days after each and every date on which an event occurs in respect of which
additional interest is required to be paid pursuant to Section 3(a).
(c) Without limiting the remedies available to the Initial Purchasers and
the Holders, the OLP and the Guarantor acknowledge that any failure by the OLP
or the Guarantor to comply with their obligations under Section 2(a) and Section
2(b) hereof may result in material irreparable injury to the Initial Purchasers
or the Holders for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Initial Purchasers or any Holder may obtain such relief
as may be required to specifically enforce the OLP's and the Guarantor's
obligations under Section 2(a) and Section 2(b) hereof.
4. Registration Procedures. In connection with their obligations pursuant
to Section 2(a) and Section 2(b) hereof, the OLP and the Guarantor shall as
expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the Securities Act, which form (i) shall be selected by
the OLP and the Guarantor, (ii) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the selling Holders
thereof and (iii) shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required under the Securities Act and the rules and regulations of the SEC
thereunder to be filed therewith; and use their best efforts to cause such
Registration Statement to become effective and remain effective for the
applicable period in accordance with Section 2 hereof;
(b) a reasonable time prior to the filing with the SEC of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or of any document that is to be
incorporated by reference into a Registration Statement or a Prospectus after
initial filing of a Registration Statement, provide copies of such document to
the Initial Purchasers and their counsel (and, in the case of a Shelf
Registration Statement, to the Holders and their counsel, and, in the case of an
Exchange Offer Registration for which a Prospectus contained in an Exchange
Offer Registration Statement is required to be delivered by any Participating
Broker-Dealer, to the Broker-Dealers and their counsel) and make such of the
representatives of the OLP and the Guarantor as shall be reasonably requested by
8
the Initial Purchasers or their counsel (and, in the case of a Shelf
Registration Statement, the Holders or their counsel, and in the case of an
Exchange Offer Registration Statement, the Participating Broker-Dealers or their
counsel) available for discussion of such document; and the OLP and the
Guarantor will not, at any time after the initial filing with the SEC of a
Registration Statement, file with the SEC any Prospectus, any amendment of or
supplement to a Registration Statement or a Prospectus, or any document that is
to be incorporated by reference into a Registration Statement or a Prospectus,
of which the Initial Purchasers and their counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel, and in the case of an
Exchange Offer Registration Statement, the Participating Broker-Dealers or their
counsel) shall not have previously been advised and furnished a copy or to which
the Initial Purchasers or their counsel (and, in the case of a Shelf
Registration Statement, the Holders or their counsel, and in the case of an
Exchange Offer Registration Statement, the Participating Broker-Dealers or their
counsel) shall reasonably object;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, to counsel for the Initial Purchasers, to counsel for
such Holders and to each Underwriter of an Underwritten Offering of Registrable
Securities, if any, without charge, as many copies of each Prospectus, including
each preliminary Prospectus, and any amendment or supplement thereto as they may
reasonably request, in order to facilitate the sale or other disposition of the
Registrable Securities thereunder; and the OLP and the Guarantor consent to the
use of such Prospectus and any amendment or supplement thereto in accordance
with applicable law by each of the selling Holders and any such Underwriters in
connection with the offering and sale of the Registrable Securities covered by
and in the manner described in such Prospectus or any amendment or supplement
thereto;
(d) in the case of a Shelf Registration, furnish to each Holder, without
charge, at least one conformed copy of each Registration Statement and any
post-effective amendment thereto (without any documents incorporated therein by
reference or exhibits thereto, unless requested);
(e) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period in accordance with
Section 2 hereof and cause each Prospectus to be supplemented by any required
prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424
under the Securities Act; and keep each Prospectus current during the period
described in Section 4(3) of and Rule 174 under the Securities Act that is
applicable to transactions by brokers or dealers with respect to the Registrable
Securities or Exchange Securities;
(f) upon the occurrence of any event contemplated by Section 4(g)(v)
hereof, use their best efforts to prepare and file with the SEC a supplement or
post-effective amendment to a Registration Statement or the related Prospectus
or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to purchasers of the Registrable
Securities, such Prospectus will conform in all material respects to the
applicable requirements of the Securities Act and the Trust Indenture Act and
the rules and regulations of the SEC and will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and the OLP and the Guarantor shall notify the Holders to
suspend the use of the Prospectus as promptly as practicable after the
occurrence of such an event until the OLP and the Guarantor have amended or
supplemented the Prospectus to correct such misstatement or omission;
9
(g) in the case of a Shelf Registration or an Exchange Offer Registration
for which a Prospectus contained in an Exchange Offer Registration Statement is
required to be delivered by any Participating Broker-Dealer, notify each Holder,
counsel for such Holders and counsel for the Initial Purchasers, or each such
Participating Broker-Dealer and its counsel, as the case may be, promptly and,
if requested by any such Holder or counsel, confirm such advice in writing (i)
when a Registration Statement has become effective, when any post-effective
amendment thereto has been filed and becomes effective and when any Prospectus
or Prospectus supplement has been filed, (ii) of any request by the SEC or any
state securities authority for amendments and supplements to a Registration
Statement or a related Prospectus or for additional information after the
Registration Statement has become effective, (iii) of the issuance by the SEC or
any state securities authority of any stop order suspending the effectiveness of
a Registration Statement or the initiation of any proceedings for that purpose,
(iv) if, between the effective date of a Registration Statement and the closing
of any sale of Securities covered thereby, the representations and warranties of
the OLP or the Guarantor contained in any underwriting agreement, securities
sales agreement or other similar agreement, if any, relating to an offering of
such Securities cease to be true and correct or if the OLP or the Guarantor
receives any notification with respect to the suspension of the qualification of
such Securities for sale in any jurisdiction or the initiation of any proceeding
for such purpose, (v) if at any time when a Prospectus is required to be
delivered under the Securities Act, that such Registration Statement,
Prospectus, Prospectus amendment or supplement or post-effective amendment does
not conform in all material respects to the applicable requirements of the
Securities Act and the Trust Indenture Act and the rules and regulations of the
SEC thereunder or contains an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading and (vi) of any determination by the OLP or
the Guarantor that a post-effective amendment to a Registration Statement would
be appropriate;
(h) use their best efforts to obtain the withdrawal of any order suspending
the effectiveness of a Registration Statement at the earliest possible moment
and provide prompt notice to each Holder of the withdrawal of any such order;
(i) in the case of a Shelf Registration or an Exchange Offer
Registration for which a Prospectus contained in an Exchange Offer Registration
Statement is required to be delivered by a Participating Broker-Dealer, use
their best efforts to: (A) register or qualify the Registrable Securities under
all applicable state securities or blue sky laws of such jurisdictions as any
Holder of Registrable Securities covered by a Shelf Registration Statement or
any Underwriter or the Participating Broker-Dealers, as the case may be, shall
reasonably request in writing by the time the applicable Registration Statement
is declared effective by the SEC and cooperate with the Holders or any
Participating Broker-Dealer, as the case may be, in connection with any filings
required to be made with the NASD (including retaining any "qualified
independent underwriter" that is required to be retained in accordance with the
rules and regulations of the NASD); (B) keep such registrations or
qualifications in effect and comply with such laws so as to permit the
continuance of offers, sales and dealings therein in such jurisdictions during
the period the Registration Statement is required to remain effective under
10
Section 2(b) or Section 7 of this Agreement, as applicable, and for so long as
may be necessary to enable any such Holder or Underwriter or Participating
Broker-Dealer, as the case may be, to complete its distribution of Securities
pursuant to such Registration Statement; and (C) do any and all other acts and
things that may be reasonably necessary or advisable to enable each Holder or
Participating Broker-Dealer, as the case may be, to complete the disposition in
each such jurisdiction of the Registrable Securities owned by such Holder or
Participating Broker-Dealer, as the case may be; provided that neither the OLP
nor the Guarantor shall be required to (i) qualify as a foreign corporation or
other entity or as a dealer in securities in any such jurisdiction where it
would not otherwise be required to so qualify, (ii) file any general consent to
service of process in any such jurisdiction or (iii) subject itself to taxation
in any such jurisdiction if it is not already so subject;
(j) use their best efforts to obtain the consent or approval of each
governmental agency or authority, whether federal, state or local, which may be
required to effect the Exchange Offer Registration, the Exchange Offer or the
Shelf Registration, as the case may be, or the offering or sale in connection
therewith or to enable the Holders to offer, or to consummate the disposition
of, their Registrable Securities or Participating Broker-Dealers to offer and
sell Exchange Securities;
(k) cause the Indenture to be qualified under the Trust Indenture Act in
connection with the registration of the Exchange Securities or Registrable
Securities, as the case may be; cooperate with the Trustee and the Holders to
effect such changes to the Indenture as may be required for the Indenture to be
so qualified in accordance with the terms of the Trust Indenture Act; and
execute, and use their best efforts to cause the Trustee to execute, all
documents as may be required to effect such changes and all other forms and
documents required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner;
(l) in the case of a Shelf Registration or an Exchange Offer Registration
for which a Prospectus contained in an Exchange Offer Registration Statement is
required to be delivered by a Participating Broker-Dealer, make available for
inspection by a representative of the Holders of the Registrable Securities or
Participating Broker-Dealers, as the case may be (an "Inspector"), any
Underwriter participating in any disposition pursuant to such Registration
Statement, and attorneys and accountants designated by the Holders, at
reasonable times and in a reasonable manner, all pertinent financial and other
records, documents and properties of the OLP and the Guarantor, and cause the
respective officers, directors and employees of the OLP and the Guarantor to
supply all information reasonably requested by any such Inspector, Underwriter,
attorney or accountant in connection with a Registration Statement; provided
that each such party shall agree to maintain in confidence and not to disclose
to any other person any information or records reasonably designated by the OLP
or the Guarantor as being confidential until such time as (A) such information
becomes a matter of public record (whether by virtue of its inclusion in such
Registration Statement or otherwise) or (B) such person shall be required so to
disclose such information pursuant to a subpoena or order of any court or
arbitrator or governmental or regulatory authority (subject to the requirements
of such order, and only after such person shall have given the OLP prompt prior
11
written notice of such requirement), or (C) such information is required to be
set forth in the applicable Registration Statement or the Prospectus included
therein or in an amendment to such Registration Statement or an amendment or
supplement to such Prospectus in order that such Registration Statement,
Prospectus, amendment or supplement, as the case may be, complies with
applicable requirements of the federal securities laws and the rules and
regulations of the SEC and does not contain an untrue statement of a material
fact or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(m) in the case of a Shelf Registration, cooperate with the selling Holders
of Registrable Securities to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends and enable such Registrable Securities to be issued in such
denominations and registered in such names (consistent with the applicable
provisions of the Indenture) as the selling Holders may reasonably request at
least one Business Day prior to the closing of any sale of Registrable
Securities;
(n) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement;
(o) comply with the Securities Act, the Exchange Act and all applicable
rules and regulations of the SEC, and make generally available to holders of
Securities as soon as practicable but no later than eighteen months after the
effective date of a Registration Statement, an earnings statement of the
Guarantor and its subsidiaries complying with Section 11(a) of the Securities
Act (including, at the option of the Guarantor, Rule 158 thereunder);
(p) in the case of a Shelf Registration, use their best efforts to cause
all Registrable Securities to be listed on any securities exchange or any
automated quotation system on which similar securities issued or guaranteed by
the OLP or the Guarantor are then listed if requested by the Majority Holders,
to the extent such Registrable Securities satisfy applicable listing
requirements;
(q) in the case of a Shelf Registration or an Exchange Offer Registration
for which a Prospectus contained in an Exchange Offer Registration Statement is
required to be delivered by any Participating Broker-Dealer, if requested by any
Holder of Registrable Securities covered by a Shelf Registration Statement or
any Participating Broker-Dealer, as the case may be, promptly incorporate in a
Prospectus supplement or post-effective amendment such information with respect
to such Holder as such Holder reasonably requests to be included therein and
make all required filings of such Prospectus supplement or such post-effective
amendment promptly after the OLP has received notification of the matters to be
incorporated in such filing; and
(r) in the case of a Shelf Registration or an Exchange Offer Registration
for which a Prospectus contained in an Exchange Offer Registration Statement is
required to be delivered by a Participating Broker-Dealer, enter into such
customary agreements and take all such other actions in connection therewith
12
(including those requested by the Holders of a majority in principal amount of
the Registrable Securities being sold) in order to expedite or facilitate the
disposition of such Registrable Securities including, but not limited to,
customary agreements relating to an Underwritten Offering and in such
connection, (i) to the extent possible, make such representations and warranties
to the Holders and any Underwriters of such Registrable Securities, or the
Participating Broker-Dealers, as the case may be, with respect to the business
of the OLP and its subsidiaries, the Registration Statement, Prospectus and
documents incorporated by reference or deemed incorporated by reference, if any,
in each case, in form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested, (ii) obtain opinions of counsel to the OLP and the Guarantor (which
counsel and opinions, in form, scope and substance, shall be reasonably
satisfactory to the Holders and such Underwriters and their respective counsel
or the Participating Broker-Dealers and their counsel, as the case may be)
addressed to each selling Holder and Underwriter of Registrable Securities or
Participating Broker-Dealer, as the case may be, covering the matters
customarily covered in opinions requested in underwritten offerings, (iii)
obtain "comfort" letters from the independent certified public accountants of
the OLP and the Guarantor (and, if necessary, any other certified public
accountant of any subsidiary of the OLP or the Guarantor, or of any business
acquired by the OLP or the Guarantor for which financial statements and
financial data are or are required to be included or incorporated by reference
in the Registration Statement) addressed to each selling Holder and Underwriter
of Registrable Securities, or Participating Broker-Dealer, as the case may be,
such letters to be in customary form and covering matters of the type
customarily covered in "comfort" letters in connection with underwritten
offerings and (iv) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority in principal amount of the Registrable
Securities being sold or the Underwriters, or by the participating
Broker-Dealers, as applicable, and which are customarily delivered in
underwritten offerings, to evidence the continued validity of the
representations and warranties of the OLP and the Guarantor made pursuant to
clause (i) above and to evidence compliance with any customary conditions
contained in an underwriting agreement.
(s) in the case of a Shelf Registration Statement or an Exchange Offer
Registration for which a Prospectus contained in an Exchange Offer Registration
Statement is required to be delivered by any Participating Broker-Dealer, in the
event that, in the reasonable judgment of the OLP, after consultation with
counsel, it is advisable to suspend use of the Prospectus for a discrete period
of time due to pending material corporate developments or similar material
events that have not yet been publicly disclosed and as to which the OLP
reasonably believes that continued use of the Prospectus would require the
disclosure of and that public disclosure would be prejudicial to the OLP, the
OLP shall deliver a certificate in writing, signed by its Chief Executive
Officer or Chief Financial Officer, to the Holders or the Participating
Broker-Dealers, as the case may be, to the effect of the foregoing and, upon
receipt of such certificate, each such Holder or Participating Broker-Dealer
shall not commence selling its Registrable Securities pursuant to such
Prospectus until such Holder's or Participating Broker-Dealer's receipt of
copies of the supplemented or amended Prospectus, or until it is advised in
writing by the OLP that the Prospectus may be used, and has received copies of
13
any additional or supplemental filings that are incorporated or deemed
incorporated by reference in such Prospectus. The OLP will use its best efforts
to ensure that the use of the Prospectus may be resumed, as promptly as is
practicable and as soon as the earlier of (x) public disclosure of such pending
material corporate development or similar material event or (y) in the
reasonable judgment of the OLP, public disclosure of such pending material
corporate development or similar material event would not be prejudicial to the
OLP.
In the case of a Shelf Registration Statement, the OLP may require each
Holder to furnish to the OLP such information regarding such Holder and the
proposed disposition by such Holder of Registrable Securities as the OLP and the
Guarantor may from time to time reasonably request in writing. Each Holder
agrees by acquisition of the Registrable Securities to furnish promptly to the
OLP all information required to be disclosed in the Shelf Registration Statement
in order to make the information previously furnished to the OLP by such Holder
for that purpose not materially misleading or necessary to cause the Shelf
Registration Statement not to omit a material fact with respect to such Holder
that is necessary in order to make the statements therein with respect to such
Holder not misleading. No Holder of Registrable Securities will be entitled to
have such Registrable Securities included in a Shelf Registration Statement if
such Holder does not furnish the information required by the OLP and the
Guarantor within a reasonable time after receiving such request.
In the case of a Shelf Registration Statement or an Exchange Offer
Registration for which a Prospectus contained in an Exchange Offer Registration
Statement is required to be delivered by a Participating Broker-Dealer, each
Holder agrees by acquisition of the Registrable Securities that, upon receipt of
any notice from the OLP and the Guarantor of the happening of any event of the
kind described in Section 4(g)(iii), 4(g)(v) or 4(s) hereof, such Holder will
forthwith discontinue disposition of Registrable Securities pursuant to a
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 4(f) or 4(s) hereof
and, if so directed by the OLP and the Guarantor, such Holder will deliver to
the OLP and the Guarantor all copies in its possession, other than permanent
file copies then in such Holder's possession, of the Prospectus covering such
Registrable Securities that is current at the time of receipt of such notice.
If the OLP and the Guarantor shall give any such notice to suspend the
disposition of Registrable Securities pursuant to a Registration Statement, the
OLP and the Guarantor shall extend the period during which the Registration
Statement shall be maintained effective pursuant to this Agreement by the number
of days during the period from and including the date of the giving of such
notice to and including the date when the Holders shall have received copies of
the supplemented or amended Prospectus necessary to resume such dispositions.
The OLP and the Guarantor may give any such notice only twice during any 365-day
period and such suspensions shall not exceed 60 days in the aggregate during any
365-day period and there shall not be more than two suspensions in effect during
any 365-day period.
14
5. Underwritten Registrations. (a) Selection of Underwriters. The Holders
of Registrable Securities covered by a Shelf Registration Statement who desire
to do so may sell such Registrable Securities in an Underwritten Offering. In
any such Underwritten Offering, the investment banker or investment bankers and
manager or managers (the "Underwriters") that will administer the offering will
be selected by the Holders of a majority in principal amount of the Registrable
Securities to be included in such offering.
(b) Participation by Holders. No Holder may participate in any Underwritten
Offering hereunder unless such Holder (i) agrees to sell his Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Holders of a majority in principal amount of the Registrable Securities to
be included in such offering and (ii) completes and executes all questionnaires,
powers of attorney, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
6. Rule 144. The OLP covenants to the Holders that, in the event the
Exchange
Offer is not completed within one year of the Closing Date, the OLP shall
disseminate the information required to be disseminated by Rule 144(c) adopted
by the SEC under the Securities Act, to the extent such information is
reasonably available for such dissemination, and shall take such further action
as any Holder may reasonably request, all to the extent required from time to
time to enable such Holder to sell Registrable Securities without registration
under the Securities Act within the limitations of the exemption provided by
Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or any similar or successor rule or regulation hereafter adopted by the
SEC. Upon the request of any Holder in connection with that Holder's sale
pursuant to Rule 144, the OLP shall deliver to such Holder a written statement
as to whether it has complied with such requirements.
7. Participation of Broker-Dealers in Exchange Offer. (a) The OLP and the
Guarantor shall indicate in a "Plan of Distribution" section contained in the
Exchange Offer Registration Statement that any broker-dealer who holds
Registrable Securities that it acquired for its own account as a result of
market-making activities or other trading activities (other than Registrable
Securities acquired directly from the OLP) (a "Participating Broker-Dealer") may
exchange such Registrable Securities pursuant to the Exchange Offer; however, a
Participating Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Securities Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with any resales of the Exchange
Securities received by a Participating Broker-Dealer in the Exchange Offer,
which prospectus delivery requirement may be satisfied by the delivery by a
Participating Broker-Dealer of the Prospectus contained in the Exchange Offer
Registration Statement. Such "Plan of Distribution" section shall also contain
all other information with respect to such resales by Participating
Broker-Dealers that the SEC may require in order to permit such resales pursuant
thereto, but such "Plan of Distribution" shall not name any Participating
Broker-Dealer or disclose the amount of Exchange Securities held by any
Participating Broker-Dealer except to the extent required by the SEC. In light
of the above, and notwithstanding the other provisions of this Agreement, the
15
OLP and the Guarantor agree (i) to include in the Exchange Offer Registration
Statement a Prospectus for use in any resales by any Participating Broker-Dealer
and (ii) to keep such Exchange Offer Registration Statement effective for a
period of up to 180 days after the last Business Day of the Offer Period (as
such period may be extended pursuant to the last paragraph of Section 4 of this
Agreement), if requested by the Initial Purchasers or by one or more
Participating Broker-Dealers. The OLP and the Guarantor shall provide sufficient
copies of the latest version of such Prospectus to Participating Broker-Dealers
promptly upon request at any time during such 180 day period in order to
facilitate such resales. Notwithstanding the foregoing, in the case of any
Exchange Offer Registration Statement which contains a Prospectus required to be
delivered by any Participating Broker-Dealer, the OLP and the Guarantor shall be
obligated (x) to act only upon the instruction or request of one entity
representing the Participating Broker-Dealers, which shall be J.P. Morgan
Securities, Inc. unless it elects not to act as such representative, in which
event the Participating Broker-Dealer holding the largest aggregate principal
amount of Exchange Securities of the Participating Broker-Dealers shall act as
such representative, (y) to pay the fees and expenses of only one counsel
representing the Participating Broker-Dealers, which shall be counsel to the
Initial Purchasers unless such counsel elects not to so act, in which event the
Participating Broker-Dealer holding the largest aggregate principal amount of
Exchange Securities of the Participating Broker-Dealers shall specify a counsel
to represent the Participating Broker-Dealers and (z) to cause to be delivered
only one, if any, "cold comfort" letter (addressed to all of the Participating
Broker-Dealers) with respect to the Prospectus in the form existing on the last
day of the Offer Period and with respect to each subsequent amendment or
supplement, if any, effected during the period specified above.
(b) The Initial Purchasers shall have no liability to the OLP, the
Guarantor or any Holder with respect to any request that they may make pursuant
to Section 7(a) above, except for any such liability they may have pursuant to
Section 8.
8. Indemnification and Contribution. (a) Indemnification of the Initial
Purchasers and Holders. The OLP and the Guarantor jointly and severally agree to
indemnify and hold harmless each Initial Purchaser and each other Holder, their
respective affiliates and each Person, if any, who controls any Initial
Purchaser or any other Holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, from and against any and all losses,
claims, damages and liabilities (including, without limitation, reasonable legal
fees and other expenses incurred in connection with any suit, action or
proceeding or any claim asserted), joint or several, caused by any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or any Prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with any information relating to (i) any Initial
Purchaser furnished to the OLP and the Guarantor in writing through J.P. Morgan
Securities Inc. expressly for use therein or (ii) any selling Holder furnished
to the OLP and the Guarantor in writing by such Holder expressly for use
therein. In connection with any Underwritten Offering permitted by Section 5,
16
the OLP and the Guarantor will also indemnify the Underwriters, if any, and
their respective affiliates and each Person who controls such Persons (within
the meaning of the Securities Act and the Exchange Act) to the same extent as
provided above with respect to the indemnification of the Holders, if requested
in connection with any Registration Statement.
(b) Indemnification of the OLP and the Guarantor. Each Holder agrees,
severally and not jointly, to indemnify and hold harmless the OLP, the
Guarantor, the Initial Purchasers and the other selling Holders, their
respective affiliates, the directors of Valero GP, LLC, each officer of Valero
GP, LLC who signed the Registration Statement and each Person, if any, who
controls the OLP, the Guarantor, any Initial Purchaser and any other selling
Holder within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the indemnity set forth in paragraph (a)
above, but only with respect to any losses, claims, damages or liabilities
caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with any information relating
to such Holder furnished to the OLP in writing by such Holder expressly for use
in any Registration Statement and any Prospectus.
(c) Notice and Procedures. If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any Person in respect of which indemnification may be sought
pursuant to either paragraph (a) or (b) above, such Person (the "Indemnified
Person") shall promptly notify the Person against whom such indemnification may
be sought (the "Indemnifying Person") in writing; provided that the failure to
notify the Indemnifying Person shall not relieve it from any liability that it
may have under this Section 8 except to the extent that it has been materially
prejudiced (through the forfeiture of substantive rights or defenses) by such
failure; and provided, further, that the failure to notify the Indemnifying
Person shall not relieve it from any liability that it may have to an
Indemnified Person otherwise than under this Section 8. If any such proceeding
shall be brought or asserted against an Indemnified Person and it shall have
notified the Indemnifying Person thereof, the Indemnifying Person shall retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others entitled to indemnification pursuant to this
Section 8 that the Indemnifying Person may designate in such proceeding and
shall pay the fees and expenses of such counsel related to such proceeding. In
any such proceeding, any Indemnified Person shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Person unless (i) the Indemnifying Person and the
Indemnified Person shall have mutually agreed to the contrary; (ii) the
Indemnifying Person has failed within a reasonable time to retain counsel
reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person
shall have reasonably concluded that there may be legal defenses available to it
that are different from or in addition to those available to the Indemnifying
Person; or (iv) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood and agreed that the Indemnifying Person shall not, in connection with
any proceeding or related proceeding in the same jurisdiction, be liable for the
17
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such fees and expenses shall
be reimbursed as they are incurred. Any such separate firm (x) for any Initial
Purchaser, its affiliates and any control Persons of such Initial Purchaser
shall be designated in writing by J.P. Morgan Securities Inc., (y) for any other
Holder, its affiliates and any control Persons of such Holder shall be
designated in writing by the Majority Holders and (z) in all other cases shall
be designated in writing by the Guarantor. The Indemnifying Person shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Person agrees to indemnify each Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested that an Indemnifying Person reimburse the
Indemnified Person for fees and expenses of counsel as contemplated by this
paragraph, the Indemnifying Person shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by the Indemnifying Person of such
request and (ii) the Indemnifying Person shall not have reimbursed the
Indemnified Person in accordance with such request prior to the date of such
settlement. No Indemnifying Person shall, without the written consent of the
Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party and indemnification could have been sought hereunder by such Indemnified
Person, unless such settlement (A) includes a full and unconditional release of
such Indemnified Person from all liability on claims that are the subject matter
of such proceeding and (B) does not include any statement as to or any admission
of fault, culpability or a failure to act by or on behalf of any Indemnified
Person.
(d) Contribution. If the indemnification provided for in paragraphs (a) and
(b) above is unavailable to an Indemnified Person or insufficient in respect of
any losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraph, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the OLP and the Guarantor from the offering of the
Securities and the Exchange Securities, on the one hand, and by the Holders from
receiving Securities or Exchange Securities registered under the Securities Act,
on the other hand, or (ii) if the allocation provided by clause (i) is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) but also the relative fault
of the OLP and the Guarantor on the one hand and the Holders on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the OLP and the Guarantor on the one hand
and the Holders on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the OLP and the Guarantor or by the Holders and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
18
(e) Limitation on Liability. The OLP, the Guarantor and the Holders agree
that it would not be just and equitable if contribution pursuant to this Section
8 were determined by pro rata allocation (even if the Holders were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d) above.
The amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses incurred by such Indemnified Person in connection with any such
action or claim. Notwithstanding the provisions of this Section 8, in no event
shall a Holder be required to contribute any amount in excess of the amount by
which the total price at which the Registrable Securities or Exchange Securities
sold by such Holder exceeds the amount of any damages that such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(f) Non-Exclusive Remedies. The remedies provided for in this Section 8 are
not exclusive and shall not limit any rights or remedies that may otherwise be
available to any Indemnified Person at law or in equity.
(g) Survival. The indemnity and contribution provisions contained in this
Section 8 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of the Initial Purchasers or any other Holder, their respective affiliates or
any Person controlling any Initial Purchaser or any other Holder, or by or on
behalf of the OLP or the Guarantor, their respective affiliates or the officers
or directors of or any Person controlling the OLP or the Guarantor, (iii)
acceptance of any of the Exchange Securities and (iv) any sale of Registrable
Securities pursuant to a Shelf Registration Statement.
9. General.
(a) No Inconsistent Agreements. The OLP and the Guarantor represent,
warrant and agree that (i) the rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of any other outstanding securities issued or guaranteed by the OLP or
the Guarantor under any other agreement and (ii) neither the OLP nor the
Guarantor has entered into, or on or after the date of this Agreement will enter
into, any agreement that is inconsistent with the rights granted to the Holders
in this Agreement or otherwise conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the OLP and the Guarantor have obtained the written consent of Holders of
at least a majority in aggregate principal amount of the outstanding Registrable
Securities affected by such amendment, modification, supplement, waiver or
consent; provided that no amendment, modification, supplement, waiver or consent
to any departure from the provisions of Section 8 hereof shall be effective as
against any Holder unless consented to in writing by such Holder.
19
(c) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, registered first-class
mail, telex, telecopier or any courier guaranteeing overnight delivery (i) if to
a Holder, at the most current address given by such Holder to the OLP by means
of a notice given in accordance with the provisions of this Section 9(c), which
address initially is, with respect to the Initial Purchasers, the address set
forth in Section 12(a) of the Purchase Agreement; and (ii) if to the OLP and the
Guarantor, initially at the Guarantor's address set forth in Section 12(b) of
the Purchase Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 9(c). All such notices
and communications shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five Business Days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt is acknowledged, if telecopied; and on the next Business
Day if timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Purchase Agreement or the Indenture. If any
transferee of any Holder shall acquire Registrable Securities in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all the terms of this Agreement, and by taking and holding such
Registrable Securities such Person shall be conclusively deemed to have agreed
to be bound by and to perform all of the terms and provisions of this Agreement
and such Person shall be entitled to receive the benefits hereof. No Initial
Purchaser (in its capacity as an Initial Purchaser) shall have any liability or
obligation to the OLP or the Guarantor with respect to any failure by a Holder
(other than such Initial Purchaser) to comply with, or any breach by any Holder
(other than such Initial Purchaser) of, any of the obligations of such Holder
under this Agreement.
(e) Purchases and Sales of Securities. The OLP and the Guarantor shall not,
and shall use their best efforts to cause their affiliates (as defined in Rule
405 under the Securities Act) not to, purchase and then resell or otherwise
transfer any Registrable Securities.
(f) Third Party Beneficiaries. Each Holder shall be a third party
beneficiary to the agreements made hereunder between the OLP and the Guarantor,
on the one hand, and the Initial Purchasers, on the other hand, and shall have
the right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of other
Holders hereunder.
20
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(j) Miscellaneous. This Agreement contains the entire agreement between the
parties relating to the subject matter hereof and supersedes all oral statements
and prior writings with respect thereto. This Agreement may not be amended or
modified except by a writing executed by each of the parties hereto. Section
headings herein are for convenience only and are not a part of this Agreement.
If any term, provision, covenant or restriction contained in this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable
or against public policy, the remainder of the terms, provisions, covenants and
restrictions contained herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated. The OLP, the Guarantor and the
Initial Purchasers shall endeavor in good faith negotiations to replace any
invalid, void or unenforceable provision with a valid provision the economic
effect of which comes as close as possible to that of the invalid, void or
unenforceable provision.
21
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
VALERO L.P.
By: Riverwalk Logistics, L.P., its
general partner
By: Valero, GP, LLC, its
general partner
By: /s/ Curtis V. Anastasio
---------------------------------------
President and Chief Executive Officer
VALERO LOGISTICS OPERATIONS, L.P.
By: Valero GP, Inc., its
general partner
By: /s/ Curtis V. Anastasio
-----------------------------------------------
President and Chief Executive Officer
Confirmed and accepted as of the date first above written:
J.P. MORGAN SECURITIES INC.
For itself and on behalf of the
several Initial Purchasers
By /s/ Jose C. Padilla
-----------------------
Name: Jose C. Padilla
Vice President
Exhibit 12.1
VALERO L.P.
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratio)
Three
Months
Ended
March 31, Years Ended December 31,
------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Earnings:
Income from continuing operations
before provision for income taxes and
income from equity investees $ 11,651 $ 52,350 $ 42,694 $ 35,968 $ 65,445
Add:
Fixed charges 2,520 5,492 4,203 5,266 997
Amortization of capitalized
interest 13 48 39 34 32
Distributions from Skelly-Belvieu
Pipeline Company 748 3,590 2,874 4,658 4,238
Less: Interest capitalized (62) (255) (298) (115)
------ ------ ---- ------ ----
Total earnings $ 14,870 $ 61,225 $ 49,512 $ 45,926 $ 70,597
====== ====== ====== ====== ======
Fixed charges:
Interest expense (1) $ 2,339 $ 4,968 $ 3,721 $ 5,181 $ 777
Amortization of debt issuance costs 80 160 90 - -
Interest capitalized 62 255 298 - 115
Rental expense interest factor (2) 39 109 94 85 105
------ ------ ------ ------ ------
Total fixed charges $ 2,520 $ 5,492 $ 4,203 $ 5,266 $ 997
====== ====== ====== ====== =====
Ratio of earnings to fixed charges 5.9x 11.2x 11.8x 8.7x 70.8x
===== ===== ===== ===== =====
(1) The interest expense, net reported in the Partnership's consolidated
statements of income for the three months ended March 31, 2003 and the year
ended December 31, 2002 includes interest income of $42,000 and $248,000,
respectively.
(2) The interest portion of rental expense represents one-third of rents, which
is deemed representative of the interest portion of rental expense.
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in Valero L.P.'s Registration
Statements (Form S-8 No. 333-88264 and Form S-8 No. 333-81806) of (i) our report
dated March 6, 2003 on the Valero South Texas Pipeline and Terminal Business
financial statements for the year ended December 31, 2002 included in Valero
L.P.'s Form 8-K dated March 18, 2003, which was filed with the SEC on April 2,
2003 and (ii) our report dated March 6, 2003 with respect to the consolidated
financial statements of Valero L.P. included in Valero L.P.'s Annual Report on
Form 10-K for the year ended December 31, 2002, which was filed with the SEC on
March 10, 2003.
/s/ ERNST & YOUNG LLP
San Antonio, Texas
May 9, 2003
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Valero L.P. on Form 10-Q for the
quarter ended March 31, 2003, as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Curtis V. Anastasio, President,
Chief Executive Officer and Director of Valero GP, LLC hereby certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Valero L.P.
/s/ Curtis V. Anastasio
- ------------------------
Curtis V. Anastasio
President, Chief Executive Officer and Director
May 9, 2003
A signed original of the written statement required by Section 906 has been
provided to Valero L.P. and will be retained by Valero L.P. and furnished to the
Securities and Exchange Commission or its staff upon request.
Exhibit 99.2
CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Valero L.P. on Form 10-Q for the
quarter ended March 31, 2003, as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Steven A. Blank, Senior Vice
President and Chief Financial Officer of Valero GP, LLC hereby certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Valero L.P.
/s/ Steven A. Blank
- -------------------
Steven A. Blank
Senior Vice President and Chief Financial Officer
May 9, 2003
A signed original of the written statement required by Section 906 has been
provided to Valero L.P. and will be retained by Valero L.P. and furnished to the
Securities and Exchange Commission or its staff upon request.