sv1za
As filed with the Securities and Exchange
Commission on March 16, 2011
Registration No. 333-171270
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
CVR PARTNERS, LP
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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2873
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56-2677689
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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2277 Plaza Drive,
Suite 500
Sugar Land, Texas
77479
(281) 207-3200
(Address, Including Zip Code,
and Telephone Number, Including Area Code, of Registrants
Principal Executive Offices)
John J. Lipinski
2277 Plaza Drive,
Suite 500
Sugar Land, Texas
77479
(281) 207-3200
(Name, Address, Including Zip
Code, and Telephone Number, Including Area Code, of Agent for
Service)
With a copy to:
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Stuart H. Gelfond
Michael A. Levitt
Fried, Frank, Harris,
Shriver & Jacobson LLP
One New York Plaza
New York, New York 10004
(212) 859-8000
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Michael Rosenwasser
E. Ramey Layne
Vinson & Elkins L.L.P.
666 Fifth Avenue, 26th Floor
New York, New York 10103
(212) 237-0000
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Peter J. Loughran
Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
(212) 909-6000
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G. Michael OLeary
Gislar R. Donnenberg
Andrews Kurth LLP
600 Travis, Suite 4200
Houston, Texas 77002
(713) 220-4200
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date of
this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933 (the
Securities Act), check the following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check One):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
(Do not check if a smaller reporting company)
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Smaller reporting company
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CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Title of Each Class of
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Aggregate
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Amount of
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Securities to be Registered
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Offering
Price(1)(2)
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Registration Fee
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Common units representing limited partner interests
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$250,000,000
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$20,065(3)
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(1)
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Includes offering price of common
units which the underwriters have the option to purchase.
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(2)
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Estimated solely for the purpose of
calculating the registration fee pursuant to Rule 457(o) of
the Securities Act.
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(3)
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$14.260 previously paid in respect
of an aggregate offering price of $200,000,000 based on the
registration fee in effect at that time. $5,805 included with
this filing in respect of the additional $50,000,000 of common
units being registered hereby.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act or until the Registration Statement shall
become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell nor does it seek an offer to buy these securities
in any jurisdiction where the offer or sale is not permitted.
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PROSPECTUS
(Subject to Completion)
Dated March 16, 2011
Common Units
Representing Limited Partner Interests
CVR Partners, LP
This is the initial public offering of our common units
representing limited partner interests.
Prior to this offering, there has been no public market for our
common units. We anticipate that the initial public offering
price for our common units will be between
$ and
$ per unit. We have applied to
list our common units on the New York Stock Exchange under the
symbol UAN.
We have granted the underwriters an option to purchase up to an
additional common units from us to
cover over-allotments, if any, at the initial public offering
price, less underwriting discounts and commissions, within
30 days from the date of this prospectus.
John J. Lipinski, the chairman, chief executive officer and
president of our general partner, has indicated an interest in
purchasing approximately $3 million of the common units
being offered in this offering.
Investing in our common units involves risks. Please read
Risk Factors beginning on page 17. These risks
include the following:
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We may not have sufficient available cash to pay any quarterly
distribution on our common units.
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The nitrogen fertilizer business is, and nitrogen fertilizer
prices are, cyclical and highly volatile and have experienced
substantial downturns in the past. Cycles in demand and pricing
could potentially expose us to substantial fluctuations in our
operating and financial results, and expose you to substantial
volatility in our quarterly cash distributions and material
reductions in the trading price of our common units.
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The amount of our quarterly cash distributions will be directly
dependent on the performance of our business and will vary
significantly both quarterly and annually. Unlike most publicly
traded partnerships, we will not have a minimum quarterly
distribution or employ structures intended to consistently
maintain or increase distributions over time.
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We depend on CVR Energy, Inc., or CVR Energy, for the majority
of our supply of petroleum coke, or pet coke, an essential raw
material used in our operations. Any significant disruption in
the supply of pet coke from CVR Energy could negatively impact
our results of operations to the extent third-party pet coke is
unavailable or available only at higher prices.
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We depend to a significant extent on CVR Energy and its senior
management team to manage our business.
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Our general partner, an indirect wholly-owned subsidiary of CVR
Energy, has fiduciary duties to its owner, CVR Energy, and the
interests of CVR Energy may differ significantly from, or
conflict with, the interests of our public common unitholders.
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Our unitholders have limited voting rights, are not entitled to
elect our general partner or its directors, and cannot, at
initial ownership levels, remove our general partner without the
consent of CVR Energy.
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You will experience immediate and substantial dilution of
$ per common unit in the net
tangible book value of your common units.
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If we were treated as a corporation for U.S. federal income
tax purposes, or if we were to become subject to entity-level
taxation for state tax purposes, cash available for distribution
to you would be substantially reduced.
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You will be required to pay taxes on your share of our income
even if you do not receive any cash distributions from us.
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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Per Common Unit
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Total
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Initial Public Offering Price
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$
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$
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Underwriting Discounts and Commissions
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$
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$
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Proceeds Before Expenses to Us
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$
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$
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The underwriters expect to deliver the common units to
purchasers on or
about ,
2011.
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Morgan
Stanley |
Barclays Capital |
Goldman, Sachs & Co. |
The date of this prospectus
is ,
2011.
TABLE OF
CONTENTS
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Page
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1
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1
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4
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17
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35
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41
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ii
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Page
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138
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138
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143
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146
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174
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iii
You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with additional or different
information. If anyone provides you with additional, different
or inconsistent information you should not rely on it. We are
not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where an offer or sale is not
permitted. You should assume the information appearing in this
prospectus is accurate as of the date on the front cover page of
this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
For investors outside the United States: We have not, and the
underwriters have not, done anything that would permit this
offering, or possession or distribution of this prospectus, in
any jurisdiction where action for that purpose is required,
other than in the United States. Persons outside the United
States who come into possession of this prospectus must inform
themselves about, and observe any restrictions relating to, the
offering of the common units and the distribution of this
prospectus outside of the United States.
Industry
and Market Data
The data included in this prospectus regarding the nitrogen
fertilizer industry, including trends in the market and our
position and the position of our competitors within the nitrogen
fertilizer industry, is based on a variety of sources, including
independent industry publications, government publications and
other published independent sources, information obtained from
customers, distributors, suppliers, trade and business
organizations and publicly available information (including the
reports and other information our competitors file with the SEC,
which we did not participate in preparing and as to which we
make no representation), as well as our good faith estimates,
which have been derived from managements knowledge and
experience in the areas in which our business operates.
Estimates of market size and relative positions in a market are
difficult to develop and inherently uncertain. Accordingly,
investors should not place undue weight on the industry and
market share data presented in this prospectus. Any data sourced
from Pike & Fischers Green
Markets newsletter has been approved by BNA
Subsidiaries, LLC and is
re-used here
with the express written permission of BNA Subsidiaries, LLC.
iv
PROSPECTUS
SUMMARY
This summary highlights selected information contained
elsewhere in this prospectus. You should carefully read the
entire prospectus, including Risk Factors and the
consolidated historical and unaudited pro forma financial
statements and related notes included elsewhere in this
prospectus, before making an investment decision. Unless
otherwise indicated, the information in this prospectus assumes
(i) an initial public offering price of
$ per common unit (the mid-point
of the price range set forth on the cover page of this
prospectus) and (ii) that the underwriters do not exercise
their option to purchase additional common units. References in
this prospectus to CVR Partners, we,
our, us or like terms refer to CVR
Partners, LP and its consolidated subsidiary unless the context
otherwise requires or where otherwise indicated. References in
this prospectus to CVR Energy refer to CVR Energy,
Inc. and its consolidated subsidiaries other than CVR Partners
unless the context otherwise requires or where otherwise
indicated, and references to CVR GP or our
general partner refer to CVR GP, LLC, which, following the
closing of this offering, will be an indirect wholly-owned
subsidiary of CVR Energy. The transactions being entered into in
connection with this offering are referred to herein as the
Transactions and are described on page 47 of
this prospectus. You should also see the Glossary of
Selected Terms contained in Appendix B for
definitions of some of the terms we use to describe our business
and industry and other terms used in this prospectus.
CVR
Partners, LP
Overview
We are a Delaware limited partnership formed by CVR Energy to
own, operate and grow our nitrogen fertilizer business.
Strategically located adjacent to CVR Energys refinery in
Coffeyville, Kansas, our nitrogen fertilizer manufacturing
facility is the only operation in North America that utilizes a
petroleum coke, or pet coke, gasification process to produce
nitrogen fertilizer (based on data provided by Blue, Johnson
& Associates, Inc., or Blue Johnson). Our facility includes
a 1,225
ton-per-day
ammonia unit, a 2,025
ton-per-day
urea ammonium nitrate, or UAN, unit, and a gasifier complex with
built-in redundancy having a capacity of 84 million
standard cubic feet per day. We upgrade a majority of the
ammonia we produce to higher margin UAN fertilizer, an aqueous
solution of urea and ammonium nitrate which has historically
commanded a premium price over ammonia. In 2010, we produced
392,745 tons of ammonia, of which approximately 60% was upgraded
into 578,272 tons of UAN.
We intend to expand our existing asset base and utilize the
experience of CVR Energys management team to execute our
growth strategy. Following completion of this offering, we
intend to move forward with a significant two-year plant
expansion designed to increase our UAN production capacity by
400,000 tons, or approximately 50%, per year. CVR Energy, a New
York Stock Exchange listed company, will indirectly own our
general partner and approximately %
of our outstanding common units following this offering.
The primary raw material feedstock utilized in our nitrogen
fertilizer production process is pet coke, which is produced
during the crude oil refining process. In contrast,
substantially all of our nitrogen fertilizer competitors use
natural gas as their primary raw material feedstock.
Historically, pet coke has been significantly less expensive
than natural gas on a per ton of fertilizer produced basis and
pet coke prices have been more stable when compared to natural
gas prices. We believe our nitrogen fertilizer business has
historically been the lowest cost producer and marketer of
ammonia and UAN fertilizers in North America. During the past
five years, over 70% of the pet coke utilized by our plant was
produced and supplied by CVR Energys crude oil refinery
pursuant to a renewable
long-term
agreement.
We generated net sales of $263.0 million,
$208.4 million and $180.5 million, net income of
$118.9 million, $57.9 million and $33.3 million
and EBITDA of $134.9 million, $67.6 million and
$38.7 million, for the years ended December 31, 2008,
2009 and 2010, respectively. For a reconciliation of EBITDA to
net income, see footnote 5 under Summary
Historical and Pro Forma Consolidated Financial
Information.
Our
Competitive Strengths
Pure-Play Nitrogen Fertilizer Company. We
believe that as a pure-play nitrogen fertilizer company we are
well positioned to benefit from positive trends in the nitrogen
fertilizer market in general and the UAN market in particular.
1
We derive substantially all of our revenue from the production
and sale of nitrogen fertilizers, primarily in the agricultural
market, whereas most of our competitors are meaningfully
diversified into other crop nutrients, such as phosphate and
potassium, and make significant sales into the lower-margin
industrial market. For example, our largest public competitors,
Agrium, Potash Corporation, Yara (excluding blended fertilizers)
and CF Industries (after giving effect to its acquisition of
Terra Industries) derived 90%, 91%, 46% and 22% of their sales
in 2010 (2009 in the case of Yara), respectively, from the sale
of products other than nitrogen fertilizer used in the
agricultural market. Nitrogen is an essential element for plant
growth because it is the primary determinant of crop yield.
Nitrogen fertilizer production is a higher margin, growing
business with more stable demand compared to the production of
the two other essential crop nutrients, potassium and phosphate,
because nitrogen must be reapplied annually. During the last
five years, ammonia and UAN prices averaged $467 and $292 per
ton, respectively, which is a substantial increase from the
average prices of $276 and $159 per ton, respectively, during
the prior five-year period.
The following table shows the consolidated impact of a $50 per
ton change in UAN pricing and a $100 per ton change in ammonia
pricing on our EBITDA based on the assumptions described herein
relative to the actual prices we realized for the year ended
December 31, 2010 and our forecasted pricing for the twelve
month period ending March 31, 2012:
Illustrative
Sensitivity to UAN and Ammonia Prices
(1)(2)
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Sensitivity Using
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Sensitivity Using
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Actual Average
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Forecasted
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2010 Prices
(1)(3)
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3/31/2012 Prices
(1)(4)
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UAN Price
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$
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150
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$
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200
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$
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250
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$
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300
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$
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350
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$
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179
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$
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278
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Ammonia Price
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300
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400
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500
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600
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700
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361
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547
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Net Sales
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171
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221
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271
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321
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371
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200
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297
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EBITDA
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24
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74
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124
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174
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224
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53
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150
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Available Cash
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13
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63
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113
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163
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213
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43
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140
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(1)
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The price sensitivity analysis in
this table is based on the assumptions described in our forecast
of EBITDA for the twelve months ending March 31, 2012,
including 157,400 ammonia tons sold, 686,200 UAN tons sold,
cost of product sold of $48.3 million, direct operating
expenses of $84.5 million and selling, general and
administrative expenses of $14.2 million. This table is
presented to show the sensitivity of our EBITDA forecast for the
twelve months ending March 31, 2012 of $150.4 million
to specified changes in ammonia and UAN prices. Spot ammonia and
UAN prices were $602.50 and $354.08, respectively, per ton as of
February 28, 2011. There can be no assurance that we will
achieve our EBITDA forecast for the twelve months ending
March 31, 2012 or any of the specified levels of EBITDA
indicated above, or that UAN and ammonia pricing will achieve
any of the levels specified above. See Our Cash
Distribution Policy and Restrictions on Distribution
Forecasted Available Cash for a reconciliation of our
EBITDA forecast to our net income forecast for the twelve months
ending March 31, 2012 and a discussion of the assumptions
underlying our forecast.
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(3)
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This column shows (1) actual
average UAN and ammonia prices for the year ended
December 31, 2010 and (2) what our net sales, EBITDA
and available cash would have been in the year ended
December 31, 2010 based on the actual average UAN and
ammonia prices during such year and the production and expense
assumptions set forth in footnote 1 above. See
Summary Historical and Pro Forma Consolidated Financial
Information for our actual net sales and EBITDA for the
year ended December 31, 2010.
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(4)
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Reflects forecasted average UAN and
ammonia pricing for the twelve months ending March 31, 2012
and the production and expense assumptions set forth in
footnote 1 above.
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High Margin Nitrogen Fertilizer Producer. Our
unique combination of pet coke raw material usage, premium
product focus and transportation cost advantage has helped to
keep our costs low and has enabled us to generate high margins.
In 2008, 2009 and 2010, our operating margins were 44%, 23% and
11%, respectively (our 2010 operating margins were negatively
affected by downtime associated with the Linde, Inc., or Linde,
air separation outage, the rupture of a high-pressure UAN vessel
and the major scheduled turnaround). Over the last five years,
U.S. natural gas prices at the Henry Hub pricing point have
averaged $6.06 per MMbtu. The following
2
chart shows our cost advantage for the year ended
December 31, 2010 as compared to an illustrative natural
gas-based competitor in the U.S. Gulf Coast:
CVR
Partners Cost Advantage over an Illustrative U.S. Gulf
Coast Natural Gas-Based Competitor
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($ per ton, unless otherwise noted)
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CVR Partners Ammonia Cost Advantage
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CVR Partners UAN Cost Advantage
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Illustrative
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Illustrative Competitor
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CVR Partners
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Illustrative Competitor
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CVR Partners
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Natural Gas
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Total
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Competitor
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Delivered
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Competitor
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Ammonia
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Ammonia
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Total
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UAN
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Price
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Gas
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Ammonia
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Ammonia
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Cost
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cost per ton
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Competitor
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UAN
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Cost
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($/MMbtu)
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Cost(a)
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Costs(b)(c)(e)
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Costs(d)(e)
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Advantage
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UAN(f)
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UAN
Costs(c)(e)(g)
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Costs(e)(f)(h)
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Advantage
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$
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4.00
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$
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132
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$
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193
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$
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194
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$
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(1)
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$
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65
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$
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98
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$
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87
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$
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11
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4.50
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149
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210
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194
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16
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72
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105
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87
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18
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5.50
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182
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243
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194
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49
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85
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118
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87
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31
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6.50
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215
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276
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194
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82
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99
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132
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87
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45
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7.50
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248
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309
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194
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115
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113
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146
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87
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59
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(a)
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Assumes 33 MMbtu of natural
gas to produce a ton of ammonia, based on Blue Johnson.
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(b)
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Assumes $27 per ton operating cost
for ammonia, based on Blue Johnson.
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(c)
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Assumes incremental $34 per ton
transportation cost from the U.S. Gulf Coast to the
mid-continent for ammonia and $15 per ton for UAN, based on
recently published rail and pipeline tariffs.
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(d)
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CVR Partners ammonia cost
consists of $19 per ton of ammonia in pet coke costs and $175
per ton of ammonia in operating costs for the year ended
December 31, 2010.
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(e)
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The cost data included in this
chart for an illustrative competitor assumes property taxes,
whereas the cost data included for CVR Partners includes the
cost of our property taxes other than property taxes currently
in dispute. CVR Partners is currently disputing the amount of
property taxes which it has been required to pay in recent
years. For information on the effect of disputed property taxes
on our actual production costs, see product production cost data
and footnote 7 under Summary Historical and Pro
Forma Consolidated Financial Information. See also
Managements Discussion and Analysis of Financial
Condition and Results of Operations Factors
Affecting Comparability Fertilizer Plant Property
Taxes.
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(f)
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Each ton of UAN contains
approximately 0.41 tons of ammonia. Illustrative competitor UAN
cost per ton data removes $34 per ton in transportation costs
for ammonia.
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(g)
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Assumes $18 per ton cash conversion
cost to UAN, based on Blue Johnson.
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(h)
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CVR Partners UAN conversion
cost was $12 per ton for the year ended December 31, 2010.
$10.82 per ton of ammonia production costs are not transferable
to UAN costs.
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Cost Advantage. We operate the only nitrogen
fertilizer production facility in North America that uses pet
coke gasification to produce nitrogen fertilizer, which has
historically given us a cost advantage over competitors that use
natural gas-based production methods. Our costs are
approximately 79% fixed and relatively stable, which allows us
to benefit directly from increases in nitrogen fertilizer
prices. Our variable costs consist primarily of pet coke. Our
pet coke costs have historically remained relatively stable,
averaging $25 per ton since we began operating under our current
structure in October 2007, with a high of $31 per ton for 2008
and a low of $17 per ton for 2010. Third-party pet coke is
readily available to us, and we have paid an average cost of $41
per ton for third-party pet coke over the last five years.
Substantially all of our nitrogen fertilizer competitors use
natural gas as their primary raw material feedstock (with
natural gas constituting approximately
85-90% of
their production costs based on historical data) and are
therefore heavily impacted by changes in natural gas prices.
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Premium Product Focus. We focus on producing
higher margin, higher growth UAN nitrogen fertilizer.
Historically, UAN has accounted for approximately 80% of our
product tons sold. UAN commands a price premium over ammonia and
urea on a nutrient ton basis. Unlike ammonia and urea, UAN is
easier to apply and can be applied throughout the growing season
to crops directly or mixed with crop protection products, which
reduces energy and labor costs for farmers. In addition, UAN is
safer to handle than ammonia. The convenience of UAN fertilizer
has led to an 8.5% increase in its consumption from 2000 through
2010 (estimated) on a nitrogen content basis, whereas ammonia
fertilizer consumption decreased by 2.4% for the same period,
according to data supplied by Blue Johnson. We plan to expand
our UAN upgrading capacity so that we have the flexibility to
upgrade all of our ammonia production into UAN.
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3
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Strategically Located Asset. We and other
competitors located in the U.S. farm belt share a transportation
cost advantage when compared to our
out-of-region
competitors in serving the U.S. farm belt agricultural
market. We are therefore able to cost-effectively sell
substantially all of our products in the higher margin
agricultural market, whereas, according to publicly available
information prepared by our competitors, a significant portion
of our competitors revenues are derived from the lower
margin industrial market. Because the U.S. farm belt
consumes more nitrogen fertilizer than is produced in the
region, it must import nitrogen fertilizer from the
U.S. Gulf Coast as well as from international producers.
Accordingly, U.S. farm belt producers may offer nitrogen
fertilizers at prices that factor in the transportation costs of
out-of-region
producers without having incurred such costs. We estimate that
our plant enjoys a transportation cost advantage of
approximately $25 per ton over competitors located in the
U.S. Gulf Coast, based on a comparison of our actual
transportation costs and recently published rail and pipeline
tariffs. Our location on Union Pacifics main line
increases our transportation cost advantage. Our products leave
the plant either in trucks for direct shipment to customers (in
which case we incur no transportation cost) or in railcars for
destinations located principally on the Union Pacific Railroad.
We do not incur any intermediate transfer, storage, barge
freight or pipeline freight charges.
|
Highly Reliable Pet Coke Gasification Fertilizer Plant with
Low Capital Requirements. Our nitrogen fertilizer
plant was completed in 2000 and, based on data supplied by Blue
Johnson, is the newest nitrogen fertilizer plant built in North
America. Prior to our plants construction in 2000, the
last ammonia plant built in the United States was constructed in
1977. Our nitrogen fertilizer facility was built with the dual
objectives of being low cost and reliable. Our facility has low
maintenance costs, with maintenance capital expenditures ranging
between approximately $3 million and $9 million per
year from 2007 through 2010. We have configured the plant to
have a dual-train gasifier complex to provide redundancy and
improve our reliability. In 2010, our gasifier had an on-stream
factor, which is defined as the total number of hours operated
divided by the total number of hours in the reporting period, in
excess of 97% excluding the impact of downtime associated with
the Linde air separation outage, the rupture of a high-pressure
UAN vessel and the major scheduled turnaround.
Experienced Management Team. We are managed by
CVR Energys management pursuant to a services agreement.
Mr. John J. Lipinski, Chief Executive Officer, has over
38 years of experience in the refining and chemicals
industries. Mr. Stanley A. Riemann, Chief Operating
Officer, has over 37 years of experience in the fertilizer
and energy industries. Mr. Edward A. Morgan, Chief
Financial Officer, has over 18 years of finance experience.
Mr. Kevan Vick, Executive Vice President and Fertilizer
General Manager, has over 34 years of experience in the
nitrogen fertilizer industry. Mr. Vick leads a senior
operations team whose members have an average of 22 years
of experience in the fertilizer industry. Most of the members of
our senior operations team were
on-site
during the construction and startup of our nitrogen fertilizer
plant in 2000. CVR Energys management team will spend a
portion of its time managing CVR Energy and a portion of its
time managing our business. See Management
Executive Officers and Directors.
Our
Business Strategy
Our objective is to maximize quarterly distributions to our
unitholders by operating our nitrogen fertilizer facility in an
efficient manner, maximizing production time and growing
profitably within the nitrogen fertilizer industry. We intend to
accomplish this objective through the following strategies:
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|
|
Pay Out All of the Available Cash We Generate Each
Quarter. Our strategy is to pay out all of the
available cash we generate each quarter. We expect that holders
of our common units will receive a greater percentage of our
operating cash flow when compared to our publicly traded
corporate competitors across the broader fertilizer sector, such
as Agrium, CF Industries, Potash Corporation and Yara. These
companies have provided an average dividend yield of 0.1%, 0.4%,
0.3% and 1.6%, respectively, as of February 28, 2011,
compared to our expected distribution yield
of % (calculated by dividing our
forecasted distribution for the twelve months ending
March 31, 2012 of $ per
common unit by the
mid-point of
the price range on the cover page of this prospectus). The board
of directors of our general partner will adopt a policy under
which we will distribute all of the available cash we generate
each quarter, as described in Our Cash Distribution Policy
and Restrictions On Distributions on page 53. We do
not intend to maintain excess distribution coverage for the
purpose of maintaining stability or growth in our quarterly
distributions or
|
4
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otherwise to reserve cash for future distributions. Unlike many
publicly traded partnerships that have economic general partner
interests and incentive distribution rights that entitle the
general partner to receive disproportionate percentages of cash
distributions as distributions increase (often up to 50%), our
general partner will have a non-economic interest and no
incentive distribution rights, and will therefore not be
entitled to receive cash distributions. Our common unitholders
will receive 100% of our cash distributions.
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Pursue Growth Opportunities. We are well
positioned to grow organically, through acquisitions, or both.
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Expand UAN Capacity. We intend to move forward
with an expansion of our nitrogen fertilizer plant that is
designed to increase our UAN production capacity by 400,000
tons, or approximately 50%, per year. This approximately $135
million expansion, for which approximately $31 million had been
spent as of December 31, 2010, will allow us the
flexibility to upgrade all of our ammonia production when market
conditions favor UAN. We expect that this additional UAN
production capacity will improve our margins, as UAN has
historically been a higher margin product than ammonia. We
expect that the UAN expansion will take 18 to
24 months to complete and will be funded with approximately
$100 million of the net proceeds from this offering.
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Selectively Pursue Accretive Acquisitions. We
intend to evaluate strategic acquisitions within the nitrogen
fertilizer industry and to focus on disciplined and accretive
investments that leverage our core strengths. We have no
agreements, understandings or financings with respect to any
acquisitions at the present time.
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Continue to Focus on Safety and Training. We
intend to continue our focus on safety and training in order to
increase our facilitys reliability and maintain our
facilitys high on-stream availability. In 2010, our
nitrogen fertilizer plant had a recordable incident rate of
0.76, which was our lowest recordable incident rate in over five
years. The recordable incident rate reflects the number of
recordable incidents per 200,000 hours worked.
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Continue to Enhance Efficiency and Reduce Operating
Costs. We are currently engaged in certain
projects that will reduce overall operating costs, increase
efficiency and utilize byproducts to generate incremental
revenue. For example, we have built a low btu gas recovery
pipeline between our nitrogen fertilizer plant and CVR
Energys crude oil refinery, which will allow us to sell
off-gas, a byproduct produced by our fertilizer plant, to the
refinery. This pipeline was commissioned in March 2011. In
addition, we have signed a letter of intent to sell up to
850,000 tons per year of high purity carbon dioxide, or
CO2,
produced by our nitrogen fertilizer plant to an oil and gas
exploration and production company.
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Provide High Level of Customer Service. We
focus on providing our customers with the highest level of
service. The nitrogen fertilizer plant has demonstrated
consistent levels of production while operating at close to full
capacity. Substantially all of our product shipments are
targeted to freight advantaged destinations located in the
U.S. farm belt, allowing us to quickly and reliably service
customer demand. Furthermore, we maintain our own fleet of
railcars, which helps us ensure prompt delivery. As a result of
these efforts, many of our largest customers have been our
customers since the plant came online in 2000. We believe a
continued focus on customer service will allow us to maintain
relationships with existing customers and grow our business.
|
Industry
Overview
Nitrogen, phosphate and potassium are the three essential
nutrients plants need to grow for which there are no
substitutes. Nitrogen is the primary determinant of crop yield.
Nutrients are depleted in soil over time and therefore must be
replenished through fertilizer use. Nitrogen is the most quickly
depleted nutrient and so must be replenished every year, whereas
phosphate and potassium can be retained in soil for up to three
years.
Global demand for fertilizers is driven primarily by population
growth, dietary changes in the developing world and increased
consumption of bio-fuels. According to the International
Fertilizer Industry Association, or IFA, from 1972 to 2010,
global fertilizer demand grew 2.1% annually. Fertilizer use is
projected to increase by 45% between 2005 and 2030 to meet
global food demand, according to a study funded by the Food and
Agriculture Organization of the United Nations. Currently, the
developed world uses fertilizer more intensively than the
developing world, but sustained economic growth in emerging
markets is increasing food demand and fertilizer use.
5
As an example, Chinas grain production increased 31%
between September 2001 and September 2010, but still failed to
keep pace with increases in demand, prompting China to double
its grain imports over the same period, according to the United
States Department of Agriculture, or USDA.
World grain demand has increased 11% over the last five years
leading to a tight grain supply environment and significant
increases in grain prices, which is highly supportive of
fertilizer prices. During the last five years, corn prices in
Illinois have averaged $3.80 per bushel, an increase of 80%
above the average price of $2.12 per bushel during the preceding
five years. Recently, this trend has continued as
U.S. 30-day corn and wheat futures increased 104% and 74%,
respectively, from June 1, 2010 to February 28, 2011.
During this same time period, Southern Plains ammonia prices
increased 67% from $360 per ton to $603 per ton and corn belt
UAN prices increased 41% from $252 per ton to $354 per ton. At
existing grain prices and prices implied by futures markets,
farmers are expected to generate substantial profits, leading to
relatively inelastic demand for fertilizers. Nitrogen fertilizer
prices have decoupled from their historical correlation with
natural gas prices and are now driven primarily by demand
dynamics. Nitrogen fertilizer prices in the U.S. farm belt
are typically higher than U.S. Gulf Coast prices because it
is costly to transport nitrogen fertilizer.
The United States is the worlds largest exporter of coarse
grains, accounting for 46% of world exports and 31% of total
world production, according to the USDA. The United States is
also the worlds third largest consumer of nitrogen
fertilizer and historically the worlds largest importer of
nitrogen fertilizer, importing approximately 48% of its nitrogen
fertilizer needs. North American producers have a significant
and sustainable cost advantage over European producers that
export to the U.S. market. Over the last decade, the North
American nitrogen fertilizer market has experienced significant
consolidation through plant closures and corporate consolidation.
The convenience of UAN fertilizer has led to an 8.5% increase in
its consumption from 2000 through 2010 (estimated) on a nitrogen
content basis, whereas ammonia fertilizer consumption decreased
by 2.4% for the same period, according to data supplied by Blue
Johnson. Unlike ammonia and urea, UAN can be applied throughout
the growing season and can be applied in tandem with pesticides
and fungicides, providing farmers with flexibility and cost
savings. UAN is not widely traded globally because it is costly
to transport (it is approximately 65% water), therefore there is
little risk to U.S. UAN producers of an influx of UAN from
foreign imports. As a result of these factors, UAN commands a
premium price to urea and ammonia, on a nitrogen equivalent
basis.
For more information about the nitrogen fertilizer industry, see
Industry Overview.
About
Us
CVR Partners, LP was formed in Delaware in June 2007. Our
principal executive offices are located at 2277 Plaza Drive,
Suite 500, Sugar Land, Texas 77479, and our telephone
number is
(281) 207-3200.
Upon completion of this offering, our website address will be
www.cvrpartners.com. Information contained on our website or CVR
Energys website is not incorporated by reference into this
prospectus and does not constitute a part of this prospectus. We
expect to make our periodic reports and other information filed
with or furnished to the Securities and Exchange Commission, or
SEC, available, free of charge, through our website, as soon as
reasonably practicable after those reports and other information
are electronically filed with or furnished to the SEC.
Risk
Factors
An investment in our common units involves risks associated with
our business, our partnership structure and the tax
characteristics of our common units. These risks are described
under Risk Factors and Cautionary Note
Regarding Forward-Looking Statements. You should carefully
consider these risk factors together with all other information
included in this prospectus.
In particular, due to our relationship with CVR Energy, adverse
developments or announcements concerning CVR Energy could
materially adversely affect our business. The ratings assigned
to CVR Energys senior secured indebtedness are below
investment grade.
6
THE
OFFERING
|
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|
Issuer |
|
CVR Partners, LP, a Delaware limited partnership. |
|
Common units offered to the public |
|
common
units. |
|
Option to purchase additional common units from us
|
|
If the underwriters exercise their option to purchase additional
common units in full, we will
issue
common units to the public. |
|
Units outstanding after this offering |
|
common
units
(excluding
common units which are subject to issuance under our long-term
incentive plan). If the underwriters do not exercise their
option to purchase additional common units, we will
issue common
units to Coffeyville Resources upon the options
expiration. If and to the extent the underwriters exercise their
option to purchase additional common units, the number of common
units purchased by the underwriters pursuant to such exercise
will be issued to the public and the remainder, if any, will be
issued to Coffeyville Resources. Accordingly, the exercise of
the underwriters option will not affect the total number
of common units outstanding. |
|
|
|
In addition, our general partner will own a non-economic general
partner interest in us which will not entitle it to receive
distributions. |
|
Use of Proceeds |
|
We estimate that the net proceeds to us in this offering, after
deducting underwriting discounts and commissions and the
estimated expenses of this offering, will be approximately
$ million (based on an
assumed initial public offering price of
$ per common unit, the mid-point
of the price range set forth on the cover page of this
prospectus). We intend to use: |
|
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approximately
$18.4 million to make a distribution to Coffeyville
Resources in satisfaction of our obligation to reimburse it for
certain capital expenditures it made on our behalf with respect
to the nitrogen fertilizer business prior to October 24,
2007;
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approximately
$ million to make a special
distribution to Coffeyville Resources in order to, among other
things, fund the offer to purchase Coffeyville Resources
senior secured notes required upon consummation of this offering;
|
|
|
|
|
|
approximately
$26 million to purchase (and subsequently extinguish) the
incentive distribution rights, or IDRs, currently owned by our
general partner;
|
|
|
|
|
|
approximately
$3 million to pay financing fees resulting from our new
credit facility; and
|
|
|
|
|
|
the
balance for general partnership purposes, including
approximately $100 million to fund the intended UAN
expansion.
|
|
|
|
|
|
If the underwriters exercise their option to
purchase additional
common units in full, the additional net proceeds would be
approximately $ million
(based upon the mid-point of the price range set forth on the
cover page of this prospectus). The net proceeds from any
exercise of such option will be paid as a special distribution
to Coffeyville Resources. See Use of Proceeds. |
7
|
|
|
Cash Distributions |
|
Within 45 days after the end of each quarter, beginning
with the quarter ending June 30, 2011, we expect to make
cash distributions to unitholders of record on the applicable
record date. |
|
|
|
|
|
The board of directors of our general partner will adopt a
policy pursuant to which we will distribute all of the available
cash we generate each quarter. Available cash for each quarter
will be determined by the board of directors of our general
partner following the end of such quarter. We expect that
available cash for each quarter will generally equal our cash
flow from operations for the quarter, less cash needed for
maintenance capital expenditures, debt service and other
contractual obligations, and reserves for future operating or
capital needs that the board of directors of our general partner
deems necessary or appropriate. We do not intend to maintain
excess distribution coverage for the purpose of maintaining
stability or growth in our quarterly distribution or otherwise
to reserve cash for distributions, and we do not intend to incur
debt to pay quarterly distributions. We expect to finance
substantially all of our growth externally, either by debt
issuances or additional issuances of equity. |
|
|
|
Because our policy will be to distribute all the available cash
we generate each quarter, without reserving cash for future
distributions or borrowing to pay distributions during periods
of low cash flow from operations, our unitholders will have
direct exposure to fluctuations in the amount of cash generated
by our business. We expect that the amount of our quarterly
distributions, if any, will vary based on our operating cash
flow during such quarter. Our quarterly cash distributions, if
any, will not be stable and will vary from quarter to quarter as
a direct result of variations in our operating performance and
cash flow caused by fluctuations in the price of nitrogen
fertilizers and in the amount of forward and prepaid sales we
have in any given quarter. Such variations in the amount of our
quarterly distributions may be significant. Unlike most publicly
traded partnerships, we will not have a minimum quarterly
distribution or employ structures intended to consistently
maintain or increase distributions over time. The board of
directors of our general partner may change our distribution
policy at any time and from time to time. Our partnership
agreement does not require us to pay cash distributions on a
quarterly or other basis. |
|
|
|
|
|
Based upon our forecast for the twelve months ending
March 31, 2012, and assuming the board of directors of our
general partner declares distributions in accordance with our
cash distribution policy, we expect that our aggregate
distributions for the twelve months ending March 31, 2012
will be approximately $140.1 million. See Our Cash
Distribution Policy and Restrictions on
Distributions Forecasted Available Cash.
Unanticipated events may occur which could materially adversely
affect the actual results we achieve during the forecast period.
Consequently, our actual results of operations, cash flows, need
for reserves and financial condition during the forecast period
may vary from the forecast, and such variations may be material.
Prospective investors are cautioned not to place undue reliance
on our forecast and should make their own independent assessment
of our future results of operations, cash flows and financial
condition. In addition, the board of directors of our general
partner may be required |
8
|
|
|
|
|
to or elect to eliminate our distributions at any time during
periods of reduced prices or demand for our nitrogen fertilizer
products, among other reasons. Please see Risk
Factors. |
|
|
|
From time to time we make prepaid sales, whereby we receive cash
during one quarter in respect of product to be produced and sold
in a future quarter but we do not record revenue in respect of
the related product sales until the quarter when product is
delivered. All cash on our balance sheet in respect of prepaid
sales on the date of the closing of this offering will not be
distributed to Coffeyville Resources at the closing of this
offering but will be reserved for distribution to holders of
common units. |
|
|
|
|
|
For a calculation of our ability to make distributions to
unitholders based on our pro forma results of operations for the
year ended December 31, 2010, please read Our Cash
Distribution Policy and Restrictions on Distributions on
page 53. Our pro forma available cash generated during the
year ended December 31, 2010 would have been
$30.9 million. See Our Cash Distribution Policy and
Restrictions on Distributions Pro Forma Available
Cash. |
|
|
|
Incentive Distribution Rights |
|
None. |
|
Subordination Period |
|
None. |
|
Issuance of additional units |
|
Our partnership agreement authorizes us to issue an unlimited
number of additional units and rights to buy units for the
consideration and on the terms and conditions determined by the
board of directors of our general partner without the approval
of our unitholders. See Common Units Eligible for Future
Sale and The Partnership Agreement
Issuance of Additional Partnership Interests. |
|
Limited voting rights |
|
Our general partner manages and operates us. Unlike the holders
of common stock in a corporation, you will have only limited
voting rights on matters affecting our business. You will have
no right to elect our general partner or our general
partners directors on an annual or other continuing basis.
Our general partner may be removed by a vote of the holders of
at least % of the outstanding common units, including
any common units owned by our general partner and its affiliates
(including Coffeyville Resources, a wholly-owned subsidiary of
CVR Energy), voting together as a single class. Upon completion
of this offering, our general partner and its affiliates,
through Coffeyville Resources, will own an aggregate of
approximately % of our outstanding common units
(approximately % if the underwriters exercise their
option to purchase additional common units in full). This will
give Coffeyville Resources the ability to prevent removal of our
general partner. See The Partnership Agreement
Voting Rights. |
|
Call right |
|
If at any time our general partner and its affiliates (including
Coffeyville Resources) own more than % of the common
units, our general partner will have the right, but not the
obligation, to purchase all, but not less than all, of the
common units held by public unitholders at a price not less than
their then-current market price, as calculated pursuant to the
terms of our Partnership Agreement. See The Partnership
Agreement Call Right. |
9
|
|
|
Estimated ratio of taxable income to distributions
|
|
We estimate that if you own the common units you purchase in
this offering through the record date for distributions for the
twelve months ending December 31, 2012, you will be
allocated, on a cumulative basis, an amount of U.S. federal
taxable income for that period that will be % or less
of the cash distributed to you with respect to that period. For
example, if you receive an annual distribution of
$ per common unit, we estimate
that your average allocable U.S. federal taxable income per year
will be no more than $ per common
unit. See Material U.S. Federal Income Tax
Consequences Tax Consequences of Common Unit
Ownership Ratio of Taxable Income to
Distributions. |
|
|
|
Material U.S. Federal Income Tax Consequences
|
|
For a discussion of material U.S. federal income tax
consequences that may be relevant to prospective unitholders,
see Material U.S. Federal Income Tax Consequences. |
|
|
|
Exchange Listing |
|
We have applied to list our common units on the New York Stock
Exchange under the symbol UAN. |
|
|
|
Risk Factors |
|
See Risk Factors beginning on page 17 of this
prospectus for a discussion of factors that you should carefully
consider before deciding to invest in our common units. |
Depending on market conditions at the time of pricing of this
offering and other considerations, we may sell fewer or more
common units than the number set forth on the cover page of this
prospectus.
10
Organizational
Structure
The following chart provides a simplified overview of our
organizational structure after giving effect to the completion
of the Transactions, as defined under The Transactions and
Our Structure and Organization on page 47:
|
|
(1) |
Assumes the underwriters do not exercise their option to
purchase additional common units, which would instead be issued
to Coffeyville Resources upon the options expiration. If
and to the extent the underwriters exercise their option to
purchase additional common units, the units purchased pursuant
to such exercise will be issued to the public and the remainder,
if any, will be issued to Coffeyville Resources. Accordingly,
the exercise of the underwriters option will not affect
the total number of units outstanding.
|
11
Summary
Historical and Pro Forma Consolidated Financial
Information
The summary consolidated financial information presented below
under the caption Statement of Operations Data for the years
ended December 31, 2008, 2009 and 2010, and the summary
consolidated financial information presented below under the
caption Balance Sheet Data as of December 31, 2009 and
2010, have been derived from our audited consolidated financial
statements included elsewhere in this prospectus, which
consolidated financial statements have been audited by KPMG LLP,
independent registered public accounting firm.
Our consolidated financial statements included elsewhere in this
prospectus include certain costs of CVR Energy that were
incurred on our behalf. These costs, which are reflected in
selling, general and administrative expenses (exclusive of
depreciation and amortization) and direct operating expenses
(exclusive of depreciation and amortization), are billed to us
pursuant to a services agreement entered into in October 2007
that is a related party transaction. For the period of time
prior to the services agreement, the consolidated financial
statements include an allocation of costs and certain other
amounts in order to account for a reasonable share of expenses,
so that the accompanying consolidated financial statements
reflect substantially all of our costs of doing business. The
amounts charged or allocated to us are not necessarily
indicative of the costs that we would have incurred had we
operated as a
stand-alone
company for all periods presented.
The summary unaudited pro forma consolidated financial
information presented below under the caption Statement of
Operations Data for the year ended December 31, 2010 and
the summary unaudited pro forma consolidated financial
information presented below under the caption Balance Sheet Data
as of December 31, 2010 have been derived from our
unaudited pro forma condensed consolidated financial statements
included elsewhere in this prospectus. The pro forma
consolidated statement of operations data for the year ended
December 31, 2010 assumes that we were in existence as a
separate entity throughout this period and that the Transactions
(as defined on page 47) occurred on January 1, 2010
and that the due from affiliate balance was distributed to
Coffeyville Resources on January 1, 2010. The pro forma
consolidated balance sheet as of December 31, 2010 assumes
that the Transactions occurred on December 31, 2010. The
pro forma financial data is not comparable to our historical
financial data. A more complete explanation of the pro forma
data can be found in our unaudited pro forma condensed
consolidated financial statements and accompanying notes
included elsewhere in this prospectus.
The historical data presented below has been derived from
financial statements that have been prepared using accounting
principles generally accepted in the United States, or GAAP, and
the pro forma data presented below has been derived from the
Unaudited Pro Forma Condensed Consolidated Financial
Statements included elsewhere in this prospectus. This
data should be read in conjunction with, and is qualified in its
entirety by reference to, the financial statements and related
notes and Managements Discussion and Analysis of
Financial Condition and Results of Operations included
elsewhere in this prospectus.
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
Pro Forma
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(dollars in millions, except per unit data and as otherwise
indicated)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
263.0
|
|
|
$
|
208.4
|
|
|
$
|
180.5
|
|
|
|
$
|
180.5
|
|
Cost of product
sold Affiliates(1)
|
|
|
11.1
|
|
|
|
9.5
|
|
|
|
5.8
|
|
|
|
|
5.8
|
|
Cost of product sold Third
Parties(1)
|
|
|
21.5
|
|
|
|
32.7
|
|
|
|
28.5
|
|
|
|
|
28.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.6
|
|
|
|
42.2
|
|
|
|
34.3
|
|
|
|
|
34.3
|
|
Direct operating
expenses Affiliates(1)(2)
|
|
|
0.4
|
|
|
|
2.1
|
|
|
|
2.3
|
|
|
|
|
2.3
|
|
Direct operating expenses Third
Parties(1)(2)
|
|
|
85.7
|
|
|
|
82.4
|
|
|
|
84.4
|
|
|
|
|
84.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86.1
|
|
|
|
84.5
|
|
|
|
86.7
|
|
|
|
|
86.7
|
|
Selling, general and administrative
expenses Affiliates(1)(2)
|
|
|
1.1
|
|
|
|
12.3
|
|
|
|
16.7
|
|
|
|
|
16.7
|
|
Selling, general and administrative
expenses Third
Parties(1)(2)
|
|
|
8.4
|
|
|
|
1.8
|
|
|
|
3.9
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
|
|
14.1
|
|
|
|
20.6
|
|
|
|
|
20.6
|
|
Depreciation and
amortization(3)
|
|
|
18.0
|
|
|
|
18.7
|
|
|
|
18.5
|
|
|
|
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
116.8
|
|
|
$
|
48.9
|
|
|
$
|
20.4
|
|
|
|
$
|
20.4
|
|
Other income
(expense)(4)
|
|
|
2.1
|
|
|
|
9.0
|
|
|
|
12.9
|
|
|
|
|
0.4
|
|
Interest (expense) and other financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.7
|
)
|
Gain (loss) on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
118.9
|
|
|
$
|
57.9
|
|
|
$
|
33.3
|
|
|
|
$
|
15.1
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
118.9
|
|
|
$
|
57.9
|
|
|
$
|
33.3
|
|
|
|
$
|
15.1
|
|
Pro forma net income per common unit, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma number of common units, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operating activities
|
|
|
123.5
|
|
|
|
85.5
|
|
|
|
75.9
|
|
|
|
|
|
|
Cash flows (used in) investing activities
|
|
|
(23.5
|
)
|
|
|
(13.4
|
)
|
|
|
(9.0
|
)
|
|
|
|
|
|
Cash flows (used in) financing activities
|
|
|
(105.3
|
)
|
|
|
(75.8
|
)
|
|
|
(29.6
|
)
|
|
|
|
|
|
EBITDA(5)
|
|
|
134.9
|
|
|
|
67.6
|
|
|
|
38.7
|
|
|
|
|
38.7
|
|
Capital expenditures for property, plant and equipment
|
|
|
23.5
|
|
|
|
13.4
|
|
|
|
10.1
|
|
|
|
|
|
|
Key Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product pricing (plant gate) (dollars per
ton)(6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia
|
|
$
|
557
|
|
|
$
|
314
|
|
|
$
|
361
|
|
|
|
|
|
|
UAN
|
|
|
303
|
|
|
|
198
|
|
|
|
179
|
|
|
|
|
|
|
Product production cost (exclusive of depreciation expense)
(dollars per
ton)(7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia
|
|
$
|
246.39
|
|
|
$
|
206.92
|
|
|
$
|
212.70
|
|
|
|
|
|
|
UAN
|
|
|
96.78
|
|
|
|
94.92
|
|
|
|
95.19
|
|
|
|
|
|
|
Pet coke cost (dollars per
ton)(8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party
|
|
|
39
|
|
|
|
37
|
|
|
|
40
|
|
|
|
|
|
|
CVR Energy
|
|
|
30
|
|
|
|
22
|
|
|
|
11
|
|
|
|
|
|
|
Production (thousand tons):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia (gross
produced)(9)
|
|
|
359.1
|
|
|
|
435.2
|
|
|
|
392.7
|
|
|
|
|
|
|
Ammonia (net available for
sale)(9)
|
|
|
112.5
|
|
|
|
156.6
|
|
|
|
155.6
|
|
|
|
|
|
|
UAN
|
|
|
599.2
|
|
|
|
677.7
|
|
|
|
578.3
|
|
|
|
|
|
|
On-stream
factors(10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasifier
|
|
|
87.8
|
%
|
|
|
97.4
|
%
|
|
|
89.0
|
%
|
|
|
|
|
|
Ammonia
|
|
|
86.2
|
%
|
|
|
96.5
|
%
|
|
|
87.7
|
%
|
|
|
|
|
|
UAN
|
|
|
83.4
|
%
|
|
|
94.1
|
%
|
|
|
80.8
|
%
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
Pro Forma
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in millions)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9.1
|
|
|
$
|
5.4
|
|
|
$
|
42.7
|
|
|
|
$
|
143.7
|
|
Working capital
|
|
|
60.4
|
|
|
|
135.5
|
|
|
|
27.1
|
|
|
|
|
125.0
|
|
Total assets
|
|
|
499.9
|
|
|
|
551.5
|
|
|
|
452.2
|
|
|
|
|
551.7
|
|
Total debt including current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125.0
|
|
Partners capital
|
|
|
458.8
|
|
|
|
519.9
|
|
|
|
402.2
|
|
|
|
|
378.1
|
|
|
|
|
(1) |
|
Amounts shown are exclusive of depreciation and amortization |
|
|
|
(2) |
|
Our direct operating expenses (exclusive of depreciation and
amortization) and selling, general and administrative expenses
(exclusive of depreciation and amortization) for the years ended
December 31, 2008, 2009 and 2010 include a charge related
to CVR Energys share-based compensation expense allocated
to us by CVR Energy for financial reporting purposes in
accordance with Financial Accounting Standards Board, or FASB,
Accounting Standards Codification, or ASC, 718
Compensation Stock Compensation, or
ASC 718. These charges will continue to be attributed to us
following the closing of this offering. We are not responsible
for the payment of cash related to any share-based compensation
allocated to us by CVR Energy. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Critical Accounting Policies
Share-Based Compensation. The charges were: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
Pro Forma
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in millions)
|
|
Direct operating expenses (exclusive of depreciation and
amortization)
|
|
$
|
(1.6
|
)
|
|
$
|
0.2
|
|
|
$
|
0.7
|
|
|
|
$
|
0.7
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization)
|
|
|
(9.0
|
)
|
|
|
3.0
|
|
|
|
8.3
|
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(10.6
|
)
|
|
$
|
3.2
|
|
|
$
|
9.0
|
|
|
|
$
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
Depreciation and amortization is comprised of the following
components as excluded from direct operating expenses and
selling, general and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
Pro Forma
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in millions)
|
|
Depreciation and amortization excluded from direct operating
expenses
|
|
$
|
18.0
|
|
|
$
|
18.7
|
|
|
$
|
18.5
|
|
|
|
$
|
18.5
|
|
Depreciation and amortization excluded from selling, general and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation
and amortization
|
|
$
|
18.0
|
|
|
$
|
18.7
|
|
|
$
|
18.5
|
|
|
|
$
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
(4) |
|
Other income (expense) is comprised of the following components
included in our consolidated statement of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
Pro Forma
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in millions)
|
|
Interest
income(a)
|
|
$
|
2.0
|
|
|
$
|
9.0
|
|
|
$
|
13.1
|
|
|
|
$
|
0.6
|
(b)
|
Other income (expense)
|
|
|
0.1
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
$
|
2.1
|
|
|
$
|
9.0
|
|
|
$
|
12.9
|
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Interest income for the years ended December 31, 2008, 2009
and 2010 is primarily attributable to a due from affiliate
balance owed to us by Coffeyville Resources as a result of
affiliate loans. The due from affiliate balance was distributed
to Coffeyville Resources in December 2010. Accordingly, such
amounts are no longer owed to us. |
|
|
|
(b) |
|
Reflects interest income earned on average cash balance. |
|
|
|
(5) |
|
EBITDA is defined as net income plus interest expense and other
financing costs, income tax expense and depreciation and
amortization, net of interest income. |
|
|
|
|
|
We present EBITDA because it is a material component in our
calculation of available cash. In addition, EBITDA is a material
term utilized in our new credit facility in order to determine
our leverage ratio (ratio of debt to EBITDA) and our interest
coverage ratio (ratio of EBITDA to interest expense). We are
required to maintain specified levels of leverage and interest
coverage each quarter, and the leverage ratio also affects the
amount of interest we are required to pay. EBITDA is also used
as a supplemental financial measure by management and by
external users of our financial statements, such as investors
and commercial banks, to assess: |
|
|
|
|
|
the financial performance of our assets without regard to
financing methods, capital structure or historical cost basis;
and
|
|
|
|
our operating performance and return on invested capital
compared to those of other publicly traded limited partnerships,
without regard to financing methods and capital structure.
|
|
|
|
|
|
EBITDA should not be considered an alternative to net income,
operating income, net cash provided by operating activities or
any other measure of financial performance or liquidity
presented in accordance with GAAP. EBITDA may have material
limitations as a performance measure because it excludes items
that are necessary elements of our costs and operations. In
addition, EBITDA presented by other companies may not be
comparable to our presentation, since each company may define
these terms differently. |
A reconciliation of our net income to EBITDA is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
Pro Forma
|
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in millions)
|
|
Net income
|
|
$
|
118.9
|
|
|
$
|
57.9
|
|
|
$
|
33.3
|
|
|
|
$
|
15.1
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and other financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.7
|
|
Interest income
|
|
|
(2.0
|
)
|
|
|
(9.0
|
)
|
|
|
(13.1
|
)
|
|
|
|
(0.6
|
)
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18.0
|
|
|
|
18.7
|
|
|
|
18.5
|
|
|
|
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
134.9
|
|
|
$
|
67.6
|
|
|
$
|
38.7
|
|
|
|
$
|
38.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
(6) |
|
Plant gate price per ton represents net sales less freight costs
and hydrogen revenue (from hydrogen sales to CVR Energys
refinery) divided by product sales volume in tons in the
reporting period. Plant gate price per ton is shown in order to
provide a pricing measure that is comparable across the
fertilizer industry. |
|
|
|
(7) |
|
Product production cost per ton (exclusive of depreciation
expense) includes the total amount of operating expenses
incurred during the production process (including raw material
costs) in dollars per product ton divided by the total number of
tons produced. This amount includes the full amount of property
taxes and electric charges paid in each period. CVR Partners is
currently disputing the amount of property taxes paid in each
period. CVR Partners favorably settled an electric rate dispute
with the City of Coffeyville during the third quarter of 2010.
This dispute unfavorably affected production cost per ton in
2009 and, once settled in the third quarter, favorably affected
production cost per ton in 2010. Excluding the amount of
property tax which CVR Partners is disputing and the electric
rate dispute and settlement, (i) for the year ended
December 31, 2010, the product production cost per ton
(exclusive of depreciation expense) for ammonia would have been
$193.86 and for UAN would have been $87.46, (ii) for the
year ended December 31, 2009, the product production cost
per ton (exclusive of depreciation expense) for ammonia would
have been $181.23 and for UAN would have been $84.37, and
(iii) for the year ended December 31, 2008, the
product production cost per ton (exclusive of depreciation
expense) for ammonia would have been $222.37 and for UAN would
have been $86.89. For a discussion of the property tax dispute,
see Managements Discussion and Analysis of Financial
Conditions and Results of Operations Factors
Affecting Comparability Fertilizer Plant Property
Taxes. |
|
|
|
(8) |
|
We use 1.1 tons of pet coke to produce 1.0 ton of
ammonia. |
|
|
|
(9) |
|
The gross tons produced for ammonia represent the total ammonia
produced, including ammonia produced that was upgraded into UAN.
The net tons available for sale represent the ammonia available
for sale that was not upgraded into UAN. |
|
|
|
(10) |
|
On-stream factor is the total number of hours operated divided
by the total number of hours in the reporting period. Excluding
the impact of the downtime associated with the Linde air
separation unit outage, the rupture of the high-pressure UAN
vessel and the major scheduled turnaround, the on-stream factors
for the year ended December 31, 2010 would have been 97.6%
for gasifier, 96.8% for ammonia and 96.1% for UAN. Excluding the
Linde air separation unit outage in 2009, the on-stream factors
would have been 99.3% for gasifier, 98.4% for ammonia and 96.1%
for UAN for the year ended December 31, 2009. Excluding the
turnaround performed in 2008 the on-stream factors would have
been 91.7% for gasifier, 90.2% for ammonia and 87.4% for UAN for
the year ended December 31, 2008. |
16
RISK
FACTORS
You should carefully consider each of the following risks and
all of the information set forth in this prospectus before
deciding to invest in our common units. If any of the following
risks and uncertainties develops into an actual event, our
business, financial condition, cash flows or results of
operations could be materially adversely affected. In that case,
we might not be able to pay distributions on our common units,
the trading price of our common units could decline, and you
could lose all or part of your investment. Although many of our
business risks are comparable to those faced by a corporation
engaged in a similar business, limited partner interests are
inherently different from the capital stock of a corporation and
involve additional risks described below.
Risks
Related to Our Business
We may
not have sufficient available cash to pay any quarterly
distribution on our common units. For the year ended
December 31, 2010, on a pro forma basis, our annual
distribution would have been
$ per unit, significantly
less than the $ per unit
distribution we project that we will be able to pay for the
twelve months ending March 31, 2012.
We may not have sufficient available cash each quarter to enable
us to pay any distributions to our common unitholders.
Furthermore, our partnership agreement does not require us to
pay distributions on a quarterly basis or otherwise. For the
year ended December 31, 2010, on a pro forma basis, our
annual distribution would have been
$ per unit, significantly
less than the $ per unit
distribution we project that we will to be able to pay for the
twelve months ending March 31, 2012. Our expected aggregate
annual distribution amount for the twelve months ending
March 31, 2012 is based on the price assumptions set forth
in Our Cash Distribution Policy and Restrictions on
Distributions Assumptions and Considerations.
If our price assumptions prove to be inaccurate, our actual
distribution for the twelve months ending March 31, 2012
will be significantly lower than our forecasted distribution, or
we may not be able to pay a distribution at all. The amount of
cash we will be able to distribute on our common units
principally depends on the amount of cash we generate from our
operations, which is directly dependent upon the operating
margins we generate, which have been volatile historically. Our
operating margins are significantly affected by the
market-driven UAN and ammonia prices we are able to charge our
customers and our pet coke-based gasification production costs,
as well as seasonality, weather conditions, governmental
regulation, unscheduled maintenance or downtime at our
facilities and global and domestic demand for nitrogen
fertilizer products, among other factors. In addition:
|
|
|
|
|
Our partnership agreement will not provide for any minimum
quarterly distribution and our quarterly distributions, if any,
will be subject to significant fluctuations directly related to
the cash we generate after payment of our fixed and variable
expenses due to the nature of our business.
|
|
|
|
The amount of distributions we make, if any, and the decision to
make any distribution at all will be determined by the board of
directors of our general partner, whose interests may differ
from those of our common unitholders. Our general partner has
limited fiduciary and contractual duties, which may permit it to
favor its own interests or the interests of CVR Energy to the
detriment of our common unitholders.
|
|
|
|
|
|
The new credit facility that we will enter into upon the closing
of this offering, and any credit facility or other debt
instruments we enter into in the future, may limit the
distributions that we can make. The new credit facility will
provide that we can make distributions to holders of our common
units, but only if we are in compliance with our leverage ratio
and interest coverage ratio covenants on a pro forma basis after
giving effect to any distribution, and there is no default or
event of default under the facility. In addition, any future
credit facility may contain other financial tests and covenants
that we must satisfy. Any failure to comply with these tests and
covenants could result in the lenders prohibiting distributions
by us.
|
|
|
|
|
|
The amount of available cash for distribution to our unitholders
depends primarily on our cash flow, and not solely on our
profitability, which is affected by non-cash items. As a result,
we may make distributions during periods when we record losses
and may not make distributions during periods when we record net
income.
|
|
|
|
The actual amount of available cash will depend on numerous
factors, some of which are beyond our control, including UAN and
ammonia prices, our operating costs, global and domestic demand
for nitrogen fertilizer products, fluctuations in our working
capital needs, and the amount of fees and expenses incurred by
us.
|
17
|
|
|
|
|
Under
Section 17-607
of the Delaware Revised Uniform Limited Partnership Act, or
Delaware Act, we may not make a distribution to our limited
partners if the distribution would cause our liabilities to
exceed the fair value of our assets.
|
For a description of additional restrictions and factors that
may affect our ability to make cash distributions, see Our
Cash Distribution Policy and Restrictions on Distributions.
The
amount of our quarterly cash distributions, if any, will vary
significantly both quarterly and annually and will be directly
dependent on the performance of our business. Unlike most
publicly traded partnerships, we will not have a minimum
quarterly distribution or employ structures intended to
consistently maintain or increase distributions over
time.
Investors who are looking for an investment that will pay
regular and predictable quarterly distributions should not
invest in our common units. We expect our business performance
will be more seasonal and volatile, and our cash flows will be
less stable, than the business performance and cash flows of
most publicly traded partnerships. As a result, our quarterly
cash distributions will be volatile and are expected to vary
quarterly and annually. Unlike most publicly traded
partnerships, we will not have a minimum quarterly distribution
or employ structures intended to consistently maintain or
increase distributions over time. The amount of our quarterly
cash distributions will be directly dependent on the performance
of our business, which has been volatile historically as a
result of volatile nitrogen fertilizer and natural gas prices,
and seasonal and global fluctuations in demand for nitrogen
fertilizer products. Because our quarterly distributions will be
subject to significant fluctuations directly related to the cash
we generate after payment of our fixed and variable expenses,
future quarterly distributions paid to our unitholders will vary
significantly from quarter to quarter and may be zero. Given the
seasonal nature of our business, we expect that our unitholders
will have direct exposure to fluctuations in the price of
nitrogen fertilizers. In addition, from time to time we make
prepaid sales, whereby we receive cash in respect of product to
be delivered in a future quarter but do not record revenue in
respect of such sales until product is delivered. The cash from
prepaid sales increases our operating cash flow in the quarter
when the cash is received.
The
board of directors of our general partner may modify or revoke
our cash distribution policy at any time at its discretion. Our
partnership agreement does not require us to make any
distributions at all.
The board of directors of our general partner will adopt a cash
distribution policy pursuant to which we will distribute all of
the available cash we generate each quarter to unitholders of
record on a pro rata basis. However, the board may change such
policy at any time at its discretion and could elect not to make
distributions for one or more quarters. Our partnership
agreement does not require us to make any distributions at all.
Accordingly, investors are cautioned not to place undue reliance
on the permanence of such a policy in making an investment
decision. Any modification or revocation of our cash
distribution policy could substantially reduce or eliminate the
amounts of distributions to our unitholders.
None
of the proceeds of this offering will be available to pay
distributions.
We will pay a substantial portion of the proceeds from this
offering, including all proceeds from the exercise of the
underwriters over-allotment option, after deducting
underwriting discounts and commissions, to our direct parent,
Coffeyville Resources. In addition, we intend to use net
proceeds from this offering that we retain to fund our planned
UAN expansion. Consequently, none of the proceeds from this
offering will be available to pay distributions to the public
unitholders. See Use of Proceeds.
The
assumptions underlying the forecast of available cash that we
include in Our Cash Distribution Policy and Restrictions
on Distributions Forecasted Available Cash are
inherently uncertain and are subject to significant business,
economic, regulatory and competitive risks and uncertainties
that could cause actual results to differ materially from those
forecasted.
Our forecast of available cash set forth in Our Cash
Distribution Policy and Restrictions on
Distributions Forecasted Available Cash
includes our forecast of results of operations and available
cash for the twelve months ending March 31, 2012. The
forecast has been prepared by the management of CVR Energy on
our behalf. Neither
18
our independent registered public accounting firm nor any other
independent accountants have examined, compiled or performed any
procedures with respect to the forecast, nor have they expressed
any opinion or any other form of assurance on such information
or its achievability, and they assume no responsibility for the
forecast. The assumptions underlying the forecast are inherently
uncertain and are subject to significant business, economic,
regulatory and competitive risks and uncertainties, including
those discussed in this section, that could cause actual results
to differ materially from those forecasted. If the forecasted
results are not achieved, we would not be able to pay the
forecasted annual distribution, in which event the market price
of the common units may decline materially. Our actual results
may differ materially from the forecasted results presented in
this prospectus. In addition, based on our historical results of
operations, which have been volatile, our annual distribution
for the year ended December 31, 2010, on a pro forma basis,
would have been significantly less than the distribution we
forecast that we will be able to pay for the twelve months
ending March 31, 2012. Investors should review the forecast
of our results of operations for the twelve months ending
March 31, 2012 together with the other information included
elsewhere in this prospectus, including Risk Factors
and Managements Discussion and Analysis of Financial
Condition and Results of Operations.
The
pro forma available cash information for the year ended
December 31, 2010 which we include in this prospectus does
not necessarily reflect the actual cash that would have been
available.
We have included in this prospectus pro forma available cash
information for the year ended December 31, 2010, which
indicates the amount of cash that we would have had available
for distribution during that period on a pro forma basis. This
pro forma information is based on numerous estimates and
assumptions. Our financial performance, had the Transactions (as
defined on page 47 of this prospectus) and the distribution
of the due from affiliate balance of $160.0 million owed to
us by Coffeyville Resources occurred at the beginning of such
twelve-month period, could have been materially different from
the pro forma results. Accordingly, investors should review the
unaudited pro forma information, including the related
footnotes, together with the other information included
elsewhere in this prospectus, including Risk Factors
and Managements Discussion and Analysis of Financial
Condition and Results of Operations. Our actual results
may differ, possibly materially, from those presented in the pro
forma available cash information.
The
nitrogen fertilizer business is, and nitrogen fertilizer prices
are, cyclical and highly volatile and have experienced
substantial downturns in the past. Cycles in demand and pricing
could potentially expose us to significant fluctuations in our
operating and financial results, and expose you to substantial
volatility in our quarterly cash distributions and material
reductions in the trading price of our common
units.
We are exposed to fluctuations in nitrogen fertilizer demand in
the agricultural industry. These fluctuations historically have
had and could in the future have significant effects on prices
across all nitrogen fertilizer products and, in turn, our
financial condition, cash flows and results of operations, which
could result in significant volatility or material reductions in
the price of our common units or an inability to make quarterly
cash distributions on our common units.
Nitrogen fertilizer products are commodities, the price of which
can be highly volatile. The price of nitrogen fertilizer
products depend on a number of factors, including general
economic conditions, cyclical trends in end-user markets, supply
and demand imbalances, and weather conditions, which have a
greater relevance because of the seasonal nature of fertilizer
application. If seasonal demand exceeds the projections on which
we base production, our customers may acquire nitrogen
fertilizer products from our competitors, and our profitability
will be negatively impacted. If seasonal demand is less than we
expect, we will be left with excess inventory that will have to
be stored or liquidated.
Demand for nitrogen fertilizer products is dependent on demand
for crop nutrients by the global agricultural industry.
Nitrogen-based fertilizers are currently in high demand, driven
by a growing world population, changes in dietary habits and an
expanded use of corn for the production of ethanol. Supply is
affected by available capacity and operating rates, raw material
costs, government policies and global trade. A decrease in
nitrogen fertilizer prices would have a material adverse effect
on our business, cash flow and ability to make distributions.
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The
costs associated with operating our nitrogen fertilizer plant
are largely fixed. If nitrogen fertilizer prices fall below a
certain level, we may not generate sufficient revenue to operate
profitably or cover our costs and our ability to make
distributions will be adversely impacted.
Our nitrogen fertilizer plant has largely fixed costs compared
to natural gas-based nitrogen fertilizer plants. As a result,
downtime, interruptions or low productivity due to reduced
demand, adverse weather conditions, equipment failure, a
decrease in nitrogen fertilizer prices or other causes can
result in significant operating losses. Declines in the price of
nitrogen fertilizer products could have a material adverse
effect on our results of operations, financial condition and
ability to make cash distributions. Unlike our competitors,
whose primary costs are related to the purchase of natural gas
and whose costs are therefore largely variable, we have largely
fixed costs that are not dependent on the price of natural gas
because we use pet coke as the primary feedstock in our nitrogen
fertilizer plant.
A
decline in natural gas prices could impact our relative
competitive position when compared to other nitrogen fertilizer
producers.
Most nitrogen fertilizer manufacturers rely on natural gas as
their primary feedstock, and the cost of natural gas is a large
component of the total production cost for natural gas-based
nitrogen fertilizer manufacturers. The dramatic increase in
nitrogen fertilizer prices in recent years was not the direct
result of an increase in natural gas prices, but rather the
result of increased demand for nitrogen-based fertilizers due to
historically low stocks of global grains and a surge in the
prices of corn and wheat, the primary crops in our region. This
increase in demand for nitrogen-based fertilizers has created an
environment in which nitrogen fertilizer prices have
disconnected from their traditional correlation with natural gas
prices. A decrease in natural gas prices would benefit our
competitors and could disproportionately impact our operations
by making us less competitive with natural gas-based nitrogen
fertilizer manufacturers. A decline in natural gas prices could
impair our ability to compete with other nitrogen fertilizer
producers who utilize natural gas as their primary feedstock,
and therefore have a material adverse impact on the trading
price of our common units. In addition, if natural gas prices in
the United States were to decline to a level that prompts those
U.S. producers who have permanently or temporarily closed
production facilities to resume fertilizer production, this
would likely contribute to a global supply/demand imbalance that
could negatively affect nitrogen fertilizer prices and therefore
have a material adverse effect on our results of operations,
financial condition, cash flows, and ability to make cash
distributions.
Any
decline in U.S. agricultural production or limitations on the
use of nitrogen fertilizer for agricultural purposes could have
a material adverse effect on the market for nitrogen fertilizer,
and on our results of operations, financial condition and
ability to make cash distributions.
Conditions in the U.S. agricultural industry significantly
impact our operating results. The U.S. agricultural
industry can be affected by a number of factors, including
weather patterns and field conditions, current and projected
grain inventories and prices, domestic and international demand
for U.S. agricultural products and U.S. and foreign
policies regarding trade in agricultural products.
State and federal governmental policies, including farm and
biofuel subsidies and commodity support programs, as well as the
prices of fertilizer products, may also directly or indirectly
influence the number of acres planted, the mix of crops planted
and the use of fertilizers for particular agricultural
applications. Developments in crop technology, such as nitrogen
fixation, the conversion of atmospheric nitrogen into compounds
that plants can assimilate, could also reduce the use of
chemical fertilizers and adversely affect the demand for
nitrogen fertilizer. In addition, from time to time various
state legislatures have considered limitations on the use and
application of chemical fertilizers due to concerns about the
impact of these products on the environment.
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A
major factor underlying the current high level of demand for our
nitrogen-based fertilizer products is the expanding production
of ethanol. A decrease in ethanol production, an increase in
ethanol imports or a shift away from corn as a principal raw
material used to produce ethanol could have a material adverse
effect on our results of operations, financial condition and
ability to make cash distributions.
A major factor underlying the current high level of demand for
our nitrogen-based fertilizer products is the expanding
production of ethanol in the United States and the expanded use
of corn in ethanol production. Ethanol production in the United
States is highly dependent upon a myriad of federal and state
legislation and regulations, and is made significantly more
competitive by various federal and state incentives. Such
incentive programs may not be renewed, or if renewed, they may
be renewed on terms significantly less favorable to ethanol
producers than current incentive programs. Studies showing that
expanded ethanol production may increase the level of greenhouse
gases in the environment may reduce political support for
ethanol production. The elimination or significant reduction in
ethanol incentive programs, such as the 45 cents per gallon
ethanol tax credit and the 54 cents per gallon ethanol
import tariff, could have a material adverse effect on our
results of operations, financial condition and ability to make
cash distributions.
Further, most ethanol is currently produced from corn and other
raw grains, such as milo or sorghum especially in
the Midwest. The current trend in ethanol production research is
to develop an efficient method of producing ethanol from
cellulose-based biomass, such as agricultural waste, forest
residue, municipal solid waste and energy crops (plants grown
for use to make biofuels or directly exploited for their energy
content). This trend is driven by the fact that cellulose-based
biomass is generally cheaper than corn, and producing ethanol
from cellulose-based biomass would create opportunities to
produce ethanol in areas that are unable to grow corn. Although
current technology is not sufficiently efficient to be
competitive, new conversion technologies may be developed in the
future. If an efficient method of producing ethanol from
cellulose-based biomass is developed, the demand for corn may
decrease significantly, which could reduce demand for our
nitrogen fertilizer products and have a material adverse effect
on our results of operations, financial condition and ability to
make cash distributions.
Nitrogen
fertilizer products are global commodities, and we face intense
competition from other nitrogen fertilizer
producers.
Our business is subject to intense price competition from both
U.S. and foreign sources, including competitors operating
in the Persian Gulf, the Asia-Pacific region, the Caribbean,
Russia and the Ukraine. Fertilizers are global commodities, with
little or no product differentiation, and customers make their
purchasing decisions principally on the basis of delivered price
and availability of the product. Furthermore, in recent years
the price of nitrogen fertilizer in the United States has been
substantially driven by pricing in the global fertilizer market.
We compete with a number of U.S. producers and producers in
other countries, including state-owned and government-subsidized
entities. Some competitors have greater total resources and are
less dependent on earnings from fertilizer sales, which makes
them less vulnerable to industry downturns and better positioned
to pursue new expansion and development opportunities.
Competitors utilizing different corporate structures may be
better able to withstand lower cash flows than we can as a
limited partnership. Our competitive position could suffer to
the extent we are not able to expand our own resources either
through investments in new or existing operations or through
acquisitions, joint ventures or partnerships. An inability to
compete successfully could result in the loss of customers,
which could adversely affect our sales and profitability, and
our ability to make cash distributions.
Adverse
weather conditions during peak fertilizer application periods
may have a material adverse effect on our results of operations,
financial condition and ability to make cash distributions,
because our agricultural customers are geographically
concentrated.
Our sales of nitrogen fertilizer products to agricultural
customers are concentrated in the Great Plains and Midwest
states and are seasonal in nature. For example, we generate
greater net sales and operating income in the first half of the
year, which we refer to as the planting season, compared to the
second half of the year. Accordingly, an adverse weather pattern
affecting agriculture in these regions or during the planting
season could have a negative effect on fertilizer demand, which
could, in turn, result in a material decline in our net sales
and margins and otherwise have a material adverse effect on our
results of operations, financial condition and ability to make
cash distributions. Our quarterly results may vary significantly
from one year to the next due largely to weather-related
21
shifts in planting schedules and purchase patterns. In addition,
given the seasonal nature of our business, we expect that our
distributions will be volatile and will vary quarterly and
annually.
Our
business is seasonal, which may result in our carrying
significant amounts of inventory and seasonal variations in
working capital. Our inability to predict future seasonal
nitrogen fertilizer demand accurately may result in excess
inventory or product shortages.
Our business is seasonal. Farmers tend to apply nitrogen
fertilizer during two short application periods, one in the
spring and the other in the fall. The strongest demand for our
products typically occurs during the planting season. In
contrast, we and other nitrogen fertilizer producers generally
produce our products throughout the year. As a result, we and
our customers generally build inventories during the low demand
periods of the year in order to ensure timely product
availability during the peak sales seasons. The seasonality of
nitrogen fertilizer demand results in our sales volumes and net
sales being highest during the North American spring season and
our working capital requirements typically being highest just
prior to the start of the spring season.
If seasonal demand exceeds our projections, we will not have
enough product and our customers may acquire products from our
competitors, which would negatively impact our profitability. If
seasonal demand is less than we expect, we will be left with
excess inventory and higher working capital and liquidity
requirements.
The degree of seasonality of our business can change
significantly from year to year due to conditions in the
agricultural industry and other factors. As a consequence of our
seasonality, we expect that our distributions will be volatile
and will vary quarterly and annually.
Our
operations are dependent on third-party suppliers, including
Linde, which owns an air separation plant that provides oxygen,
nitrogen and compressed dry air to our gasifiers, and the City
of Coffeyville, which supplies us with electricity. A
deterioration in the financial condition of a third-party
supplier, a mechanical problem with the air separation plant, or
the inability of a third-party supplier to perform in accordance
with its contractual obligations could have a material adverse
effect on our results of operations, financial condition and our
ability to make cash distributions.
Our operations depend in large part on the performance of
third-party suppliers, including Linde for the supply of oxygen,
nitrogen and compressed dry air, and the City of Coffeyville for
the supply of electricity. With respect to Linde, our operations
could be adversely affected if there were a deterioration in
Lindes financial condition such that the operation of the
air separation plant located adjacent to our nitrogen fertilizer
plant was disrupted. Additionally, this air separation plant in
the past has experienced numerous short-term interruptions,
causing interruptions in our gasifier operations. With respect
to electricity, we recently settled litigation with the City of
Coffeyville regarding the price they sought to charge us for
electricity and entered into an amended and restated electric
services agreement which gives us an option to extend the term
of such agreement through June 30, 2024. Should Linde, the
City of Coffeyville or any of our other third-party suppliers
fail to perform in accordance with existing contractual
arrangements, our operation could be forced to halt. Alternative
sources of supply could be difficult to obtain. Any shutdown of
our operations, even for a limited period, could have a material
adverse effect on our results of operations, financial condition
and ability to make cash distributions.
Our
results of operations, financial condition and ability to make
cash distributions may be adversely affected by the supply and
price levels of pet coke. Failure by CVR Energy to continue to
supply us with pet coke (to the extent third-party pet coke is
unavailable or available only at higher prices), or CVR
Energys imposition of an obligation to provide it with
security for our payment obligations, could negatively impact
our results of operations.
Our profitability is directly affected by the price and
availability of pet coke obtained from CVR Energys crude
oil refinery pursuant to a long-term agreement and pet coke
purchased from third parties, both of which vary based on market
prices. Pet coke is a key raw material used by us in the
manufacture of nitrogen fertilizer products. If pet coke costs
increase, we may not be able to increase our prices to recover
these increased costs, because market prices for our nitrogen
fertilizer products are not correlated with pet coke prices.
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Based on our current output, we obtain most (over 70% on average
during the last five years) of the pet coke we need from CVR
Energys adjacent crude oil refinery, and procure the
remainder on the open market. The price that we pay CVR Energy
for pet coke is based on the lesser of a pet coke price derived
from the price we receive for UAN (subject to a UAN-based price
ceiling and floor) and a pet coke index price. In most cases,
the price we pay CVR Energy will be lower than the price which
we would otherwise pay to third parties. Pet coke prices could
significantly increase in the future. Should CVR Energy fail to
perform in accordance with our existing agreement, we would need
to purchase pet coke from third parties on the open market,
which could negatively impact our results of operations to the
extent third-party pet coke is unavailable or available only at
higher prices. For the year ended December 31, 2010, if we
had been forced to obtain 100% of our pet coke supply from third
parties, our pet coke expense would have increased by
approximately $10.0 million.
We may not be able to maintain an adequate supply of pet coke.
In addition, we could experience production delays or cost
increases if alternative sources of supply prove to be more
expensive or difficult to obtain. We currently purchase 100% of
the pet coke CVR Energy produces. Accordingly, if we increase
our production, we will be more dependent on pet coke purchases
from third-party suppliers at open market prices. There is no
assurance that we would be able to purchase pet coke on
comparable terms from third parties or at all.
Under our pet coke agreement with CVR Energy, we may become
obligated to provide security for our payment obligations if, in
CVR Energys sole judgment, there is a material adverse
change in our financial condition or liquidity position or in
our ability to pay for our pet coke purchases. See Certain
Relationships and Related Party Transactions
Agreements with CVR Energy Coke Supply
Agreement.
We
rely on third-party providers of transportation services and
equipment, which subjects us to risks and uncertainties beyond
our control that may have a material adverse effect on our
results of operations, financial condition and ability to make
distributions.
We rely on railroad and trucking companies to ship finished
products to our customers. We also lease railcars from railcar
owners in order to ship our finished products. These
transportation operations, equipment and services are subject to
various hazards, including extreme weather conditions, work
stoppages, delays, spills, derailments and other accidents and
other operating hazards.
These transportation operations, equipment and services are also
subject to environmental, safety and other regulatory oversight.
Due to concerns related to terrorism or accidents, local, state
and federal governments could implement new regulations
affecting the transportation of our finished products. In
addition, new regulations could be implemented affecting the
equipment used to ship our finished products.
Any delay in our ability to ship our finished products as a
result of these transportation companies failure to
operate properly, the implementation of new and more stringent
regulatory requirements affecting transportation operations or
equipment, or significant increases in the cost of these
services or equipment could have a material adverse effect on
our results of operations, financial condition and ability to
make cash distributions.
Our
facility faces operating hazards and interruptions, including
unscheduled maintenance or downtime. We could face potentially
significant costs to the extent these hazards or interruptions
cause a material decline in production and are not fully covered
by our existing insurance coverage. Insurance companies that
currently insure companies in our industry may cease to do so,
may change the coverage provided or may substantially increase
premiums in the future.
Our operations, located at a single location, are subject to
significant operating hazards and interruptions. Any significant
curtailing of production at our nitrogen fertilizer plant or
individual units within our plant could result in materially
lower levels of revenues and cash flow for the duration of any
shutdown and materially adversely impact our ability to make
cash distributions. Operations at our nitrogen fertilizer plant
could be curtailed or partially or completely shut down,
temporarily or permanently, as the result of a number of
circumstances, most of which are not within our control, such as:
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unscheduled maintenance or catastrophic events such as a major
accident or fire, damage by severe weather, flooding or other
natural disaster;
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labor difficulties that result in a work stoppage or slowdown;
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environmental proceedings or other litigation that compel the
cessation of all or a portion of the operations at our nitrogen
fertilizer plant;
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increasingly stringent environmental regulations;
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a disruption in the supply of pet coke to our nitrogen
fertilizer plant; and
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a governmental ban or other limitation on the use of nitrogen
fertilizer products, either generally or specifically those
manufactured at our plant.
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The magnitude of the effect on us of any shutdown will depend on
the length of the shutdown and the extent of the plant
operations affected by the shutdown. Our plant requires a
scheduled maintenance turnaround every two years, which
generally lasts up to three weeks and may have a material impact
on our cash flows and ability to make cash distributions in the
quarter or quarters in which it occurs. A major accident, fire,
flood, or other event could damage our facility or the
environment and the surrounding community or result in injuries
or loss of life. For example, the flood that occurred during the
weekend of June 30, 2007 shut down our facility for
approximately two weeks and required significant expenditures to
repair damaged equipment, and our UAN plant was out of service
for approximately six weeks after the rupture of a high pressure
vessel in September 2010, which had a significant impact on our
revenues and cash flows for the fourth quarter of 2010.
Moreover, our facility is located adjacent to CVR Energys
refining operations and a major accident or disaster at CVR
Energys operations could adversely affect our operations.
Scheduled and unscheduled maintenance could reduce our net
income, cash flow and ability to make cash distributions during
the period of time that any of our units is not operating. Any
unscheduled future downtime could have a material adverse effect
on our ability to make cash distributions to our unitholders.
If we experience significant property damage, business
interruption, environmental claims or other liabilities, our
business could be materially adversely affected to the extent
the damages or claims exceed the amount of valid and collectible
insurance available to us. We are currently insured under CVR
Energys casualty, environmental, property and business
interruption insurance policies. The property and business
interruption insurance policies have a $1.0 billion limit,
with a $2.5 million deductible for physical damage and a
45-day
waiting period before losses resulting from business
interruptions are recoverable. The policies also contain
exclusions and conditions that could have a materially adverse
impact on our ability to receive indemnification thereunder, as
well as customary
sub-limits
for particular types of losses. For example, the current
property policy contains a specific
sub-limit of
$150.0 million for damage caused by flooding. We are fully
exposed to all losses in excess of the applicable limits and
sub-limits
and for losses due to business interruptions of fewer than
45 days.
We will continue to be covered under CVR Energys insurance
policies following this offering. CVR Energys casualty
insurance policy, which includes our environmental insurance
coverage for sudden and accidental pollution events, expires on
July 1, 2011, and its current property and business
interruption insurance policies expire on November 1, 2011.
We do not know whether we will be able to continue to be covered
under CVR Energys insurance policies when these policies
come up for renewal in 2011 or whether we will need to obtain
separate insurance policies, or the terms or cost of insurance
that CVR Energy or we will be able to obtain at such time.
Market factors, including but not limited to catastrophic perils
that impact our industry, significant changes in the investment
returns of insurance companies, insurance company solvency
trends and industry loss ratios and loss trends, can negatively
impact the future cost and availability of insurance. There can
be no assurance that CVR Energy or we will be able to buy and
maintain insurance with adequate limits, reasonable pricing
terms and conditions.
24
Our
results of operations are highly dependent upon and fluctuate
based upon business and economic conditions and governmental
policies affecting the agricultural industry. These factors are
outside of our control and may significantly affect our
profitability.
Our results of operations are highly dependent upon business and
economic conditions and governmental policies affecting the
agricultural industry, which we cannot control. The agricultural
products business can be affected by a number of factors. The
most important of these factors, for U.S. markets, are:
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weather patterns and field conditions (particularly during
periods of traditionally high nitrogen fertilizer consumption);
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quantities of nitrogen fertilizers imported to and exported from
North America;
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current and projected grain inventories and prices, which are
heavily influenced by U.S. exports and world-wide grain
markets; and
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U.S. governmental policies, including farm and biofuel
policies, which may directly or indirectly influence the number
of acres planted, the level of grain inventories, the mix of
crops planted or crop prices.
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International market conditions, which are also outside of our
control, may also significantly influence our operating results.
The international market for nitrogen fertilizers is influenced
by such factors as the relative value of the U.S. dollar
and its impact upon the cost of importing nitrogen fertilizers,
foreign agricultural policies, the existence of, or changes in,
import or foreign currency exchange barriers in certain foreign
markets, changes in the hard currency demands of certain
countries and other regulatory policies of foreign governments,
as well as the laws and policies of the United States affecting
foreign trade and investment.
Ammonia
can be very volatile and extremely hazardous. Any liability for
accidents involving ammonia that cause severe damage to property
or injury to the environment and human health could have a
material adverse effect on our results of operations, financial
condition and ability to make cash distributions. In addition,
the costs of transporting ammonia could increase significantly
in the future.
We manufacture, process, store, handle, distribute and transport
ammonia, which can be very volatile and extremely hazardous.
Major accidents or releases involving ammonia could cause severe
damage or injury to property, the environment and human health,
as well as a possible disruption of supplies and markets. Such
an event could result in civil lawsuits, fines, penalties and
regulatory enforcement proceedings, all of which could lead to
significant liabilities. Any damage to persons, equipment or
property or other disruption of our ability to produce or
distribute our products could result in a significant decrease
in operating revenues and significant additional cost to replace
or repair and insure our assets, which could have a material
adverse effect on our results of operations, financial condition
and ability to make cash distributions. We periodically
experience minor releases of ammonia related to leaks from our
equipment. We experienced more significant ammonia releases in
August 2007 due to the failure of a high-pressure pump and in
August and September 2010 due to a heat exchanger leak and a UAN
vessel rupture. Similar events may occur in the future.
In addition, we may incur significant losses or costs relating
to the operation of our railcars used for the purpose of
carrying various products, including ammonia. Due to the
dangerous and potentially toxic nature of the cargo, in
particular ammonia, on board railcars, a railcar accident may
result in fires, explosions and pollution. These circumstances
may result in sudden, severe damage or injury to property, the
environment and human health. In the event of pollution, we may
be held responsible even if we are not at fault and we complied
with the laws and regulations in effect at the time of the
accident. Litigation arising from accidents involving ammonia
may result in our being named as a defendant in lawsuits
asserting claims for large amounts of damages, which could have
a material adverse effect on our results of operations,
financial condition and ability to make cash distributions.
Given the risks inherent in transporting ammonia, the costs of
transporting ammonia could increase significantly in the future.
Ammonia is most typically transported by railcar. A number of
initiatives are underway in the railroad and chemical industries
that may result in changes to railcar design in order to
minimize railway accidents involving hazardous materials. If any
such design changes are implemented, or if accidents involving
hazardous freight increase the insurance and other costs of
railcars, our freight costs could significantly increase.
25
Environmental
laws and regulations could require us to make substantial
capital expenditures to remain in compliance or to remediate
current or future contamination that could give rise to material
liabilities.
Our operations are subject to a variety of federal, state and
local environmental laws and regulations relating to the
protection of the environment, including those governing the
emission or discharge of pollutants into the environment,
product specifications and the generation, treatment, storage,
transportation, disposal and remediation of solid and hazardous
waste and materials. Violations of these laws and regulations or
permit conditions can result in substantial penalties,
injunctive orders compelling installation of additional
controls, civil and criminal sanctions, permit revocations or
facility shutdowns.
In addition, new environmental laws and regulations, new
interpretations of existing laws and regulations, increased
governmental enforcement of laws and regulations or other
developments could require us to make additional unforeseen
expenditures. Many of these laws and regulations are becoming
increasingly stringent, and the cost of compliance with these
requirements can be expected to increase over time. The
requirements to be met, as well as the technology and length of
time available to meet those requirements, continue to develop
and change. These expenditures or costs for environmental
compliance could have a material adverse effect on our results
of operations, financial condition and ability to make cash
distributions.
Our facility operates under a number of federal and state
permits, licenses and approvals with terms and conditions
containing a significant number of prescriptive limits and
performance standards in order to operate. Our facility is also
required to comply with prescriptive limits and meet performance
standards specific to chemical facilities as well as to general
manufacturing facilities. All of these permits, licenses,
approvals and standards require a significant amount of
monitoring, record keeping and reporting in order to demonstrate
compliance with the underlying permit, license, approval or
standard. Incomplete documentation of compliance status may
result in the imposition of fines, penalties and injunctive
relief. Additionally, due to the nature of our manufacturing
processes, there may be times when we are unable to meet the
standards and terms and conditions of these permits and licenses
due to operational upsets or malfunctions, which may lead to the
imposition of fines and penalties or operating restrictions that
may have a material adverse effect on our ability to operate our
facilities and accordingly our financial performance.
Our business is subject to accidental spills, discharges or
other releases of hazardous substances into the environment.
Past or future spills related to our nitrogen fertilizer plant
or transportation of products or hazardous substances from our
facility may give rise to liability (including strict liability,
or liability without fault, and potential cleanup
responsibility) to governmental entities or private parties
under federal, state or local environmental laws, as well as
under common law. For example, we could be held strictly liable
under the Comprehensive Environmental Response, Compensation and
Liability Act, or CERCLA, for past or future spills without
regard to fault or whether our actions were in compliance with
the law at the time of the spills. Pursuant to CERCLA and
similar state statutes, we could be held liable for
contamination associated with the facility we currently own and
operate, facilities we formerly owned or operated (if any) and
facilities to which we transported or arranged for the
transportation of wastes or byproducts containing hazardous
substances for treatment, storage, or disposal. The potential
penalties and cleanup costs for past or future releases or
spills, liability to third parties for damage to their property
or exposure to hazardous substances, or the need to address
newly discovered information or conditions that may require
response actions could be significant and could have a material
adverse effect on our results of operations, financial condition
and ability to make cash distributions.
In addition, we may incur liability for alleged personal injury
or property damage due to exposure to chemicals or other
hazardous substances located at or released from our facility.
We may also face liability for personal injury, property damage,
natural resource damage or for cleanup costs for the alleged
migration of contamination or other hazardous substances from
our facility to adjacent and other nearby properties.
We may incur future costs relating to the off-site disposal of
hazardous wastes. Companies that dispose of, or arrange for the
transportation or disposal of, hazardous substances at off-site
locations may be held jointly and severally liable for the costs
of investigation and remediation of contamination at those
off-site locations, regardless of fault. We could become
involved in litigation or other proceedings involving off-site
waste disposal and the damages or costs in any such proceedings
could be material.
26
We may
be unable to obtain or renew permits necessary for our
operations, which could inhibit our ability to do
business.
We hold numerous environmental and other governmental permits
and approvals authorizing operations at our nitrogen fertilizer
facility. Expansion of our operations is also predicated upon
securing the necessary environmental or other permits or
approvals. A decision by a government agency to deny or delay
issuing a new or renewed material permit or approval, or to
revoke or substantially modify an existing permit or approval,
could have a material adverse effect on our ability to continue
operations and on our business, financial condition, results of
operations and ability to make cash distributions.
Environmental
laws and regulations on fertilizer end-use and application and
numeric nutrient water quality criteria could have a material
adverse impact on fertilizer demand in the future.
Future environmental laws and regulations on the end-use and
application of fertilizers could cause changes in demand for our
products. In addition, future environmental laws and
regulations, or new interpretations of existing laws or
regulations, could limit our ability to market and sell our
products to end users. From time to time, various state
legislatures have proposed bans or other limitations on
fertilizer products. In addition, a number of states have
adopted or proposed numeric nutrient water quality criteria that
could result in decreased demand for our fertilizer products in
those states. Similarly, a new final Environmental Protection
Agency, or EPA, rule establishing numeric nutrient criteria for
certain Florida water bodies may require farmers to implement
best management practices, including the reduction of fertilizer
use, to reduce the impact of fertilizer on water quality. Any
such laws, regulations or interpretations could have a material
adverse effect on our results of operations, financial condition
and ability to make cash distributions.
Climate
change laws and regulations could have a material adverse effect
on our results of operations, financial condition, and ability
to make cash distributions.
Currently, various legislative and regulatory measures to
address greenhouse gas emissions (including
CO2,
methane and nitrous oxides) are in various phases of discussion
or implementation. At the federal legislative level, Congress
could adopt some form of federal mandatory greenhouse gas
emission reduction laws, although the specific requirements and
timing of any such laws are uncertain at this time. In June
2009, the U.S. House of Representatives passed a bill that
would create a nationwide
cap-and-trade
program designed to regulate emissions of
CO2,
methane and other greenhouse gases. A similar bill was
introduced in the U.S. Senate, but was not voted upon.
Congressional passage of such legislation does not appear likely
at this time, though it could be adopted at a future date. It is
also possible that Congress may pass alternative climate change
bills that do not mandate a nationwide
cap-and-trade
program and instead focus on promoting renewable energy and
energy efficiency.
In the absence of congressional legislation curbing greenhouse
gas emissions, the EPA is moving ahead administratively under
its federal Clean Air Act authority. In October 2009, the EPA
finalized a rule requiring certain large emitters of greenhouse
gases to inventory and report their greenhouse gas emissions to
the EPA. In accordance with the rule, we have begun monitoring
our greenhouse gas emissions from our nitrogen fertilizer plant
and will report the emissions to the EPA beginning in 2011. On
December 7, 2009, the EPA finalized its endangerment
finding that greenhouse gas emissions, including
CO2,
pose a threat to human health and welfare. The finding allows
the EPA to regulate greenhouse gas emissions as air pollutants
under the federal Clean Air Act. In May 2010, the EPA finalized
the Greenhouse Gas Tailoring Rule, which establishes
new greenhouse gas emissions thresholds that determine when
stationary sources, such as our nitrogen fertilizer plant, must
obtain permits under the Prevention of Significant
Deterioration, or PSD, and Title V programs of the federal
Clean Air Act. The significance of the permitting requirement is
that, in cases where a new source is constructed or an existing
source undergoes a major modification, the facility would need
to evaluate and install best available control technology, or
BACT, for its greenhouse gas emissions. Phase-in permit
requirements will begin for the largest stationary sources in
2011. We do not currently anticipate that our UAN expansion
project will result in a significant increase in greenhouse gas
emissions triggering the need to install BACT. However,
beginning in July 2011, a major modification resulting in a
significant expansion of production at our nitrogen fertilizer
plant resulting in a significant increase in greenhouse gas
emissions may require us to install BACT for our greenhouse gas
emissions. The EPAs endangerment finding, the Greenhouse
Gas Tailoring Rule and certain other greenhouse gas emission
27
rules have been challenged and will likely be subject to
extensive litigation. In addition, a number of Congressional
bills to overturn the endangerment finding and bar the EPA from
regulating greenhouse gas emissions, or at least to defer such
action by the EPA under the federal Clean Air Act, have been
proposed in the past, although President Obama has announced his
intention to veto any such bills if passed.
In addition to federal regulations, a number of states have
adopted regional greenhouse gas initiatives to reduce
CO2
and other greenhouse gas emissions. In 2007, a group of Midwest
states, including Kansas (where our nitrogen fertilizer facility
is located), formed the Midwestern Greenhouse Gas Reduction
Accord, which calls for the development of a
cap-and-trade
system to control greenhouse gas emissions and for the inventory
of such emissions. However, the individual states that have
signed on to the accord must adopt laws or regulations
implementing the trading scheme before it becomes effective, and
the timing and specific requirements of any such laws or
regulations in Kansas are uncertain at this time.
The implementation of EPA regulations
and/or the
passage of federal or state climate change legislation will
likely result in increased costs to (i) operate and
maintain our facilities, (ii) install new emission controls
on our facilities and (iii) administer and manage any
greenhouse gas emissions program. Increased costs associated
with compliance with any future legislation or regulation of
greenhouse gas emissions, if it occurs, may have a material
adverse effect on our results of operations, financial condition
and ability to make cash distributions.
In addition, climate change legislation and regulations may
result in increased costs not only for our business but also for
agricultural producers that utilize our fertilizer products,
thereby potentially decreasing demand for our fertilizer
products. Decreased demand for our fertilizer products may have
a material adverse effect on our results of operations,
financial condition and ability to make cash distributions.
New
regulations concerning the transportation of hazardous
chemicals, risks of terrorism and the security of chemical
manufacturing facilities could result in higher operating
costs.
The costs of complying with regulations relating to the
transportation of hazardous chemicals and security associated
with our nitrogen fertilizer facility may have a material
adverse effect on our results of operations, financial condition
and ability to make cash distributions. Targets such as chemical
manufacturing facilities may be at greater risk of future
terrorist attacks than other targets in the United States. The
chemical industry has responded to the issues that arose in
response to the terrorist attacks on September 11, 2001 by
starting new initiatives relating to the security of chemical
industry facilities and the transportation of hazardous
chemicals in the United States. Future terrorist attacks could
lead to even stronger, more costly initiatives. Simultaneously,
local, state and federal governments have begun a regulatory
process that could lead to new regulations impacting the
security of chemical plant locations and the transportation of
hazardous chemicals. Our business could be materially adversely
affected by the cost of complying with new regulations.
Our
plans to address our
CO2production
may not be successful.
We have signed a letter of intent whereby we may, in the future,
sell up to 850,000 tons per year of high purity
CO2
produced by our nitrogen fertilizer plant to an oil and gas
exploration and production company for purposes of enhanced oil
recovery. We cannot guarantee that this proposed
CO2
capture and storage system will be constructed successfully or
at all or, if constructed, that it will provide an economic
benefit and will not result in economic losses or additional
costs that may have a material adverse effect on our results of
operations, financial condition and ability to make cash
distributions.
Due to
our lack of asset diversification, adverse developments in the
nitrogen fertilizer industry could adversely affect our results
of operations and our ability to make distributions to our
unitholders.
We rely exclusively on the revenues generated from our nitrogen
fertilizer business. An adverse development in the nitrogen
fertilizer industry would have a significantly greater impact on
our operations and cash available for distribution to holders of
common units than it will on other companies with a more diverse
asset and product base. The largest publicly traded companies
with which we compete sell a more varied range of fertilizer
products.
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Our
business depends on significant customers, and the loss of one
or several significant customers may have a material adverse
effect on our results of operations, financial condition and
ability to make cash distributions.
Our business has a high concentration of customers. In the
aggregate, our top five ammonia customers represented 54.7%,
43.9%, and 44.2%, respectively, of our ammonia sales, and our
top five UAN customers represented 37.2%, 44.2%, and 43.3%,
respectively, of our UAN sales, for the years ended
December 31, 2008, 2009 and 2010. Given the nature of our
business, and consistent with industry practice, we do not have
long-term minimum purchase contracts with any of our customers.
The loss of one or several of these significant customers, or a
significant reduction in purchase volume by any of them, could
have a material adverse effect on our results of operations,
financial condition and ability to make cash distributions.
There
is no assurance that the transportation costs of our competitors
will not decline.
Our nitrogen fertilizer plant is located within the U.S. farm
belt, where the majority of the end users of our nitrogen
fertilizers grow their crops. Many of our competitors produce
fertilizer outside this region and incur greater costs in
transporting their products over longer distances via rail,
ships and pipelines. There can be no assurance that our
competitors transportation costs will not decline or that
additional pipelines will not be built, lowering the price at
which our competitors can sell their products, which could have
a material adverse effect on our results of operations,
financial condition and ability to make cash distributions.
We are
subject to strict laws and regulations regarding employee and
process safety, and failure to comply with these laws and
regulations could have a material adverse effect on our results
of operations, financial condition and ability to make cash
distributions.
Our facility is subject to the requirements of the federal
Occupational Safety and Health Act, or OSHA, and comparable
state statutes that regulate the protection of the health and
safety of workers. In addition, OSHA requires that we maintain
information about hazardous materials used or produced in our
operations and that we provide this information to employees,
state and local governmental authorities, and local residents.
Failure to comply with OSHA requirements, including general
industry standards, record keeping requirements and monitoring
and control of occupational exposure to regulated substances,
could have a material adverse effect on our results of
operations, financial condition and ability to make cash
distributions if we are subjected to significant fines or
compliance costs.
Instability
and volatility in the global capital and credit markets could
negatively impact our business, financial condition, results of
operations and cash flows.
The global capital and credit markets have experienced extreme
volatility and disruption over the past two years. Our results
of operations, financial condition and ability to make cash
distributions could be negatively impacted by difficult
conditions and extreme volatility in the capital, credit and
commodities markets and in the global economy. These factors,
combined with declining business and consumer confidence and
increased unemployment, precipitated an economic recession in
the United States and globally during 2009 and 2010. The
difficult conditions in these markets and the overall economy
affect us in a number of ways. For example:
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Although we believe we will have sufficient liquidity under our
new credit facility to run our business, under extreme market
conditions there can be no assurance that such funds would be
available or sufficient, and in such a case, we may not be able
to successfully obtain additional financing on favorable terms,
or at all.
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Market volatility could exert downward pressure on the price of
our common units, which may make it more difficult for us to
raise additional capital and thereby limit our ability to grow.
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Market conditions could result in our significant customers
experiencing financial difficulties. We are exposed to the
credit risk of our customers, and their failure to meet their
financial obligations when due because of bankruptcy, lack of
liquidity, operational failure or other reasons could result in
decreased sales and earnings for us.
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Our
acquisition and expansion strategy involves significant
risks.
One of our business strategies is to pursue acquisitions and
expansion projects (including expanding our UAN capacity).
However, acquisitions and expansions involve numerous risks and
uncertainties, including intense competition for suitable
acquisition targets, the potential unavailability of financial
resources necessary to consummate acquisitions and expansions,
difficulties in identifying suitable acquisition targets and
expansion projects or in completing any transactions identified
on sufficiently favorable terms; and the need to obtain
regulatory or other governmental approvals that may be necessary
to complete acquisitions and expansions. In addition, any future
acquisitions and expansions may entail significant transaction
costs, tax consequences and risks associated with entry into new
markets and lines of business.
We intend to move forward with an expansion of our nitrogen
fertilizer plant, which will allow us the flexibility to upgrade
all of our ammonia production to UAN. This expansion is premised
in large part on the historically higher margin that we have
received for UAN compared to ammonia. If the premium that UAN
currently earns over ammonia decreases, this expansion project
may not yield the economic benefits and accretive effects that
we currently anticipate.
In addition to the risks involved in identifying and completing
acquisitions described above, even when acquisitions are
completed, integration of acquired entities can involve
significant difficulties, such as:
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unforeseen difficulties in the acquired operations and
disruption of the ongoing operations of our business;
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failure to achieve cost savings or other financial or operating
objectives with respect to an acquisition;
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strain on the operational and managerial controls and procedures
of our business, and the need to modify systems or to add
management resources;
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difficulties in the integration and retention of customers or
personnel and the integration and effective deployment of
operations or technologies;
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assumption of unknown material liabilities or regulatory
non-compliance issues;
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amortization of acquired assets, which would reduce future
reported earnings;
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possible adverse short-term effects on our cash flows or
operating results; and
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diversion of managements attention from the ongoing
operations of our business.
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In addition, in connection with any potential acquisition or
expansion project, we will need to consider whether the business
we intend to acquire or expansion project we intend to pursue
(including the project relating to
CO2
sequestration or sale) could affect our tax treatment as a
partnership for U.S. federal income tax purposes. If we are
otherwise unable to conclude that the activities of the business
being acquired or the expansion project would not affect our
treatment as a partnership for U.S. federal income tax
purposes, we could seek a ruling from the Internal Revenue
Service, or IRS. Seeking such a ruling could be costly or, in
the case of competitive acquisitions, place us in a competitive
disadvantage compared to other potential acquirers who do not
seek such a ruling. If we are unable to conclude that an
activity would not affect our treatment as a partnership for
U.S. federal income tax purposes, we could choose to
acquire such business or develop such expansion project in a
corporate subsidiary, which would subject the income related to
such activity to entity-level taxation. See
Tax Risks Our tax treatment
depends on our status as a partnership for U.S. federal
income tax purposes, as well as our not being subject to a
material amount of entity-level taxation by individual states.
If the IRS were to treat us as a corporation for
U.S. federal income tax purposes or if we were to become
subject to additional amounts of entity-level taxation for state
tax purposes, then our cash available for distribution to our
unitholders would be substantially reduced and
Material U.S. Federal Income Tax
Consequences Partnership Status.
Failure to manage acquisition and expansion growth risks could
have a material adverse effect on our results of operations,
financial condition and ability to make cash distributions.
There can be no assurance that we will be able to consummate any
acquisitions or expansions, successfully integrate acquired
entities, or generate positive cash flow at any acquired company
or expansion project.
30
We
rely primarily on the executive officers of CVR Energy to manage
most aspects of our business and affairs pursuant to a services
agreement, which CVR Energy can terminate at any time following
the one year anniversary of this offering.
Our future performance depends to a significant degree upon the
continued contributions of CVR Energys senior management
team. We have entered into a services agreement with our general
partner and CVR Energy whereby CVR Energy has agreed to provide
us with the services of its senior management team as well as
accounting, business operations, legal, finance and other key
back-office and mid-office personnel. Following the one year
anniversary of this offering, CVR Energy can terminate this
agreement at any time, subject to a
180-day
notice period. The loss or unavailability to us of any member of
CVR Energys senior management team could negatively affect
our ability to operate our business and pursue our business
strategies. We do not have employment agreements with any of CVR
Energys officers and we do not maintain any key person
insurance. We can provide no assurance that CVR Energy will
continue to provide us the officers that are necessary for the
conduct of our business nor that such provision will be on terms
that are acceptable. If CVR Energy elected to terminate the
agreement on 180 days notice following the one year
anniversary of this offering, we might not be able to find
qualified individuals to serve as our executive officers within
such 180-day
period.
In addition, pursuant to the services agreement we are
responsible for a portion of the compensation expense of such
executive officers according to the percentage of time such
executive officers spent working for us. However, the
compensation of such executive officers is set by CVR Energy,
and we have no control over the amount paid to such officers.
The services agreement does not contain any cap on the amounts
we may be required to pay CVR Energy pursuant to this agreement.
A
shortage of skilled labor, together with rising labor costs,
could adversely affect our results of operations and cash
available for distribution to our unitholders.
Efficient production of nitrogen fertilizer using modern
techniques and equipment requires skilled employees. Our
nitrogen fertilizer facility relies on gasification technology
that requires special expertise to operate efficiently and
effectively. To the extent that the services of our key
technical personnel become unavailable to us for any reason, we
would be required to hire other personnel. We may not be able to
locate or employ such qualified personnel on acceptable terms or
at all. We face competition for these professionals from our
competitors, our customers and other companies operating in our
industry. If we are unable to find qualified employees, or if
the cost to find qualified employees increases materially, our
results of operations and cash available for distribution to our
unitholders could be adversely affected.
If
licensed technology were no longer available, our business may
be adversely affected.
We have licensed, and may in the future license, a combination
of patent, trade secret and other intellectual property rights
of third parties for use in our business. In particular, the
gasification process we use to convert pet coke to high purity
hydrogen for subsequent conversion to ammonia is licensed from
General Electric. The license, which is fully paid, grants us
perpetual rights to use the pet coke gasification process on
specified terms and conditions and is integral to the operations
of our facility. If this, or any other license agreements on
which our operations rely were to be terminated, licenses to
alternative technology may not be available, or may only be
available on terms that are not commercially reasonable or
acceptable. In addition, any substitution of new technology for
currently-licensed technology may require substantial changes to
manufacturing processes or equipment and may have a material
adverse effect on our results of operations, financial condition
and ability to make cash distributions.
We may
face third-party claims of intellectual property infringement,
which if successful could result in significant costs for our
business.
There are currently no claims pending against us relating to the
infringement of any third-party intellectual property rights.
However, in the future we may face claims of infringement that
could interfere with our ability to use technology that is
material to our business operations. Any litigation of this
type, whether successful or unsuccessful, could result in
substantial costs to us and diversions of our resources, either
of which could have a
31
material adverse effect on our results of operations, financial
condition and ability to make cash distributions. In the event a
claim of infringement against us is successful, we may be
required to pay royalties or license fees for past or continued
use of the infringing technology, or we may be prohibited from
using the infringing technology altogether. If we are prohibited
from using any technology as a result of such a claim, we may
not be able to obtain licenses to alternative technology
adequate to substitute for the technology we can no longer use,
or licenses for such alternative technology may only be
available on terms that are not commercially reasonable or
acceptable to us. In addition, any substitution of new
technology for currently licensed technology may require us to
make substantial changes to our manufacturing processes or
equipment or to our products, and could have a material adverse
effect on our results of operations, financial condition and
ability to make cash distributions.
Our
new credit facility will contain significant limitations on our
business operations, including our ability to make distributions
and other payments. The termination or non-renewal of, or
breaches by CVR Energy of its covenants under, the intercompany
agreements could trigger an event of default under our new
credit facility.
Upon the closing of this offering, we will enter into a new
credit facility. We anticipate that as of December 31,
2010, on a pro forma basis after giving effect to this offering
and the use of the estimated proceeds hereof and the
establishment of our new credit facility, we would have had
$125.0 million of term loan debt outstanding and
incremental borrowing capacity of approximately
$25.0 million under the revolving credit facility. We and
our subsidiary may be able to incur significant additional
indebtedness in the future. Our ability to make distributions to
holders of our common units and our ability to borrow under this
new credit facility to fund distributions (if we elected to do
so) will be subject to covenant restrictions under the agreement
governing this new credit facility. The new credit facility will
provide that we can make distributions to holders of our common
units, but only if we are in compliance with our leverage ratio
and interest coverage ratio covenants on a pro forma basis after
giving effect to any distribution and there is no default or
event of default under the facility. If we were unable to comply
with any such covenant restrictions in any quarter, our ability
to make distributions to unitholders would be curtailed. The
termination or non-renewal of, or violation by CVR Energy of its
covenants in, any of the intercompany agreements between us and
CVR Energy that has a material adverse effect on us would
trigger an event of default under our new credit facility.
In addition, we will be subject to covenants contained in our
new credit facility and any agreement governing other future
indebtedness. These covenants will, subject to significant
exceptions, limit our ability and the ability of certain of our
subsidiaries to, among other things: incur, assume or permit to
exist additional indebtedness, guarantees and other contingent
obligations, incur liens, make negative pledges, pay dividends
or make other distributions, make payments to our subsidiary,
make certain loans and investments, consolidate, merge or sell
all or substantially all of our assets, enter into
sale-leaseback transactions, and enter into transactions with
affiliates. Any failure to comply with these covenants could
result in a default under our new credit facility. Upon a
default, unless waived, the lenders under our new credit
facility would have all remedies available to a secured lender,
and could elect to terminate their commitments, cease making
further loans, cause their loans to become due and payable in
full, institute foreclosure proceedings against our or our
subsidiarys assets, and force us and our subsidiary into
bankruptcy or liquidation.
Borrowings under our new credit facility will bear interest at
variable rates. If market interest rates increase, such
variable-rate debt will create higher debt service requirements,
which could adversely affect our cash flow and ability to make
cash distributions.
Our ability to make scheduled debt payments, to refinance our
obligations with respect to our indebtedness and to fund capital
and non-capital expenditures necessary to maintain the condition
of our operating assets, properties and systems software, as
well as to provide capacity for the growth of our business,
depends on our financial and operating performance, which, in
turn, is subject to prevailing economic conditions and
financial, business, competitive, legal and other factors.
If our operating results are not sufficient to service our
current or future indebtedness, we will be forced to take
actions such as reducing distributions, reducing or delaying our
business activities, acquisitions, investments or
32
capital expenditures, selling assets, restructuring or
refinancing our debt, or seeking additional equity capital or
bankruptcy protection.
We are
a holding company and depend upon our subsidiary for our cash
flow.
We are a holding company. All of our operations are conducted
and all of our assets are owned by Coffeyville Resources
Nitrogen Fertilizers, LLC, or CRNF, our wholly-owned subsidiary
and our sole direct or indirect subsidiary. Consequently, our
cash flow and our ability to meet our obligations or to make
cash distributions in the future will depend upon the cash flow
of our subsidiary and the payment of funds by our subsidiary to
us in the form of dividends or otherwise. The ability of our
subsidiary to make any payments to us will depend on its
earnings, the terms of its indebtedness, including the terms of
any credit facilities, and legal restrictions. In particular,
future credit facilities incurred at our subsidiary may impose
significant limitations on the ability of our subsidiary to make
distributions to us and consequently our ability to make
distributions to our unitholders. See also We
may not have sufficient available cash to pay any quarterly
distribution on our common units. For the year ended
December 31, 2010, on a pro forma basis, our annual
distribution would have been
$ per unit, significantly
less than the $ per unit
distribution we project that we will be able to pay for the
twelve months ending March 31, 2012.
We
have never operated as a stand-alone company.
Because we have never operated as a stand-alone company, it is
difficult for you to evaluate our business and results of
operations to date and to assess our future prospects and
viability. Our nitrogen fertilizer facility commenced operations
in 2000 and was operated as one of eight fertilizer facilities
within Farmland until March 2004. Since March 2004, we have been
operated as part of a larger company together with a petroleum
refining company. The financial information reflecting our
business contained in this prospectus, including our historical
financial information as well as the pro forma financial
information included herein, do not necessarily reflect what our
operating performance would have been had we been a stand-alone
company during the periods presented.
We
will incur increased costs as a result of being a publicly
traded partnership.
As a publicly traded partnership, we will incur significant
legal, accounting and other expenses that we did not incur prior
to this offering. In addition, the Sarbanes-Oxley Act of 2002
and the Dodd-Frank Act of 2010, as well as rules implemented by
the SEC and the New York Stock Exchange, require, or will
require, publicly traded entities to adopt various corporate
governance practices that will further increase our costs.
Before we are able to make distributions to our unitholders, we
must first pay our expenses, including the costs of being a
public company and other operating expenses. As a result, the
amount of cash we have available for distribution to our
unitholders will be affected by our expenses, including the
costs associated with being a publicly traded partnership. We
estimate that we will incur approximately $3.5 million of
estimated incremental costs per year, some of which will be
direct charges associated with being a publicly traded
partnership, and some of which will be allocated to us by CVR
Energy; however, it is possible that our actual incremental
costs of being a publicly traded partnership will be higher than
we currently estimate.
Prior to this offering, we have not filed reports with the SEC.
Following this offering, we will become subject to the public
reporting requirements of the Securities Exchange Act of 1934,
as amended, or the Exchange Act. We expect these requirements
will increase our legal and financial compliance costs and make
compliance activities more time-consuming and costly. For
example, as a result of becoming a publicly traded partnership,
we are required to have at least three independent directors and
adopt policies regarding internal controls and disclosure
controls and procedures, including the preparation of reports on
internal control over financial reporting. In addition, we will
incur additional costs associated with our publicly traded
company reporting requirements.
As a
publicly traded partnership we qualify for, and are relying on,
certain exemptions from the New York Stock Exchanges
corporate governance requirements.
As a publicly traded partnership, we qualify for, and are
relying on, certain exemptions from the New York Stock
Exchanges corporate governance requirements, including:
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the requirement that a majority of the board of directors of our
general partner consist of independent directors;
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the requirement that the board of directors of our general
partner have a nominating/corporate governance committee that is
composed entirely of independent directors; and
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the requirement that the board of directors of our general
partner have a compensation committee that is composed entirely
of independent directors.
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As a result of these exemptions, our general partners
board of directors will not be comprised of a majority of
independent directors, our general partners compensation
committee may not be comprised entirely of independent directors
and our general partners board of directors does not
currently intend to establish a nominating/corporate governance
committee. Accordingly, unitholders will not have the same
protections afforded to equityholders of companies that are
subject to all of the corporate governance requirements of the
New York Stock Exchange. See Management.
We
will be exposed to risks relating to evaluations of controls
required by Section 404 of the Sarbanes-Oxley
Act.
We are in the process of evaluating our internal controls
systems to allow management to report on, and our independent
auditors to audit, our internal controls over financial
reporting. We will be performing the system and process
evaluation and testing (and any necessary remediation) required
to comply with the management certification and auditor
attestation requirements of Section 404 of the
Sarbanes-Oxley Act, and under current rules will be required to
comply with Section 404 in our annual report for the year
ended December 31, 2012. Furthermore, upon completion of
this process, we may identify control deficiencies of varying
degrees of severity under applicable SEC and Public Company
Accounting Oversight Board, or PCAOB, rules and regulations that
remain unremediated. Although we produce our financial
statements in accordance with GAAP, our internal accounting
controls may not currently meet all standards applicable to
companies with publicly traded securities. As a publicly traded
partnership, we will be required to report, among other things,
control deficiencies that constitute a material
weakness or changes in internal controls that, or that are
reasonably likely to, materially affect internal controls over
financial reporting. A material weakness is a
deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the
annual or interim financial statements will not be prevented or
detected on a timely basis.
If we fail to implement the requirements of Section 404 in
a timely manner, we might be subject to sanctions or
investigation by regulatory authorities such as the SEC. If we
do not implement improvements to our disclosure controls and
procedures or to our internal controls in a timely manner, our
independent registered public accounting firm may not be able to
certify as to the effectiveness of our internal controls over
financial reporting pursuant to an audit of our internal
controls over financial reporting. This may subject us to
adverse regulatory consequences or a loss of confidence in the
reliability of our financial statements. We could also suffer a
loss of confidence in the reliability of our financial
statements if our independent registered public accounting firm
reports a material weakness in our internal controls, if we do
not develop and maintain effective controls and procedures or if
we are otherwise unable to deliver timely and reliable financial
information. Any loss of confidence in the reliability of our
financial statements or other negative reaction to our failure
to develop timely or adequate disclosure controls and procedures
or internal controls could result in a decline in the price of
our common units. In addition, if we fail to remedy any material
weakness, our financial statements may be inaccurate, we may
face restricted access to the capital markets and the price of
our common units may be adversely affected.
Our
relationship with CVR Energy and its financial condition
subjects us to potential risks that are beyond our
control.
Due to our relationship with CVR Energy, adverse developments or
announcements concerning CVR Energy could materially adversely
affect our financial condition, even if we have not suffered any
similar development. The ratings assigned to CVR Energys
senior secured indebtedness are below investment grade.
Downgrades of the credit ratings of CVR Energy could increase
our cost of capital and collateral requirements, and could
impede our access to the capital markets.
The credit and business risk profiles of CVR Energy may be
factors considered in credit evaluations of us. This is because
we rely on CVR Energy for various services, including management
services and the supply of pet coke. Another factor that may be
considered is the financial condition of CVR Energy, including
the degree of its financial leverage and
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its dependence on cash flow from us to service its indebtedness.
The credit and risk profile of CVR Energy could adversely affect
our credit ratings and risk profile, which could increase our
borrowing costs or hinder our ability to raise capital.
If we were to seek a credit rating in the future, our credit
rating may be adversely affected by the leverage of CVR Energy,
as credit rating agencies may consider the leverage and credit
profile of CVR Energy and its affiliates because of their
ownership interest in and joint control of us and the strong
operational links between CVR Energys refining business
and us. Any adverse effect on our credit rating would increase
our cost of borrowing or hinder our ability to raise financing
in the capital markets, which would impair our ability to grow
our business and make cash distributions to unitholders.
Risks
Related to an Investment in Us
The
board of directors of our general partner will adopt a policy to
distribute all of the available cash we generate each quarter,
which could limit our ability to grow and make
acquisitions.
The board of directors of our general partner will adopt a
policy to distribute all of the available cash we generate each
quarter to our unitholders, beginning with the quarter ending
June 30, 2011. As a result, our general partner will rely
primarily upon external financing sources, including commercial
bank borrowings and the issuance of debt and equity securities,
to fund our acquisitions and expansion capital expenditures. As
a result, to the extent we are unable to finance growth
externally, our cash distribution policy will significantly
impair our ability to grow.
In addition, because the board of directors of our general
partner will adopt a policy to distribute all of the available
cash we generate each quarter, our growth may not be as fast as
that of businesses that reinvest their available cash to expand
ongoing operations. To the extent we issue additional units in
connection with any acquisitions or expansion capital
expenditures, the payment of distributions on those additional
units will decrease the amount we distribute on each outstanding
unit. There are no limitations in our partnership agreement on
our ability to issue additional units, including units ranking
senior to the common units. The incurrence of additional
commercial borrowings or other debt to finance our growth
strategy would result in increased interest expense, which, in
turn, would reduce the available cash that we have to distribute
to our unitholders.
Our
general partner, an indirect wholly-owned subsidiary of CVR
Energy, has fiduciary duties to CVR Energy and its stockholders,
and the interests of CVR Energy and its stockholders may differ
significantly from, or conflict with, the interests of our
public common unitholders.
Our general partner is responsible for managing us. Although our
general partner has fiduciary duties to manage us in a manner
that is in our best interests, the fiduciary duties are
specifically limited by the express terms of our partnership
agreement, and the directors and officers of our general partner
also have fiduciary duties to manage our general partner in a
manner beneficial to CVR Energy and its stockholders. The
interests of CVR Energy and its stockholders may differ from, or
conflict with, the interests of our common unitholders. In
resolving these conflicts, our general partner may favor its own
interests, the interests of Coffeyville Resources, its sole
member, or the interests of CVR Energy and holders of CVR
Energys common stock over our interests and those of our
common unitholders.
The potential conflicts of interest include, among others, the
following:
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Neither our partnership agreement nor any other agreement will
require the owners of our general partner, including CVR Energy,
to pursue a business strategy that favors us. The affiliates of
our general partner, including CVR Energy, have fiduciary duties
to make decisions in their own best interests and in the best
interest of holders of CVR Energys common stock, which may
be contrary to our interests. In addition, our general partner
is allowed to take into account the interests of parties other
than us or our unitholders, such as its owners or CVR Energy, in
resolving conflicts of interest, which has the effect of
limiting its fiduciary duty to our unitholders.
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Our general partner has limited its liability and reduced its
fiduciary duties under our partnership agreement and has also
restricted the remedies available to our unitholders for actions
that, without the limitations, might constitute breaches of
fiduciary duty. As a result of purchasing common units,
unitholders consent to
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some actions and conflicts of interest that might otherwise
constitute a breach of fiduciary or other duties under
applicable state law.
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The board of directors of our general partner will determine the
amount and timing of asset purchases and sales, capital
expenditures, borrowings, repayment of indebtedness and
issuances of additional partnership interests, each of which can
affect the amount of cash that is available for distribution to
our common unitholders.
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Our partnership agreement does not restrict our general partner
from causing us to pay it or its affiliates for any services
rendered to us or entering into additional contractual
arrangements with any of these entities on our behalf. There is
no limitation on the amounts our general partner can cause us to
pay it or its affiliates.
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Our general partner may exercise its rights to call and purchase
all of our common units if at any time it and its affiliates
(including Coffeyville Resources) own more
than % of the common units.
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Our general partner will control the enforcement of obligations
owed to us by it and its affiliates. In addition, our general
partner will decide whether to retain separate counsel or others
to perform services for us.
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Our general partner determines which costs incurred by it and
its affiliates are reimbursable by us.
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The executive officers of our general partner, and the majority
of the directors of our general partner, also serve as directors
and/or
executive officers of CVR Energy. The executive officers who
work for both CVR Energy and our general partner, including our
chief executive officer, chief operating officer, chief
financial officer and general counsel, divide their time between
our business and the business of CVR Energy. These executive
officers will face conflicts of interest from time to time in
making decisions which may benefit either us or CVR Energy.
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See Conflicts of Interest and Fiduciary Duties.
Our
partnership agreement limits the liability and reduces the
fiduciary duties of our general partner and restricts the
remedies available to us and our common unitholders for actions
taken by our general partner that might otherwise constitute
breaches of fiduciary duty.
Our partnership agreement limits the liability and reduces the
fiduciary duties of our general partner, while also restricting
the remedies available to our common unitholders for actions
that, without these limitations and reductions, might constitute
breaches of fiduciary duty. Delaware partnership law permits
such contractual reductions of fiduciary duty. By purchasing
common units, common unitholders consent to some actions that
might otherwise constitute a breach of fiduciary or other duties
applicable under state law. Our partnership agreement contains
provisions that reduce the standards to which our general
partner would otherwise be held by state fiduciary duty law. For
example:
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Our partnership agreement permits our general partner to make a
number of decisions in its individual capacity, as opposed to
its capacity as general partner. This entitles our general
partner to consider only the interests and factors that it
desires, and it has no duty or obligation to give any
consideration to any interest of, or factors affecting, our
common unitholders. Decisions made by our general partner in its
individual capacity will be made by Coffeyville Resources as the
sole member of our general partner, and not by the board of
directors of our general partner. Examples include the exercise
of the general partners call right, its voting rights with
respect to any common units it may own, its registration rights
and its determination whether or not to consent to any merger or
consolidation or amendment to our partnership agreement.
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Our partnership agreement provides that our general partner will
not have any liability to us or our unitholders for decisions
made in its capacity as general partner so long as it acted in
good faith, meaning it believed that the decisions were in our
best interests.
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Our partnership agreement provides that our general partner and
the officers and directors of our general partner will not be
liable for monetary damages to us for any acts or omissions
unless there has been a final and non-appealable judgment
entered by a court of competent jurisdiction determining that
our general
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partner or those persons acted in bad faith or engaged in fraud
or willful misconduct or, in the case of a criminal matter,
acted with knowledge that such persons conduct was
criminal.
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Our partnership agreement generally provides that affiliate
transactions and resolutions of conflicts of interest not
approved by the conflicts committee of the board of directors of
our general partner and not involving a vote of unitholders must
be on terms no less favorable to us than those generally
provided to or available from unrelated third parties or be
fair and reasonable. In determining whether a
transaction or resolution is fair and reasonable,
our general partner may consider the totality of the
relationship between the parties involved, including other
transactions that may be particularly advantageous or beneficial
to us.
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By purchasing a common unit, a unitholder will become bound by
the provisions of our partnership agreement, including the
provisions described above. See Description of Our Common
Units Transfer of Common Units.
CVR
Energy has the power to appoint and remove our general
partners directors.
Upon the consummation of this offering, CVR Energy, through its
ownership of 100% of Coffeyville Resources, will have the power
to elect all of the members of the board of directors of our
general partner. Our general partner has control over all
decisions related to our operations. See
Management Management of CVR Partners,
LP. Our public unitholders do not have an ability to
influence any operating decisions and will not be able to
prevent us from entering into any transactions. Furthermore, the
goals and objectives of CVR Energy, as the indirect owner of our
general partner, may not be consistent with those of our public
unitholders.
Common
units are subject to our general partners call
right.
If at any time our general partner and its affiliates own more
than % of the common units, our
general partner will have the right, which it may assign to any
of its affiliates or to us, but not the obligation, to acquire
all, but not less than all, of the common units held by public
unitholders at a price not less than their then-current market
price, as calculated pursuant to the terms of our partnership
agreement. As a result, you may be required to sell your common
units at an undesirable time or price and may not receive any
return on your investment. You may also incur a tax liability
upon a sale of your common units. Our general partner is not
obligated to obtain a fairness opinion regarding the value of
the common units to be repurchased by it upon exercise of the
call right. There is no restriction in our partnership agreement
that prevents our general partner from issuing additional common
units and then exercising its call right. Our general partner
may use its own discretion, free of fiduciary duty restrictions,
in determining whether to exercise this right. See The
Partnership Agreement Call Right.
Our
unitholders have limited voting rights and are not entitled to
elect our general partner or our general partners
directors.
Unlike the holders of common stock in a corporation, our
unitholders have only limited voting rights on matters affecting
our business and, therefore, limited ability to influence
managements decisions regarding our business. Unitholders
will have no right to elect our general partner or our general
partners board of directors on an annual or other
continuing basis. The board of directors of our general partner,
including the independent directors, will be chosen entirely by
CVR Energy as the indirect owner of the general partner and not
by our common unitholders. Unlike publicly traded corporations,
we will not hold annual meetings of our unitholders to elect
directors or conduct other matters routinely conducted at annual
meetings of stockholders. Furthermore, even if our unitholders
are dissatisfied with the performance of our general partner,
they will have no practical ability to remove our general
partner. As a result of these limitations, the price at which
the common units will trade could be diminished.
Our
public unitholders will not have sufficient voting power to
remove our general partner without CVR Energys
consent.
Following the closing of this offering, CVR Energy will
indirectly own approximately % of
our common units (approximately %
if the underwriters exercise their option to purchase additional
common units in full), which means holders of common units
purchased in this offering will not be able to remove the
general partner,
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under any circumstances, unless CVR Energy sells some of the
common units that it owns or we sell additional units to the
public.
Our
partnership agreement restricts the voting rights of unitholders
owning 20% or more of our common units (other than our general
partner and its affiliates and permitted
transferees).
Our partnership agreement restricts unitholders voting
rights by providing that any units held by a person that owns
20% or more of any class of units then outstanding, other than
our general partner, its affiliates, their transferees and
persons who acquired such units with the prior approval of the
board of directors of our general partner, may not vote on any
matter. Our partnership agreement also contains provisions
limiting the ability of common unitholders to call meetings or
to acquire information about our operations, as well as other
provisions limiting the ability of our common unitholders to
influence the manner or direction of management.
Cost
reimbursements due to our general partner and its affiliates
will reduce cash available for distribution to
you.
Prior to making any distribution on our outstanding units, we
will reimburse our general partner for all expenses it incurs on
our behalf including, without limitation, our pro rata portion
of management compensation and overhead charged by CVR Energy in
accordance with our services agreement. The services agreement
does not contain any cap on the amount we may be required to pay
pursuant to this agreement. The payment of these amounts,
including allocated overhead, to our general partner and its
affiliates could adversely affect our ability to make
distributions to you. See Our Cash Distribution Policy and
Restrictions on Distributions, Certain Relationships
and Related Party Transactions and Conflicts of
Interest and Fiduciary Duties Conflicts of
Interest.
Limited
partners may not have limited liability if a court finds that
unitholder action constitutes control of our
business.
A general partner of a partnership generally has unlimited
liability for the obligations of the partnership, except for
those contractual obligations of the partnership that are
expressly made without recourse to the general partner. Our
partnership is organized under Delaware law and our subsidiary
conducts business in a number of other states, including Kansas,
Nebraska and Texas. Limited partners could be liable for our
obligations as if such limited partners were general partners if
a court or government agency determined that:
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we were conducting business in a state but had not complied with
that particular states partnership statute; or
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limited partners right to act with other unitholders to
remove or replace our general partner, to approve some
amendments to our partnership agreement or to take other actions
under our partnership agreement constituted control
of our business.
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See The Partnership Agreement Limited
Liability for a discussion of the implications of the
limitations of liability on a limited partner.
Unitholders
may have liability to repay distributions.
In the event that: (i) we make distributions to our
unitholders when our nonrecourse liabilities exceed the sum of
(a) the fair market value of our assets not subject to
recourse liability and (b) the excess of the fair market
value of our assets subject to recourse liability over such
liability, or a distribution causes such a result, and
(ii) a unitholder knows at the time of the distribution of
such circumstances, such unitholder will be liable for a period
of three years from the time of the impermissible distribution
to repay the distribution under
Section 17-607
of the Delaware Act.
Likewise, upon the winding up of the partnership, in the event
that (a) we do not distribute assets in the following
order: (i) to creditors in satisfaction of their
liabilities; (ii) to partners and former partners in
satisfaction of liabilities for distributions owed under our
partnership agreement; (iii) to partners for the return of
their contribution; and finally (iv) to the partners in the
proportions in which the partners share in distributions and
(b) a unitholder knows at the time of such circumstances,
then such unitholder will be liable for a period of three years
from the impermissible distribution to repay the distribution
under
Section 17-807
of the Delaware Act.
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A purchaser of common units who becomes a limited partner is
liable for the obligations of the transferring limited partner
to make contributions to the partnership that are known by the
purchaser at the time it became a limited partner, and for
unknown obligations if the liabilities could be determined from
our partnership agreement.
Our
general partners interest in us and the control of our
general partner may be transferred to a third party without
unitholder consent.
Our general partner may transfer its general partner interest in
us to a third party in a merger or in a sale of all or
substantially all of its assets without the consent of the
unitholders. Furthermore, there is no restriction in our
partnership agreement on the ability of CVR Energy to transfer
its equity interest in our general partner to a third party. The
new equity owner of our general partner would then be in a
position to replace the board of directors and the officers of
our general partner with its own choices and to influence the
decisions taken by the board of directors and officers of our
general partner.
If control of our general partner were transferred to an
unrelated third party, the new owner of the general partner
would have no interest in CVR Energy. We rely substantially on
the senior management team of CVR Energy and have entered into a
number of significant agreements with CVR Energy, including a
services agreement pursuant to which CVR Energy provides us with
the services of its senior management team and a long-term
agreement for the provision of pet coke. If our general partner
were no longer controlled by CVR Energy, CVR Energy could be
more likely to terminate the services agreement which, following
the one-year anniversary of the closing date of this offering,
it may do upon 180 days notice, or elect not to renew
the pet coke agreement, which expires in 2027.
Increases
in interest rates could adversely impact our unit price and our
ability to issue additional equity to make acquisitions, incur
debt or for other purposes.
We cannot predict how interest rates will react to changing
market conditions. Interest rates on our new credit facility,
future credit facilities and debt offerings could be higher than
current levels, causing our financing costs to increase
accordingly. Additionally, as with other yield-oriented
securities, we expect that our unit price will be impacted by
the level of our quarterly cash distributions and implied
distribution yield. The distribution yield is often used by
investors to compare and rank related yield-oriented securities
for investment decision-making purposes. Therefore, changes in
interest rates may affect the yield requirements of investors
who invest in our common units, and a rising interest rate
environment could have a material adverse impact on our unit
price and our ability to issue additional equity to make
acquisitions or to incur debt as well as increasing our interest
costs.
There
is no existing market for our common units, and we do not know
if one will develop to provide you with adequate liquidity. If
our unit price fluctuates after this offering, you could lose a
significant part of your investment.
Prior to this offering, there has not been a public market for
our common units. If an active trading market does not develop,
you may have difficulty selling any of our common units that you
buy. The initial public offering price for the common units will
be determined by negotiations between us and the underwriters
and may not be indicative of prices that will prevail in the
open market following this offering. Consequently, you may not
be able to sell our common units at prices equal to or greater
than the price paid by you in this offering. The market price of
our common units may be influenced by many factors including:
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the level of our distributions and our earnings or those of
other companies in our industry or other publicly traded
partnerships;
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the failure of securities analysts to cover our common units
after this offering or changes in financial estimates by
analysts;
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announcements by us or our competitors of significant contracts
or acquisitions;
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variations in quarterly results of operations;
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loss of a large customer or supplier;
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market prices of nitrogen fertilizers;
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general economic conditions;
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terrorist acts;
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changes in the applicable environmental regulations;
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changes in accounting standards, policies, guidance,
interpretations or principles;
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future sales of our common units; and
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investor perceptions of us and the industries in which our
products are used.
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As a result of these factors, investors in our common units may
not be able to resell their common units at or above the initial
offering price. In addition, the stock market in general has
experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating
performance of companies like us. These broad market and
industry factors may materially reduce the market price of our
common units, regardless of our operating performance.
You
will incur immediate and substantial dilution in net tangible
book value per common unit.
The assumed initial public offering price of our common units is
substantially higher than the pro forma net tangible book value
of our outstanding units. As a result, if you purchase common
units in this offering, you will incur immediate and substantial
dilution in the amount of $ per
common unit. This dilution results primarily because the assets
contributed by CVR Energy and its affiliates are recorded at
their historical costs, and not their fair value, in accordance
with GAAP. See Dilution.
We may
issue additional common units and other equity interests without
your approval, which would dilute your existing ownership
interests.
Under our partnership agreement, we are authorized to issue an
unlimited number of additional interests without a vote of the
unitholders. The issuance by us of additional common units or
other equity interests of equal or senior rank will have the
following effects:
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the proportionate ownership interest of unitholders immediately
prior to the issuance will decrease;
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the amount of cash distributions on each unit will decrease;
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the ratio of our taxable income to distributions may increase;
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the relative voting strength of each previously outstanding unit
will be diminished; and
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the market price of the common units may decline.
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In addition, our partnership agreement does not prohibit the
issuance by our subsidiaries of equity interests, which may
effectively rank senior to the common units.
Units
eligible for future sale may cause the price of our common units
to decline.
Sales of substantial amounts of our common units in the public
market, or the perception that these sales may occur, could
cause the market price of our common units to decline. This
could also impair our ability to raise additional capital
through the sale of our equity interests.
There will
be
common units outstanding following this
offering. common
units are being sold to the public in this offering
( common
units if the underwriters exercise their option to purchase
additional common units in full)
and
common units will be owned by Coffeyville Resources following
this offering
(
common units if the underwriters exercise their option to
purchase additional common units in full). The common units sold
in this offering will be freely transferable without restriction
or further registration under the Securities Act of 1933, or the
Securities Act, by persons other than affiliates, as
that term is defined in Rule 144 under the Securities Act.
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In addition, under our partnership agreement, our general
partner and its affiliates have the right to cause us to
register their units under the Securities Act and applicable
state securities laws. In connection with this offering, we will
enter into an amended and restated registration rights agreement
with Coffeyville Resources pursuant to which we may be required
to register the sale of the common units it holds under the
Securities Act and applicable state securities laws.
In connection with this offering, we, Coffeyville Resources, our
general partner and our general partners directors and
executive officers will enter into
lock-up
agreements, pursuant to which they will agree, subject to
certain exceptions, not to sell or transfer, directly or
indirectly, any of our common units until 180 days from the
date of this prospectus, subject to extension in certain
circumstances. Following termination of these lockup agreements,
all units held by Coffeyville Resources, our general partner and
their affiliates will be freely tradable under Rule 144,
subject to the volume and other limitations of Rule 144.
See Common Units Eligible for Future Sale.
Tax
Risks
In addition to reading the following risk factors, please read
Material U.S. Federal Income Tax Consequences
for a more complete discussion of the expected material
U.S. federal income tax consequences of owning and
disposing of our common units.
Our
tax treatment depends on our status as a partnership for U.S.
federal income tax purposes, as well as our not being subject to
a material amount of entity-level taxation by individual states.
If the IRS were to treat us as a corporation for U.S. federal
income tax purposes or if we were to become subject to
additional amounts of entity-level taxation for state tax
purposes, then our cash available for distribution to our
unitholders would be substantially reduced.
The anticipated after-tax economic benefit of an investment in
our common units depends largely on our being treated as a
partnership for U.S. federal income tax purposes. Despite
the fact that we are a limited partnership under Delaware law,
it is possible in certain circumstances for a partnership such
as ours to be treated as a corporation for U.S. federal
income tax purposes. During 2011, and in each taxable year
thereafter, current law requires us to derive at least 90% of
our annual gross income from specific activities to continue to
be treated as a partnership for U.S. federal income tax
purposes. We may not find it possible to meet this qualifying
income requirement, or may inadvertently fail to meet this
qualifying income requirement.
Although we do not believe based upon our current operations
that we are treated as a corporation for U.S. federal
income tax purposes, a change in our business or a change in
current law could cause us to be treated as a corporation for
U.S. federal income tax purposes or otherwise subject us to
taxation as an entity. We may in the future enter into new
activities or businesses. If our legal counsel were to be unable
to opine that gross income from any such activity or business
will count toward satisfaction of the 90% gross income, or
qualifying income, requirement to be treated as a partnership
for U.S. federal income tax purposes, we could seek a
ruling from the IRS that gross income we earn from any such
activity or business will be qualifying income. There can be no
assurance, however, that the IRS would issue a favorable ruling
under such circumstances. If we did not receive a favorable
ruling, we could choose to engage in the activity or business
through a corporate subsidiary, which would subject the income
related to such activity or business to entity-level taxation.
We have not requested and, except to the extent that we in the
future request a ruling regarding the qualifying nature of our
income, we do not intend to request a ruling from the IRS with
respect to our treatment as a partnership for U.S. federal
income tax purposes or any other matter affecting us.
If we were treated as a corporation for U.S. federal income
tax purposes, we would pay U.S. federal income tax on all
of our taxable income at the corporate tax rate, which is
currently a maximum of 35%, and would likely pay additional
state and local income tax at varying rates. Distributions to
our unitholders would generally be taxed again as corporate
distributions, and no income, gains, losses, deductions or
credits would flow through to our unitholders. Because a tax
would be imposed upon us as a corporation, our cash available
for distribution to our unitholders would be substantially
reduced. Therefore, treatment of us as a corporation for
U.S. federal income tax purposes would result in a material
reduction in the anticipated cash flow and after-tax return to
our unitholders, likely causing a substantial reduction in the
value of our common units.
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The
tax treatment of publicly traded partnerships or an investment
in our common units could be subject to potential legislative,
judicial or administrative changes and differing
interpretations, possibly on a retroactive basis.
The present U.S. federal income tax treatment of publicly
traded partnerships, including us, or an investment in our
common units may be modified by administrative, legislative or
judicial interpretation at any time. Current law may change to
cause us to be treated as a corporation for U.S. federal
income tax purposes or otherwise subject us to entity-level
taxation. For example, members of Congress have recently
considered substantive changes to the existing U.S. federal
income tax laws that affect publicly traded partnerships. Any
modification to the U.S. federal income tax laws and
interpretations thereof may or may not be applied retroactively
and could make it more difficult or impossible for certain
publicly traded partnerships to be treated as partnerships for
U.S. federal income tax purposes. Although the considered
legislation would not have appeared to affect our treatment as a
partnership for U.S. federal income tax purposes, we are
unable to predict whether any of these changes, or other
proposals will be reintroduced or will ultimately be enacted.
Any such changes could cause a substantial reduction in the
value of our common units.
At the state level, several states are evaluating ways to
subject partnerships to entity-level taxation through the
imposition of state income, franchise or other forms of
taxation. Specifically, we are required to pay Texas franchise
tax each year at a maximum effective rate of 0.7% of our gross
income apportioned to Texas in the prior year. Imposition of
this tax by Texas and, if applicable, by any other state in
which we do business will reduce our cash available for
distribution to our unitholders. We are unable to predict
whether any of these changes or other proposals will ultimately
be enacted. Any such changes could cause a substantial reduction
in the value of our common units.
If the
IRS contests the U.S. federal income tax positions we take, the
market for our common units may be materially and adversely
impacted, and the cost of any IRS contest will reduce our cash
available for distribution to our unitholders.
Except to the extent that we, in the future, request a ruling
regarding the qualifying nature of our income, we have not and
do not intend to request a ruling from the IRS with respect to
our treatment as a partnership for U.S. federal income tax
purposes or any other matter affecting us. The IRS may adopt
positions that differ from the conclusions of our counsel
expressed in this prospectus or from the positions we take, and
the IRSs positions may ultimately be sustained. It may be
necessary to resort to administrative or court proceedings to
sustain some or all of our counsels conclusions or
positions we take. A court may not agree with some or all of our
counsels conclusions or positions we take. Any contest
with the IRS may materially and adversely impact the market for
our common units and the price at which they trade. In addition,
our costs of any contest with the IRS will be borne indirectly
by our unitholders because the costs will reduce our cash
available for distribution.
Unitholders
share of our income will be taxable for U.S. federal income tax
purposes even if they do not receive any cash distributions from
us.
Because our unitholders will be treated as partners to whom we
will allocate taxable income that could be different in amount
than the cash we distribute, a unitholders allocable share
of our taxable income will be taxable to him, which may require
the payment of U.S. federal income taxes and, in some
cases, state and local income taxes on his share of our taxable
income, even if he receives no cash distributions from us.
Unitholders may not receive cash distributions from us equal to
their share of our taxable income or even equal to the actual
tax liability that results from that income.
Tax
gain or loss on the disposition of our common units could be
more or less than expected.
If our unitholders sell common units, they will recognize a gain
or loss for U.S. federal income tax purposes equal to the
difference between the amount realized and their tax basis in
those common units. Because distributions in excess of their
allocable share of our net taxable income decrease their tax
basis in their common units, the amount, if any, of such prior
excess distributions with respect to the common units our
unitholders sell will, in effect, become taxable income to our
unitholders if they sell such common units at a price greater
than their tax basis in
42
those common units, even if the price they receive is less than
their original cost. Furthermore, a substantial portion of the
amount realized, whether or not representing gain, may be taxed
as ordinary income due to potential recapture items, including
depreciation recapture. In addition, because the amount realized
includes a unitholders share of our nonrecourse
liabilities, if our unitholders sell common units, they may
incur a tax liability in excess of the amount of cash the
unitholders receive from the sale. Please read Material
U.S. Federal Income Tax Consequences
Disposition of Common Units Recognition of Gain or
Loss for a further discussion of the foregoing.
Tax-exempt
entities and
non-U.S.
persons face unique tax issues from owning our common units that
may result in adverse tax consequences to them.
Investment in our common units by tax-exempt entities, such as
employee benefit plans and individual retirement accounts (known
as IRAs), and
non-U.S. persons,
raises issues unique to them. For example, virtually all of our
income allocated to organizations that are exempt from
U.S. federal income tax, including IRAs and other
retirement plans, will be unrelated business taxable income and
will be taxable to them. Distributions to
non-U.S. persons
will be reduced by withholding taxes at the highest applicable
effective tax rate, and
non-U.S. persons
will be required to file U.S. federal income tax returns
and pay tax on their share of our taxable income. Unitholders
that are tax-exempt entities or
non-U.S. persons
should consult their tax advisor before investing in our common
units.
We
will treat each purchaser of our common units as having the same
tax benefits without regard to the actual common units
purchased. The IRS may challenge this treatment, which could
adversely affect the value of our common units.
Due to our inability to match transferors and transferees of
common units, we will adopt depreciation and amortization
positions that may not conform to all aspects of existing
Treasury Regulations promulgated under the Internal Revenue
Code, referred to as Treasury Regulations. A
successful IRS challenge to those positions could adversely
affect the amount of tax benefits available to our unitholders.
It also could affect the timing of these tax benefits or the
amount of gain from the sale of common units and could cause a
substantial reduction in the value of our common units or result
in audit adjustments to our unitholders tax returns.
Please read Material U.S. Federal Income Tax
Consequences Tax Consequences of Common Unit
Ownership Section 754 Election for a
further discussion of the effect of the depreciation and
amortization positions we will adopt.
We
will prorate our items of income, gain, loss and deduction, for
U.S. federal income tax purposes, between transferors and
transferees of our common units each month based upon the
ownership of our common units on the first day of each month,
instead of on the basis of the date a particular common unit is
transferred. The IRS may challenge this treatment, which could
change the allocation of items of income, gain, loss and
deduction among our unitholders.
We will prorate our items of income, gain, loss and deduction
between transferors and transferees of our common units each
month based upon the ownership of our common units on the first
day of each month, instead of on the basis of the date a
particular common unit is transferred. The use of this proration
method may not be permitted under existing Treasury Regulations.
Recently, however, the U.S. Treasury Department issued
proposed Treasury Regulations that provide a safe harbor
pursuant to which publicly traded partnerships may use a similar
monthly simplifying convention to allocate tax items among
transferor and transferee unitholders. Nonetheless, the proposed
regulations do not specifically authorize the use of the
proration method we will adopt. If the IRS were to challenge our
proration method or new Treasury Regulations were issued
requiring a change, we may be required to change the allocation
of items of income, gain, loss and deduction among our
unitholders. Vinson & Elkins L.L.P. has not rendered
an opinion with respect to whether our monthly convention for
allocating taxable income and losses is permitted by existing
Treasury Regulations. Please read Material
U.S. Federal Income Tax Consequences
Disposition of Common Units Allocations Between
Transferors and Transferees.
43
A
unitholder whose common units are loaned to a short
seller to cover a short sale of common units may be
considered as having disposed of those common units. If so, the
unitholder would no longer be treated for U.S. federal income
tax purposes as a partner with respect to those common units
during the period of the loan and may recognize gain or loss
from the disposition.
Because a unitholder whose common units are loaned to a
short seller to cover a short sale of common units
may be considered as having disposed of the loaned common units,
he may no longer be treated for U.S. federal income tax
purposes as a partner with respect to those common units during
the period of the loan to the short seller and the unitholder
may recognize gain or loss from such disposition. Moreover,
during the period of the loan to the short seller, any of our
income, gain, loss or deduction with respect to those common
units may not be reportable by the unitholder and any cash
distributions received by the common unitholder as to those
common units could be fully taxable as ordinary income.
Vinson & Elkins L.L.P. has not rendered an opinion
regarding the treatment of a unitholder where common units are
loaned to a short seller to cover a short sale of common units
due to a lack of controlling authority; therefore, unitholders
desiring to assure their status as partners for
U.S. federal income tax purposes and avoid the risk of gain
recognition from a loan to a short seller are urged to consult a
tax advisor to discuss whether it is advisable to modify any
applicable brokerage account agreements to prohibit their
brokers from borrowing their common units.
The
sale or exchange of 50% or more of our capital and profits
interests during any twelve-month period will result in the
termination of our partnership for U.S. federal income tax
purposes.
We will be considered to have technically terminated for
U.S. federal income tax purposes if there is a sale or
exchange of 50% or more of the total interests in our capital
and profits within a twelve-month period. For purposes of
determining whether the 50% threshold has been met, multiple
sales of the same common unit will be counted only once. While
we would continue our existence as a Delaware limited
partnership, our technical termination would, among other
things, result in the closing of our taxable year for all
unitholders, which would result in us filing two tax returns
(and our unitholders could receive two Schedules K-1) for one
fiscal year and could result in a significant deferral of
depreciation deductions allowable in computing our taxable
income. In the case of a unitholder reporting on a taxable year
other than a fiscal year ending December 31, the closing of
our taxable year may also result in more than one year of our
taxable income or loss being includable in his taxable income
for the year of termination. A technical termination currently
would not affect our classification as a partnership for
U.S. federal income tax purposes, but instead, we would be
treated as a new partnership for such tax purposes. If treated
as a new partnership, we must make new tax elections and could
be subject to penalties if we are unable to determine that a
technical termination occurred. The IRS has recently announced a
relief procedure whereby a publicly traded partnership that has
technically terminated may request special relief that, if
granted, would permit the partnership to provide only a single
Schedule K-1
to unitholders for the tax years in which the termination
occurs. Please read Material U.S. Federal Income Tax
Consequences Disposition of Common Units
Constructive Termination for a discussion of the
consequences of a technical termination for U.S. federal
income tax purposes.
Unitholders
will likely be subject to state and local taxes and return
filing requirements in jurisdictions where they do not live as a
result of investing in our common units.
In addition to U.S. federal income taxes, unitholders will
likely be subject to other taxes, including state and local
taxes, unincorporated business taxes and estate, inheritance or
intangible taxes that are imposed by the various jurisdictions
in which we do business or control property now or in the
future, even if they do not live in any of those jurisdictions.
Unitholders will likely be required to file state and local
income tax returns and pay state and local income taxes in some
or all of these various jurisdictions. Further, unitholders may
be subject to penalties for failure to comply with those
requirements. We will initially own assets and conduct business
in Kansas, Nebraska and Texas. Kansas and Nebraska currently
impose a personal income tax on individuals. Kansas and Nebraska
also impose an income tax on corporations and other entities.
Texas currently imposes a franchise tax on corporations and
other entities. As we make acquisitions or expand our business,
we may own or control assets or conduct business in additional
states that impose a personal income tax. It is the
responsibility of each unitholder to file all U.S. federal,
state, local and
non-U.S. tax
returns. Our counsel has not rendered an opinion on the state,
local or
non-U.S. tax
consequences of an investment in our common units.
44
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. Statements
that are predictive in nature, that depend upon or refer to
future events or conditions or that include the words
will, believe, expect,
anticipate, intend, estimate
and other expressions that are predictions of or indicate future
events and trends and that do not relate to historical matters
identify forward-looking statements. Our forward-looking
statements include statements about our business strategy, our
industry, our future profitability, our expected capital
expenditures (including environmental expenditures) and the
impact of such expenditures on our performance, the costs of
operating as a public company and our capital programs. All
statements herein about our forecast of available cash and our
forecasted results for the twelve months ending March 31,
2012 constitute forward-looking statements. These statements
involve known and unknown risks, uncertainties and other
factors, including the factors described under Risk
Factors, that may cause our actual results and performance
to be materially different from any future results or
performance expressed or implied by these forward-looking
statements. Such risks and uncertainties include, among other
things:
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our ability to make cash distributions on the units;
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the volatile nature of our business and the variable nature of
our distributions;
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the ability of our general partner to modify or revoke our
distribution policy at any time;
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our ability to forecast our future financial condition or
results of operations and our future revenues and expenses;
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the cyclical nature of our business;
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our largely fixed costs and the potential decline in the price
of natural gas, which is the main resource used by our
competitors and which will lower our competitors cost to
produce nitrogen fertilizer products without lowering ours;
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the potential decline in the price of natural gas;
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a decrease in ethanol production;
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intense competition from other nitrogen fertilizer producers;
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adverse weather conditions, including potential floods;
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the seasonal nature of our business;
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the dependence of our operations on a few third-party suppliers,
including providers of transportation services and equipment;
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our reliance on pet coke that we purchase from CVR Energy;
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the supply and price levels of essential raw materials;
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the risk of a material decline in production at our nitrogen
fertilizer plant;
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potential operating hazards from accidents, fire, severe
weather, floods or other natural disasters;
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the risk associated with governmental policies affecting the
agricultural industry;
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the volatile nature of ammonia, potential liability for
accidents involving ammonia that cause interruption to our
business, severe damage to property or injury to the environment
and human health and potential increased costs relating to
transport of ammonia;
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capital expenditures and potential liabilities arising from
environmental laws and regulations;
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our potential inability to obtain or renew permits;
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existing and proposed environmental laws and regulations,
including those relating to climate change, alternative energy
or fuel sources, and on the end-use and application of
fertilizers;
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45
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new regulations concerning the transportation of hazardous
chemicals, risks of terrorism and the security of chemical
manufacturing facilities;
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our lack of asset diversification;
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our dependence on significant customers;
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the potential loss of our transportation cost advantage over our
competitors;
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our ability to comply with employee safety laws and regulations;
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potential disruptions in the global or U.S. capital and
credit markets;
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the success of our acquisition and expansion strategies;
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our potential inability to successfully implement our business
strategies, including the completion of significant capital
programs;
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additional risks, compliance costs and liabilities from
expansions or acquisitions;
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our reliance on CVR Energys senior management team;
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the potential shortage of skilled labor or loss of key personnel;
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our ability to continue to license the technology used in our
operations;
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successfully defending against third-party claims of
intellectual property infringement;
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restrictions in our debt agreements;
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the dependence on our subsidiary for cash to meet our debt
obligations;
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our limited operating history as a stand-alone company;
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potential increases in costs and distraction of management
resulting from the requirements of being a publicly traded
partnership;
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exemptions we will rely on in connection with NYSE corporate
governance requirements;
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risks relating to evaluations of internal controls required by
Section 404 of the Sarbanes-Oxley Act;
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risks relating to our relationships with CVR Energy;
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control of our general partner by CVR Energy;
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the conflicts of interest faced by our senior management team,
which operates both us and CVR Energy, and our general partner;
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limitations on the fiduciary duties owed by our general partner
which are included in the partnership agreement; and
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changes in our treatment as a partnership for U.S. income
or state tax purposes.
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You should not place undue reliance on our forward-looking
statements. Although forward-looking statements reflect our good
faith beliefs, forward-looking statements involve known and
unknown risks, uncertainties and other factors, which may cause
our actual results, performance or achievements to differ
materially from anticipated future results, performance or
achievements expressed or implied by such forward-looking
statements. We undertake no obligation to publicly update or
revise any forward-looking statement, whether as a result of new
information, future events, changed circumstances or otherwise,
unless required by law.
46
THE
TRANSACTIONS AND OUR STRUCTURE AND ORGANIZATION
The
Transactions
The following transactions will take place in connection with
this offering. We refer to these transactions collectively as
the Transactions:
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We will distribute to Coffeyville Resources, a wholly owned
subsidiary of CVR Energy, all cash on our balance sheet before
the closing date of this offering (other than cash in respect of
prepaid sales);
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Each of Coffeyville Resources and CVR Special GP
LLCs, or Special GP, interests in us will be converted
into
and
common units, respectively;
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Special GP, a wholly-owned subsidiary of Coffeyville Resources,
will be merged with and into Coffeyville Resources, with
Coffeyville Resources continuing as the surviving entity;
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We will offer and
sell common
units in this offering
(
common units if the underwriters exercise their option in full)
and pay related discounts, commissions and expenses;
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Simultaneously with the closing of this offering, we will be
released from our obligations as a guarantor under Coffeyville
Resources existing ABL credit facility, its 9.0% First
Lien Senior Secured Notes due 2015 and its 10.875% Second Lien
Senior Secured Notes due 2017;
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Our general partner will sell to us its incentive distribution
rights, or IDRs, for $26.0 million in cash (representing
fair market value), which will be paid as a distribution to its
current owners, which include members of our senior management,
and we will extinguish such IDRs;
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Our general partner and Coffeyville Resources will enter into a
second amended and restated agreement of limited partnership,
the form of which is attached hereto as Appendix A;
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We will distribute $18.4 million of the offering proceeds to
Coffeyville Resources in satisfaction of our obligation to
reimburse it for certain capital expenditures it made with
respect to the nitrogen fertilizer business prior to
October 24, 2007;
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We will make a special distribution of
$ million of the
proceeds of this offering to Coffeyville Resources in order to,
among other things, fund the offer to purchase Coffeyville
Resources senior secured notes required upon consummation
of this offering;
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We will enter into a new credit facility, which will include a
$125.0 million term loan and a $25.0 million revolving
credit facility and pay associated financing costs;
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At the closing of this offering, we will draw the
$125.0 million term loan in full and use
$ million of the proceeds
therefrom to fund a special distribution to Coffeyville
Resources in order to, among other things, fund the offer to
purchase Coffeyville Resources senior secured notes
required upon consummation of this offering;
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Coffeyville Acquisition III, the current owner of CVR GP, LLC,
our general partner, will sell our general partner, which will
hold a non-economic general partner interest in us, to
Coffeyville Resources for nominal consideration; and
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To the extent the underwriters do not exercise their option to
purchase additional common units, we will issue those common
units to Coffeyville Resources.
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Management
Our general partner manages our operations and activities.
Following the Transactions, our general partner will be
indirectly owned by CVR Energy. For information about the
executive officers and directors of our general partner, see
Management Executive Officers and
Directors. Our general partner will not receive any
management fee or other compensation in connection with the
management of our business but will be entitled to be reimbursed
for all direct and indirect expenses incurred on our behalf,
including management compensation and overhead allocated to us
by CVR Energy in accordance with our services agreement. Upon
the closing of this offering, our general partner will
47
own a non-economic general partner interest and therefore will
not be entitled to receive cash distributions. However, it may
acquire common units in the future and will be entitled to
receive pro rata distributions therefrom.
Unlike shareholders in a corporation, our common unitholders are
not entitled to elect our general partner or the board of
directors of our general partner. See
Management Management of CVR Partners,
LP.
Conflicts
of Interest and Fiduciary Duties
CVR GP, LLC, our general partner, has legal duties to manage us
in a manner that is in our best interests. These legal duties
are commonly referred to as fiduciary duties.
Because our general partner is indirectly owned by CVR Energy,
the officers and directors of our general partner and the
officers and directors of CVR Energy, which indirectly owns our
general partner, also have fiduciary duties to manage the
business of our general partner in a manner beneficial to CVR
Energy. As a result of these relationships, conflicts of
interest may arise in the future between us and our unitholders,
on the one hand, and our general partner and its affiliates, on
the other hand. For a more detailed description of the conflicts
of interest and fiduciary duties of our general partner, see
Risk Factors Risks Related to an Investment in
Us and Conflicts of Interest and Fiduciary
Duties.
Our partnership agreement limits the liability and reduces the
fiduciary duties of our general partner and its directors and
officers to our unitholders. Our partnership agreement also
restricts the remedies available to unitholders for actions that
might otherwise constitute breaches of our general
partners fiduciary duties. By purchasing a common unit,
you are consenting to various limitations on fiduciary duties
contemplated in our partnership agreement and conflicts of
interest that might otherwise be considered a breach of
fiduciary or other duties under applicable law. See
Conflicts of Interest and Fiduciary Duties
Fiduciary Duties for a description of the fiduciary duties
imposed on our general partner by Delaware law, the material
modifications of these duties contained in our partnership
agreement and certain legal rights and remedies available to
unitholders. In addition, our general partner will have the
right to call, under specified circumstances, all of the
outstanding common units without considering whether this is in
the interest of our common unitholders. For a description of
such call right, see The Partnership Agreement
Call Right.
For a description of our other relationships with our
affiliates, see Certain Relationships and Related Party
Transactions.
Trademarks,
Trade Names and Service Marks
This prospectus includes trademarks belonging to CVR Energy,
including CVR Partners,
LP®,
COFFEYVILLE
RESOURCES®
and CVR
Energytm.
This prospectus also contains trademarks, service marks,
copyrights and trade names of other companies.
CVR
Energy
CVR Energy, which following this offering will indirectly own
our general partner and
approximately % of our outstanding
units ( % of our common units if
the underwriters exercise their option to purchase additional
common units in full), currently operates a 115,000 bpd
sour crude oil refinery and ancillary businesses. CVR
Energys common stock is listed for trading on the New York
Stock Exchange under the symbol CVI.
48
USE OF
PROCEEDS
We expect to receive approximately
$ million of net proceeds
from the sale of common units by us in this offering, after
deducting underwriting discounts and commissions and the
estimated expenses of this offering, based on an assumed initial
public offering price of $ per
common unit (the mid-point of the price range set forth on the
cover page of the prospectus). We intend to use the net proceeds
of this offering as follows:
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approximately $18.4 million will be distributed to
Coffeyville Resources to satisfy our obligation to reimburse it
for certain capital expenditures it made on our behalf with
respect to the nitrogen fertilizer business prior to
October 24, 2007;
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approximately $ million will
be used to make a special distribution to Coffeyville Resources
in order to, among other things, fund the offer to purchase
Coffeyville Resources senior secured notes required upon
consummation of this offering;
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approximately $26 million will be used to purchase (and
subsequently extinguish) the incentive distribution rights
currently owned by our general partner;
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approximately $3 million will be used by us to pay
financing fees in connection with entering into our new credit
facility; and
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the balance will be used for general partnership purposes,
including approximately $100 million to fund the intended
approximately $135 million UAN expansion, for which
approximately $31 million had been spent as of
December 31, 2010.
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If the underwriters exercise their option to
purchase
additional common units in full, the additional net proceeds to
us would be approximately
$ million (and the total net
proceeds to us would be approximately
$ million), in each case
assuming an initial public offering price per common unit of
$ (the mid-point of the
price range set forth on the cover page of the prospectus). The
net proceeds from any exercise of such option will also be paid
as a special distribution to Coffeyville Resources.
A $1.00 increase (or decrease) in the assumed initial public
offering price of $ per common
unit would increase (decrease) the net proceeds to us from this
offering by $ million,
assuming the number of common units offered by us, as set forth
on the cover page of this prospectus, remains the same and
assuming the underwriters do not exercise their option to
purchase additional common units, and after deducting the
underwriting discounts and commissions. The actual initial
public offering price is subject to market conditions and
negotiations between us and the underwriters.
Depending on market conditions at the time of pricing of this
offering and other considerations, we may sell fewer or more
common units than the number set forth on the cover page of this
prospectus.
49
CAPITALIZATION
The following table sets forth our consolidated cash and cash
equivalents and capitalization as of December 31, 2010 on
(a) an actual basis and (b) a pro forma basis to
reflect the Transactions. The table assumes (x) an initial
public offering price of $ per
unit (the mid-point of the price range set forth on the cover
page of the prospectus, and (y) no exercise by the
underwriters of their option to purchase additional common units.
You should read this table in conjunction with Use of
Proceeds, Selected Historical Consolidated Financial
Information, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Unaudited Pro Forma Condensed Consolidated Financial
Statements, and the consolidated financial statements and
related notes included elsewhere in this prospectus.
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As of December 31, 2010
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Pro Forma
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Actual
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Adjusted
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(unaudited)
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(in thousands)
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Cash and cash equivalents
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$
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42,745
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$
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New revolving credit
facility(1)
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New term loan
facility(2)
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125,000
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Partners capital:
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Equity held by public:
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Common units: none issued and outstanding
actual; issued
and outstanding pro forma
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Equity held by CVR Energy and its affiliates:
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Special general partners interest: 30,303,000 units
issued and outstanding actual; none issued and outstanding pro
forma
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|
397,951
|
|
|
|
|
|
Special limited partners interest: 30,333 units
issued and outstanding actual; none issued and outstanding pro
forma
|
|
|
398
|
|
|
|
|
|
Common units: none issued and outstanding
actual; issued
and outstanding pro
forma(2)
|
|
|
|
|
|
|
|
|
General partners interest
|
|
|
3,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
402,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
402,203
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
We expect to have approximately
$25.0 million of available capacity under our new revolving
credit facility at the closing of this offering.
|
|
(2)
|
|
We expect to draw
$125.0 million under a new term loan facility at the
closing of this offering. We will use
$ million of the proceeds
therefrom to pay a special distribution to Coffeyville Resources
in order to, among other things, fund the offer to purchase
Coffeyville Resources senior secured notes required upon
consummation of this offering. The pro forma capitalization with
respect to the common units held by CVR Energy and its
affiliates has been adjusted for the term loan facility
distribution as well as the other distributions to Coffeyville
Resources which are part of the Transactions.
|
50
DILUTION
Purchasers of common units offered by this prospectus will
suffer immediate and substantial dilution in net tangible book
value per unit. Our pro forma net tangible book value as of
December 31, 2010, excluding the net proceeds of this
offering, was approximately
$ million, or approximately
$ per unit. Pro forma net tangible
book value per unit represents the amount of tangible assets
less total liabilities (excluding the net proceeds of this
offering), divided by the pro forma number of units outstanding
(excluding the units issued in this offering).
Dilution in net tangible book value per unit represents the
difference between the amount per unit paid by purchasers of our
common units in this offering and the pro forma net tangible
book value per unit immediately after this offering. After
giving effect to the sale
of common units in
this offering at an assumed initial public offering price of
$ per common unit (the mid-point
of the price range set forth on the cover page of the
prospectus), and after deduction of the estimated underwriting
discounts and commissions and estimated offering expenses
payable by us, our pro forma net tangible book value as of
December 31, 2010 would have been approximately
$ million, or
$ per unit. This represents an
immediate increase in net tangible book value of
$ per unit to our existing
unitholders and an immediate pro forma dilution of
$ per unit to purchasers of common
units in this offering. The following table illustrates this
dilution on a per unit basis:
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per common unit
|
|
$
|
|
|
|
$
|
|
|
Pro forma net tangible book value per unit before this
offering(1)
|
|
$
|
|
|
|
$
|
|
|
Increase in net tangible book value per unit attributable to
purchasers in this offering and use of proceeds
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Less: Pro forma net tangible book value per unit after this
offering(2)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Immediate dilution in net tangible book value per common unit to
purchasers in this offering
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Determined by dividing the net
tangible book value of our assets less total liabilities by the
number of units outstanding prior to this offering.
|
(2)
|
|
Determined by dividing our pro
forma net tangible book value, after giving effect to the
application of the net proceeds of this offering, by the total
number of units to be outstanding after this offering.
|
A $1.00 increase (decrease) in the assumed initial public
offering price of $ per common
unit (the mid-point of the price range set forth on the cover
page of the prospectus) would increase (decrease) our pro forma
net tangible book value by
$ million, the pro forma net
tangible book value per unit by $
and the dilution per common unit to new investors by
$ , assuming the number of common
units offered by us, as set forth on the cover page of this
prospectus, remains the same and the underwriters do not
exercise their option to purchase additional common units, and
after deducting the underwriting discounts and estimated
offering expenses payable by us. Depending on market conditions
at the time of pricing of this offering and other
considerations, we may sell fewer or more common units than the
number set forth on the cover page of this prospectus.
The following table sets forth the total value contributed by
CVR Energy and its affiliates in respect of the units held by
them and the total amount of consideration contributed to us by
the purchasers of common units in this offering upon the
completion of the Transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units Acquired
|
|
|
Total Consideration
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Coffeyville
Resources(1)(2)
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
New investors
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Upon the completion of the
Transactions, Coffeyville Resources will
own
common units.
|
(2)
|
|
The assets contributed by
affiliates of CVR Energy were recorded at historical cost in
accordance with GAAP.
|
51
A $1.00 increase (decrease) in the assumed initial public
offering price of $ per common
unit would increase (decrease) total consideration paid by new
investors and total consideration paid by all unitholders by
$ million, assuming the
number of common units offered by us, as set forth on the cover
page of this prospectus, remains the same, and after deducting
the underwriting discounts and estimated offering expenses
payable by us.
If the underwriters exercise their option to
purchase
common units in full, then the pro forma increase per unit
attributable to new investors would be
$ , the net tangible book value
per unit after this offering would be
$ and the dilution per unit to new
investors would be $ .
In addition, new investors would
purchase
common units, or approximately % of
units outstanding, and the total consideration contributed to us
by new investors would increase to
$ million,
or % of the total consideration
contributed (based on an assumed initial public offering price
of $ per common unit).
52
OUR CASH
DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS
You should read the following discussion of our cash
distribution policy and restrictions on distributions in
conjunction with the specific assumptions upon which our cash
distribution policy is based. See Assumptions
and Considerations below. For additional information
regarding our historical and pro forma operating results, you
should refer to Managements Discussion and Analysis
of Financial Condition and Results of Operations, our
audited historical consolidated financial statements, our
unaudited historical condensed consolidated financial statements
and our unaudited pro forma condensed consolidated financial
statements included elsewhere in this prospectus. In addition,
you should read Risk Factors and Cautionary
Note Regarding Forward-Looking Statements for information
regarding statements that do not relate strictly to historical
or current facts and certain risks inherent in our business.
General
Our
Cash Distribution Policy
The board of directors of our general partner will adopt a
policy pursuant to which we will distribute all of the available
cash we generate each quarter, beginning with the quarter ending
June 30, 2011. Available cash for each quarter will be
determined by the board of directors of our general partner
following the end of such quarter. We expect that available cash
for each quarter will generally equal our cash flow from
operations for the quarter, less cash needed for maintenance
capital expenditures, debt service and other contractual
obligations, and reserves for future operating or capital needs
that the board of directors of our general partner deems
necessary or appropriate. We do not intend to maintain excess
distribution coverage for the purpose of maintaining stability
or growth in our quarterly distribution or otherwise to reserve
cash for distributions, nor do we intend to incur debt to pay
quarterly distributions. We expect to finance substantially all
of our growth externally, either by debt issuances or additional
issuances of equity.
Because our policy will be to distribute all available cash we
generate each quarter, without reserving cash for future
distributions or borrowing to pay distributions during periods
of low cash flow from operations, our unitholders will have
direct exposure to fluctuations in the amount of cash generated
by our business. We expect that the amount of our quarterly
distributions, if any, will vary based on our operating cash
flow during each quarter. Our quarterly cash distributions, if
any, will not be stable and will vary from quarter to quarter as
a direct result of variations in our operating performance and
cash flow caused by fluctuations in the price of nitrogen
fertilizers as well as forward and prepaid sales; see
Business Distribution, Sales and
Marketing. Such variations may be significant. The board
of directors of our general partner may change the foregoing
distribution policy at any time and from time to time. Our
partnership agreement does not require us to pay cash
distributions on a quarterly or other basis.
From time to time we make prepaid sales, whereby we receive cash
during one quarter in respect of product to be produced and sold
in a future quarter, but we do not record revenue in respect of
the cash received until the quarter when product is delivered.
All cash on our balance sheet in respect of prepaid sales on the
date of the closing of this offering will not be distributed to
Coffeyville Resources at the closing of this offering but will
be reserved for distribution to holders of common units.
Limitations
on Cash Distributions; Our Ability to Change Our Cash
Distribution Policy
There is no guarantee that unitholders will receive quarterly
cash distributions from us. Our distribution policy may be
changed at any time and is subject to certain restrictions,
including:
|
|
|
|
|
Our unitholders have no contractual or other legal right to
receive cash distributions from us on a quarterly or other
basis. The board of directors of our general partner will adopt
a policy pursuant to which we will distribute to our unitholders
each quarter all of the available cash we generate each quarter,
as determined quarterly by the board of directors, but it may
change this policy at any time.
|
|
|
|
|
|
Our business performance is expected to be more seasonal and
volatile, and our cash flows are expected to be less stable,
than the business performance and cash flows of most publicly
traded partnerships. As a result, our quarterly cash
distributions will be volatile and are expected to vary
quarterly and annually. Unlike most
|
53
|
|
|
|
|
publicly traded partnerships, we will not have a minimum
quarterly distribution or employ structures intended to
consistently maintain or increase quarterly distributions over
time. Furthermore, none of our limited partnership interests,
including those held by Coffeyville Resources, will be
subordinate in right of distribution payment to the common units
sold in this offering.
|
|
|
|
|
|
The amount of distributions we pay under our cash distribution
policy and the decision to make any distribution is determined
by the board of directors of our general partner. Our
partnership agreement will not provide for any minimum quarterly
distributions.
|
|
|
|
Under
Section 17-607
of the Delaware Act, we may not make a distribution to our
limited partners if the distribution would cause our liabilities
to exceed the fair value of our assets.
|
|
|
|
|
|
We expect that our distribution policy will be subject to
restrictions on distributions under our new credit facility. The
new credit facility will provide that we can make distributions
to holders of our common units, but only if we are in compliance
with our leverage ratio and interest coverage ratio covenants on
a pro forma basis after giving effect to any distribution and
there is no default or event of default under the facility. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources New Credit Facility. Should
we be unable to satisfy these restrictions under our new credit
facility, we would be prohibited from making cash distributions
to you.
|
|
|
|
|
|
We may lack sufficient cash to make distributions to our
unitholders due to a number of factors that would adversely
affect us, including but not limited to decreases in net sales
or increases in operating expenses, principal and interest
payments on debt, working capital requirements, capital
expenditures or anticipated cash needs. See Risk
Factors for information regarding these factors.
|
We do not have any operating history as an independent company
upon which to rely in evaluating whether we will have sufficient
cash to allow us to pay distributions on our common units. While
we believe, based on our financial forecast and related
assumptions, that we should have sufficient cash to enable us to
pay the forecasted aggregate distribution on all of our common
units for the twelve months ending March 31, 2012, we may
be unable to pay the forecasted distribution or any amount on
our common units.
We intend to pay our distributions on or about the 15th day
of each February, May, August and November to holders of record
on or about the 1st day of each such month. Our first
distribution will include available cash for the quarter ending
June 30, 2011.
In the sections that follow, we present the following two tables:
|
|
|
|
|
CVR Partners, LP Unaudited Pro Forma Available Cash for
the Year Ended December 31, 2010, in which we present
our estimate of the amount of pro forma available cash we would
have had for the year ended December 31, 2010, based on our
unaudited pro forma condensed consolidated financial statements
included elsewhere in this prospectus. See Unaudited Pro
Forma Condensed Consolidated Financial Statements on
page P-1; and
|
|
|
|
|
|
CVR Partners, LP Estimated Available Cash for the Twelve
Months Ending March 31, 2012, in which we present our
unaudited forecast of available cash for the twelve months
ending March 31, 2012.
|
We do not as a matter of course make or intend to make
projections as to future sales, earnings, or other results.
However, our management has prepared the prospective financial
information set forth under Forecasted
Available Cash below to supplement the historical and pro
forma financials included elsewhere in this prospectus. To
managements knowledge and belief, the accompanying
prospective financial information was prepared on a reasonable
basis, reflects currently available estimates and judgments, and
presents our expected course of action and our expected future
financial performance. However, this information is not fact and
should not be relied upon as being indicative of future results,
and readers of this prospectus are cautioned not to place undue
reliance on the prospective financial information. Neither our
independent registered public accounting firm, nor any other
registered public accounting firm, has compiled, examined, or
performed any procedures with respect to the prospective
financial information contained in this section, nor have they
expressed any opinion or any other form of assurance on such
information or its achievability, and assume no responsibility
for, and disclaim any association with, the prospective
financial information. See Cautionary Note Regarding
Forward-Looking Statements and Risk Factors.
54
Pro Forma
Available Cash
We believe that our pro forma available cash generated during
the year ended December 31, 2010 would have been
approximately $30.9 million. Based on the cash distribution
policy we expect our board of directors to adopt, this amount
would have resulted in an aggregate annual distribution equal to
$ per common unit for the year
ended December 31, 2010.
Pro forma available cash reflects the payment of incremental
general and administrative expenses we expect that we will incur
as a publicly traded limited partnership, such as costs
associated with SEC reporting requirements, including annual and
quarterly reports to unitholders, tax return and
Schedule K-1
preparation and distribution, independent auditor fees, investor
relations activities and registrar and transfer agent fees. We
estimate that these incremental general and administrative
expenses will approximate $3.5 million per year. The
estimated incremental general and administrative expenses are
reflected in our pro forma available cash but are not reflected
in our unaudited pro forma condensed consolidated financial
statements.
The pro forma financial statements, from which pro forma
available cash is derived, do not purport to present our results
of operations had the transactions contemplated below actually
been completed as of the date indicated. Furthermore, available
cash is a cash accounting concept, while our unaudited pro forma
condensed consolidated financial statements have been prepared
on an accrual basis. We derived the amounts of pro forma
available cash stated above in the manner described in the table
below. As a result, the amount of pro forma available cash
should only be viewed as a general indication of the amount of
available cash that we might have generated had we been formed
and completed the transactions contemplated below in earlier
periods.
55
The following table illustrates, on a pro forma basis for the
year ended December 31, 2010, the amount of cash that would
have been available for distribution to our unitholders,
assuming that the Transactions (as defined on page 47 of
this prospectus) and the distribution of the due from affiliate
balance of $160.0 million owed to us by Coffeyville
Resources had occurred at the beginning of such period:
CVR
Partners, LP
Unaudited Pro Forma Available Cash for the
Year Ended December 31, 2010
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Year Ended
|
|
|
|
December 31,
2010
|
|
|
|
(unaudited)
|
|
|
|
(in millions, except
|
|
|
|
per unit data)
|
|
|
Net
income(a)
|
|
$
|
15.1
|
|
Add:
|
|
|
|
|
Interest expense and other financing
costs(b)
|
|
|
5.1
|
|
Income tax expense
|
|
|
|
|
Depreciation and amortization
|
|
|
18.5
|
|
|
|
|
|
|
EBITDA(c)
|
|
|
38.7
|
|
Subtract:
|
|
|
|
|
Debt service
costs(d)
|
|
|
4.4
|
|
Estimated incremental general and administrative
expenses(e)
|
|
|
3.5
|
|
Maintenance capital
expenditures(f)
|
|
|
8.9
|
|
Add:
|
|
|
|
|
Share-based compensation expense
(g)
|
|
|
9.0
|
|
|
|
|
|
|
Available Cash
|
|
$
|
30.9
|
|
Distribution on a per unit basis
|
|
$
|
|
|
New Credit
Facility(h)
|
|
|
|
|
Interest coverage
ratio(h)
|
|
|
9.3x
|
|
Leverage
ratio(h)
|
|
|
2.0x
|
|
|
|
|
(a) |
|
Pro forma net income assumes that the due from affiliate balance
was distributed to Coffeyville Resources as of January 1,
2010 and the interest income associated with that balance was
eliminated. |
|
|
|
(b) |
|
Interest expense and other financing costs represents the
interest expense and fees, net of interest income, related to
our borrowings, assuming that our new credit facility had been
put in place on January 1, 2010, and also reflects the
amortization of deferred financing fees related to our new
credit facility. We assume that we will make term loan
borrowings of $125.0 million under our new credit facility
at the closing of this offering at an assumed interest rate of
4.0%. |
|
|
|
(c) |
|
EBITDA is defined as net income plus interest expense and other
financing costs, income tax expense and depreciation and
amortization, net of interest income. We calculate available
cash as used in this table as EBITDA less interest expense and
other financing costs paid, debt amortization payments,
estimated incremental general and administrative expenses
associated with being a public company and maintenance capital
expenditures, plus non-cash share-based compensation expense. |
|
|
|
|
|
We present EBITDA because it is a material component in our
calculation of available cash. In addition, EBITDA is a material
term utilized in our new credit facility in order to determine
our leverage ratio (ratio of debt to EBITDA) and our interest
coverage ratio (ratio of EBITDA to interest expense). EBITDA and
available cash are also used as supplemental financial measures
by management and by external users of our financial statements,
such as investors and commercial banks, to assess: |
|
|
|
|
|
the financial
performance of our assets without regard to financing methods,
capital structure or historical cost basis; and
|
|
|
our operating
performance and return on invested capital compared to those of
other publicly traded limited partnerships, without regard to
financing methods and capital structure.
|
56
|
|
|
|
|
EBITDA and available cash should not be considered alternatives
to net income, operating income, net cash provided by operating
activities or any other measure of financial performance or
liquidity presented in accordance with GAAP. EBITDA and
available cash may have material limitations as performance
measures because they exclude items that are necessary elements
of our costs and operations. In addition, EBITDA and available
cash presented by other companies may not be comparable to our
presentation, since each company may define these terms
differently. |
|
|
|
(d) |
|
Debt service is defined as net interest expense and other
financing costs paid. |
|
|
|
(e) |
|
Reflects an adjustment for estimated incremental general and
administrative expenses we expect that we will incur as a
publicly traded limited partnership, such as costs associated
with SEC reporting requirements, including annual and quarterly
reports to unitholders, tax return and
Schedule K-1
preparation and distribution, independent auditor fees, investor
relations activities, and registrar and transfer agent fees. |
(f) |
|
Reflects actual maintenance capital expenditures during the
period. |
(g) |
|
Reflects an adjustment for share-based expense which is not
subject to reimbursement by us. We are allocated non-cash
share-based compensation expense from CVR Energy for purposes of
financial statement reporting. CVR Energy accounts for
share-based compensation in accordance with ASC 718,
Compensation Stock Compensation as well as guidance
regarding the accounting for share-based compensation granted to
employees of an equity-method investee. In accordance with
SAB Topic 1-B, CVR Energy allocates costs between itself
and us based upon the percentage of time a CVR Energy employee
provides services to us. In accordance with the services
agreement, we will not be responsible for the payment of cash
related to any share-based compensation which CVR Energy
allocates to us. |
|
|
|
(h) |
|
Our new credit facility will require us to maintain a minimum
interest coverage ratio (ratio of Consolidated Adjusted EBITDA
(as defined under our new credit facility) to interest) of
3.0 to 1.0 and (ii) a maximum leverage ratio
(ratio of debt to Consolidated Adjusted EBITDA) of (a) as
of any fiscal quarter ending after the closing date and prior to
December 31, 2011, 3.50 to 1.0, and (b) as
of any fiscal quarter ending on or after December 31, 2011,
3.0 to 1.0, calculated in each case on a trailing four
quarter basis. |
Forecasted
Available Cash
During the twelve months ending March 31, 2012, we estimate
that we will generate $140.1 million of available cash. In
Assumptions and Considerations below, we
discuss the major assumptions underlying this estimate. The
available cash discussed in the forecast should not be viewed as
managements projection of the actual available cash that
we will generate during the twelve months ending March 31,
2012. We can give you no assurance that our assumptions will be
realized or that we will generate any available cash, in which
event we will not be able to pay quarterly cash distributions on
our common units.
When considering our ability to generate available cash and how
we calculate forecasted available cash, please keep in mind all
the risk factors and other cautionary statements under the
headings Risk Factors and Cautionary Note
Regarding Forward-Looking Statements, which discuss
factors that could cause our results of operations and available
cash to vary significantly from our estimates.
We do not, as a matter of course, make public projections as to
future sales, earnings or other results. However, our management
has prepared the prospective financial information set forth
below in the table entitled CVR Partners, LP Estimated
Available Cash for the Twelve Months Ending March 31,
2012 to present our expectations regarding our ability to
generate $140.1 million of available cash for the twelve
months ending March 31, 2012. The accompanying prospective
financial information was not prepared with a view toward
complying with the guidelines established by the American
Institute of Certified Public Accountants with respect to
prospective financial information, but, in the view of our
management, was prepared on a reasonable basis, reflects the
best currently available estimates and judgments, and presents,
to the best of managements knowledge and belief, the
expected course of action and our expected future financial
performance. However, this information is not fact and should
not be relied upon as being necessarily indicative of future
results, and readers of this prospectus are cautioned not to
place undue reliance on this prospective financial information.
The assumptions and estimates underlying the prospective
financial information are inherently uncertain and, though
considered reasonable by the management team of our general
partner, all of whom are employed by CVR Energy, as of the date
of its preparation, are subject to a wide variety of significant
business, economic, and competitive risks and uncertainties that
could cause actual results to differ materially from those
contained in the prospective financial information, including,
among others, risks and uncertainties. Accordingly, there can be
no assurance that the prospective results are indicative of our
future performance or that actual results will not differ
materially from those presented in the prospective financial
information. Inclusion of the prospective financial
57
information in this prospectus should not be regarded as a
representation by any person that the results contained in the
prospective financial information will be achieved.
We do not undertake any obligation to release publicly the
results of any future revisions we may make to the financial
forecast or to update this financial forecast to reflect events
or circumstances after the date of this prospectus. In light of
the above, the statement that we believe that we will have
sufficient available cash to allow us to pay the forecasted
quarterly distributions on all of our outstanding common units
for the twelve months ending March 31, 2012, should not be
regarded as a representation by us or the underwriters or any
other person that we will make such distributions. Therefore,
you are cautioned not to place undue reliance on this
information.
The following table shows how we calculate estimated available
cash for the twelve months ending March 31, 2012. The
assumptions that we believe are relevant to particular line
items in the table below are explained in the corresponding
footnotes and in Assumptions and
Considerations.
Neither our independent registered public accounting firm, nor
any other independent registered public accounting firm, has
compiled, examined or performed any procedures with respect to
the forecasted financial information contained herein, nor has
it expressed any opinion or given any other form of assurance on
such information or its achievability, and it assumes no
responsibility for such forecasted financial information. Our
independent registered public accounting firms reports
included elsewhere in this prospectus relate to our audited
historical consolidated financial information. These reports do
not extend to the tables and the related forecasted information
contained in this section and should not be read to do so.
CVR
Partners, LP
Estimated Available Cash for the
Twelve Months Ending March 31, 2012
The following table illustrates the amount of cash that we
estimate that we will generate for the twelve months ending
March 31, 2012 that would be available for distribution to
our unitholders. All of the amounts for the twelve months ending
March 31, 2012 in the table below are estimates.
|
|
|
|
|
|
|
Twelve Months Ending
|
|
|
|
March 31, 2012
|
|
|
Net Sales
|
|
$
|
297.4
|
|
Cost of product sold (exclusive of depreciation and
amortization) - Affiliates
|
|
|
15.9
|
|
Cost of product sold (exclusive of depreciation and
amortization) - Third Parties
|
|
|
32.4
|
|
Direct operating expenses (exclusive of depreciation and
amortization) - Affiliates
|
|
|
16.1
|
|
Direct operating expenses (exclusive of depreciation and
amortization) - Third Parties
|
|
|
68.4
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization) - Affiliates
|
|
|
8.5
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization) - Third Parties
|
|
|
5.7
|
|
Interest expense and other financing costs
|
|
|
5.7
|
|
Interest income
|
|
|
(0.7
|
)
|
Income tax expense
|
|
|
|
|
Depreciation and amortization
|
|
|
19.7
|
|
|
|
|
|
|
Net Income
|
|
$
|
125.7
|
|
Adjustment to reconcile net income to EBITDA:
|
|
|
|
|
Add:
|
|
|
|
|
Interest expense and other financing costs
|
|
|
5.7
|
|
Income tax expense
|
|
|
|
|
Depreciation and amortization
|
|
|
19.7
|
|
Subtract:
|
|
|
|
|
Interest income
|
|
|
0.7
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
Twelve Months Ending
|
|
|
|
March 31, 2012
|
|
|
EBITDA
|
|
$
|
150.4
|
|
Adjustments to reconcile EBITDA to available cash
|
|
|
|
|
Subtract:
|
|
|
|
|
Debt service costs
|
|
|
4.4
|
|
Maintenance capital expenditures (includes environmental, health
and safety expenditures)
|
|
|
5.9
|
|
|
|
|
|
|
Available cash
|
|
$
|
140.1
|
|
New Credit Facility
|
|
|
|
|
Interest coverage ratio
|
|
|
26.5x
|
|
Leverage ratio
|
|
|
0.7x
|
|
Assumptions
and Considerations
Based upon the specific assumptions outlined below with respect
to the twelve months ending March 31, 2012, we expect to
generate EBITDA and available cash in an amount sufficient to
allow us to pay $ per common unit
on all of our outstanding units for the twelve months ending
March 31, 2012.
While we believe that these assumptions are reasonable in light
of our managements current expectations concerning future
events, the estimates underlying these assumptions are
inherently uncertain and are subject to significant business,
economic, regulatory, environmental and competitive risks and
uncertainties that could cause actual results to differ
materially from those we anticipate. If our assumptions are not
correct, the amount of actual cash available to pay
distributions could be substantially less than the amount we
currently estimate and could, therefore, be insufficient to
allow us to pay the forecasted yearly cash distribution, or any
amount, on all of our outstanding common units, in which event
the market price of our common units may decline substantially.
When reading this section, you should keep in mind the risk
factors and other cautionary statements under the headings
Risk Factors and Cautionary Note Regarding
Forward-Looking Statements. Any of the risks discussed in
this prospectus could cause our actual results to vary
significantly from our estimates.
Basis
of Presentation
The accompanying financial forecast and summary of significant
forecast assumptions of CVR Partners, LP present the forecasted
results of operations of CVR Partners, LP for the twelve months
ending March 31, 2012, assuming that the Transactions (as
defined on page 47 of this prospectus) had occurred at the
beginning of such period.
Summary
of Significant Forecast Assumptions
Our nitrogen fertilizer facility is comprised of three major
units: a gasifier complex, an ammonia unit and a dual-train UAN
unit (together, our operating units). The manufacturing process
begins with the production of hydrogen by gasifying the pet coke
we purchase from CVR Energys refinery and on the open
market. In a second step, the hydrogen is converted into ammonia
with approximately 67,000 standard cubic feet of hydrogen
consumed in producing one ton of ammonia. CVR Energy also has
rights to purchase hydrogen from us at predetermined prices to
the extent it needs hydrogen in connection with the operation of
its refinery. We then produce approximately 2.44 tons of UAN
from each ton of ammonia we choose to convert. Due to the value
added sales price of UAN on a per pound of nitrogen basis, we
strive to maximize UAN production. At the present time, we are
not able to convert all of the ammonia we produce into UAN, and
excess ammonia is sold to third-party purchasers.
Because hydrogen cannot be stored or purchased economically in
the volumes we require, if our gasifier complex is not running,
we cannot operate our ammonia unit. Therefore, the on-stream
factor (total hours operated in a given period divided by total
number of hours in the period) for the ammonia unit will
necessarily be equal to or lower than that of the gasifier
complex. We have the capability to store ammonia and can
purchase ammonia from third parties to operate the UAN unit if
necessary. As a result, it is possible for the actual on-stream
factor of the
59
UAN unit to exceed the on-stream factor of the ammonia unit. For
the purpose of forecasting, however, we assume the UAN unit is
idle when the ammonia unit is idle and that the UAN unit may
experience incremental downtime. As a result, the projected
on-stream factor for the UAN unit is less than the projected
on-stream factor for the ammonia unit.
Given the fixed cost nature of our fertilizer operation, we
operate our facility at maximum daily rates whenever possible.
The on-stream factors for the forecast period provided below are
calculated based on historical operating performance and in all
cases include allowances for unscheduled downtime.
On-Stream Factors. For the twelve months
ending March 31, 2012, we estimate on-stream factors of
96.2%, 95.4% and 92.2% for our gasifier, ammonia and UAN units,
respectively, which would result in our gasifier, ammonia and
UAN units being in operation for 352 days, 349 days
and 337 days, respectively, during the forecast period.
These periods assume that our operating units are not offstream
during 2011 for any turnaround.
During the year ended December 31, 2010, our gasifier,
ammonia and UAN units were in operation for 325 days,
320 days and 295 days, respectively, with on-stream
factors of 89.0%, 87.7% and 80.8%, respectively. Our operating
units on-stream factors in 2010 were adversely affected by
downtime associated with repairs and maintenance and a Linde air
separating unit outage, which resulted in 12.5 down days for our
gasifier unit, 16.6 down days for our ammonia units and 24.3
down days for our UAN unit. Excluding the impact of the Linde
air separation unit outage, the rupture of the high-pressure UAN
vessel and the major scheduled turnaround, the on-stream factors
for the year ended December 31, 2010 would have been 97.6%
for gasifier, 96.8% for ammonia and 96.1% for UAN.
Net Sales. We estimate net sales based on a
forecast of future ammonia and UAN prices (assuming that the
purchaser will pay shipping costs) multiplied by the number of
fertilizer tons we estimate we will produce and sell during the
forecast period, assuming no change in finished goods inventory
between the beginning and end of the period. In addition, our
net sales estimate includes the delivery cost for ammonia and
UAN sold on a freight on board, or FOB, delivered basis, with an
amount equal to the delivery cost included in cost of product
sold (exclusive of depreciation and amortization) assuming that
all delivery costs are paid by the customer. Further, net sales
also includes our hydrogen sales to CVR Energys refinery.
Based on these assumptions, we estimate our net sales for the
twelve months ending March 31, 2012 will be approximately
$297.4 million. Our net sales in the year ended
December 31, 2010 were $180.5 million.
We estimate that we will sell 686,200 tons of UAN at an average
plant gate price (which excludes delivery charges that are
included in net sales) of $278 per ton, for total sales of
$191.0 million, for the twelve months ending March 31,
2012. We sold 580,700 tons of UAN at an average plant gate price
of $179 per ton, for total sales of $103.9 million, for the
year ended December 31, 2010. The average plant gate price
estimate for UAN was determined by management based on our
current committed orders, price discovery generated through the
selling efforts of our fertilizer marketing group and price
projections data received from leading consultants in the
fertilizer industry such as Blue Johnson.
We estimate that we will sell 157,400 tons of ammonia at an
average plant gate price of $547 per ton, for total sales of
$86.0 million, for the twelve months ending March 31,
2012. We sold 164,700 tons of ammonia at an average plant gate
price of $361 per ton, for total sales of $59.5 million,
for the year ended December 31, 2010. As in the case of UAN
described above, the average plant gate price estimate for
ammonia was determined by management based on our current
committed orders, price discovery generated through the selling
efforts of our fertilizer marketing group and price projections
data received from leading consultants in the fertilizer
industry such as Blue Johnson.
We estimate that we will sell approximately 52.5 thousand
standard cubic feet, or MSCF, of hydrogen to CVR Energy at an
average price of $3.30 per MSCF for total sales of
$0.2 million, for the twelve months ending March 31,
2012. We sold 20.6 thousand MSCF of hydrogen at an average
plant gate price of $6.80 per MSCF, for total sales of
approximately $0.1 million for the year ended
December 31, 2010.
Holding all other variables constant, we expect that a 10%
change in the price per ton of ammonia would change our
forecasted available cash by approximately $8.6 million for
the twelve months ending March 31, 2012. For the month of
December 2010, the average plant gate price of ammonia was $531
per ton. In addition, holding all
60
other variables constant, we estimate that a 10% change in the
price per ton of UAN would change our forecasted available cash
by approximately $19.1 million for the twelve months ending
March 31, 2012. The average plant gate price of UAN for the
month of December 2010 was $171 per ton.
Cost of Product Sold (Exclusive of Depreciation and
Amortization). Cost of product sold includes pet
coke expense, freight and distribution expenses and railcar
expense. Freight and distribution expenses consist of our
outbound freight costs which we pass through to our customers.
Railcar expense is our actual expense to acquire, maintain and
lease railcars. We estimate that our cost of product sold for
the twelve months ending March 31, 2012 will be
approximately $48.3 million. Our cost of product sold for
the year ended December 31, 2010 was $34.3 million.
Cost of Product Sold (Exclusive of Depreciation and
Amortization) Pet Coke Expense. We
estimate that our total pet coke expense for the twelve months
ending March 31, 2012 will be approximately
$19.0 million and that our average pet coke cost for the
twelve months ending March 31, 2012 will be $37 per ton.
Our total pet coke expense for the year ended December 31,
2010 was $7.4 million and our average pet coke cost for the
year ended December 31, 2010 was $17 per ton. We estimate
that we will purchase approximately 389,700 tons, or 76% of
our pet coke needs, from CVR Energy in accordance with the coke
supply agreement that we entered into with CVR Energy in October
2007. For the year ended December 31, 2010, we purchased
approximately 81% of our pet coke tons from CVR Energy. We use
1.1 tons of pet coke to produce 1.0 ton of ammonia. The
coke supply agreement with CVR Energy provides for a price based
on the lesser of a pet coke price derived from the price
received by us for UAN (subject to a UAN based price ceiling and
floor) and a pet coke price index for pet coke. We estimate that
we will pay an average of $36 per ton for pet coke purchased
under the coke supply agreement, and our forecast assumes that
we will fulfill our remaining pet coke needs through purchases
from third parties at an average price of $41 per ton. If we
were forced to obtain 100% of our pet coke needs from third
parties, this would increase our pet coke expense (and reduce
our forecasted net income and available cash) by approximately
$1.9 million.
Holding all other variables constant, we estimate that a 10%
change per ton in the price of pet coke would change our
forecasted available cash by $1.9 million for the twelve
months ending March 31, 2012. For the twelve months ended
December 31, 2010, the average pet coke cost was $17 per
ton.
Cost of Product Sold (Exclusive of Depreciation and
Amortization) Railcar Expense. We
estimate that our railcar expense for the twelve months ending
March 31, 2012 will be approximately $5.8 million. Our
railcar expense during the year ended December 31, 2010 was
$4.8 million.
Direct Operating Expenses (Exclusive of Depreciation and
Amortization). Direct operating expenses include
direct costs of labor, maintenance and services, energy and
utility costs, and other direct operating expenses. We estimate
that our direct operating expenses (exclusive of depreciation
and amortization), excluding share-based compensation expense
for the twelve months ending March 31, 2012, will be
approximately $84.5 million. Our direct operating expenses
for the year ended December 31, 2010 were
$86.7 million.
The largest direct operating expense item is the cost of
electricity, which we expect to be $25.0 million for the
twelve months ending March 31, 2012, compared to
$19.3 million for the year ended December 31, 2010.
Selling, General and Administrative Expenses (Exclusive of
Depreciation and Amortization). Selling, general
and administrative expenses consist primarily of direct and
allocated legal expenses, treasury, accounting, marketing, human
resources and maintaining our corporate offices in Texas and
Kansas. We estimate that our selling, general and administrative
expenses, excluding non-cash share-based compensation expense,
will be approximately $13.1 million for the twelve months
ending March 31, 2012. Selling, general and administrative
expenses for the year ended December 31, 2010 were
$20.6 million, including $8.3 million of non-cash
share-based compensation expense.
Depreciation and Amortization. We estimate
that depreciation and amortization for the twelve months ending
March 31, 2012 will be approximately $19.7 million, as
compared to $18.5 million during the year ended
December 31, 2010.
Debt Service. Debt service is defined as
interest expense and other financing costs paid and debt
amortization payments. As part of the Transactions, we will
incur $125.0 million of term debt at an assumed interest
rate of 4.0%
61
and will pay associated interest expense for the twelve months
ending March 31, 2012. The estimate does not include the
amortization of deferred financing costs related to our new
credit facility, which would have no impact on EBITDA.
Similarly, our earnings for the year ended December 31,
2010 do not include interest expense or other financing costs.
Interest Income. Our estimate of interest
income is based on a 0.5% return on our projected average cash
balances during the twelve months ending March 31, 2012.
Our earnings for the year ended December 31, 2010 include
interest income associated with amounts in our bank account.
Income Taxes. We estimate that we will pay no
income tax during the forecast period. We believe the only
income tax to which our operations will be subject is the State
of Texas franchise tax, and the total amount of such tax is
immaterial for purposes of this forecast.
Net income. Our net income for the twelve
months ending March 31, 2012 includes income that will be
recorded during the twelve months ending March 31, 2012 in
connection with the delivery of prepaid sales made in prior
periods, as we receive cash for prepaid sales when the sales are
made but do not record revenue in respect of such sales until
product is delivered. All cash on our balance sheet in respect
of prepaid sales on the date of the closing of this offering
will not be distributed to Coffeyville Resources at the closing
of this offering but will be reserved for distribution to
holders of common units.
Regulatory, Industry and Economic Factors. Our
forecast for the twelve months ending March 31, 2012 is
based on the following assumptions related to regulatory,
industry and economic factors:
|
|
|
|
|
no material nonperformance or credit-related defaults by
suppliers, customers or vendors;
|
|
|
|
no new regulation or interpretation of existing regulations
that, in either case, would be materially adverse to our
business;
|
|
|
|
no material accidents, weather-related incidents, floods,
unscheduled turnarounds or other downtime or similar
unanticipated events;
|
|
|
|
no material adverse change in the markets in which we operate
resulting from substantially lower natural gas prices, reduced
demand for nitrogen fertilizer products or significant changes
in the market prices and supply levels of pet coke;
|
|
|
|
no material decreases in the prices we receive for our nitrogen
fertilizer products;
|
|
|
|
no material changes to market or overall economic
conditions; and
|
|
|
|
an annual inflation rate of 2.0% to 3.0%.
|
Actual conditions may differ materially from those anticipated
in this section as a result of a number of factors, including,
but not limited to, those set forth under Risk
Factors and Cautionary Note Regarding
Forward-Looking Statements.
Compliance with Debt Covenants. Our ability to
make distributions could be affected if we do not remain in
compliance with the financial and other covenants that will be
included in our new credit facility. Our new credit facility
will require us to maintain a minimum interest coverage ratio
(ratio of Consolidated Adjusted EBITDA (as defined under our new
credit facility) to interest) of 3.0 to 1.0 and
(ii) a maximum leverage ratio (ratio of debt to
Consolidated Adjusted EBITDA) of (a) as of any fiscal
quarter ending after the closing date and prior to
December 31, 2011, 3.50 to 1.0, and (b) as
of any fiscal quarter ending on or after December 31, 2011,
3.0 to 1.0, calculated in each case on a trailing four
quarter basis. We have assumed we will be in compliance with
such covenants.
62
HOW WE
MAKE CASH DISTRIBUTIONS
General
Within 45 days after the end of each quarter, beginning
with the quarter ending June 30, 2011, we expect to make
distributions, as determined by the board of directors of our
general partner, to unitholders of record on the applicable
record date.
Common
Units Eligible for Distribution
Upon the closing of this offering, we will
have
common units outstanding. Each common unit will be allocated a
portion of our income, gain, loss, deduction and credit on a
pro-rata basis, and each common unit will be entitled to receive
distributions (including upon liquidation) in the same manner as
each other unit.
Method of
Distributions
We will make distributions pursuant to our general
partners determination of the amount of available cash for
the applicable quarter, which we will then distribute to our
unitholders, pro rata; provided, however, that our partnership
agreement allows us to issue an unlimited number of additional
equity interests of equal or senior rank. Our partnership
agreement permits us to borrow to make distributions, but we are
not required and do not intend to borrow to pay quarterly
distributions. Accordingly, there is no guarantee that we will
pay any distribution on the units in any quarter. We do not have
a legal obligation to pay distributions, and the amount of
distributions paid under our policy and the decision to make any
distribution is determined by the board of directors of our
general partner. See Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources New Credit Facility for a discussion
of provisions to be included in our new credit facility that
restrict our ability to make distributions.
General
Partner Interest
Upon the closing of this offering, our general partner will own
a non-economic general partner interest and therefore will not
be entitled to receive cash distributions. However, it may
acquire common units and other equity interests in the future
and will be entitled to receive pro rata distributions therefrom.
Adjustments
to Capital Accounts Upon Issuance of Additional Common
Units
We will make adjustments to capital accounts upon the issuance
of additional common units. In doing so, we will generally
allocate any unrealized and, for tax purposes, unrecognized gain
or loss resulting from the adjustments to our unitholders prior
to such issuance on a pro rata basis, so that after such
issuance, the capital account balances attributable to all
common units are equal.
63
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information presented below
under the caption Statement of Operations Data for the years
ended December 31, 2008, 2009 and 2010 and the selected
consolidated financial information presented below under the
caption Balance Sheet Data as of December 31, 2009 and
2010, have been derived from our audited consolidated financial
statements included elsewhere in this prospectus, which
consolidated financial statements have been audited by KPMG LLP,
independent registered public accounting firm. The selected
consolidated financial information presented below under the
caption Statement of Operations Data for the years ended
December 31, 2006 and 2007 and the selected consolidated
financial information presented below under the caption Balance
Sheet Data as of December 31, 2006, 2007 and 2008 have been
derived from our audited consolidated financial statements that
are not included in this prospectus.
Our consolidated financial statements included elsewhere in this
prospectus include certain costs of CVR Energy that were
incurred on our behalf. These costs, which are reflected in
selling, general and administrative expenses (exclusive of
depreciation and amortization) and direct operating expenses
(exclusive of depreciation and amortization), are billed to us
pursuant to a services agreement entered into in October 2007
that is a related party transaction. For the period of time
prior to the services agreement, the consolidated financial
statements include an allocation of costs and certain other
amounts in order to account for a reasonable share of expenses,
so that the accompanying consolidated financial statements
reflect substantially all of our costs of doing business. The
amounts charged or allocated to us are not necessarily
indicative of the costs that we would have incurred had we
operated as a stand-alone company for all periods presented.
Pro forma net income per unit is determined by dividing the pro
forma net income that would have been allocated, in accordance
with the provisions of our partnership agreement, to the common
unitholders, by the number of common units expected to be
outstanding at the closing of this offering. For purposes of
this calculation, we assumed that pro forma distributions were
equal to pro forma net earnings and that the number of units
outstanding
was
common units. All units were assumed to have been outstanding
since January 1, 2010. Basic and diluted pro forma net
income per unit are equivalent as there are no dilutive units at
the date of closing of this offering.
This data should be read in conjunction with, and is qualified
in its entirety by reference to, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and
related notes included elsewhere in this prospectus.
64
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|
|
|
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|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(dollars in millions, except per unit data and as otherwise
indicated)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
170.0
|
|
|
$
|
187.4
|
|
|
$
|
263.0
|
|
|
$
|
208.4
|
|
|
$
|
180.5
|
|
Cost of product sold
Affiliates(1)
|
|
|
5.2
|
|
|
|
4.5
|
|
|
|
11.1
|
|
|
|
9.5
|
|
|
|
5.8
|
|
Cost of product sold Third
Parties(1)
|
|
|
28.2
|
|
|
|
28.6
|
|
|
|
21.5
|
|
|
|
32.7
|
|
|
|
28.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33.4
|
|
|
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33.1
|
|
|
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32.6
|
|
|
|
42.2
|
|
|
|
34.3
|
|
Direct operating expenses
Affiliates(1)(2)
|
|
|
1.9
|
|
|
|
2.2
|
|
|
|
0.4
|
|
|
|
2.1
|
|
|
|
2.3
|
|
Direct operating expenses Third
Parties(1)
|
|
|
61.7
|
|
|
|
64.5
|
|
|
|
85.7
|
|
|
|
82.4
|
|
|
|
84.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63.6
|
|
|
|
66.7
|
|
|
|
86.1
|
|
|
|
84.5
|
|
|
|
86.7
|
|
Selling, general and administrative expenses
Affiliates(1)(2)
|
|
|
9.9
|
|
|
|
18.1
|
|
|
|
1.1
|
|
|
|
12.3
|
|
|
|
16.7
|
|
Selling, general and administrative expenses Third
Parties(1)
|
|
|
3.0
|
|
|
|
2.3
|
|
|
|
8.4
|
|
|
|
1.8
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.9
|
|
|
|
20.4
|
|
|
|
9.5
|
|
|
|
14.1
|
|
|
|
20.6
|
|
Net costs associated with
flood(3)
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization(4)
|
|
|
17.1
|
|
|
|
16.8
|
|
|
|
18.0
|
|
|
|
18.7
|
|
|
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
43.0
|
|
|
$
|
48.0
|
|
|
$
|
116.8
|
|
|
$
|
48.9
|
|
|
$
|
20.4
|
|
Other income (expense),
net(5)
|
|
|
(6.9
|
)
|
|
|
0.2
|
|
|
|
2.1
|
|
|
|
9.0
|
|
|
|
12.9
|
|
Interest expense
|
|
|
(23.5
|
)
|
|
|
(23.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on derivatives, net
|
|
|
2.1
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
14.7
|
|
|
$
|
24.1
|
|
|
$
|
118.9
|
|
|
$
|
57.9
|
|
|
$
|
33.3
|
|
Income tax (expense) benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
14.7
|
|
|
$
|
24.1
|
|
|
$
|
118.9
|
|
|
$
|
57.9
|
|
|
$
|
33.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per common unit, basic and
diluted(6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma number of common units, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
14.5
|
|
|
$
|
9.1
|
|
|
$
|
5.4
|
|
|
$
|
42.7
|
|
Working capital
|
|
|
(0.5
|
)
|
|
|
7.5
|
|
|
|
60.4
|
|
|
|
135.5
|
|
|
|
27.1
|
|
Total assets
|
|
|
416.1
|
|
|
|
429.9
|
|
|
|
499.9
|
|
|
|
551.5
|
|
|
|
452.2
|
|
Total debt, including current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital/divisional equity
|
|
|
397.6
|
|
|
|
400.5
|
|
|
|
458.8
|
|
|
|
519.9
|
|
|
|
402.2
|
|
Financial and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operating activities
|
|
|
34.1
|
|
|
|
46.5
|
|
|
|
123.5
|
|
|
|
85.5
|
|
|
|
75.9
|
|
Cash flows (used in) investing activities
|
|
|
(13.3
|
)
|
|
|
(6.5
|
)
|
|
|
(23.5
|
)
|
|
|
(13.4
|
)
|
|
|
(9.0
|
)
|
Cash flows (used in) financing activities
|
|
|
(20.8
|
)
|
|
|
(25.5
|
)
|
|
|
(105.3
|
)
|
|
|
(75.8
|
)
|
|
|
(29.6
|
)
|
Capital expenditures for property, plant and equipment
|
|
|
13.3
|
|
|
|
6.5
|
|
|
|
23.5
|
|
|
|
13.4
|
|
|
|
10.1
|
|
Net distribution to parent
|
|
$
|
20.8
|
|
|
$
|
31.5
|
|
|
$
|
50.0
|
|
|
$
|
|
|
|
$
|
160.0
|
|
Key Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production volume (thousand tons):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia (gross produced)
|
|
|
369.3
|
|
|
|
326.7
|
|
|
|
359.1
|
|
|
|
435.2
|
|
|
|
392.7
|
|
Ammonia (net available for sale)
|
|
|
111.8
|
|
|
|
91.8
|
|
|
|
112.5
|
|
|
|
156.6
|
|
|
|
155.6
|
|
UAN (tons in thousands)
|
|
|
633.1
|
|
|
|
576.9
|
|
|
|
599.2
|
|
|
|
677.7
|
|
|
|
578.3
|
|
On-stream
factors(7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasifier
|
|
|
92.5
|
%
|
|
|
90.0
|
%
|
|
|
87.8
|
%
|
|
|
97.4
|
%
|
|
|
89.0
|
%
|
Ammonia
|
|
|
89.3
|
%
|
|
|
87.7
|
%
|
|
|
86.2
|
%
|
|
|
96.5
|
%
|
|
|
87.7
|
%
|
UAN
|
|
|
88.9
|
%
|
|
|
78.7
|
%
|
|
|
83.4
|
%
|
|
|
94.1
|
%
|
|
|
80.8
|
%
|
65
|
|
|
(1)
|
|
Amounts are shown exclusive of
depreciation and amortization.
|
|
|
|
(2)
|
|
Our direct operating expenses
(exclusive of depreciation and amortization) and selling,
general and administrative expenses (exclusive of depreciation
and amortization) for the years ended December 31, 2006,
2007, 2008, 2009 and 2010 include a charge related to CVR
Energys share-based compensation expense allocated to us
by CVR Energy for financial reporting purposes in accordance
with ASC 718. These charges will continue to be attributed
to us following the closing of this offering. We are not
responsible for the payment of cash related to any share-based
compensation allocated to us by CVR Energy. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Critical
Accounting Policies Share-Based Compensation.
The amounts were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Direct operating expenses (exclusive of depreciation and
amortization)
|
|
$
|
0.8
|
|
|
$
|
1.2
|
|
|
$
|
(1.6
|
)
|
|
$
|
0.2
|
|
|
$
|
0.7
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization)
|
|
|
3.2
|
|
|
|
9.7
|
|
|
|
(9.0
|
)
|
|
|
3.0
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4.0
|
|
|
$
|
10.9
|
|
|
$
|
(10.6
|
)
|
|
$
|
3.2
|
|
|
$
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
|
Total gross costs recorded as a
result of the flood damage to our nitrogen fertilizer plant for
the year ended December 31, 2007 were approximately
$5.8 million, including approximately $0.8 million
recorded for depreciation for temporarily idle facilities,
$0.7 million for internal salaries and $4.3 million
for other repairs and related costs. An insurance receivable of
approximately $3.3 million was also recorded for the year
December 31, 2007 for the probable recovery of such costs
under CVR Energys insurance policies.
|
(4)
|
|
Depreciation and amortization is
comprised of the following components as excluded from direct
operating expenses and selling, general and administrative
expenses and as included in net costs associated with flood:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Depreciation and amortization excluded from direct operating
expenses
|
|
$
|
17.1
|
|
|
$
|
16.8
|
|
|
$
|
18.0
|
|
|
$
|
18.7
|
|
|
$
|
18.5
|
|
Depreciation and amortization excluded from selling, general and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation included in net costs associated with flood
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
17.1
|
|
|
$
|
17.6
|
|
|
$
|
18.0
|
|
|
$
|
18.7
|
|
|
$
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
Miscellaneous income (expense) is
comprised of the following components included in our
consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Interest
income(a)
|
|
$
|
1.4
|
|
|
$
|
0.3
|
|
|
$
|
2.0
|
|
|
$
|
9.0
|
|
|
$
|
13.1
|
|
Loss on extinguishment of debt
|
|
|
(8.5
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous income (expense)
|
|
$
|
(6.9
|
)
|
|
$
|
0.2
|
|
|
$
|
2.1
|
|
|
$
|
9.0
|
|
|
$
|
12.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Interest income for the years ended
December 31, 2008, 2009 and 2010 is primarily attributable
to a due from affiliate balance owed to us by Coffeyville
Resources as a result of affiliate loans. The due from affiliate
balance was distributed to Coffeyville Resources in December
2010. Accordingly, such amounts are no longer owed to us.
|
|
|
|
(6)
|
|
We have omitted earnings per share
through the date CRNF, our operating subsidiary, was contributed
to us because during those periods we operated under a
divisional equity structure. We have omitted net income per
unitholder during the period we operated as a partnership
through the closing of this offering because during those
periods we operated under a different capital structure than
what we will operate under following the closing of this
offering, and, therefore, the information is not meaningful.
|
|
|
|
(7)
|
|
On-stream factor is the total
number of hours operated divided by the total number of hours in
the reporting period. Excluding the impact of the Linde air
separation unit outage, the rupture of the high-pressure UAN
vessel and the major scheduled turnaround, the on-stream factors
for the year ended December 31, 2010 would have been 97.6%
for gasifier, 96.8% for ammonia and 96.1% for UAN. Excluding the
Linde air separation unit outage in 2009, the on-stream factors
would have been 99.3% for gasifier, 98.4% for ammonia and 96.1%
for UAN for the year ended December 31, 2009. Excluding the
turnaround performed in 2008 the on-stream factors would have
been 91.7% for gasifier, 90.2% for ammonia and 87.4% for UAN for
the year ended December 31, 2008. Excluding the impact of
the flood in 2007 the on-stream factors would have been 94.6%
for gasifier, 92.4% for ammonia and 83.9% for UAN for the year
ended December 31, 2007.
|
66
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition, results of operations and cash flows in
conjunction with our consolidated financial statements and
related notes included elsewhere in this prospectus. This
discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. Our actual results
may differ materially from those anticipated in these
forward-looking statements as a result of a number of factors,
including, but not limited to, those set forth under Risk
Factors, Cautionary Note Regarding Forward-Looking
Statements and elsewhere in this prospectus.
Overview
We are a Delaware limited partnership formed by CVR Energy to
own, operate and grow our nitrogen fertilizer business.
Strategically located adjacent to CVR Energys refinery in
Coffeyville, Kansas, our nitrogen fertilizer manufacturing
facility is the only operation in North America that utilizes a
petroleum coke, or pet coke, gasification process to produce
nitrogen fertilizer. Our facility includes a 1,225
ton-per-day
ammonia unit, a 2,025
ton-per-day
UAN unit, and a gasifier complex having a capacity of
84 million standard cubic feet per day. Our gasifier is a
dual-train facility, with each gasifier able to function
independently of the other, thereby providing redundancy and
improving our reliability. We upgrade a majority of the ammonia
we produce to higher margin UAN fertilizer, an aqueous solution
of urea and ammonium nitrate which has historically commanded a
premium price over ammonia. In 2010, we produced 392,745 tons of
ammonia, of which approximately 60% was upgraded into 578,272
tons of UAN.
We intend to expand our existing asset base and utilize the
experience of CVR Energys management team to execute our
growth strategy. Our growth strategy includes expanding
production of UAN and potentially acquiring additional
infrastructure and production assets. Following completion of
this offering, we intend to move forward with a significant
two-year plant expansion designed to increase our UAN production
capacity by 400,000 tons, or approximately 50%, per year. CVR
Energy, a New York Stock Exchange listed company, which
following this offering will indirectly own our general partner
and approximately % of our
outstanding common units, currently operates a 115,000 bpd sour
crude oil refinery and ancillary businesses.
The primary raw material feedstock utilized in our nitrogen
fertilizer production process is pet coke, which is produced
during the crude oil refining process. In contrast,
substantially all of our nitrogen fertilizer competitors use
natural gas as their primary raw material feedstock.
Historically, pet coke has been significantly less expensive
than natural gas on a per ton of fertilizer produced basis and
pet coke prices have been more stable when compared to natural
gas prices. By using pet coke as the primary raw material
feedstock instead of natural gas, we believe our nitrogen
fertilizer business has historically been the lowest cost
producer and marketer of ammonia and UAN fertilizers in North
America. We currently purchase most of our pet coke from CVR
Energy pursuant to a long-term agreement having an initial term
that ends in 2027, subject to renewal. During the past five
years, over 70% of the pet coke utilized by our plant was
produced and supplied by CVR Energys crude oil refinery.
Factors
Affecting Comparability
Our historical results of operations for the periods presented
may not be comparable with prior periods or to our results of
operations in the future for the reasons discussed below.
Corporate
Allocations
Our consolidated financial statements included elsewhere in this
prospectus include certain costs of CVR Energy that were
incurred on our behalf. These costs, which are reflected in
selling, general and administrative expenses (exclusive of
depreciation and amortization) and direct operating expenses
(exclusive of depreciation and amortization), are billed to us
pursuant to a services agreement entered into in October 2007
that is a related party transaction. For the period of time
prior to the services agreement, the consolidated financial
statements include an allocation of costs and certain other
amounts in order to account for a reasonable share of expenses,
so that the accompanying consolidated financial statements
reflect substantially all of our costs of doing business.
67
Our financial statements reflect all of the expenses that
Coffeyville Resources incurred on our behalf. Our financial
statements therefore include certain expenses incurred by our
parent which may include, but are not necessarily limited to,
officer and employee salaries and share-based compensation, rent
or depreciation, advertising, accounting, tax, legal and
information technology services, other selling, general and
administrative expenses, costs for defined contribution plans,
medical and other employee benefits, and financing costs,
including interest,
mark-to-market
changes in interest rate swap and losses on extinguishment of
debt.
Selling, general and administrative expense allocations were
based primarily on a percentage of total fertilizer payroll to
the total fertilizer and petroleum segment payrolls. Property
insurance costs were allocated based upon specific segment
valuations. Interest expense, interest income, bank charges,
gain (loss) on derivatives and loss on extinguishment of debt
were allocated based upon fertilizer divisional equity as a
percentage of total CVR Energy debt and equity. See Note 3,
Summary of Significant Accounting Policies
Allocation of Costs, in our historical financial statements
included elsewhere in this prospectus. The amounts charged or
allocated to us are not necessarily indicative of the costs that
we would have incurred had we operated as a stand-alone company
for all periods presented.
Publicly
Traded Partnership Expenses
We expect that our general and administrative expenses will
increase due to the costs of operating as a publicly traded
partnership, including costs associated with SEC reporting
requirements, including annual and quarterly reports to
unitholders, tax return and
Schedule K-1
preparation and distribution, independent auditor fees, investor
relations activities and registrar and transfer agent fees. We
estimate that these incremental general and administrative
expenses will approximate $3.5 million per year,
excluding the costs associated with this offering and the costs
of the initial implementation of our Sarbanes-Oxley
Section 404 internal controls review and testing. Our
financial statements following this offering will reflect the
impact of these expenses, which will affect the comparability of
our post-offering results with our financial statements from
periods prior to the completion of this offering. Our unaudited
pro forma financial statements, however, do not reflect these
expenses.
2007
Flood
During the weekend of June 30, 2007, torrential rains in
southeast Kansas caused the Verdigris River to overflow its
banks and flood the city of Coffeyville. The river crested more
than ten feet above flood stage, setting a new record for the
river. Our nitrogen fertilizer plant, which is located in close
proximity to the Verdigris River, was flooded, sustained damage
and required repair.
As a result of the flooding, our nitrogen fertilizer facilities
stopped operating on June 30, 2007. Production at the
nitrogen fertilizer facility was restarted on July 13,
2007. Due to the downtime, we experienced a significant revenue
loss attributable to the property damage during the period when
the facilities were not in operation in 2007.
Our results for the year ended December 31, 2007 include
net pretax costs, net of anticipated insurance recoveries, of
$2.4 million associated with the flood. The 2007 flood had
a significant adverse impact on our financial results for the
year ended December 31, 2007, a nominal impact for the year
ended December 31, 2008 and no impact for the years ended
December 31, 2009 and December 31, 2010.
September
2010 UAN Vessel Rupture
On September 30, 2010, our nitrogen fertilizer plant
experienced an interruption in operations due to a rupture of a
high-pressure UAN vessel. All operations at our nitrogen
fertilizer facility were immediately shut down. No one was
injured in the incident.
Our nitrogen fertilizer facility had previously scheduled a
major turnaround to begin on October 5, 2010. To minimize
disruption and impact to the production schedule, the turnaround
was accelerated. The turnaround was completed on
October 29, 2010 with the gasification and ammonia units in
operation. The fertilizer facility restarted production of UAN
on November 16, 2010 and as of December 31, 2010,
repairs to the facility as a result of the rupture were
substantially complete.
68
Total gross costs to repair the damage caused by the incident
were approximately $10.5 million. We recorded an insurance
receivable of $4.5 million of which approximately
$4.3 million of insurance proceeds were received as of
December 31, 2010 and the remaining $0.2 million was
received in January 2011. Of the costs incurred, approximately
$4.5 million were capitalized.
Fertilizer
Plant Property Taxes
Our nitrogen fertilizer plant received a ten year property tax
abatement from Montgomery County, Kansas in connection with its
construction that expired on December 31, 2007. In
connection with the expiration of the abatement, the county
reassessed our nitrogen fertilizer plant and classified the
nitrogen fertilizer plant as almost entirely real property
instead of almost entirely personal property. The reassessment
has resulted in an increase to our annual property tax expense
for the plant by an average of approximately $10.7 million
per year for the years ended December 31, 2008 and
December 31, 2009, and approximately $11.7 million for
the year ended December 31, 2010. We do not agree with the
countys classification of our nitrogen fertilizer plant
and are currently disputing it before the Kansas Court of Tax
Appeals, or COTA. However, we have fully accrued and paid for
the property tax the county claims we owe for the years ended
December 31, 2008 and 2009, and fully accrued such amounts
for the year ended December 31, 2010. The first payment in
respect of our 2010 property taxes was paid in December 2010 and
the second payment will be made in May 2011. This property tax
expense is reflected as a direct operating expense in our
financial results. An evidentiary hearing before COTA occurred
during the first quarter of 2011 regarding our property tax
claims for the year ended December 31, 2008. We believe
COTA is likely to issue a ruling sometime during 2011. However,
the timing of a ruling in the case is uncertain, and there can
be no assurance we will receive a ruling in 2011. If we are
successful in having the nitrogen fertilizer plant reclassified
as personal property, in whole or in part, a portion of the
accrued and paid expenses would be refunded to us, which could
have a material positive effect on our results of operations. If
we are not successful in having the nitrogen fertilizer plant
reclassified as personal property, in whole or in part, we
expect that we will pay taxes at or below the elevated rates
described above. Our competitors do not disclose the property
taxes they pay on a quarterly or annual basis, and such taxes
may be higher or lower than the taxes we pay, depending on the
jurisdiction in which such facilities are located and other
factors.
Factors
Affecting Results
Our earnings and cash flow from operations are primarily
affected by the relationship between nitrogen fertilizer product
prices and direct operating expenses. Unlike our competitors, we
do not use natural gas as a feedstock and we use a minimal
amount of natural gas as an energy source in our operations. As
a result, volatile swings in natural gas prices have a minimal
impact on our results of operations. Instead, CVR Energys
adjacent refinery supplies us with most of the pet coke
feedstock we need pursuant to a long-term pet coke supply
agreement we entered into in October 2007. The price at which
nitrogen fertilizer products are ultimately sold depends on
numerous factors, including the global supply and demand for
nitrogen fertilizer products which, in turn, depends on, among
other factors, world grain demand and production levels, changes
in world population, the cost and availability of fertilizer
transportation infrastructure, weather conditions, the
availability of imports and the extent of government
intervention in agriculture markets.
Nitrogen fertilizer prices are also affected by local factors,
including local market conditions and the operating levels of
competing facilities. An expansion or upgrade of
competitors facilities, international political and
economic developments and other factors are likely to continue
to play an important role in nitrogen fertilizer industry
economics. These factors can impact, among other things, the
level of inventories in the market, resulting in price
volatility and a reduction in product margins. Moreover, the
industry typically experiences seasonal fluctuations in demand
for nitrogen fertilizer products.
In addition, the demand for fertilizers is affected by the
aggregate crop planting decisions and fertilizer application
rate decisions of individual farmers. Individual farmers make
planting decisions based largely on the prospective
profitability of a harvest, while the specific varieties and
amounts of fertilizer they apply depend on factors like crop
prices, their current liquidity, soil conditions, weather
patterns and the types of crops planted.
Natural gas is the most significant raw material required in our
competitors production of nitrogen fertilizers. North
American natural gas prices increased significantly in the
summer months of 2008 and moderated from these
69
high levels in the last half of 2008. Over the past several
years, natural gas prices have experienced high levels of price
volatility. This pricing and volatility has a direct impact on
our competitors cost of producing nitrogen fertilizer.
In order to assess the operating performance of our business, we
calculate plant gate price to determine our operating margin.
Plant gate price refers to the unit price of fertilizer, in
dollars per ton, offered on a delivered basis, excluding
shipment costs.
We and other competitors located in the U.S. farm belt
share a transportation cost advantage when compared to our
out-of-region
competitors in serving the U.S. farm belt agricultural
market. In 2010, approximately 45% of the corn planted in the
United States was grown within a $35/UAN ton freight train rate
of our nitrogen fertilizer plant. We are therefore able to
cost-effectively sell substantially all of our products in the
higher margin agricultural market, whereas a significant portion
of our competitors revenues are derived from the lower
margin industrial market. Because the U.S. farm belt
consumes more nitrogen fertilizer than is produced in the
region, it must import nitrogen fertilizer from the U.S. Gulf
Coast as well as from international producers. Accordingly,
U.S. farm belt producers may offer nitrogen fertilizers at
prices that factor in the transportation costs of out-of-region
producers without having incurred such costs. We estimate that
our plant enjoys a transportation cost advantage of
approximately $25 per ton over competitors located in the
U.S. Gulf Coast. Selling products to customers within economic
rail transportation limits of the nitrogen fertilizer plant and
keeping transportation costs low are keys to maintaining
profitability. Our location on Union Pacifics main line
increases our transportation cost advantage by lowering the
costs of bringing our products to customers, assuming freight
rates and pipeline tariffs for U.S. Gulf Coast importers as
recently in effect. Our products leave the plant either in
trucks for direct shipment to customers or in railcars for
destinations located principally on the Union Pacific Railroad,
and we do not incur any intermediate transfer, storage, barge
freight or pipeline freight charges.
The value of nitrogen fertilizer products is also an important
consideration in understanding our results. During 2010, we
upgraded approximately 60% of our ammonia production into UAN, a
product that presently generates a greater value than ammonia.
UAN production is a major contributor to our profitability.
The direct operating expense structure of our business also
directly affects our profitability. Using a pet coke
gasification process, we have a significantly higher percentage
of fixed costs than a natural gas-based fertilizer plant. Major
fixed operating expenses include electrical energy, employee
labor, maintenance, including contract labor, and outside
services. These costs comprise the fixed costs associated with
the nitrogen fertilizer plant. Variable costs associated with
the nitrogen fertilizer plant averaged approximately 14% of
direct operating expenses over the 24 months ended
December 31, 2010. The average annual operating costs over
the 24 months ended December 31, 2010 approximated
$85 million, of which substantially all are fixed in nature.
Our largest raw material expense is pet coke, which we purchase
from CVR Energy and third parties. In 2008, 2009 and 2010, we
spent $14.1 million, $12.8 million and
$7.4 million, respectively, for pet coke, which equaled an
average cost per ton of $31, $27 and $17, respectively. If pet
coke prices rise substantially in the future, we may be unable
to increase our prices to recover increased raw material costs,
because the price floor for nitrogen fertilizer products is
generally correlated with natural gas prices, the primary raw
material used by our competitors, and not pet coke prices.
Consistent, safe, and reliable operations at our nitrogen
fertilizer plant are critical to our financial performance and
results of operations. Unplanned downtime of the nitrogen
fertilizer plant may result in lost margin opportunity,
increased maintenance expense and a temporary increase in
working capital investment and related inventory position. The
financial impact of planned downtime, such as major turnaround
maintenance, is mitigated through a diligent planning process
that takes into account margin environment, the availability of
resources to perform the needed maintenance, feedstock logistics
and other factors. We generally undergo a facility turnaround
every two years. The turnaround typically lasts 13 to
15 days each turnaround year and costs approximately
$3 million to $5 million per turnaround. The facility
underwent a turnaround in October 2010 at a cost of
$3.5 million.
70
Agreements
with CVR Energy
In connection with the initial public offering of CVR Energy and
the transfer of the nitrogen fertilizer business to us in
October 2007, we entered into a number of agreements with CVR
Energy and its affiliates that govern our business relations
with CVR Energy. These include the pet coke supply agreement
under which we buy the pet coke we use in our nitrogen
fertilizer plant; a services agreement, under which CVR Energy
and its affiliates provide us with management services including
the services of its senior management team; a feedstock and
shared services agreement, which governs the provision of
feedstocks, including hydrogen, high-pressure steam, nitrogen,
instrument air, oxygen and natural gas; a raw water and
facilities sharing agreement, which allocates raw water
resources between the two businesses; an easement agreement; an
environmental agreement; and a lease agreement pursuant to which
we lease office space and laboratory space from CVR Energy.
We obtain most (over 70% on average during the last five years)
of the pet coke we need from CVR Energy pursuant to the pet coke
supply agreement, and procure the remainder on the open market.
The price we pay pursuant to the pet coke supply agreement is
based on the lesser of a pet coke price derived from the price
received by us for UAN, or the UAN-based price, and a pet coke
price index. The UAN-based price begins with a pet coke price of
$25 per ton based on a price per ton for UAN (exclusive of
transportation cost), or netback price, of $205 per ton, and
adjusts up or down $0.50 per ton for every $1.00 change in the
netback price. The UAN-based price has a ceiling of $40 per ton
and a floor of $5 per ton.
The cost of the pet coke supplied by CVR Energy to us in most
cases will be lower than the price which we otherwise would pay
to third parties. The cost to us will be lower both because the
actual price paid will be lower and because we will pay
significantly reduced transportation costs (since CVR
Energys refinery is adjacent to our nitrogen fertilizer
plant). If CVR Energy fails to perform in accordance with the
pet coke supply agreement, then we would need to purchase pet
coke from third parties on the open market, which could
negatively impact our results of operations to the extent
third-party pet coke is unavailable or available only at higher
prices. A $10 per ton increase in the cost of additional
third-party coke purchases would increase production costs by
approximately $3.75 million per year.
Our pet coke cost per ton purchased from CVR Energy averaged
$30, $22 and $11 for the years ended December 31, 2008,
2009 and 2010, respectively. Third-party pet coke prices
averaged $39, $37 and $40 for the years ended December 31,
2008, 2009 and 2010, respectively.
The services agreement, which became effective in October 2007,
resulted in charges of approximately $10.0 million,
$9.3 million, and $8.5 million for the fiscal years
ended December 31, 2008, 2009 and 2010, respectively
(excluding share-based compensation), in selling, general and
administrative expenses (exclusive of depreciation and
amortization) in our Consolidated Statements of Operations.
Results
of Operations
The
period-to-period
comparisons of our results of operations have been prepared
using the historical periods included in our financial
statements. In order to effectively review and assess our
historical financial information below, we have also included
supplemental operating measures and industry measures that we
believe are material to understanding our business.
71
The tables below provide an overview of our results of
operations, relevant market indicators and our key operating
statistics during the past three fiscal years ended
December 31, 2008, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Business Financial
Results
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Net sales
|
|
$
|
263.0
|
|
|
$
|
208.4
|
|
|
$
|
180.5
|
|
Cost of product sold (exclusive of depreciation and
amortization) Affiliates
|
|
|
11.1
|
|
|
|
9.5
|
|
|
|
5.8
|
|
Cost of products sold (exclusive of depreciation and
amortization) Third Parties
|
|
|
21.5
|
|
|
|
32.7
|
|
|
|
28.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.6
|
|
|
|
42.2
|
|
|
|
34.3
|
|
Direct operating expenses (exclusive of depreciation and
amortization)
Affiliates(1)
|
|
|
0.4
|
|
|
|
2.1
|
|
|
|
2.3
|
|
Direct operating expenses (exclusive of depreciation and
amortization) Third
Parties(1)
|
|
|
85.7
|
|
|
|
82.4
|
|
|
|
84.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86.1
|
|
|
|
84.5
|
|
|
|
86.7
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization)
Affiliates(1)
|
|
|
1.1
|
|
|
|
12.3
|
|
|
|
16.7
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization) Third
Parties(1)
|
|
|
8.4
|
|
|
|
1.8
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
|
|
14.1
|
|
|
|
20.6
|
|
Depreciation and
amortization(2)
|
|
|
18.0
|
|
|
|
18.7
|
|
|
|
18.5
|
|
Operating income
|
|
|
116.8
|
|
|
|
48.9
|
|
|
|
20.4
|
|
Net income
|
|
|
118.9
|
|
|
|
57.9
|
|
|
|
33.3
|
|
|
|
|
(1)
|
|
Our direct operating expenses
(exclusive of depreciation and amortization) and selling,
general and administrative expenses (exclusive of depreciation
and amortization) for the years ended December 31, 2008,
2009 and 2010 include a charge related to CVR Energys
share-based compensation expense allocated to us by CVR Energy
for financial reporting purposes in accordance with
ASC 718. We are not responsible for the payment of cash
related to any share-based compensation allocated to us by CVR
Energy. See Managements Discussion and Analysis of
Financial Condition and Results of Operations
Critical Accounting Policies Share-Based
Compensation. The charges were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Direct operating expenses (exclusive of depreciation and
amortization)
|
|
$
|
(1.6
|
)
|
|
|
0.2
|
|
|
$
|
0.7
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization)
|
|
|
(9.0
|
)
|
|
|
3.0
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(10.6
|
)
|
|
$
|
3.2
|
|
|
$
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
Depreciation and amortization is
comprised of the following components as excluded from direct
operating expense and selling, general and administrative
expense and as included in net costs associated with flood:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Depreciation and amortization excluded from direct operating
expenses
|
|
$
|
18.0
|
|
|
$
|
18.7
|
|
|
$
|
18.5
|
|
Depreciation and amortization excluded from selling, general and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
18.0
|
|
|
$
|
18.7
|
|
|
$
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
The following tables show selected information about key market
indicators and certain operating statistics for our business,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Average For
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
Market Indicators
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Natural gas (dollars per MMbtu)
|
|
$
|
8.91
|
|
|
$
|
4.16
|
|
|
$
|
4.38
|
|
Ammonia Southern Plains (dollars per ton)
|
|
|
707
|
|
|
|
306
|
|
|
|
437
|
|
UAN corn belt (dollars per ton)
|
|
|
422
|
|
|
|
218
|
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Company Operating
Statistics
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(dollars in millions, except per unit data and as otherwise
indicated)
|
|
|
Production (thousand tons):
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia (gross
produced)(1)
|
|
|
359.1
|
|
|
|
435.2
|
|
|
|
392.7
|
|
Ammonia (net available for
sale)(1)
|
|
|
112.5
|
|
|
|
156.6
|
|
|
|
155.6
|
|
UAN
|
|
|
599.2
|
|
|
|
677.7
|
|
|
|
578.3
|
|
Pet coke consumed (thousand tons)
|
|
|
451.9
|
|
|
|
483.5
|
|
|
|
436.3
|
|
Pet coke (cost per
ton)(2)
|
|
$
|
31
|
|
|
$
|
27
|
|
|
$
|
17
|
|
Sales (thousand tons):
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia
|
|
|
99.4
|
|
|
|
159.9
|
|
|
|
164.7
|
|
UAN
|
|
|
594.2
|
|
|
|
686.0
|
|
|
|
580.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
693.6
|
|
|
|
845.9
|
|
|
|
745.4
|
|
Product price (plant gate) (dollars per
ton)(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
Ammonia
|
|
$
|
557
|
|
|
$
|
314
|
|
|
$
|
361
|
|
UAN
|
|
$
|
303
|
|
|
$
|
198
|
|
|
$
|
179
|
|
On-stream
factor(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasifier
|
|
|
87.8
|
%
|
|
|
97.4
|
%
|
|
|
89.0
|
%
|
Ammonia
|
|
|
86.2
|
%
|
|
|
96.5
|
%
|
|
|
87.7
|
%
|
UAN
|
|
|
83.4
|
%
|
|
|
94.1
|
%
|
|
|
80.8
|
%
|
Reconciliation to net sales (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight in revenue
|
|
$
|
18.9
|
|
|
$
|
21.3
|
|
|
$
|
17.0
|
|
Hydrogen revenue
|
|
|
9.0
|
|
|
|
0.8
|
|
|
|
0.1
|
|
Sales net plant gate
|
|
|
235.1
|
|
|
|
186.3
|
|
|
|
163.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
263.0
|
|
|
$
|
208.4
|
|
|
$
|
180.5
|
|
|
|
|
(1)
|
|
The gross tons produced for ammonia
represent the total ammonia produced, including ammonia produced
that was upgraded into UAN. The net tons available for sale
represent the ammonia available for sale that was not upgraded
into UAN.
|
|
|
|
(2)
|
|
Our pet coke cost per ton purchased
from CVR Energy averaged $30, $22 and $11 for the years ended
December 31, 2008, 2009 and 2010, respectively. Third-party
pet coke prices averaged $39, $37 and $40 for the years ended
December 31, 2008, 2009 and 2010, respectively.
|
|
|
|
(3)
|
|
Plant gate price per ton represents
net sales less freight revenue and hydrogen revenue divided by
product sales volume in tons in the reporting period. Plant gate
price per ton is shown in order to provide a pricing measure
that is comparable across the fertilizer industry.
|
73
|
|
|
(4)
|
|
On-stream factor is the total
number of hours operated divided by the total number of hours in
the reporting period. Excluding the impact of the downtime
associated with the Linde air separation unit outage, the
rupture of the high pressure UAN vessel and the major scheduled
turnaround, the on-stream factors for the year ended
December 31, 2010 would have been 97.6% for gasifier, 96.8%
for ammonia and 96.1% for UAN. Excluding the Linde air
separation unit outage in 2009, the on-stream factors would have
been 99.3% for gasifier, 98.4% for ammonia and 96.1% for UAN for
the year ended December 31, 2009. Excluding the turnaround
performed in 2008, the on-stream factors would have been 91.7%
for gasifier, 90.2% for ammonia and 87.4% for UAN for the year
ended December 31, 2008.
|
Year
Ended December 31, 2010 compared to the Year Ended
December 31, 2009
Net Sales. Nitrogen fertilizer net
sales were $180.5 million for the year ended
December 31, 2010, compared to $208.4 million for the
year ended December 31, 2009. For the year ended
December 31, 2010, ammonia, UAN and hydrogen made up
$63.0 million, $117.4 million and $0.1 million of
our net sales, respectively. This compared to ammonia, UAN and
hydrogen net sales of $54.6 million, $153.0 million
and $0.8 million for the year ended December 31, 2009,
respectively. The decrease of $27.9 million from the year
ended December 31, 2010 as compared to the year ended
December 31, 2009 was the result of a decline in average
UAN plant gate prices coupled with a decline in lower UAN sales
volume. This decrease was partially offset by higher ammonia
sales volumes coupled with higher ammonia prices on a
year-over-year
basis. Both UAN and ammonia sales were negatively impacted by
the downtime associated with the scheduled maintenance
turnaround. Additionally, UAN production and sales were
negatively impacted by the downtime associated with the rupture
of a high-pressure UAN vessel. The UAN vessel ruptured on
September 30, 2010 and production of UAN did not commence
until November 16, 2010. The following table demonstrates
the impact of changes in sales volumes and sales price for
ammonia and UAN for the year ended December 31, 2010
compared to the year ended December 31, 2009.
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Year Ended December 31, 2010
|
|
Year Ended December 31, 2009
|
|
Total Variance
|
|
Volume
|
|
Price
|
|
|
Volume (1)
|
|
$ per ton (2)
|
|
Sales $ (3)
|
|
Volume (1)
|
|
$ per ton (2)
|
|
Sales $ (3)
|
|
Volume (1)
|
|
Sales $ (3)
|
|
Variance
|
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Variance
|
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(in millions)
|
|
Ammonia
|
|
|
164,668
|
|
|
$
|
382
|
|
|
$
|
63.0
|
|
|
|
159,860
|
|
|
$
|
342
|
|
|
$
|
54.6
|
|
|
|
4,808
|
|
|
$
|
8.4
|
|
|
$
|
1.9
|
|
|
$
|
6.5
|
|
UAN
|
|
|
580,684
|
|
|
$
|
202
|
|
|
$
|
117.4
|
|
|
|
686,009
|
|
|
$
|
223
|
|
|
$
|
153.0
|
|
|
|
(105,325
|
)
|
|
$
|
(35.6
|
)
|
|
$
|
(21.4
|
)
|
|
$
|
(14.2
|
)
|
|
|
|
(1) |
|
Sales volume in tons. |
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(2) |
|
Includes freight charges. |
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(3) |
|
Sales dollars in millions. |
In regard to product sales volumes for the year ended
December 31, 2010, our nitrogen fertilizer operations
experienced an increase of 3% in ammonia sales unit volumes and
a decrease of 15% in UAN sales unit volumes. On-stream factors
(total number of hours operated divided by total hours in the
reporting period) for 2010 compared to 2009 were lower for all
units of our nitrogen fertilizer operations, primarily due to
unscheduled downtime associated with the Linde air separation
unit outage, the UAN vessel rupture and the completion of the
biennial scheduled turnaround for the nitrogen fertilizer plant
completed in the fourth quarter of 2010. It is typical to
experience brief outages in complex manufacturing operations
such as the nitrogen fertilizer plant which result in less than
one hundred percent on-stream availability for one or more
specific units.
Plant gate prices are prices at the designated delivery point
less any freight cost we absorb to deliver the product. We
believe plant gate price is meaningful because we sell products
both at our plant gate (sold plant) and delivered to the
customers designated delivery site (sold delivered) and
the percentage of sold plant versus sold delivered can change
month to month or year to year. The plant gate price provides a
measure that is consistently comparable period to period. Plant
gate prices for the year ended December 31, 2010 for
ammonia were greater than plant gate prices for the year ended
December 31, 2009 by approximately 15%. Conversely, UAN
plant gate prices for UAN were approximately 10% lower during
the year ended December 31, 2010 than the plant gate prices
for the year ended December 31, 2009. The fertilizer
industry experienced an unprecedented pricing cycle starting in
2008. Significant increases in average plant gate prices for
2008 had a carryover effect on 2009 average UAN prices primarily
for the first half of 2009, before they began to decrease in the
second half of 2009 and into the first half of 2010. Average
ammonia plant gate prices for 2009 were negatively impacted by
the lack of a fall planting season and rebounded in 2010 due to
increased fall planting season demand. Prices for UAN and
ammonia recovered in the second half of 2010.
74
Cost of Product Sold (Exclusive of Depreciation and
Amortization). Cost of product sold
(exclusive of depreciation and amortization) is primarily
comprised of pet coke expense and freight and distribution
expenses. Cost of product sold excluding depreciation and
amortization for the year ended December 31, 2010 was
$34.3 million, compared to $42.2 million for the year
ended December 31, 2009. Of this $7.9 million
decrease, $3.8 million resulted from lower costs from
transactions with affiliates and $4.1 million from lower
costs from third parties. A $5.5 million decline in
pet coke costs ($3.9 million from transactions with
affiliates) was the principal contributor to the decrease with
the remaining decrease of $2.4 million primarily
attributable to lower UAN sales volume (105,325 tons) driven by
downtime associated with the major scheduled turnaround and the
UAN vessel rupture.
Direct Operating Expenses (Exclusive of Depreciation and
Amortization). Direct operating expenses
(exclusive of depreciation and amortization) for our nitrogen
fertilizer operations include costs associated with the actual
operations of the nitrogen fertilizer plant, such as repairs and
maintenance, energy and utility costs, property taxes, catalyst
and chemical costs, outside services, labor and environmental
compliance costs. Nitrogen fertilizer direct operating expenses
(exclusive of depreciation and amortization) for the year ended
December 31, 2010 were $86.7 million, as compared to
$84.5 million for the year ended December 31, 2009.
The increase of $2.2 million for the year ended
December 31, 2010, as compared to the year ended
December 31, 2009, was due to a $2.0 million increase
in costs from third parties coupled with a $0.2 million
increase in direct operating costs from transactions with
affiliates. The $2.2 million net increase was primarily the
result of increases in expenses associated with the turnaround
($3.5 million), property taxes ($2.5 million), net UAN
reactor repairs and maintenance expense ($1.5 million),
labor ($1.4 million) and refractory brick amortization
($0.7 million). The turnaround expenses for 2010 are the
result of the nitrogen fertilizers business biennial
turnaround. The increase in property taxes for the year ended
December 31, 2010 was the result of an increased valuation
assessment on the nitrogen fertilizer plant as well as the
expiration of a tax abatement for the Linde air separation unit
for which we pay taxes in accordance with our agreement with
Linde. These increases in direct operating expenses were
partially offset by decreases in expenses associated with energy
and utilities ($6.0 million), catalyst ($1.1 million)
and insurance ($0.7 million). The majority of the decrease
in energy and utilities expenses reflects a $4.8 million
settlement of an electric rate case with the City of Coffeyville
in the third quarter of 2010. This $4.8 million refund of
amounts paid between August 2008 through July 2010 is a one-time
event.
Selling, General and Administrative Expenses (Exclusive of
Depreciation and Amortization). Selling,
general and administrative expenses include the direct selling,
general and administrative expenses of our business as well as
certain expenses incurred by our affiliates, CVR Energy and
Coffeyville Resources, on our behalf and billed or allocated to
us. Certain of our expenses are subject to the services
agreement with CVR Energy and our general partner. Selling,
general and administrative expenses (exclusive of depreciation
and amortization) were $20.6 million for the year ended
December 31, 2010, as compared to $14.2 million for
the year ended December 31, 2009. This variance was
primarily the result of increases in share based compensation
expense of $5.3 million, asset write-offs of
$1.5 million and outside services of $0.6 million.
These increases were partially offset by lower costs from
affiliates that resulted from decreased expenses related to the
services agreement.
Operating Income. Nitrogen fertilizer
operating income was $20.4 million for the year ended
December 31, 2010, or 11% of net sales, as compared to
$48.9 million for the year ended December 31, 2009, or
23% of net sales. This decrease of $28.5 million for the
year ended December 31, 2010, as compared to the year ended
December 31, 2009, was the result of a decline in the
nitrogen fertilizer margin ($20.0 million), increases in
selling, general and administrative expenses
($6.4 million), primarily attributable to an increase in
share-based compensation expense, and an increase in direct
operating expenses (exclusive of depreciation and amortization)
($2.2 million).
Interest Income. Interest income for
the year ended December 31, 2010 and 2009 is the result of
interest income derived from the outstanding balance owed to us
by Coffeyville Resources as well as interest income earned on
cash balances in our business bank accounts. Interest
income was $13.1 million for the year ended
December 31, 2010, as compared to $9.0 million for the
year ended December 31, 2009. The amount of interest income
earned on our cash balances in our bank accounts was nominal; as
such the interest income was primarily attributable to the
amounts owed to us by Coffeyville Resources. The due from
affiliate balance was distributed to Coffeyville Resources in
December, 2010. Accordingly, such amounts are no longer owed to
us.
75
Income Tax Expense. Income tax expense
for the year ended December 31, 2010 and 2009, was
immaterial and consisted of amounts payable pursuant to a Texas
state franchise tax.
Net Income. For the year ended
December 31, 2010, net income was $33.3 million as
compared to $57.9 million of net income for the year ended
December 31, 2009, a decrease of $24.6 million. The
decrease in net income was primarily due to the decrease in our
profit margin, coupled with an increase in selling, general and
administrative expenses (exclusive of depreciation and
amortization). These impacts were partially offset by a decrease
in direct operating expenses (exclusive of depreciation and
amortization) and an increase in interest income.
Year
Ended December 31, 2009 compared to the Year Ended
December 31, 2008
Net Sales. Our net sales were
$208.4 million for the year ended December 31, 2009,
compared to $263.0 million for the year ended
December 31, 2008. For the year ended December 31,
2009, ammonia, UAN and hydrogen made up $54.6 million,
$153.0 million and $0.8 million of our net sales,
respectively. This compared to ammonia, UAN and hydrogen net
sales of $59.2 million, $194.8 million and
$9.0 million for the year ended December 31, 2008,
respectively. The decrease of $54.6 million from the year
ended December 31, 2009, as compared to the year ended
December 31, 2008, was the result of increases in overall
sales volumes, offset by lower plant gate prices. The following
table demonstrates the impact of changes in sales volume and
sales price for ammonia and UAN for the year ended
December 31, 2009 compared to the year ended
December 31, 2008.
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|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
Year Ended December 31, 2008
|
|
Total Variance
|
|
Price
|
|
Volume
|
|
|
Volume (1)
|
|
$ per ton (2)
|
|
Sales $ (3)
|
|
Volume (1)
|
|
$ per ton (2)
|
|
Sales $ (3)
|
|
Volume (1)
|
|
Sales $ (3)
|
|
Variance
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(in millions)
|
Ammonia
|
|
|
159,860
|
|
|
$
|
342
|
|
|
$
|
54.6
|
|
|
|
99,374
|
|
|
$
|
596
|
|
|
$
|
59.2
|
|
|
|
60,486
|
|
|
$
|
(4.6
|
)
|
|
$
|
(25.3
|
)
|
|
$
|
20.7
|
|
UAN
|
|
|
686,009
|
|
|
$
|
223
|
|
|
$
|
153.0
|
|
|
|
594,203
|
|
|
$
|
328
|
|
|
$
|
194.8
|
|
|
|
91,806
|
|
|
$
|
(41.7
|
)
|
|
$
|
(62.2
|
)
|
|
$
|
20.5
|
|
|
|
|
(1)
|
|
Sales volume in tons.
|
|
|
|
(2)
|
|
Includes freight charges.
|
|
|
|
(3)
|
|
Sales dollars in millions.
|
In regard to product sales volumes for the year ended
December 31, 2009, our operations experienced an increase
of 61% in ammonia sales unit volumes and an increase of 15% in
UAN sales unit volumes. The downtime associated with the
biennial turnaround in 2008 led to reduced sales volumes during
that year. On-stream factors (total number of hours operated
divided by total hours in the reporting period) for 2009
compared to 2008 were higher for all units of our operations,
primarily due to unscheduled downtime and the completion of the
biennial scheduled turnaround for the nitrogen fertilizer plant
completed in October 2008. It is typical to experience brief
outages in complex manufacturing operations such as the nitrogen
fertilizer plant which result in less than one hundred percent
on-stream availability for one or more specific units.
Plant gate prices are prices at the designated delivery point
less any freight cost we absorb to deliver the product. We
believe plant gate price is meaningful because we sell products
both at our plant gate (sold plant) and delivered to the
customers designated delivery site (sold delivered) and
the percentage of sold plant versus sold delivered can change
month to month or year to year. The plant gate price provides a
measure that is consistently comparable period to period. Plant
gate prices for the year ended December 31, 2009, for
ammonia and UAN were less than plant gate prices for the
comparable period of 2008 by 44% and 34%, respectively. We
believe the dramatic decrease in nitrogen fertilizer prices was
due primarily to adverse global economic conditions.
Cost of Product Sold (Exclusive of Depreciation and
Amortization). Cost of product sold
(exclusive of depreciation and amortization) is primarily
comprised of pet coke expense and freight and distribution
expenses. Cost of product sold excluding depreciation and
amortization for the year ended December 31, 2009 was
$42.2 million compared to $32.6 million for the year
ended December 31, 2008. The increase of $9.6 million
for the year ended December 31, 2009, as compared to the
year ended December 31, 2008, resulted from higher costs of
third-party transactions of $11.2 million which were
partially offset by $1.6 million in lower costs from
affiliate transactions. The decrease in affiliate costs was
principally the result of lower pet coke costs. Cost increases
were primarily the result of increased sales volumes for both
ammonia and UAN, which contributed to $6.1 million of the
increase, additional freight
76
expense of $2.6 million and hydrogen costs of
$1.6 million. These increases were partially offset by a
decrease in pet coke cost of $1.2 million over the
comparable period.
Direct Operating Expenses (Exclusive of Depreciation and
Amortization). Direct operating expenses
(exclusive of depreciation and amortization) for our operations
include costs associated with the actual operations of our
plant, such as repairs and maintenance, energy and utility
costs, catalyst and chemical costs, outside services, labor and
environmental compliance costs. Direct operating expenses
(exclusive of depreciation and amortization) for the year ended
December 31, 2009, were $84.5 million as compared to
$86.1 million for the year ended December 31, 2008.
Direct operating expenses from third parties decreased by
approximately $3.3 million while direct operating expenses
from affiliates increased by approximately $1.7 million
primarily as a result of an increase in share-based compensation
expense. The decrease of $3.3 million of direct operating
expenses (exclusive of depreciation and amortization) from
third-parties for the year ended December 31, 2009, as
compared to the year ended December 31, 2008, was primarily
the result of net decreases in expenses associated with downtime
repairs and maintenance ($6.5 million), turnaround
($3.4 million), outside services and other direct operating
expenses ($0.7 million), property taxes
($0.7 million), and insurance ($0.2 million). The
decrease in expenses associated with downtime repairs and
maintenance expense for the year ended December 31, 2009
was attributable to the fact that the biennial turnaround
occurred in 2008 and not 2009. Due to the maintenance that
occurred during the 2008 turnaround, repairs and maintenance to
the operating units decreased in 2009. These decreases in direct
operating expenses were partially offset by increases in
expenses associated with utilities ($4.4 million), labor
($2.4 million), catalyst ($1.0 million) and combined
with a decrease in the price we receive for sulfur produced as a
byproduct of our manufacturing process ($2.0 million). The
increase in energy and utilities for the year ended
December 31, 2009 was partially attributable to our
increased on-stream times for our processing units that in turn
resulted in higher electrical costs. Additionally, our
electrical rates were higher for the year ended
December 31, 2009 compared to the year ended
December 31, 2008 as a result of the City of Coffeyville
charging a higher rate for electricity, starting in August 2008,
than what had been agreed to in our electricity contract. Our
increased catalyst costs for the year ended December 31,
2009 were primarily attributable to our increased on-stream
times on a year-over-year basis. Labor costs for the year ended
December 31, 2009 were higher than the year ended
December 31, 2008, primarily as a result of share-based
compensation expense charged to direct operating expense. See
below for further discussion of share-based compensation expense
movements.
Selling, General and Administrative Expenses (Exclusive of
Depreciation and Amortization). Selling,
general and administrative expenses (exclusive of depreciation
and amortization) include the direct selling, general and
administrative expenses of our business as well as certain
expenses incurred by our affiliates, CVR Energy and Coffeyville
Resources, on our behalf and billed or allocated to us. Certain
of our expenses are subject to the services agreement with CVR
Energy and our general partner. Selling, general and
administrative expenses (exclusive of depreciation and
amortization) were $14.1 million for the year ended
December 31, 2009, as compared to $9.5 million for the
year ended December 31, 2008. This variance was primarily
the result of an increase in payroll costs ($12.1 million),
partially offset by a decrease in outside services
($2.9 million), asset write-offs ($3.8 million) and
amounts incurred from affiliate transactions related to the
services agreement ($0.8 million). The increase in payroll
related expenses was primarily attributable to share-based
compensation expense of $3.0 million for the year ended
December 31, 2009, compared to a reversal of share-based
compensation expense of $9.0 million for the year ended
December 31, 2008. The increase in share-based compensation
was a result of an increase in CVR Energys stock price
from 2008 to 2009. Outside services costs for the year ended
December 31, 2009 decreased primarily as a result of the
fact that for the year ended December 31, 2008 we wrote-off
previously deferred costs associated with our withdrawn initial
public offering in 2008. The decrease in asset write-offs for
the year ended December 31, 2009 was primarily the result
of assets
written-off
and replaced during the biennial turnaround performed in the
fourth quarter of 2008.
Depreciation and Amortization. Our
depreciation and amortization increased to $18.7 million
for the year ended December 31, 2009, compared to
$18.0 million for the year ended December 31, 2008.
The increase in depreciation and amortization for the year ended
December 31, 2009, as compared to the year ended
December 31, 2008, was the result of fixed assets placed
into service in 2009 as well as during the second half of 2008.
The fixed assets placed into service during the second half of
2008 received a full year of depreciation expense recognition in
2009 compared to a partial year of depreciation expense
recognition in 2008.
77
Operating Income. Our operating income
was $48.9 million for the year ended December 31,
2009, or 23% of net sales, as compared to $116.8 million
for the year ended December 31, 2008, or 44% of net sales.
This decrease of $67.9 million for the year ended
December 31, 2009, as compared to the year ended
December 31, 2008, was the result of a decline in our
profit margin ($64.2 million), increases in selling,
general and administrative expenses ($4.7 million),
primarily attributable to an increase in share-based
compensation expense and an increase in our depreciation and
amortization ($0.7 million) partially off set by lower
direct operating expenses ($1.6 million).
Interest Income. Interest income for
the years ended December 31, 2009 and 2008 resulted from
interest income derived from the outstanding balance owed to us
by Coffeyville Resources as well as interest income earned on
cash balances in our businesss bank accounts. Interest
income was $9.0 million for the year ended
December 31, 2009, as compared to $2.0 million for the
year ended December 31, 2008. The amount of interest income
earned on our cash balances for our bank accounts was nominal;
as such the interest income was primarily attributable to
amounts owed to us from Coffeyville Resources. The increase in
interest income for 2009 was a result of increased borrowings
for the year ended December 31, 2009 by Coffeyville
Resources. The amounts owed to us were included in the due from
affiliate on our Consolidated Balance Sheets contained elsewhere
in this prospectus. The due from affiliate balance was
distributed to Coffeyville Resources in December 2010.
Accordingly, such amounts will no longer be owed to us.
Income Tax Expense. Income tax expense
for the years ended December 31, 2009 and 2008, was
immaterial and consisted of amounts payable pursuant to a Texas
state franchise tax.
Net Income. Net income for the year
ended December 31, 2009, was $57.9 million as compared
to net income of $118.9 million for the year ended
December 31, 2008. Net income decreased $61.0 million
for the year ended December 31, 2009, as compared to the
year ended December 31, 2008, was primarily due to a
decrease in fertilizer profit margins coupled with an increase
in selling, general and administrative expenses (exclusive of
depreciation and amortization) and depreciation and amortization
expense. These impacts were partially offset by a decrease in
direct operating expenses (exclusive of depreciation and
amortization) and an increase in interest income.
Critical
Accounting Policies
We prepare our consolidated financial statements in accordance
with GAAP. In order to apply these principles, management must
make judgments, assumptions and estimates based on the best
available information at the time. Actual results may differ
based on the accuracy of the information utilized and subsequent
events. Our accounting policies are described in the notes to
our audited financial statements included elsewhere in this
prospectus. Our critical accounting policies, which are
described below, could materially affect the amounts recorded in
our financial statements.
Impairment
of Long-Lived Assets
We calculate depreciation and amortization on a straight-line
basis over the estimated useful lives of the various classes of
depreciable assets. When assets are placed in service, we make
estimates of what we believe are their reasonable useful lives.
We account for impairment of long-lived assets in accordance
with ASC 360, Property, Plant and Equipment
Impairment or Disposal of Long-Lived Assets, or
ASC 360. In accordance with ASC 360, we review
long-lived assets (excluding goodwill, intangible assets with
indefinite lives, and deferred tax assets) for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated
undiscounted future net cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its
estimated undiscounted future net cash flows, an impairment
charge is recognized for the amount by which the carrying amount
of the assets exceeds their fair value. Assets to be disposed of
are reported at the lower of their carrying value or fair value
less cost to sell.
Goodwill
To comply with ASC 350, Intangibles Goodwill
and Other, or ASC 350, we perform a test for goodwill
impairment annually or more frequently in the event we determine
that a triggering event has occurred. Our annual testing is
performed as of November 1, 2010. Goodwill and other
intangible accounting standards provide that goodwill and other
intangible assets with indefinite lives are not amortized but
instead are tested for impairment on an annual basis.
78
In accordance with these standards, we completed our annual
test for impairment of goodwill as of November 1, 2010 and
2009, respectively. For 2010 and 2009, the annual test of
impairment indicated that goodwill was not impaired.
The annual review of impairment was performed by comparing the
carrying value of the partnership to its estimated fair value.
The valuation analysis used both income and market approaches as
described below:
|
|
|
|
|
Income Approach: To determine fair value, we
discounted the expected future cash flows for the reporting unit
utilizing observable market data to the extent available. The
discount rate used for the 2010 and 2009 impairment test was
14.6% and 13.4%, respectively, representing the estimated
weighted-average costs of capital, which reflects the overall
level of inherent risk involved in the reporting unit and the
rate of return an outside investor would expect to earn.
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|
|
|
|
|
Market-Based Approach: To determine the fair
value of the reporting unit, we also utilized a market based
approach. We used the guideline company method, which focuses on
comparing our risk profile and growth prospects to select
reasonably similar publicly traded companies.
|
We assigned an equal weighting of 50% to the result of both the
income approach and market based approach based upon the
reliability and relevance of the data used in each analysis.
This weighting was deemed reasonable as the guideline public
companies have a high-level of comparability with the reporting
unit and the projections used in the income approach were
prepared using current estimates.
Allocation
of Costs
Our consolidated financial statements include an allocation of
costs that have been incurred by CVR Energy or Coffeyville
Resources on our behalf. The allocation of such costs are
governed by the services agreement entered into by CVR Energy
and us and affiliated companies in October 2007. The services
agreement provides guidance for the treatment of certain general
and administrative expenses and certain direct operating
expenses incurred on our behalf. Such expenses incurred include,
but are not limited to, salaries, benefits, share-based
compensation expense, insurance, accounting, tax, legal and
technology services. Prior to the services agreement such costs
were allocated to us based upon certain assumptions and
estimates that were made in order to allocate a reasonable share
of such expenses to us, so that the consolidated financial
statements reflect substantially all costs of doing business.
The authoritative guidance to allocate such costs is set forth
in Staff Accounting Bulletin, or SAB Topic 1-B
Allocations of Expenses and Related Disclosures in
Financial Statements of Subsidiaries, Divisions or Lesser
Business Components of Another Entity.
Additionally, prior to the services agreement, certain expenses
such as interest expense, interest income, bank charges, gain
(loss) on derivatives and loss on extinguishment of debt were
allocated based upon fertilizer divisional equity as a
percentage of total CVR Energy debt and equity. Certain selling,
general and administrative expense allocations were based
primarily on a percentage of total fertilizer payroll to the
total fertilizer and petroleum segment payrolls. In addition,
allocations were also based upon the nature of the expense
incurred. Property insurance costs, included in direct operating
expenses (exclusive of depreciation and amortization), were
allocated based upon specific segment valuations.
If shared costs rise or the method by which we allocate shared
costs changes, additional general and administrative expenses
could be allocated to us, which could be material. In addition,
the amounts charged or allocated to us are not necessarily
indicative of the cost that we will incur in the future
operating as a stand-alone company.
Share-Based
Compensation
We have been allocated non-cash share-based compensation expense
from CVR Energy and from Coffeyville Acquisition III. CVR Energy
accounts for share-based compensation in accordance with ASC 718
Compensation Stock Compensation, or ASC 718, as
well as guidance regarding the accounting for share-based
compensation granted to employees of an equity method investee.
In accordance with ASC 718, CVR Energy and Coffeyville
Acquisition III apply a fair-value based measurement method
in accounting for share-based compensation. We recognize the
costs of the share-based compensation incurred by CVR Energy and
Coffeyville Acquisition III on our behalf primarily in
selling, general and administrative expenses (exclusive of
depreciation and amortization), and a corresponding increase or
decrease to partners capital, as the costs are incurred on
our behalf, following the guidance issued by the FASB regarding
the accounting for equity instruments that are issued to
79
other than employees for acquiring, or in conjunction with
selling goods or services, which require remeasurement at each
reporting period through the performance commitment period, or
in our case, through the vesting period. Costs are allocated by
CVR Energy and Coffeyville Acquisition III based upon the
percentage of time a CVR Energy employee provides services to
us. In the event an individuals roles and responsibilities
change with respect to services provided to us, a reassessment
is performed to determine if the allocation percentages should
be adjusted. In accordance with the services agreement, we will
not be responsible for the payment of cash related to any
share-based compensation allocated to us by CVR Energy.
There is considerable judgment in the determination of the
significant assumptions used in determining the fair value of
the share-based compensation allocated to us from CVR Energy and
Coffeyville Acquisition III. Changes in the assumptions used to
determine the fair value of compensation expense associated with
share-based compensation arrangements could result in material
changes in the amounts allocated to us from CVR Energy and
Coffeyville Acquisition III. Share-based compensation for
financial statement purposes allocated to us from CVR Energy in
the future will depend and be based upon the market value of CVR
Energys common stock.
Liquidity
and Capital Resources
Our principal source of liquidity has historically been cash
from operations. In connection with the completion of this
offering, we will enter into our own new credit facility and to
be removed as a guarantor or obligor, as applicable, under
Coffeyville Resources credit facility, 9.0% First Lien
Senior Secured Notes due 2015 and 10.875% Second Lien Senior
Secured Notes due 2017. Our principal uses of cash are expected
to be operations, distributions, capital expenditures and
funding our debt service obligations. We believe that our cash
from operations will be adequate to satisfy commercial
commitments for the next twelve months and that the net proceeds
from this offering and borrowings under our new credit facility
will be adequate to fund our planned capital expenditures,
including the intended UAN expansion, for the next twelve months.
New
Credit Facility
Concurrently with the closing of this offering, we intend to
enter into a new credit facility with Goldman Sachs Lending
Partners LLC, as administrative agent and collateral agent, and
the other parties thereto.
We expect that the new credit facility will include (i) a
term loan facility of $125.0 million and (ii) a
revolving credit facility of $25.0 million. The new credit
facility will also include an uncommitted incremental facility
of up to $50.0 million. The borrower under the new credit
facility will be CRNF, and CVR Partners will provide a
guarantee. We expect the term loans and the revolving credit
facility will mature in 2016.
Our new credit facility will include borrowing capacity
available for letters of credit. Borrowings under our new credit
facility will be subject to the satisfaction of customary
conditions, including the absence of a default and the accuracy
of all representations and warranties. We expect that the credit
facility will be used to fund our ongoing working capital needs,
letters of credit and for general partnership purposes,
including potential future acquisitions and expansions. The
revolving portion of our credit facility could also be used to
fund quarterly distributions at the option of the board of
directors of our general partner, although we currently do not
intend to borrow in order to make quarterly distributions.
Guarantees
and Security
All obligations under the new credit facility will be
unconditionally guaranteed by CVR Partners and substantially all
of our future, direct and indirect, domestic subsidiaries. All
obligations under the new credit facility and the guarantees of
those obligations will be secured, subject to certain
exceptions, by a security interest in substantially all of the
assets of CVR Partners and CRNF and all of the capital stock of
CRNF and each domestic subsidiary owned by CVR Partners or CRNF.
Interest
Rate and Fees
Borrowings under our new credit facility will bear interest at a
rate per annum equal to, at our option, either (a) a base
rate determined by reference to the highest of (1) the rate
of interest quoted in the Wall Street Journal as
80
the prime rate, (2) the federal funds effective rate plus
0.50% and (3) the sum of the adjusted Eurodollar rate that
would be applicable to a Eurodollar rate loan with an interest
period of one month commencing on such date and the excess of
the applicable margin with respect to Eurodollar rate loans over
the applicable margin with respect to base rate loans, plus, in
each case, an applicable margin or (b) an adjusted
Eurodollar rate plus an applicable margin. The applicable
margins under the new credit facility are subject to
step-ups and
step-downs based on our leverage ratio. In addition to paying
interest on outstanding principal under our new credit facility,
we will be required to pay a commitment fee, in respect of the
unutilized commitments thereunder, of 0.50% per annum multiplied
by such unutilized commitments. We will also be required to pay
customary letter of credit fees, including, without limitation,
a letter of credit fee equal to the applicable margin on
revolving credit LIBOR loans and fronting fees.
Mandatory
Prepayments
We will be required to prepay outstanding amounts under our term
facility in an amount equal to the net proceeds from the sale of
assets or from insurance or condemnation awards related to
collateral, in each case subject to certain reinvestment rights.
In addition, we will be required to prepay outstanding amounts
under our term facility with the net proceeds from certain
issuances of debt (other than debt permitted to be incurred
under our new credit facility).
Voluntary
Prepayments/Commitment Reductions
At any time, we may voluntarily reduce the unutilized portion of
the revolving commitment amount, and prepay, in whole or in
part, outstanding amounts under our new credit facility without
premium or penalty other than customary breakage
costs with respect to Eurodollar rate loans.
Amortization
and Final Maturity
There is no scheduled amortization under our new credit
facility. All outstanding amounts under our new credit facility
will be due and payable in full five years after the closing
date of the new credit facility.
Restrictive
Covenants and Other Matters
Our new credit facility will require us to maintain (i) a
minimum interest coverage ratio (ratio of Consolidated Adjusted
EBITDA to interest) as of any fiscal quarter of 3.0 to 1.0 and
(ii) a maximum leverage ratio (ratio of debt to
Consolidated Adjusted EBITDA) of (a) as of any fiscal
quarter ending after the closing date and prior to
December 31, 2011, 3.50 to 1.0, and (b) as of any
fiscal quarter ending on or after December 31, 2011, 3.0 to
1.0 in all cases calculated on a trailing four quarter basis.
For the year ended December 31, 2010, our interest coverage
ratio, on a pro forma basis, would have been 9.3 to 1.0, and our
leverage ratio would have been 2.0 to 1.0, and for the twelve
months ending March 31, 2012, we estimate our interest
coverage ratio would be 26.5 to 1.0 and our leverage ratio would
be 0.7 to 1.0. In addition, the new credit facility will include
negative covenants that will, subject to significant exceptions,
limit our ability and the ability of certain of our subsidiaries
to, among other things:
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incur, assume or permit to exist additional indebtedness,
guarantees and other contingent obligations;
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pay dividends or make other distributions;
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make payments to our subsidiary;
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make certain loans and investments;
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consolidate, merge or sell all or substantially all of our
assets;
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enter into sale-leaseback transactions; and
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enter into transactions with affiliates.
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81
The new credit facility will provide that we can make
distributions to holders of our common units, but only if we are
in compliance with our leverage ratio and interest coverage
ratio covenants on a pro forma basis after giving effect to any
distribution and there is no default or event of default under
the facility.
The new credit facility is expected to contain certain customary
representations and warranties, affirmative covenants and events
of default, including among other things, payment defaults,
breach of representations and warranties, covenant defaults,
cross-defaults to certain indebtedness, certain events of
bankruptcy, certain events under ERISA, material judgments,
actual or asserted failure of any guaranty or security document
supporting the new credit facility to be in force and effect,
and change of control. An event of default will also be
triggered if CVR Energy terminates or violates any of its
covenants in any of the intercompany agreements between us and
CVR Energy and such action has a material adverse effect on us.
If an event of default occurs, the administrative agent under
the new credit facility would be entitled to take various
actions, including the acceleration of amounts due under the new
credit facility and all actions permitted to be taken by a
secured creditor.
Capital
Spending
We divide our capital spending needs into two categories:
maintenance and growth. Maintenance capital spending includes
only non-discretionary maintenance projects and projects
required to comply with environmental, health and safety
regulations. Our maintenance capital spending totaled
approximately $8.9 million in 2010 and is expected to be
approximately $32.8 million in the aggregate over the
four-year period beginning 2011. Major scheduled turnaround
expenses are expensed when incurred. Capital expenditures are
for discretionary projects. Our new credit facility may limit
the amount we can spend on capital expenditures.
The following table sets forth our estimate of capital spending
for our business for the years presented (other than 2010, which
reflects actual spending). Our future capital spending will be
determined by the board of directors of our general partner. The
data contained in the table below represents our current plans,
but these plans may change as a result of unforeseen
circumstances and we may revise these estimates from time to
time or not spend the amounts in the manner allocated below.
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Actual
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Estimated
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2010
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2011
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2012
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2013
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2014
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($ in millions)
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UAN expansion
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1.0
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40.0
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65.0
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Other
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0.2
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2.4
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Growth capital expenditures
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1.2
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42.4
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65.0
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Maintenance capital expenditures
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$
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8.9
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$
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6.5
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$
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11.4
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$
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7.4
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$
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7.5
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Total estimated capital spending before turnaround expenses
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10.1
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48.9
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76.4
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7.4
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7.5
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Major scheduled turnaround expenses
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3.5
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4.0
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4.0
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Total estimated capital spending including major scheduled
turnaround expense
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$
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13.6
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$
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48.9
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$
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80.4
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$
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7.4
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$
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11.5
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Our estimated capital expenditures are subject to change due to
unanticipated increases in the cost, scope and completion time
for our capital projects. For example, we may experience
increases in labor or equipment costs necessary to comply with
government regulations or to complete projects that sustain or
improve the profitability of our nitrogen fertilizer plant.
Capital spending for our business has been and will be
determined by our general partner. We intend to move forward
with the UAN expansion. We expect that the approximately
$135 million UAN expansion, for which approximately
$31 million had been spent as of December 31, 2010,
will take 18 to 24 months to complete and will be funded
with approximately $100.0 million of the net proceeds from
this offering. Maintenance capital expenditures will be funded
using cash flow from operations, and other capital projects will
be funded with borrowings under our revolving credit facility
and future credit agreements.
82
Senior
Secured Notes
On April 6, 2010, Coffeyville Resources and its newly
formed wholly-owned subsidiary, Coffeyville Finance Inc.,
completed a private offering of $275.0 million aggregate
principal amount of 9.0% First Lien Senior Secured Notes due
2015, or the First Lien Notes, and $225.0 million aggregate
principal amount of 10.875% Second Lien Senior Secured Notes due
2017, or the Second Lien Notes, and together with the First Lien
Notes, the Notes. The First Lien Notes mature on April 1,
2015, unless earlier redeemed or repurchased, and the Second
Lien Notes mature on April 1, 2017, unless earlier redeemed
or repurchased.
In the event of a Fertilizer Business Event (as defined in the
indentures governing the Notes), Coffeyville Resources is
required to offer to purchase a portion of the Notes from
holders at a purchase price equal to 103% of the principal
amount thereof plus accrued and unpaid interest. In addition,
the Notes provide that upon the occurrence of a Fertilizer
Business Event, our guarantee thereof will be fully and
unconditionally released, and the assets of the fertilizer
business will no longer constitute collateral for the benefit of
the Notes (but the common units which Coffeyville Resources owns
in us will remain collateral for the benefit of the Notes). This
offering of common units will trigger a Fertilizer Business
Event, and we plan to pay a special distribution to Coffeyville
Resources with a portion of the proceeds of this offering. See
Use of Proceeds. In addition, as a result of the
Fertilizer Business Event, we will no longer be subject to the
negative covenants contained in the indentures governing the
Notes.
Cash
Flows
Operating
Activities
For purposes of this cash flow discussion, we define trade
working capital as accounts receivable, inventory and accounts
payable. Other working capital is defined as all other current
assets and liabilities except trade working capital.
Net cash provided by operating activities for the year ended
December 31, 2010 was $75.9 million. This positive
cash flow from operating activities was primarily attributable
to net income and increased in cash flow from trade and other
working capital. Net income was driven by a strong fertilizer
price environment which was partially offset by a decline in
overall sales volume that resulted from downtime associated with
the major scheduled turnaround and rupture of high pressure UAN
vessel in the fourth quarter. Trade working capital for the year
ended December 31, 2010 increased our operating cash flow
by $9.3 million and was attributable to a $2.1 million
decrease in inventory and a $9.4 million increase in
accounts payable partially offset by a $2.2 million
increase in accounts receivable. With respect to other working
capital for the year ended December 31, 2010, the primary
source of cash was an $8.4 million increase in deferred
revenue. Deferred revenue represents customer prepaid deposits
for the future delivery of our nitrogen fertilizer products.
Additionally we received insurance proceeds of approximately
$4.3 million related to the repairs, maintenance and other
associated costs of the UAN vessel rupture, of which
approximately $3.2 million is included in cash flows from
operating activities and the remaining balance is included in
cash flows from investing activities. This was partially offset
by the establishment of $4.5 million insurance receivable
associated with the UAN vessel rupture and a $2.7 million
increase in prepaid expenses and other current assets.
Net cash flows from operating activities for the year ended
December 31, 2009 were $85.5 million. The positive
cash flow from operating activities generated over this period
was primarily driven by a strong sales volumes and a favorable
fertilizer price environment. Also positively impacting cash
flows from operations were favorable changes in other working
capital. These positive cash flows were partially offset by net
decreases in cash from trade working capital. Trade working
capital for the year ended December 31, 2009 reduced our
operating cash flow by $0.3 million. For the year ended
December 31, 2009, accounts receivable decreased by
$3.2 million and inventory decreased by $5.7 million
resulting in a net inflow of cash of $8.9 million. These
inflows of cash due to changes in trade working capital were
offset by a decrease in accounts payable, or a use of cash, of
$9.2 million. With respect to other working capital, the
primary source of cash during the year ended December 31,
2009, was a $4.5 million increase in deferred revenue and a
$1.5 million decrease in prepaid expenses and other current
assets. Deferred revenue represents customer prepaid deposits
for the future delivery of our nitrogen fertilizer products.
Net cash flows from operating activities for the year ended
December 31, 2008 were $123.5 million. The positive
cash flow from operating activities generated over this period
was primarily driven by a strong fertilizer price
83
environment partially offset by net decreases in cash from trade
working capital and other working capital. Trade working capital
for the year ended December 31, 2008 reduced our operating
cash flow by $4.6 million. For the year ended
December 31, 2008, accounts receivable increased by
$3.2 million while inventory increased by
$11.5 million resulting in a net use of cash of
$14.7 million. These uses of cash due to changes in trade
working capital were offset by an increase in accounts payable,
or a source of cash, of $10.1 million. With respect to
other working capital, the primary source of cash during the
year ended December 31, 2008 was a $5.3 million
increase in accrued expenses and other current liabilities.
Offsetting this source of cash was a decrease in deferred
revenue of $7.4 million. Deferred revenue represents
customer prepaid deposits for the future delivery of our
nitrogen fertilizer products.
Investing
Activities
Net cash used in investing activities for the years ended
December 31, 2010, 2009 and 2008 was $9.0 million,
$13.4 million and $23.5 million, respectively. Net
cash used in investing activities principally relates to capital
expenditures. Capital expenditures in 2010 were partially offset
by approximately $1.1 million of insurance proceeds
received in connection with the rupture of the high-pressure VAN
vessel. Increased levels of capital spending occurred for the
years ended December 31, 2009 and December 31, 2008
primarily due to preliminary expenditures related to the UAN
expansion. Additionally, increased capital spending also was
incurred for the year ended December 31, 2008 due to assets
purchased to replace assets retired during the turnaround in
2008.
Financing
Activities
Net cash used in financing activities for the years ended
December 31, 2010, 2009 and 2008 was $29.6 million,
$75.8 million and $105.3 million, respectively. For
the year ended December 31, 2010, $29.0 million of the
net cash used in financing activities was attributable to
amounts loaned to our affiliate with the rest due to deferred
costs of this offering. For the year ended December 31,
2009, net cash used in financing activities was entirely
attributable to amounts loaned to our affiliates. For the year
ended December 31, 2008, we made cash distributions to
Coffeyville Resources which totaled $50.0 million.
Additionally, for the year ended December 31, 2008, we
loaned $53.1 million to our affiliate. For the year ended
December 31, 2008, the remaining cash outflows were
primarily attributable to the payment of costs related to a
previously withdrawn securities offering.
Capital
and Commercial Commitments
We are required to make payments relating to various types of
obligations. The following table summarizes our minimum payments
as of December 31, 2010 relating to operating leases,
unconditional purchase obligations and environmental liabilities
for the five years ending December 31, 2015 and thereafter.
Our ability to make payments on and to refinance our
indebtedness, to make distributions, to fund planned capital
expenditures and to satisfy our other capital and commercial
commitments will depend on our ability to generate cash flow in
the future. This, to a certain extent, is subject to nitrogen
fertilizer margins, natural gas prices and general economic,
financial, competitive, legislative, regulatory and other
factors that are beyond our control.
84
Contractual
Obligations
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Payments Due by Period
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Total
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2011
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2012
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2013
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2014
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2015
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Thereafter
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(in millions)
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Long-term
debt(1)
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$
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$
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$
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$
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$
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$
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$
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Operating
leases(2)
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16.8
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4.4
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4.5
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3.7
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2.0
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1.2
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1.0
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Unconditional purchase
obligations(3)
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55.0
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5.6
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5.7
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6.0
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6.0
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6.1
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25.6
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Unconditional purchase obligations with
affiliates(4)
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110.1
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6.3
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6.4
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6.6
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6.6
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6.6
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77.6
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Environmental
liabilities(5)
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0.1
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0.1
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Total
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$
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182.0
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$
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16.4
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$
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16.6
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$
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16.3
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$
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14.6
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$
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13.9
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$
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104.2
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(1)
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We will enter into a new credit
facility in connection with the closing of this offering. The
new credit facility will include a $125.0 million term
loan, which will be fully drawn at closing, and a
$25.0 million revolving credit facility, which will be
undrawn at closing. On a pro forma basis giving effect to these
borrowings, the principal payments due by period in respect
thereof would be zero for 2011 through 2015 and
$125.0 million thereafter, and the interest payments due by
period in respect thereof based on a current expected interest
rate of 4.0% would have been $3.9 million for 2011,
$5.1 million for 2012, $5.1 million for 2013,
$5.1 million for 2014, $5.1 million for 2015 and
$1.2 million thereafter. These amounts have not been
included in the table above as they were not contractual
obligations as of December 31, 2010.
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(2)
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We lease various facilities and
equipment, primarily railcars, under non-cancelable operating
leases for various periods.
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(3)
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The amount includes commitments
under an electric supply agreement with the city of Coffeyville
and a product supply agreement with Linde.
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(4)
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The amount includes commitments
under our long-term pet coke supply agreement with CVR Energy
having an initial term that ends in 2027, subject to renewal.
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(5)
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Represents our estimated remaining
costs of remediation to address environmental contamination
resulting from a reported release of UAN in 2005 pursuant to the
State of Kansas Voluntary Cleanup and Property Redevelopment
Program.
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Under our long-term pet coke supply agreement with CVR Energy,
we may become obligated to provide security for our payment
obligations under the agreement if in CVR Energys sole
judgment there is a material adverse change in our financial
condition or liquidity position or in our ability to make
payments. This security may not exceed an amount equal to 21
times the average daily dollar value of pet coke we purchase for
the 90-day
period preceding the date on which CVR Energy gives us notice
that it has deemed that a material adverse change has occurred.
Unless otherwise agreed by CVR Energy and us, we can provide
such security by means of a standby or documentary letter of
credit, prepayment, a surety instrument, or a combination of the
foregoing. If we do not provide such security, CVR Energy may
require us to pay for future deliveries of pet coke on a
cash-on-delivery
basis, failing which it may suspend delivery of pet coke until
such security is provided and terminate the agreement upon
30 days prior written notice. Additionally, we may
terminate the agreement within 60 days of providing
security, so long as we provide five days prior written
notice.
Our business may not generate sufficient cash flow from
operations, and future borrowings may not be available to us
under our new credit facility, in an amount sufficient to enable
us to make quarterly distributions, finance necessary capital
expenditures, service our indebtedness or fund our other
liquidity needs. We may seek to sell assets or issue debt
securities or additional equity securities to fund our liquidity
needs but may not be able to do so. We may also need to
refinance all or a portion of our indebtedness on or before
maturity. We may not be able to refinance any of our
indebtedness on commercially reasonable terms or at all.
Recently
Issued Accounting Standards
In January 2010, the Financial Accounting Standards Board, or
FASB, issued Accounting Standards Update, or ASU,
No. 2010-06,
Improving Disclosures about Fair Value
Measurements an amendment to Accounting Standards
Codification, or ASC, Topic 820, Fair Value
Measurements and Disclosures. This amendment requires
an entity to: (i) disclose separately the amounts of
significant transfers in and out of Level 1 and
Level 2 fair value measurements and describe the reasons
for the transfers, (ii) present separate information for
Level 3 activity pertaining to gross purchases, sales,
issuances, and settlements and (iii) enhance disclosures of
assets and liabilities
85
subject to fair value measurements. The provisions of ASU
No. 2010-06
are effective for us for interim and annual reporting beginning
after December 15, 2009, with one new disclosure effective
after December 15, 2010. We adopted this ASU as of
January 1, 2010. The adoption of this standard did not
impact our financial position or results of operations.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements as
such term is defined within the rules and regulations of the SEC.
Quantitative
and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our
financial position, results of operations or cash flows due to
adverse changes in financial and commodity market prices and
rates. We do not currently use derivative financial instruments
to manage risks related to changes in prices of commodities
(e.g., ammonia, UAN or pet coke) or interest rates. Given that
our business is currently based entirely in the United States,
we are not directly exposed to foreign currency exchange rate
risk.
We do not engage in activities that expose us to speculative or
non-operating risks, including derivative trading activities. In
the opinion of our management, there is no derivative financial
instrument that correlates effectively with, and has a trading
volume sufficient to hedge, our firm commitments and forecasted
commodity purchase or sales transactions. Our management will
continue to monitor whether financial derivatives become
available which could effectively hedge identified risks and
management may in the future elect to use derivative financial
instruments consistent with our overall business objectives to
avoid unnecessary risk and to limit, to the extent practical,
risks associated with our operating activities.
86
INDUSTRY
OVERVIEW
Fertilizer
Overview
Plants require three essential nutrients in order to grow for
which there are no substitutes: nitrogen, phosphate and
potassium. Each nutrient plays a different role in plant
development. Nitrogen is the most important element for plant
growth because it is a building block of protein and
chlorophyll. The supply of nitrogen not only determines growth,
but also vigor, color and most importantly, yield. Phosphate is
essential to plant root development and is required for
photosynthesis, seed germination and the efficient usage of
water. Potassium improves a plants ability to withstand
the stress of drought, disease, cold weather, weeds and insects.
Although these nutrients are naturally found in soil, they are
depleted over time by farming, which leads to declines in crop
productivity. To replenish these nutrients farmers must apply
fertilizer. Of these three nutrients, nitrogen is most quickly
depleted, and as such, must be replenished every year.
Phosphates and potassium, in the form of potash, can remain in
soil for up to three years.
Global fertilizer demand is driven primarily by population
growth, dietary changes in the developing world and increased
bio-fuel consumption. As the global population grows, more food
is required from decreasing farm land per capita. To increase
food production from available land, more fertilizer must be
used.
According to the IFA, from 1972 to 2010, global fertilizer
demand grew 2.1% annually and global nitrogen fertilizer demand
grew at a faster rate of 2.8% annually. According to the IFA,
during that
38-year
period, U.S. fertilizer demand grew 0.6% annually and U.S.
nitrogen fertilizer demand grew at a faster rate of 1.2%
annually. Fertilizer use is projected to increase by 45% between
2005 and 2030 to meet global food demand, according to a study
funded by the Food and Agriculture Organization of the United
Nations.
In 2008, global fertilizer consumption was approximately
172.7 million nutrient tons 109.4 million
tons of nitrogen (63%), 37.7 million tons of phosphate
(22%), and 25.6 million tons of potash (15%). Over time,
these percentages have remained relatively constant, with the
exception of the 2008 2009 economic crisis. During
the crisis, farmers delayed fertilizer application in
anticipation of lower fertilizer prices. Because nitrogen is not
retained in soil and must be applied each year, it experienced a
significantly smaller volume decline than phosphate and potash.
According to Blue Johnson, U.S. potash and phosphate
fertilizer volumes for 2009 both fell by 43% from 2008 levels,
whereas nitrogen fertilizer volumes fell by only 12%.
87
Global
Fertilizer Consumption Over Time
(Millions of Metric Tons)
Note: Nutrient Tonnes; Fertilizer
Years
Source: International Fertilizer Industry Association
Currently, the developed world uses fertilizer more intensively
than the developing world, but sustained economic growth in
emerging markets is increasing food demand and fertilizer use.
As such, populations are shifting to more protein-rich diets as
their incomes increase, with such consumption requiring larger
amounts of grain for animal feed. As an example, Chinas
grain production increased 31% between September 2001 and
September 2010, but still failed to keep pace with increases in
demand, prompting China to double its grain imports over the
same period, according to the USDA.
World
Grain Production and Stock to Use Ratios
Millions of Tonnes, Stock to Use Ratio
Note: Grains include barley, corn,
oats, sorghum, and wheat. Stock to use ratio is ending inventory
/ consumption for that year. Years are fertilizer years
ending on June 30. Data as of February 28, 2011.
Source: USDA
The United States is the worlds largest exporter of coarse
grains, accounting for 46% of world exports and 31% of total
world production according to the USDA. The United States is
also the worlds third largest consumer of nitrogen
fertilizer and historically the largest importer of nitrogen
fertilizer. Nitrogen fertilizer consumption in the United States
is driven by three of its most important crops corn,
wheat and cotton with corn being the largest
88
consumer of nitrogen fertilizer in total and on a per acre
basis. Global demand for corn has increased significantly,
leading to an increase in U.S. corn production of 18% over
the last four years, according to the USDA. Domestically,
corn demand increases are being driven primarily by increased
government ethanol mandates and by increased global demand
for grain. The Energy Independence and Security Act of 2007
requires fuel producers to use at least 36 billion gallons
of ethanol by 2022, a nearly 37% increase over current levels.
In 2009, 3,677 million bushels of corn a year, or 24% of
U.S. production, was used to produce ethanol. To meet the
government mandate, the Department of Agriculture and Consumer
Economics at the University of Illinois at Urbana-Champaign
estimates that corn used to produce ethanol will need to
increase to 4,400 million bushels for the 12 months
ending June 2011.
World grain demand has increased 11% over the last
five years, resulting in the lowest projected grain ending
stocks in the United States since 1995 despite increased planted
acreage and robust harvests during recent years. This tight
supply environment has led to significant increases in grain
prices, which are highly supportive of fertilizer prices. For
example, during the last five years, corn prices in Illinois
have averaged $3.80 per bushel, an increase of 80% above the
average price of $2.12 per bushel during the preceding five
years. Similarly, the average price for wheat during the last
five years is 71% higher than the average price during the
preceding five years. Fertilizer costs represent approximately
18% to 25% of a U.S. farmers total input costs but
have the greatest effect on the farmers yield. For
example, corn yields are directly proportional to the level of
nitrogen fertilizer applied, giving farmers an economic
incentive to increase the amount of fertilizer used,
particularly at existing corn prices. At existing grain prices
and prices implied by futures markets, farmers are expected to
generate substantial profits, leading to relatively inelastic
demand for fertilizers.
Breakdown
of U.S. Farmer Total Input Costs
Note: Fixed Costs include labor,
machinery, land, taxes, insurance, and other
Nitrogen
Fertilizers
The four principal nitrogen-based fertilizer products are:
Ammonia. Ammonia is used as a direct
application fertilizer; however, it is primarily used as a
building block for other nitrogen fertilizer products. Ammonia,
consisting of 82% nitrogen, is stored either as a refrigerated
liquid at minus 27 degrees Fahrenheit, or under pressure if
not refrigerated. It is a hazardous gas at ambient temperatures,
making it difficult and costly to transport. The direct
application of ammonia requires farmers to make a considerable
investment in pressurized storage tanks and injection machinery,
and can take place only under a narrow range of ambient
conditions. Ammonia is traded globally; however, transportation
costs are significant.
Ammonia is produced by reacting gaseous nitrogen with hydrogen
at high pressure and temperature in the presence of a catalyst.
Traditionally, nearly all hydrogen produced for the manufacture
of nitrogen-based fertilizers is produced by reforming natural
gas at a high temperature and pressure in the presence of water
and a catalyst. This process consumes a significant amount of
natural gas, and as a result, production costs fluctuate
significantly with changes in natural gas prices.
89
Alternatively, hydrogen used for the manufacture of ammonia can
also be produced by gasifying pet coke or coal. Pet coke is
produced during the petroleum refining process. The pet coke
gasification process, which we utilize at our nitrogen
fertilizer plant provides us with a cost advantage compared to
U.S. Gulf Coast and offshore producers. Our nitrogen
fertilizer plants pet coke gasification process uses
almost no natural gas, whereas natural gas is the sole feedstock
for substantially all of our competitors, accounting for
85-90% of
their production costs historically.
Urea Ammonium Nitrate Solution. Urea can be
combined with ammonium nitrate solution to make liquid nitrogen
fertilizer (urea ammonium nitrate or UAN). These solutions
contain 32% nitrogen and are easy and safe to store and
transport. Unlike ammonia and urea, UAN can be applied
throughout the growing season and can be applied in tandem with
pesticides and fungicides, providing farmers with flexibility
and cost savings. The convenience of UAN fertilizer has led to
an 8.5% increase in its consumption from 2000 through 2010
(estimated) on a nitrogen content basis, whereas ammonia
fertilizer consumption decreased by 2.4% for the same period,
according to data supplied by Blue Johnson. UAN benefits from an
attractive combination of ammonium nitrates immediate
release of nutrients to the plant, and ureas slow form
fertilization. UAN is not widely traded globally because it is
costly to transport (it is approximately 65% water) and because
its consumption is concentrated in the United States, which
accounts for 60% of global consumption. Therefore, there is
little risk to U.S. UAN producers of an influx of UAN from
foreign imports. As a result of these factors, UAN commands a
price premium to urea, on a nitrogen equivalent basis, as
illustrated in the chart below.
Farm Belt
UAN / Farm Belt Urea Price Premium
% Premium over Urea Nutrient Basis
Source: Green Markets
Urea. Urea is mostly produced as a coated,
granular solid containing 46% nitrogen and is suitable for use
in bulk fertilizer blends containing the other two principal
fertilizer nutrients, phosphate and potash. Urea accounts for
58% of the global nitrogen fertilizer market and 25% of the
U.S. nitrogen fertilizer market. Urea is produced and
traded worldwide and as a result, has less stable margins. We do
not produce merchant urea.
Ammonium Nitrate. Ammonium nitrate is a dry,
granular form of nitrogen-based fertilizer. We do not produce
this product. Ammonium nitrate is also used for explosives;
however we only handle the aqueous, non-explosive form, and
therefore we are not subject to homeland security regulations
concerning the dry form.
North
American Nitrogen Fertilizer Industry
The five largest producers in the North American nitrogen
fertilizer industry are Agrium, CF Industries, Koch Industries,
Potash Corporation and Yara, all of which use natural gas-based
production methods. Over the last five years, U.S. natural
gas prices at the Henry Hub pricing point have averaged $6.06
per MMbtu, with a spot price low
90
of $1.88 per MMbtu in 2009 and a spot price high of $13.31 per
MMbtu in 2008. With the discovery of shale gas reserves, North
American natural gas prices have declined significantly, giving
North American producers a significant and sustainable cost
advantage over former Soviet Union and Western European
producers. Ukrainian producers now serve as the global swing
producers. Their production costs, based on high cost natural
gas purchased from Russia, plus transportation costs over land
to regional ports and then ocean freight to the U.S. Gulf
Coast, serve as the price floor for the U.S. market, which
imports approximately 48% of its nitrogen fertilizer needs.
Natural
Gas Prices
United States and Western Europe
Note: European prices converted
from GBP/Therm to $/MMBtu, based on daily exchange rate
Historical Sources: NBP Weekly Spot Rate, Henry Hub Weekly Spot
Rate
Forecast Sources: NBP Forward Rate 3/7/2011, Henry Hub Futures
Nymex Exchange 3/7/2010
Over the last decade, North American fertilizer capacity has
declined significantly due to plant closures. In the United
States, production capacity fell by 34% between 1999 and 2010
due to capacity closures, and no new plants have been built
since our nitrogen fertilizer plant was constructed in 2000.
Prior to the construction of our plant, the most recent plant to
be built was completed in 1977. The North American fertilizer
industry has also experienced significant consolidation from
merger and acquisition activity. In 2003, Koch Industries
acquired Farmlands nitrogen fertilizer assets, in 2008
Yara acquired Saskferco and in 2010 CF Industries acquired Terra
Industries. As a result of these and other developments, the top
five producers have increased their market share in North
America from 56% in 2000 to 78% today. Further opportunity to
consolidate exists today as a number of smaller nitrogen
fertilizer assets are held by companies that do not have a
fertilizer focus.
Our production facility is located in the farm belt, which
refers to the states of Illinois, Indiana, Iowa, Kansas,
Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma,
South Dakota, Texas and Wisconsin. In 2010, the farm belt
consumed approximately 3.8 million tons of ammonia and
6.8 million tons of UAN. Based on Blue Johnson, we estimate
that our UAN production in 2010 represented approximately 5.1%
of the total U.S. UAN demand and our net ammonia production
represented less than 1.0% of the total U.S. ammonia demand.
Fertilizer
Pricing Trends
During the 1990s, ammonia prices in the Southern Plains, a
region within our primary market, typically fluctuated between
$125 and $225 per ton. During that time, the U.S. nitrogen
fertilizer industry was oversupplied. During the 2000s, natural
gas prices rose and U.S. production declined significantly
following plant closures and consolidation due to merger and
acquisition activity. At the same time, world demand for grain
continued to increase, leading to tightening nitrogen fertilizer
markets. During the last decade nitrogen fertilizer prices
decoupled from natural gas prices and became driven primarily by
demand dynamics. In 2008, nitrogen fertilizer experienced a
dramatic increase in price commensurate with other fertilizer
nutrients and other global commodities such as metals. The
20082009
global economic crisis prompted a decline in fertilizer prices
and fertilizer demand; however, the long-term supply and demand
trends remained intact, leading to a strong recovery of
fertilizer demand and pricing shortly after the onset of the
financial crisis. Today, nitrogen fertilizer prices continue to
benefit from
91
strong global fundamentals for agricultural products. A
particularly strong relationship exists between global grain
prices and nitrogen fertilizer prices. For example,
U.S. 30-day
corn and wheat futures increased 104% and 74% from June 1,
2010 to February 28, 2011. During this same time period,
Southern Plains ammonia prices increased 67% from $360 per ton
to $603 per ton and corn belt UAN prices increased 41% from $252
per ton to $354 per ton. Despite the growth in prices, prices in
forward markets are available at or very near current levels.
This environment is supportive of high farmer profits, which are
in turn supportive of sustained high fertilizer prices and
demand.
Historical
U.S. Nitrogen Fertilizer Prices
($ per ton)
Source: Green Markets
The transportation costs related to shipping ammonia and UAN
into the farm belt are substantial and shipping into this region
is difficult; it costs an estimated $25 per ton to ship these
fertilizers from the U.S. Gulf Coast to Hastings, Nebraska,
a major U.S. trading hub for ammonia and UAN near
NuStars Aurora pipeline. As a result, locally based
fertilizer producers, such as us, enjoy a distribution cost
advantage over U.S. Gulf Coast ammonia and UAN producers
and importers. As illustrated in the exhibit below, Southern
Plains spot ammonia and corn belt spot UAN prices averaged $444
per ton and $277 per ton, respectively, for the 2006 through
2010 year to date, based on data provided by Blue Johnson,
which represents an average 26% and 21% premium, respectively,
over U.S. Gulf Coast prices.
Premium
of Southern Plains Ammonia and Cornbelt UAN to U.S. Gulf
Prices ($ per ton)
Note: 3 month rolling premium
of Southern Plains Ammonia and Cornbelt UAN to U.S. Gulf
NOLA Barge Ammonia and UAN prices.
Source: Blue, Johnson & Associates, Inc. Report, 2010,
Green Markets for U.S. Gulf prices after September 2010.
92
BUSINESS
Overview
We are a Delaware limited partnership formed by CVR Energy to
own, operate and grow our nitrogen fertilizer business.
Strategically located adjacent to CVR Energys refinery in
Coffeyville, Kansas, our nitrogen fertilizer manufacturing
facility is the only operation in North America that utilizes a
petroleum coke, or pet coke, gasification process to produce
nitrogen fertilizer. Our facility includes a 1,225
ton-per-day
ammonia unit, a 2,025
ton-per-day
UAN unit, and a gasifier complex having a capacity of
84 million standard cubic feet per day. Our gasifier is a
dual-train facility, with each gasifier able to function
independently of the other, thereby providing redundancy and
improving our reliability. We upgrade a majority of the ammonia
we produce to higher margin UAN fertilizer, an aqueous solution
of urea and ammonium nitrate which has historically commanded a
premium price over ammonia. In 2010, we produced 392,745 tons of
ammonia, of which approximately 60% was upgraded into 578,272
tons of UAN.
We intend to expand our existing asset base and utilize the
experience of CVR Energys management team to execute our
growth strategy. Our growth strategy includes expanding
production of UAN and potentially acquiring additional
infrastructure and production assets. Following completion of
this offering, we intend to move forward with a significant
two-year plant expansion designed to increase our UAN production
by 400,000 tons, or approximately 50%, per year. CVR Energy, a
New York Stock Exchange listed company, which following this
offering will indirectly own our general partner and
approximately % of our outstanding
common units, currently operates a
115,000 barrel-per-day,
or bpd, sour crude oil refinery and ancillary businesses.
The primary raw material feedstock utilized in our nitrogen
fertilizer production process is pet coke, which is produced
during the crude oil refining process. In contrast,
substantially all of our nitrogen fertilizer competitors use
natural gas as their primary raw material feedstock.
Historically, pet coke has been significantly less expensive
than natural gas on a per ton of fertilizer produced basis and
pet coke prices have been more stable when compared to natural
gas prices. By using pet coke as the primary raw material
feedstock instead of natural gas, we believe our nitrogen
fertilizer business has historically been the lowest cost
producer and marketer of ammonia and UAN fertilizers in North
America. The facility uses a gasification process for which we
have a fully paid, perpetual license from an affiliate of The
General Electric Company, or General Electric, to convert pet
coke to high purity hydrogen for subsequent conversion to
ammonia. We currently purchase most of our pet coke (between 950
and 1,050 tons per day) from CVR Energy pursuant to a long-term
agreement having an initial term that ends in 2027, subject to
renewal. During the past five years, over 70% of the pet coke
utilized by our plant was produced and supplied by CVR
Energys crude oil refinery. Our plant uses another 250 to
300 tons per day from unaffiliated, third-party sources such as
other Midwestern refineries or pet coke brokers.
We generated net sales of $263.0 million,
$208.4 million and $180.5 million, net income of
$118.9 million, $57.9 million and $33.3 million
and EBITDA of $134.9 million, $67.6 million and
$38.7 million, for the years ended December 31, 2008,
2009 and 2010, respectively. For a reconciliation of EBITDA to
net income, see footnote 5 under Prospectus
Summary Summary Historical and Pro Forma
Consolidated Financial Information.
Our
Competitive Strengths
Pure-Play Nitrogen Fertilizer Company. We
believe that as a pure-play nitrogen fertilizer company we are
well positioned to benefit from positive trends in the nitrogen
fertilizer market in general and the UAN market in particular,
including strengthening demand, tightening supply, rising crop
prices and increased corn acreage. We derive substantially all
of our revenue from the production and sale of nitrogen
fertilizers, primarily in the agricultural market, whereas most
of our competitors are meaningfully diversified into other crop
nutrients, such as phosphate and potash, and make significant
sales into the lower-margin industrial market. For example, our
largest public competitors, Agrium, Potash Corporation, Yara
(excluding blended fertilizers) and CF Industries (after giving
effect to its acquisition of Terra Industries) derived 90%, 91%,
46% and 22% of their sales in 2010 (2009 in the case of Yara),
respectively, from the sale of products other than nitrogen
fertilizer used in the agricultural market. Nitrogen fertilizer
production is a higher margin, growing business with more stable
demand compared to the production of the two other essential
crop nutrients, potash and phosphate, because nitrogen is
depleted in the
93
soil more quickly than those nutrients and therefore must be
reapplied annually. During the last five years, ammonia and UAN
prices averaged $467 and $292 per ton, respectively, which is a
substantial increase from the average prices of $276 and $159
per ton, respectively, during the prior five-year period. Over
the last ten years, global nitrogen fertilizer demand has shown
a compound annual growth rate of 2.1% and is expected to grow
1.0% per year through 2020, according to Blue Johnson.
The following table shows the consolidated impact of a $50 per
ton change in UAN pricing and a $100 per ton change in ammonia
pricing on our EBITDA based on the assumptions described herein
relative to the actual prices we realized for the year ended
December 31, 2010 and our forecasted pricing for the twelve
month period ending March 31, 2012:
Illustrative
Sensitivity to UAN and Ammonia
Prices(1)(2)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sensitivity Using
|
|
Sensitivity Using
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual Average
|
|
Forecasted
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
Prices(1)(3)
|
|
3/31/2012
Prices(1)(4)
|
UAN Price
|
|
$
|
150
|
|
|
$
|
200
|
|
|
$
|
250
|
|
|
$
|
300
|
|
|
$
|
350
|
|
|
$
|
179
|
|
|
$
|
278
|
|
Ammonia Price
|
|
|
300
|
|
|
|
400
|
|
|
|
500
|
|
|
|
600
|
|
|
|
700
|
|
|
|
361
|
|
|
|
547
|
|
Net Sales
|
|
|
171
|
|
|
|
221
|
|
|
|
271
|
|
|
|
321
|
|
|
|
371
|
|
|
|
200
|
|
|
|
297
|
|
EBITDA
|
|
|
24
|
|
|
|
74
|
|
|
|
124
|
|
|
|
174
|
|
|
|
224
|
|
|
|
53
|
|
|
|
150
|
|
Available Cash
|
|
|
13
|
|
|
|
63
|
|
|
|
113
|
|
|
|
163
|
|
|
|
213
|
|
|
|
43
|
|
|
|
140
|
|
|
|
|
(1)
|
|
The price sensitivity analysis in
this table is based on the assumptions described in our forecast
of EBITDA for the twelve months ending March 31, 2012,
including 157,400 ammonia tons sold, 686,200 UAN tons
sold, cost of product sold of $48.3 million, direct
operating expenses of $84.5 million and selling, general
and administrative expenses of $14.2 million. This table is
presented to show the sensitivity of our EBITDA forecast for the
twelve months ending March 31, 2012 of $150.4 million
to specified changes in ammonia and UAN prices. Spot ammonia and
UAN prices were $602.50 and $354.08, respectively, per ton as of
February 28, 2011. There can be no assurance that we will
achieve our EBITDA forecast for the twelve months ending
March 31, 2012 or any of the specified levels of EBITDA
indicated above, or that UAN and ammonia pricing will achieve
any of the levels specified above. See Our Cash
Distribution Policy and Restrictions on Distribution
Forecasted Available Cash for a reconciliation of our
EBITDA forecast to our net income forecast for the twelve months
ending March 31, 2012 and a discussion of the assumptions
underlying our forecast.
|
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|
|
(3)
|
|
This column shows (1) actual
average UAN and ammonia prices for the year ended
December 31, 2010 and (2) what our net sales, EBITDA
and available cash would have been in the year ended
December 31, 2010 based on the actual average UAN and
ammonia prices during such year and the production and expense
assumptions set forth in footnote 1 above. See
Summary Historical and Pro Forma Consolidated Financial
Information for our actual net sales and EBITDA for the
year ended December 31, 2010.
|
|
|
|
(4)
|
|
Reflects forecasted average UAN and
ammonia pricing for the twelve months ending March 31, 2012
and the production and expense assumptions set forth in
footnote 1 above.
|
94
High Margin Nitrogen Fertilizer Producer. Our
unique combination of pet coke raw material usage, premium
product focus and transportation cost advantage has helped to
keep our costs low and has enabled us to generate high margins.
In 2008, 2009 and 2010, our operating margins were 44%, 23% and
11%, respectively (our 2010 operating margins were negatively
affected by downtime associated with the Linde air separation
outage, the rupture of a high-pressure UAN vessel and the major
scheduled turnaround). Over the last five years,
U.S. natural gas prices at the Henry Hub pricing point have
averaged $6.06 per MMbtu. The following table
shows our cost advantage for the year ended December 31,
2010 as compared to an illustrative natural gas-based competitor
in the U.S. Gulf Coast:
CVR
Partners Cost Advantage over an Illustrative U.S. Gulf
Coast Natural Gas-Based Competitor
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($ per ton, unless otherwise noted)
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CVR Partners Ammonia Cost Advantage
|
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CVR Partners UAN Cost Advantage
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Illustrative
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Illustrative Competitor
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CVR Partners
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Illustrative Competitor
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CVR Partners
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Natural Gas
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Total
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Competitor
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Delivered
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Competitor
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Ammonia
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Ammonia
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Total
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UAN
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Price
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Gas
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Ammonia
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Ammonia
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Cost
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cost per ton
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Competitor
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UAN
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Cost
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($/MMbtu)
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Cost(a)
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Costs(b)(c)(e)
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Costs(d)(e)
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Advantage
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UAN(f)
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UAN
Costs(c)(e)(g)
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Costs(e)(f)(h)
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Advantage
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$
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4.00
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$
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132
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$
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193
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$
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194
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$
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(1)
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$
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65
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$
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98
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$
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87
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$
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11
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4.50
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149
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210
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194
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16
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72
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105
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87
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18
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5.50
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182
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243
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194
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49
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85
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118
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87
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31
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6.50
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215
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276
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194
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82
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99
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132
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87
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45
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7.50
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248
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|
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309
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194
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115
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113
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146
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87
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59
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(a)
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Assumes 33 MMbtu of natural
gas to produce a ton of ammonia, based on Blue Johnson.
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(b)
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Assumes $27 per ton operating cost
for ammonia, based on Blue Johnson.
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(c)
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Assumes incremental $34 per ton
transportation cost from the U.S. Gulf Coast to the
mid-continent for ammonia and $15 per ton for UAN, based on
recently published rail and pipeline tariffs.
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(d)
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CVR Partners ammonia cost
consists of $19 per ton of ammonia in pet coke costs and $175
per ton of ammonia in operating costs for the year ended
December 31, 2009.
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(e)
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The cost data included in this
chart for an illustrative competitor assumes property taxes,
whereas the cost data included for CVR Partners includes the
cost of our property taxes other than property taxes currently
in dispute. CVR Partners is currently disputing the amount of
property taxes which it has been required to pay in recent
years. For information on the effect of disputed property taxes
on our actual production costs, see product production cost data
and footnote 7 under Prospectus Summary
Summary Historical and Pro Forma Consolidated Financial
Information. See also Managements Discussion
and Analysis of Financial Condition and Results of
Operations Factors Affecting
Comparability Fertilizer Plant Property Taxes.
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(f)
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Each ton of UAN contains
approximately 0.41 tons of ammonia. Illustrative competitor UAN
cost per ton data removes $34 per ton in transportation
costs for ammonia.
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(g)
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Assumes $18 per ton cash conversion
cost to UAN, based on Blue Johnson.
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(h)
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CVR Partners UAN conversion
cost was $12 per ton for the year ended December 31, 2010.
$10.82 per ton of ammonia production costs are not transferable
to UAN costs.
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Cost Advantage. We operate the only nitrogen
fertilizer production facility in North America that uses pet
coke gasification to produce nitrogen fertilizer, which has
historically given us a cost advantage over competitors that use
natural gas-based production methods. Our costs are
approximately 79% fixed and relatively stable, which allows us
to benefit directly from increases in nitrogen fertilizer
prices. Our fixed costs consist primarily of electrical energy,
employee labor, maintenance, including contract labor, and
outside services. Our variable costs consist primarily of pet
coke. Our pet coke costs have historically remained relatively
stable, averaging $25 per ton since we began operating under our
current structure in October 2007, with a high of $31 per ton
for 2008 and a low of $17 per ton for 2010. Third-party pet coke
prices have averaged $41 per ton for third-party pet coke over
the last five years, with a high of $49 per ton for 2007 and a
low of $34 per ton for 2006. Substantially all of our nitrogen
fertilizer competitors use natural gas as their primary raw
material feedstock (with natural gas constituting approximately
85-90% of
their production costs based on historical data) and are
therefore heavily impacted by changes in natural gas prices.
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Premium Product Focus. We focus on producing
higher margin, higher growth UAN nitrogen fertilizer.
Historically, UAN has accounted for approximately 80% of our
product tons sold. UAN commands a price premium over ammonia and
urea on a nutrient ton basis. Unlike ammonia and urea, UAN is
easier to apply and can be applied throughout the growing season
to crops directly or mixed with crop protection products,
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95
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which reduces energy and labor costs for farmers. In addition,
UAN is safer to handle than ammonia. The convenience of UAN
fertilizer has led to an 8.5% increase in its consumption from
2000 through 2010 (estimated) on a nitrogen content basis,
whereas ammonia fertilizer consumption decreased by 2.4% for the
same period, according to data supplied by Blue Johnson. We
currently upgrade 60% of our ammonia production into UAN and
plan to expand our upgrading capacity to have the flexibility to
upgrade all of our ammonia production into UAN.
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Strategically Located Asset. We and other
competitors located in the U.S. farm belt share a transportation
cost advantage when compared to our
out-of-region
competitors in serving the U.S. farm belt agricultural
market. In 2010, approximately 45% of the corn planted in the
United States was grown within a $35/UAN ton freight train rate
of our nitrogen fertilizer plant. We are therefore able to
cost-effectively sell substantially all of our products in the
higher margin agricultural market, whereas, according to
publicly available information prepared by our competitors, a
significant portion of our competitors revenues are
derived from the lower margin industrial market. Because the
U.S. farm belt consumes more nitrogen fertilizer than is
produced in the region, it must import nitrogen fertilizer from
the U.S. Gulf Coast as well as from international
producers. Accordingly, U.S. farm belt producers may offer
nitrogen fertilizers at prices that factor in the transportation
costs of
out-of-region
producers without having incurred such costs. We estimate that
our plant enjoys a transportation cost advantage of
approximately $25 per ton over competitors located in the
U.S. Gulf Coast, based on a comparison of our actual
transportation costs and recently published rail and pipeline
tariffs. Our location on Union Pacifics main line
increases our transportation cost advantage by lowering the
costs of bringing our products to customers. Our products leave
the plant either in trucks for direct shipment to customers (in
which case we incur no transportation cost) or in railcars for
destinations located principally on the Union Pacific Railroad.
We do not incur any intermediate transfer, storage barge freight
or pipeline freight charges.
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Highly Reliable Pet Coke Gasification Fertilizer Plant with
Low Capital Requirements. Our nitrogen fertilizer
plant was completed in 2000 and, based on data supplied by Blue
Johnson, is the newest nitrogen fertilizer plant built in North
America. Prior to our plants construction in 2000, the
last ammonia plant built in the United States was constructed in
1977. Construction of a new nitrogen fertilizer facility would
require significant capital investment. Our nitrogen fertilizer
facility was built with the dual objectives of being low cost
and reliable. Our facility has low maintenance costs, with
maintenance capital expenditures ranging between approximately
$3 million and $9 million per year from 2007 through
2010. We have configured the plant to have a dual-train gasifier
complex, with each gasifier able to function independently of
the other, thereby providing redundancy and improving our
reliability. We use gasification technology that has been proven
through over 50 years of industrial use, principally for
power generation. In 2010, our gasifier had an on-stream factor,
which is defined as the total number of hours operated divided
by the total number of hours in the reporting period, in excess
of 97% excluding the impact of downtime associated with the
Linde air separation outage, the rupture of a high pressure UAN
vessel and the major scheduled turnaround.
Experienced Management Team. We are managed by
CVR Energys management pursuant to a services agreement.
Mr. John J. Lipinski, Chief Executive Officer, has over
38 years of experience in the refining and chemicals
industries. Mr. Stanley A. Riemann, Chief Operating
Officer, has over 37 years of experience in the fertilizer
and energy industries, including experience running one of the
largest fertilizer manufacturing systems in the United States at
Farmland. Mr. Edward A. Morgan, Chief Financial Officer,
has over 18 years of finance experience. Mr. Kevan
Vick, Executive Vice President and Fertilizer General Manager,
has over 34 years of experience in the nitrogen fertilizer
industry and was previously the general manager of nitrogen
fertilizer manufacturing at Farmland. Mr. Vick leads a
senior operations team whose members have an average of
22 years of experience in the fertilizer industry. Most of
the members of our senior operations team were
on-site
during the construction and startup of our nitrogen fertilizer
plant in 2000.
96
Our
Business Strategy
Our objective is to maximize quarterly distributions to our
unitholders by operating our nitrogen fertilizer facility in an
efficient manner, maximizing production time and growing
profitably within the nitrogen fertilizer industry. We intend to
accomplish this objective through the following strategies:
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Pay Out All of the Available Cash We Generate Each
Quarter. Our strategy is to pay out all of the
available cash we generate each quarter. We expect that holders
of our common units will receive a greater percentage of our
operating cash flow when compared to our publicly traded
corporate competitors across the broader fertilizer sector, such
as Agrium, CF Industries, Potash Corporation and Yara. These
companies have provided an average dividend yield of 0.1%, 0.4%,
0.3% and 1.6%, respectively, as of February 28, 2011,
compared to our expected distribution yield
of % (calculated by dividing our
forecasted distribution for the twelve months ending
March 31, 2012 of $ per
common unit by the mid-point of the price range on the cover
page of this prospectus). The board of directors of our general
partner will adopt a policy under which we will distribute all
of the available cash we generate each quarter, as described in
Our Cash Distribution Policy and Restrictions On
Distributions on page 53. We do not intend to
maintain excess distribution coverage for the purpose of
maintaining stability or growth in our quarterly distributions
or otherwise to reserve cash for future distributions, and we do
not intend to incur debt to pay quarterly distributions. Unlike
many publicly traded partnerships that have economic general
partner interests and incentive distribution rights that entitle
the general partner to receive disproportionate percentages of
cash distributions as distributions increase (often up to 50%),
our general partner will have a non-economic interest and no
incentive distribution rights, and will therefore not be
entitled to receive cash distributions. Our common unitholders
will receive 100% of our cash distributions.
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Pursue Growth Opportunities. We are well
positioned to grow organically, through acquisitions, or both.
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Expand UAN Capacity. We intend to move forward
with an expansion of our nitrogen fertilizer plant that is
designed to increase our UAN production capacity by 400,000
tons, or approximately 50%, per year. This approximately
$135 million expansion, for which approximately
$31 million had been spent as of December 31, 2010,
will allow us the flexibility to upgrade all of our ammonia
production when market conditions favor UAN. We expect that this
additional UAN production capacity will improve our margins, as
UAN has historically been a higher margin product than ammonia.
We expect that the UAN expansion will take 18 to 24 months
to complete and will be funded with approximately
$100.0 million of the net proceeds from this offering.
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Selectively Pursue Accretive Acquisitions. We
intend to evaluate strategic acquisitions within the nitrogen
fertilizer industry and to focus on disciplined and accretive
investments that leverage our core strengths. We have no
agreements, understandings or financings with respect to any
acquisitions at the present time.
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Continue to Focus on Safety and Training. We
intend to continue our focus on safety and training in order to
increase our facilitys reliability and maintain our
facilitys high on-stream availability. We have developed a
series of comprehensive safety programs, involving active
participation of employees at all levels of the organization,
that are aimed at preventing recordable incidents. In 2010, our
nitrogen fertilizer plant had a recordable incident rate of
0.76, which was our lowest recordable incident rate in over five
years. The recordable incident rate reflects the number of
recordable incidents per 200,000 hours worked.
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Continue to Enhance Efficiency and Reduce Operating
Costs. We are currently engaged in certain
projects that will reduce overall operating costs, increase
efficiency, and utilize byproducts to generate incremental
revenue. For example, we have built a low btu gas recovery
pipeline between our nitrogen fertilizer plant and CVR
Energys crude oil refinery, which will allow us to sell
off-gas, a byproduct produced by our fertilizer plant, to the
refinery. This pipeline was commissioned in March 2011. In
addition, we have formulated a plan to address the
CO2
released by our nitrogen fertilizer plant. To that end, we have
signed a letter of intent whereby we may, in the future, sell up
to 850,000 tons per year of high purity
CO2
produced by our nitrogen fertilizer plant to an oil and gas
exploration and production company for purposes of enhanced oil
recovery.
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97
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Provide High Level of Customer Service. We
focus on providing our customers with the highest level of
service. The nitrogen fertilizer plant has demonstrated
consistent levels of production while operating at close to full
capacity. Substantially all of our product shipments are
targeted to freight advantaged destinations located in the
U.S. farm belt, allowing us to quickly and reliably service
customer demand. Furthermore, we maintain our own fleet of
railcars capable of safely transporting UAN and ammonia, which
helps us ensure prompt delivery. As a result of these efforts,
many of our largest customers have been our customers since the
plant came on line in 2000, and our customer retention rate year
to year has been consistently high. We believe a continued focus
on customer service will allow us to maintain relationships with
existing customers and grow our business.
|
Our
History
Prior to March 3, 2004, our nitrogen fertilizer plant was
operated as a small component of Farmland, an agricultural
cooperative. Farmland filed for bankruptcy protection on
May 31, 2002. Coffeyville Resources, LLC, a subsidiary of
Coffeyville Group Holdings, LLC, won the bankruptcy court
auction for Farmlands nitrogen fertilizer plant (and the
refinery and related businesses now operated by CVR Energy) and
completed the purchase of these assets on March 3, 2004.
On June 24, 2005, pursuant to a stock purchase agreement
dated May 15, 2005, all of the subsidiaries of Coffeyville
Group Holdings, LLC, including our nitrogen fertilizer plant
(and the refinery and related businesses now operated by CVR
Energy), were acquired by Coffeyville Acquisition, a newly
formed entity principally owned by funds affiliated with
Goldman, Sachs & Co. and Kelso & Company, or
the Goldman Sachs Funds and the Kelso Funds, respectively.
On October 26, 2007, CVR Energy completed its initial
public offering. CVR Energy was formed as a wholly-owned
subsidiary of Coffeyville Acquisition in September 2006 in order
to complete the initial public offering of the businesses
acquired by Coffeyville Acquisition. At the time of its initial
public offering, CVR Energy operated the petroleum refining
business and indirectly owned all of the partnership interests
in us (other than the interests held by CVR GP).
We were formed by CVR Energy in June 2007 in order to hold the
nitrogen fertilizer business in a structure that might be
separately financed in the future as a limited partnership. In
October 2007, in consideration for CVR Energy contributing its
nitrogen fertilizer business to us, Special GP, acquired
30,303,000 special GP units and 30,333 special LP units, and CVR
GP, a subsidiary of CVR Energy at that time, acquired the
general partner interest and the IDRs. CVR Energy concurrently
sold our general partner, together with the IDRs, to Coffeyville
Acquisition III, an entity owned by the Goldman Sachs Funds, the
Kelso Funds and certain members of CVR Energys senior
management team, for its fair market value on the date of sale.
As part of the Transactions occurring in connection with this
offering, Special GP will be merged with and into Coffeyville
Resources, with Coffeyville Resources continuing as the
surviving entity, our general partner will sell to us its IDRs
for $26.0 million in cash, and we will extinguish such
IDRs, and Coffeyville Acquisition III, the current owner of our
general partner, will sell our general partner to Coffeyville
Resources for nominal consideration.
Raw
Material Supply
The nitrogen fertilizer facilitys primary input is pet
coke. During the past five years, over 70% of our pet coke
requirements on average were supplied by CVR Energys
adjacent crude oil refinery. Historically we have obtained the
remainder of our pet coke requirements from third parties such
as other Midwestern refineries or pet coke brokers at spot
prices. If necessary, the gasifier can also operate on low grade
coal as an alternative, which provides an additional raw
material source. There are significant supplies of low grade
coal within a
60-mile
radius of our nitrogen fertilizer plant.
Pet coke is produced as a byproduct of the refinerys coker
unit process. In order to refine heavy or sour crude oil, which
are lower in cost and more prevalent than higher quality crude
oil, refiners use coker units, which enables refiners to further
upgrade heavy crude oil.
98
Our fertilizer plant is located in Coffeyville, Kansas, which is
part of the Midwest pet coke market. The Midwest pet coke market
is not subject to the same level of pet coke price variability
as is the Texas Gulf Coast pet coke market, where daily
production exceeds 40,000 tons per day. Given the fact that the
majority of our third-party pet coke suppliers are located in
the Midwest, our geographic location gives us (and our similarly
located competitors) a transportation cost advantage over our
U.S. Gulf Coast market competitors. Our average daily pet
coke demand from 2008-2010 was less than 1,400 tons per day.
Linde owns, operates, and maintains the air separation plant
that provides contract volumes of oxygen, nitrogen, and
compressed dry air to our gasifiers for a monthly fee. We
provide and pay for all utilities required for operation of the
air separation plant. The air separation plant has not
experienced any long-term operating problems. CVR Energy
maintains, for our benefit, contingent business interruption
insurance coverage with a $50 million limit for any
interruption that results in a loss of production from an
insured peril. The agreement with Linde provides that if our
requirements for liquid or gaseous oxygen, liquid or gaseous
nitrogen or clean dry air exceed specified instantaneous flow
rates by at least 10%, we can solicit bids from Linde and third
parties to supply our incremental product needs. We are required
to provide notice to Linde of the approximate quantity of excess
product that we will need and the approximate date by which we
will need it; we and Linde will then jointly develop a request
for proposal for soliciting bids from third parties and Linde.
The bidding procedures may be limited under specified
circumstances. The agreement with Linde expires in 2020.
We import
start-up
steam for the nitrogen fertilizer plant from CVR Energys
crude oil refinery, and then export steam back to the crude oil
refinery once all of our units are in service. We have entered
into a feedstock and shared services agreement with CVR Energy
which regulates, among other things, the import and export of
start-up
steam between the refinery and the nitrogen fertilizer plant.
Monthly charges and credits are recorded with the steam valued
at the natural gas price for the month.
Production
Process
Our nitrogen fertilizer plant was built in 2000 with two
separate gasifiers to provide redundancy and reliability. It
uses a gasification process licensed from General Electric to
convert pet coke to high purity hydrogen for a subsequent
conversion to ammonia. Following a turnaround completed in
October 2010, the nitrogen fertilizer plant is capable of
processing approximately 1,300 tons per day of pet coke from CVR
Energys crude oil refinery and third-party sources and
converting it into approximately 1,200 tons per day of ammonia.
A majority of the ammonia is converted to approximately 2,000
tons per day of UAN. Typically 0.41 tons of ammonia are required
to produce one ton of UAN.
Pet coke is first ground and blended with water and a fluxant (a
mixture of fly ash and sand) to form a slurry that is then
pumped into the partial oxidation gasifier. The slurry is then
contacted with oxygen from an air separation unit. Partial
oxidation reactions take place and the synthesis gas, or syngas,
consisting predominantly of hydrogen and carbon monoxide, is
formed. The mineral residue from the slurry is a molten slag (a
glasslike substance containing the metal impurities originally
present in pet coke) and flows along with the syngas into a
quench chamber. The syngas and slag are rapidly cooled and the
syngas is separated from the slag.
Slag becomes a byproduct of the process. The syngas is scrubbed
and saturated with moisture. The syngas next flows through a
shift unit where the carbon monoxide in the syngas is reacted
with the moisture to form hydrogen and
CO2.
The heat from this reaction generates saturated steam. This
steam is combined with steam produced in the ammonia unit and
the excess steam not consumed by the process is sent to the
adjacent crude oil refinery.
After additional heat recovery, the high-pressure syngas is
cooled and processed in the acid gas removal unit. The syngas is
then fed to a pressure swing absorption, or PSA, unit, where the
remaining impurities are extracted. The PSA unit reduces
residual carbon monoxide and
CO2
levels to trace levels, and the moisture-free, high-purity
hydrogen is sent directly to the ammonia synthesis loop.
The hydrogen is reacted with nitrogen from the air separation
unit in the ammonia unit to form the ammonia product. A large
portion of the ammonia is converted to UAN. In 2010, we produced
392,745 tons of ammonia, of which approximately 60% was upgraded
into 578,272 tons of UAN.
99
The following is an illustrative Nitrogen Fertilizer Plant
Process Flow Chart:
We schedule and provide routine maintenance to our critical
equipment using our own maintenance technicians. Pursuant to a
technical services agreement with General Electric, which
licenses the gasification technology to us, General Electric
experts provide technical advice and technological updates from
their ongoing research as well as other licensees
operating experiences. The pet coke gasification process is
licensed from General Electric pursuant to a perpetual license
agreement that is fully paid. The license grants us perpetual
rights to use the pet coke gasification process on specified
terms and conditions.
Distribution,
Sales and Marketing
The primary geographic markets for our fertilizer products are
Kansas, Missouri, Nebraska, Iowa, Illinois, Colorado and Texas.
We market the ammonia products to industrial and agricultural
customers and the UAN products to agricultural customers. The
demand for nitrogen fertilizers occurs during three key periods.
The highest level of ammonia demand is traditionally in the
spring pre-plant period, from March through May. The
second-highest period of demand occurs during fall pre-plant in
late October and November. The summer wheat pre-plant occurs in
August and September. In addition, smaller quantities of ammonia
are sold in the off-season to fill available storage at the
dealer level.
Ammonia and UAN are distributed by truck or by railcar. If
delivered by truck, products are sold on a
freight-on-board
basis, and freight is normally arranged by the customer. We
lease a fleet of railcars for use in product delivery. We also
negotiate with distributors that have their own leased railcars
to utilize these assets to deliver products. We own all of the
truck and rail loading equipment at our nitrogen fertilizer
facility. We operate two truck loading and four rail loading
racks for each of ammonia and UAN, with an additional four rail
loading racks for UAN.
We market agricultural products to destinations that produce the
best margins for the business. The UAN market is primarily
located near the Union Pacific Railroad lines or destinations
that can be supplied by truck. The ammonia market is primarily
located near the Burlington Northern Santa Fe or Kansas
City Southern Railroad lines or destinations that can be
supplied by truck. By securing this business directly, we reduce
our dependence on distributors serving the same customer base,
which enables us to capture a larger margin and allows us to
better control our product distribution. Most of the
agricultural sales are made on a competitive spot basis. We also
offer products on a prepay basis for in-season demand. The heavy
in-season demand periods are spring and fall in the corn belt
and summer in the wheat belt. The corn belt is the primary corn
producing region of the United States, which includes Illinois,
Indiana, Iowa, Minnesota, Missouri, Nebraska, Ohio and
Wisconsin. The wheat belt is the primary wheat producing region
of the United States, which includes Kansas, North Dakota,
Oklahoma, South Dakota and Texas. Some of the industrial sales
are spot sales, but most are on annual or multiyear contracts.
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We use forward sales of our fertilizer products to optimize our
asset utilization, planning process and production scheduling.
These sales are made by offering customers the opportunity to
purchase product on a forward basis at prices and delivery dates
that we propose. We use this program to varying degrees during
the year and between years depending on market conditions. We
have the flexibility to decrease or increase forward sales
depending on our view as to whether price environments will be
increasing or decreasing. Fixing the selling prices of our
products months in advance of their ultimate delivery to
customers typically causes our reported selling prices and
margins to differ from spot market prices and margins available
at the time of shipment. As of December 31, 2010, we have
sold forward 36,980 tons of ammonia at an average net back
of $568.87 and 230,738 tons of UAN at an average net back
of $222.56 for shipment over the next six months. As of
December 31, 2010, $18.7 million of our forward sales
are prepaid sales, which means we received payment for such
product in advance of delivery. Cash received as a result of
prepayments is recognized on our balance sheet upon receipt
along with a corresponding liability; however, we do not
generate net income or EBITDA in respect of prepaid sales until
product is actually delivered.
Customers
We sell ammonia to agricultural and industrial customers. Based
upon a three-year average, we have sold approximately 87% of the
ammonia we produce to agricultural customers primarily located
in the mid-continent area between North Texas and Canada, and
approximately 13% to industrial customers. Agricultural
customers include distributors such as MFA, United Suppliers,
Inc., Brandt Consolidated Inc., Gavilon Fertilizers LLC,
Transammonia, Inc., Agri Services of Brunswick, LLC, Interchem,
and CHS Inc. Industrial customers include Tessenderlo Kerley,
Inc., National Cooperative Refinery Association, and Dyno Nobel,
Inc. We sell UAN products to retailers and distributors. Given
the nature of our business, and consistent with industry
practice, we do not have long-term minimum purchase contracts
with any of our customers.
For the years ended December 31, 2008, 2009, and 2010, the
top five ammonia customers in the aggregate represented 54.7%,
43.9% and 44.2% of our ammonia sales, respectively, and the top
five UAN customers in the aggregate represented 37.2%, 44.2% and
43.3% of our UAN sales, respectively. Approximately 13%, 15% and
12% of our aggregate sales for the year ended December 31,
2008, 2009 and 2010, respectively, were made to Gavilon
Fertilizers LLC.
Competition
We have experienced and expect to continue to meet significant
levels of competition from current and potential competitors,
many of whom have significantly greater financial and other
resources. See Risk Factors Risks Related to
Our Business Nitrogen fertilizer products are global
commodities, and we face intense competition from other nitrogen
fertilizer producers.
Competition in our industry is dominated by price
considerations. However, during the spring and fall application
seasons, farming activities intensify and delivery capacity is a
significant competitive factor. We maintain a large fleet of
leased rail cars and seasonally adjust inventory to enhance our
manufacturing and distribution operations.
Our major competitors include Agrium, Koch Nitrogen, Potash
Corporation and CF Industries. Domestic competition is intense
due to customers sophisticated buying tendencies and
production strategies that focus on cost and service. Also,
foreign competition exists from producers of fertilizer products
manufactured in countries with lower cost natural gas supplies.
In certain cases, foreign producers of fertilizer who export to
the United States may be subsidized by their respective
governments.
Based on Blue Johnson data regarding total U.S. demand for
UAN and ammonia, we estimate that our UAN production in 2010
represented approximately 5.1% of the total U.S. demand and
that the net ammonia produced and marketed at our facility
represented less than 1.0% of the total U.S. demand.
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Seasonality
Because we primarily sell agricultural commodity products, our
business is exposed to seasonal fluctuations in demand for
nitrogen fertilizer products in the agricultural industry. As a
result, we typically generate greater net sales in the first
half of the calendar year, which we refer to as the planting
season, and our net sales tend to be lower during the second
half of each calendar year, which we refer to as the fill
season. In addition, the demand for fertilizers is affected by
the aggregate crop planting decisions and fertilizer application
rate decisions of individual farmers who make planting decisions
based largely on the prospective profitability of a harvest. The
specific varieties and amounts of fertilizer they apply depend
on factors like crop prices, farmers current liquidity,
soil conditions, weather patterns and the types of crops planted.
Environmental
Matters
Our business is subject to extensive and frequently changing
federal, state and local, environmental, health and safety
regulations governing the emission and release of hazardous
substances into the environment, the treatment and discharge of
waste water and the storage, handling, use and transportation of
our nitrogen fertilizer products. These laws, their underlying
regulatory requirements and the enforcement thereof impact us by
imposing:
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restrictions on operations or the need to install enhanced or
additional controls;
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the need to obtain and comply with permits and authorizations;
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liability for the investigation and remediation of contaminated
soil and groundwater at current and former facilities (if any)
and off-site waste disposal locations; and
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specifications for the products we market, primarily UAN and
ammonia.
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Our operations require numerous permits and authorizations.
Failure to comply with these permits or environmental laws
generally could result in fines, penalties or other sanctions or
a revocation of our permits. In addition, the laws and
regulations to which we are subject are often evolving and many
of them have become more stringent or have become subject to
more stringent interpretation or enforcement by federal and
state agencies. The ultimate impact on our business of complying
with existing laws and regulations is not always clearly known
or determinable due in part to the fact that our operations may
change over time and certain implementing regulations for laws,
such as the federal Clean Air Act, have not yet been finalized,
are under governmental or judicial review or are being revised.
These laws and regulations could result in increased capital,
operating and compliance costs.
The principal environmental risks associated with our business
are outlined below.
The
Federal Clean Air Act
The federal Clean Air Act and its implementing regulations, as
well as the corresponding state laws and regulations that
regulate emissions of pollutants into the air, affect us through
the federal Clean Air Acts permitting requirements and
emission control requirements relating to specific air
pollutants, as well as the requirement to maintain a risk
management program to help prevent accidental releases of
certain substances. Some or all of the standards promulgated
pursuant to the federal Clean Air Act, or any future
promulgations of standards, may require the installation of
controls or changes to our nitrogen fertilizer facility in order
to comply. If new controls or changes to operations are needed,
the costs could be significant. In addition, failure to comply
with the requirements of the federal Clean Air Act and its
implementing regulations could result in fines, penalties or
other sanctions.
The regulation of air emissions under the federal Clean Air Act
requires that we obtain various construction and operating
permits and incur capital expenditures for the installation of
certain air pollution control devices at our operations. Various
regulations specific to our operations have been implemented,
such as National Emission Standard for Hazardous Air Pollutants,
New Source Performance Standards and New Source Review. We have
incurred, and expect to continue to incur, substantial capital
expenditures to maintain compliance with these and other air
emission regulations that have been promulgated or may be
promulgated or revised in the future.
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Release
Reporting
The release of hazardous substances or extremely hazardous
substances into the environment is subject to release reporting
requirements under federal and state environmental laws. We
periodically experience minor releases of hazardous or extremely
hazardous substances from our equipment. We experienced more
significant releases in August 2007 due to the failure of a high
pressure pump and in August and September 2010 due to a heat
exchanger leak and a UAN vessel rupture. Such releases are
reported to the EPA and relevant state and local agencies. If we
fail to properly report a release, or if the release violates
the law or our permits, it could cause us to become the subject
of a governmental enforcement action or third-party claims.
Government enforcement or third-party claims relating to
releases of hazardous or extremely hazardous substances could
result in significant expenditures and liability.
Greenhouse
Gas Emissions
Currently, various legislative and regulatory measures to
address greenhouse gas emissions (including carbon dioxide, or
CO2,
methane and nitrous oxides) are in various phases of discussion
or implementation. At the federal legislative level, Congress
could adopt some form of federal mandatory greenhouse gas
emission reduction laws, although the specific requirements and
timing of any such laws are uncertain at this time. In June
2009, the U.S. House of Representatives passed a bill that
would create a nationwide
cap-and-trade
program designed to regulate emissions of
CO2,
methane and other greenhouse gases. A similar bill was
introduced in the U.S. Senate, but was not voted upon.
Congressional passage of such legislation does not appear likely
at this time, though it could be adopted at a future date. It is
also possible that Congress may pass alternative climate change
bills that do not mandate a nationwide
cap-and-trade
program and instead focus on promoting renewable energy and
energy efficiency.
In the absence of congressional legislation curbing greenhouse
gas emissions, the EPA is moving ahead administratively under
its federal Clean Air Act authority. In October 2009, the EPA
finalized a rule requiring certain large emitters of greenhouse
gases to inventory and report their greenhouse gas emissions to
the EPA. In accordance with the rule, we have begun monitoring
our greenhouse gas emissions from our nitrogen fertilizer plant
and will report the emissions to the EPA beginning in 2011. On
December 7, 2009, the EPA finalized its endangerment
finding that greenhouse gas emissions, including
CO2,
pose a threat to human health and welfare. The finding allows
the EPA to regulate greenhouse gas emissions as air pollutants
under the federal Clean Air Act. In May 2010, the EPA finalized
the Greenhouse Gas Tailoring Rule, which establishes
new greenhouse gas emissions thresholds that determine when
stationary sources, such as our nitrogen fertilizer plant, must
obtain permits under the Prevention of Significant
Deterioration, or PSD, and Title V programs of the federal
Clean Air Act. The significance of the permitting requirement is
that, in cases where a new source is constructed or an existing
source undergoes a major modification, the facility would need
to evaluate and install best available control technology, or
BACT, for its greenhouse gas emissions. Phase-in permit
requirements will begin for the largest stationary sources in
2011. We do not currently anticipate that our UAN expansion
project will result in a significant increase in greenhouse gas
emissions triggering the need to install BACT. However,
beginning in July 2011, a major modification resulting in a
significant expansion of production at our nitrogen fertilizer
plant and a significant increase in greenhouse gas emissions may
require us to install BACT for our greenhouse gas emissions. The
EPAs endangerment finding, the Greenhouse Gas Tailoring
Rule and certain other greenhouse gas emission rules have been
challenged and will likely be subject to extensive litigation.
In addition, a number of Congressional bills to overturn the
endangerment finding and bar the EPA from regulating greenhouse
gas emissions, or at least to defer such action by the EPA under
the federal Clean Air Act, have been proposed, although
President Obama has announced his intention to veto any such
bills if passed.
In addition to federal regulations, a number of states have
adopted regional greenhouse gas initiatives to reduce
CO2
and other greenhouse gas emissions. In 2007, a group of Midwest
states, including Kansas (where our nitrogen fertilizer facility
is located), formed the Midwestern Greenhouse Gas Reduction
Accord, which calls for the development of a
cap-and-trade
system to control greenhouse gas emissions and for the inventory
of such emissions. However, the individual states that have
signed on to the accord must adopt laws or regulations
implementing the trading scheme before it becomes effective, and
the timing and specific requirements of any such laws or
regulations in Kansas are uncertain at this time.
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The implementation of EPA regulations
and/or the
passage of federal or state climate change legislation will
likely result in increased costs to (i) operate and
maintain our facilities, (ii) install new emission controls
on our facilities and (iii) administer and manage any
greenhouse gas emissions program. Increased costs associated
with compliance with any future legislation or regulation of
greenhouse gas emissions, if it occurs, may have a material
adverse effect on our results of operations, financial condition
and ability to make cash distributions.
In addition, climate change legislation and regulations may
result in increased costs not only for our business but also for
agricultural producers that utilize our fertilizer products,
thereby potentially decreasing demand for our fertilizer
products. Decreased demand for our fertilizer products may have
a material adverse effect on our results of operations,
financial condition and ability to make cash distributions.
Environmental
Remediation
Under CERCLA, the Resource Conservation and Recovery Act, and
related state laws, certain persons may be liable for the
release or threatened release of hazardous substances. These
persons can include the current owner or operator of property
where a release or threatened release occurred, any persons who
owned or operated the property when the release occurred, and
any persons who disposed of, or arranged for the transportation
or disposal of, hazardous substances at a contaminated property.
Liability under CERCLA is strict, retroactive and, under certain
circumstances, joint and several, so that any responsible party
may be held liable for the entire cost of investigating and
remediating the release of hazardous substances. As is the case
with all companies engaged in similar industries, depending on
the underlying facts and circumstances we face potential
exposure from future claims and lawsuits involving environmental
matters, including soil and water contamination, personal injury
or property damage allegedly caused by hazardous substances that
we manufactured, handled, used, stored, transported, spilled,
disposed of or released. We cannot assure you that we will not
become involved in future proceedings related to our release of
hazardous or extremely hazardous substances or that, if we were
held responsible for damages in any existing or future
proceedings, such costs would be covered by insurance or would
not be material.
Environmental
Insurance
We are covered by CVR Energys premises pollution liability
insurance policies with an aggregate limit of $50.0 million
per pollution condition, subject to a self-insured retention of
$5.0 million. The policies include business interruption
coverage, subject to a
10-day
waiting period deductible. This insurance expires on
July 1, 2011. The policies insure specific covered
locations, including our nitrogen fertilizer facility. The
policies insure (i) claims, remediation costs, and
associated legal defense expenses for pollution conditions at or
migrating from a covered location, and (ii) the
transportation risks associated with moving waste from a covered
location to any location for unloading or depositing waste. The
policies cover any claim made during the policy period as long
as the pollution conditions giving rise to the claim commenced
on or after March 3, 2004. The premises pollution liability
policies contain exclusions, conditions, and limitations that
could apply to a particular pollution condition claim, and there
can be no assurance such claim will be adequately insured for
all potential damages.
In addition to the premises pollution liability insurance
policies, CVR Energy maintains casualty insurance policies
having an aggregate and occurrence limit of $150.0 million,
subject to a self-insured retention of $2.0 million. This
insurance provides coverage for claims involving pollutants
where the discharge is sudden and accidental and first commenced
at a specific day and time during the policy period. Coverage
under the casualty insurance policies for pollution does not
apply to damages at or within our insured premises. The
pollution coverage provided in the casualty insurance policies
contains exclusions, definitions, conditions and limitations
that could apply to a particular pollution claim, and there can
be no assurance such claim will be adequately insured for all
potential damages.
Safety,
Health and Security Matters
We operate a comprehensive safety, health and security program,
involving active participation of employees at all levels of the
organization. We have developed comprehensive safety programs
aimed at preventing recordable incidents. Despite our efforts to
achieve excellence in our safety and health performance, there
can be no assurances
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that there will not be accidents resulting in injuries or even
fatalities. We routinely audit our programs and consider
improvements in our management systems.
Process Safety Management. We maintain a
process safety management, or PSM, program. This program is
designed to address all aspects of OSHA guidelines for
developing and maintaining a comprehensive process safety
management program. In 2009, OSHA announced that it was going to
pursue inspections for chemical operations as part of its
National Emphasis Program, or NEP. OSHA began a PSM NEP
inspection at our nitrogen fertilizer operations in late 2010.
On March 3, 2011, we received OSHAs report alleging
certain violations resulting in a proposed penalty of $13,500.
We plan to contest both the findings and the penalty. We will
continue to audit our programs and consider improvements in our
management systems and equipment. Failure to comply with PSM
requirements could result in fines, penalties or other sanctions.
Emergency Planning and Response. We have an
emergency response plan that describes the organization,
responsibilities and plans for responding to emergencies in our
facility. This plan is communicated to local regulatory and
community groups. We have
on-site
warning siren systems and personal radios. We will continue to
audit our programs and consider improvements in our management
systems and equipment.
Security. We have a comprehensive security
program to protect our facility from unauthorized entry and exit
from the facility and potential acts of terrorism. Recent
changes in the U.S. Department of Homeland Security rules
and requirements may require enhancements and improvements to
our current program.
Community Advisory Panel. We developed and
continue to support ongoing discussions with the community to
share information about our operations and future plans. Our
community advisory panel includes wide representation of
residents, business owners and local elected representatives for
the city and county.
Employees
As of December 31, 2010, we had 122 direct employees. These
employees operate our facilities at the nitrogen fertilizer
plant level and are directly employed and compensated by us.
Prior to this offering, these employees were covered by health
insurance, disability and retirement plans established by CVR
Energy. We intend to establish our own employee benefit plans in
which our employees will participate as of the closing of this
offering. None of our employees are unionized, and we believe
that our relationship with our employees is good.
We also rely on the services of employees of CVR Energy in the
operation of our business pursuant to a services agreement among
us, CVR Energy and our general partner. CVR Energy provides us
with the following services under the agreement, among others:
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services from CVR Energys employees in capacities
equivalent to the capacities of corporate executive officers,
including chief executive officer, chief operating officer,
chief financial officer, general counsel, and vice president for
environmental, health and safety, except that those who serve in
such capacities under the agreement serve us on a shared,
part-time basis only, unless we and CVR Energy agree otherwise;
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administrative and professional services, including legal,
accounting services, human resources, insurance, tax, credit,
finance, government affairs and regulatory affairs;
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management of our property and the property of our operating
subsidiary in the ordinary course of business;
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recommendations on capital raising activities, including the
issuance of debt or equity interests, the entry into credit
facilities and other capital market transactions;
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managing or overseeing litigation and administrative or
regulatory proceedings, establishing appropriate insurance
policies, and providing safety and environmental advice;
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recommending the payment of distributions; and
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managing or providing advice for other projects as may be agreed
by CVR Energy and our general partner from time to time.
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For more information on this services agreement, see
Certain Relationships and Related Party
Transactions Agreements with CVR Energy.
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Properties
We own one facility, our nitrogen fertilizer plant, which is
located in Coffeyville, Kansas. Our executive offices are
located at 2277 Plaza Drive in Sugar Land, Texas, where a number
of our senior executives work. We also have an administrative
office in Kansas City, Kansas, where other of our senior
executives work. The offices in Sugar Land and Kansas City are
leased by CVR Energy (the leases expire in 2017 and 2015,
respectively) and we pay a pro rata share of the rent on those
offices. We believe that our owned facility, together with CVR
Energys leased facilities, are sufficient for our needs.
We have entered into a cross-easement agreement with CVR Energy
so that both we and CVR Energy are able to access and utilize
each others land in certain circumstances in order to
operate our respective businesses in a manner to provide
flexibility for both parties to develop their respective
properties, without depriving either party of the benefits
associated with the continuous reasonable use of the other
partys property. For more information on this
cross-easement agreement, see Certain Relationships and
Related Party Transactions Agreements with CVR
Energy.
Legal
Proceedings
We are, and will continue to be, subject to litigation from time
to time in the ordinary course of our business. We are not party
to any pending legal proceedings that we believe will have a
material adverse effect on our business, and there are no
existing legal proceedings where we believe that the reasonably
possible loss or range of loss is material.
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MANAGEMENT
Management
of CVR Partners, LP
Our general partner, CVR GP, LLC, manages our operations and
activities subject to the terms and conditions specified in our
partnership agreement. Our general partner will be owned by
Coffeyville Resources, a wholly-owned subsidiary of CVR Energy.
The operations of our general partner in its capacity as general
partner are managed by its board of directors. Actions by our
general partner that are made in its individual capacity will be
made by Coffeyville Resources as the sole member of our general
partner and not by the board of directors of our general
partner. Our general partner is not elected by our unitholders
and will not be subject to re-election on a regular basis in the
future. The officers of our general partner will manage the
day-to-day
affairs of our business.
Limited partners will not be entitled to elect the directors of
our general partner or directly or indirectly participate in our
management or operation. Our partnership agreement contains
various provisions which replace default fiduciary duties with
contractual corporate governance standards. See The
Partnership Agreement. Our general partner will be liable,
as a general partner, for all of our debts (to the extent not
paid from our assets), except for indebtedness or other
obligations that are made expressly non-recourse to it. Our
general partner therefore may cause us to incur indebtedness or
other obligations that are non-recourse to it. It is expected
that our credit facility will be non-recourse to our general
partner.
As a publicly traded partnership, we qualify for, and are
relying on, certain exemptions from the New York Stock
Exchanges corporate governance requirements, including:
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the requirement that a majority of the board of directors of our
general partner consist of independent directors;
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the requirement that the board of directors of our general
partner have a nominating/corporate governance committee that is
composed entirely of independent directors; and
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the requirement that the board of directors of our general
partner have a compensation committee that is composed entirely
of independent directors.
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As a result of these exemptions, our general partners
board of directors will not be comprised of a majority of
independent directors, our general partners compensation
committee may not be comprised entirely of independent directors
and our general partners board of directors does not
currently intend to establish a nominating/corporate governance
committee. Accordingly, unitholders will not have the same
protections afforded to equityholders of companies that are
subject to all of the corporate governance requirements of the
New York Stock Exchange.
Upon completion of this offering, we expect that the board of
directors of our general partner will consist of seven directors.
The board of directors of our general partner has established an
audit committee comprised of Donna R. Ecton (chairman) and Frank
M. Muller, Jr., who meet the independence and experience
standards established by the New York Stock Exchange and the
Exchange Act. The audit committees responsibilities are to
review our accounting and auditing principles and procedures,
accounting functions and internal controls; to oversee the
qualifications, independence, appointment, retention,
compensation and performance of our independent registered
public accounting firm; to recommend to the board of directors
the engagement of our independent accountants; to review with
the independent accountants the plans and results of the
auditing engagement; and to oversee whistle-blowing
procedures and certain other compliance matters. The New York
Stock Exchange regulations and applicable laws require that our
general partner have an audit committee comprised of at least
three independent directors not later than one year following
the effective date of this prospectus. Accordingly, at least one
additional independent director will be appointed to the board
of directors of our general partner within one year following
the effective date of this prospectus, and such independent
director will serve on our audit committee.
In addition, the board of directors of our general partner will
establish a conflicts committee consisting entirely of
independent directors. Pursuant to our partnership agreement,
the board may, but is not required to, seek the approval of the
conflicts committee whenever a conflict arises between our
general partner or its affiliates, on the one hand, and us or
any public unitholder, on the other. The conflicts committee may
then determine whether the resolution of the conflict of
interest is in the best interests of the Partnership. The
members of the conflicts
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committee may not be officers or employees of our general
partner or directors, officers or employees of its affiliates,
and must meet the independence standard established by the New
York Stock Exchange and the Exchange Act to serve on an audit
committee of a board of directors. Any matters approved by the
conflicts committee will be conclusively deemed to be fair and
reasonable to us, approved by all of our partners and not a
breach by the general partner of any duties it may owe us or our
unitholders. The initial members of the conflicts committee are
expected to be Donna R. Ecton and Frank M. Muller, Jr.
The board of directors of our general partner also intends to
create a compensation committee which will, among other things,
oversee the compensation plan described below.
Whenever our general partner makes a determination or takes or
declines to take an action in its individual, rather than
representative, capacity, it is entitled to make such
determination or to take or decline to take such other action
free of any fiduciary duty or obligation whatsoever to us, any
limited partner or assignee, and it is not required to act in
good faith or pursuant to any other standard imposed by our
partnership agreement or under Delaware law or any other law.
Examples include the exercise of its call right or its
registration rights, its voting rights with respect to the units
it owns and its determination whether or not to consent to any
merger or consolidation of the partnership. Actions by our
general partner that are made in its individual capacity will be
made by Coffeyville Resources, the sole member of our general
partner, not by its board of directors.
Executive
Officers and Directors
The following table sets forth the names, positions and ages (as
of March 1, 2011) of the executive officers and directors
of our general partner.
The executive officers of our general partner are also executive
officers of CVR Energy and are providing their services to our
general partner and us pursuant to the services agreement
entered into among us, CVR Energy and our general partner. The
executive officers listed below will divide their working time
between the management of CVR Energy and us. The approximate
weighted average percentages of the amount of time the executive
officers spent on management of our partnership in 2010 are as
follows: John J. Lipinski (14%), Stanley A. Riemann (15%),
Ed Morgan (14%), Edmund S. Gross (15%), Kevan A. Vick
(100%) and Christopher G. Swanberg (26%).
Following the closing of this offering, we expect that our
general partner will identify and name two or three
additional independent directors to the board of the general
partner. As we add these new directors, we expect that
Scott Lebovitz, John Rowan and Stanley de J.
Osborne will resign as directors of the board of our general
partner.
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Name
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Age
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Position With Our General
Partner
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John J. Lipinski
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Chairman of the Board, Chief Executive Officer and President
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Stanley A. Riemann
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Chief Operating Officer
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Edward A. Morgan
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41
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Chief Financial Officer and Treasurer
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Edmund S. Gross
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Senior Vice President, General Counsel and Secretary
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Kevan A. Vick
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Executive Vice President and Fertilizer General Manager
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Christopher G. Swanberg
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Vice President, Environmental, Health and Safety
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Donna R. Ecton
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Director
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Scott L. Lebovitz
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35
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Director
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George E. Matelich
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54
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Director
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Frank M. Muller, Jr.
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68
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Director
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Stanley de J. Osborne
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40
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Director
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John K. Rowan
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32
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Director
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John J. Lipinski has served as chief executive officer,
president and a director of our general partner since October
2007 and chairman of the board of directors of our general
partner since November 2010. He has also served as chairman of
the board of directors of CVR Energy since October 2007, chief
executive officer, president and a member of the board of
directors of CVR Energy since September 2006, chief executive
officer and president of Coffeyville Acquisition since June 2005
and chief executive officer and president of Coffeyville
Acquisition II LLC, or Coffeyville Acquisition II, since
October 2007. Mr. Lipinski has over 38 years of
experience in the petroleum refining and nitrogen fertilizer
industries. He began his career with Texaco Inc. In 1985,
Mr. Lipinski joined The Coastal Corporation, eventually
serving as Vice President of Refining with overall
responsibility for Coastal Corporations refining and
petrochemical operations. Upon the merger of Coastal with
El Paso Corporation in 2001, Mr. Lipinski was promoted
to Executive Vice President of Refining and Chemicals, where he
was responsible for all refining, petrochemical, nitrogen-based
chemical processing and lubricant operations, as well as the
corporate engineering and construction group. Mr. Lipinski
left El Paso in 2002 and became an independent management
consultant. In 2004, he became a managing director and partner
of Prudentia Energy, an advisory and management firm.
Mr. Lipinski graduated from Stevens Institute of Technology
with a Bachelor of Engineering (Chemical) and received a J.D.
from Rutgers University School of Law. Mr. Lipinskis
over 38 years of experience in the petroleum refining and
nitrogen fertilizer industries adds significant value to the
board of directors of our general partner. His in-depth
knowledge of the issues, opportunities and challenges facing our
business provides the direction and focus the board needs to
ensure the most critical matters are addressed.
Stanley A. Riemann has served as chief operating officer
of our general partner since October 2007. He has also served as
chief operating officer of CVR Energy since September 2006,
chief operating officer of Coffeyville Acquisition since June
2005, chief operating officer of Coffeyville Resources since
February 2004 and chief operating officer of Coffeyville
Acquisition II since October 2007. Prior to joining
Coffeyville Resources in February 2004, Mr. Riemann held
various positions associated with the Crop Production and
Petroleum Energy Division of Farmland for over 30 years,
including, most recently, Executive Vice President of Farmland
and President of Farmlands Energy and Crop Nutrient
Division. In this capacity, he was directly responsible for
managing the petroleum refining operation and all domestic
fertilizer operations, which included the Trinidad and Tobago
nitrogen fertilizer operations. His leadership also extended to
managing Farmlands interests in SF Phosphates in Rock
Springs, Wyoming and Farmland Hydro, L.P., a phosphate
production operation in Florida and managing all company-wide
transportation assets and services. On May 31, 2002,
Farmland filed for Chapter 11 bankruptcy protection.
Mr. Riemann has served as a board member and board chairman
on several industry organizations including the Phosphate Potash
Institute, the Florida Phosphate Council and the International
Fertilizer Association. He currently serves on the Board of The
Fertilizer Institute. Mr. Riemann received a B.S. from the
University of Nebraska and an M.B.A from Rockhurst University.
Edward A. Morgan has served as chief financial officer
and treasurer of our general partner, CVR Energy, Coffeyville
Resources, Coffeyville Acquisition and Coffeyville
Acquisition II since May 2009. Prior to joining our
company, Mr. Morgan spent seven years with Brentwood,
Tenn.-based Delek U.S. Holdings, Inc., serving as the chief
financial officer for Deleks operating segments during the
previous five years. Mr. Morgan was named vice president in
February 2005, and in April 2006, he was named chief financial
officer of Delek U.S. Holdings in connection with
Deleks initial public offering, which became effective in
May 2006. Mr. Morgan led a diverse organization at Delek,
where he was responsible for all finance, accounting and
information technology matters. Mr. Morgan received a B.S.
in accounting from Mississippi State University and a Master of
Accounting degree from the University of Tennessee.
Edmund S. Gross has served as senior vice president,
general counsel and secretary of our general partner since
October 2007. He has also served as senior vice president,
general counsel and secretary of CVR Energy and Coffeyville
Acquisition II since October 2007, vice president, general
counsel and secretary of CVR Energy since September 2006,
secretary of Coffeyville Acquisition since June 2005 and general
counsel and secretary of Coffeyville Resources since July 2004.
Prior to joining Coffeyville Resources, Mr. Gross was of
counsel at Stinson Morrison Hecker LLP in Kansas City, Missouri
from 2002 to 2004, was Senior Corporate Counsel with Farmland
from 1987 to 2002 and was an associate and later a partner at
Weeks, Thomas & Lysaught, a law firm in Kansas City,
Kansas, from 1980 to 1987. Mr. Gross received a Bachelor of
Arts degree in history from Tulane University, a J.D. from the
University of Kansas and an M.B.A from the University of Kansas.
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Kevan A. Vick has served as executive vice president and
fertilizer general manager of our general partner since October
2007. He has also served as executive vice president and
fertilizer general manager of CVR Energy since September 2006
and senior vice president at CRNF, our operating subsidiary,
since February 27, 2004. He has served on the board of
directors of Farmland MissChem Limited in Trinidad and SF
Phosphates. He has nearly 30 years of experience in the
Farmland organization. Prior to joining CRNF, he was general
manager of nitrogen manufacturing at Farmland from January 2001
to February 2004. Mr. Vick received a B.S. in chemical
engineering from the University of Kansas and is a licensed
professional engineer in Kansas, Oklahoma, and Iowa.
Christopher G. Swanberg has served as vice president,
environmental, health and safety at our general partner since
October 2007. He has also served as vice president,
environmental, health and safety at CVR Energy since September
2006, as vice president, environmental, health and safety at
Coffeyville Resources since June 2005 and as vice president,
environmental, health and safety at Coffeyville Acquisition and
Coffeyville Acquisition II since October 2007. He has
served in numerous management positions in the petroleum
refining industry such as Manager, Environmental Affairs for the
refining and marketing division of Atlantic Richfield Company
(ARCO) and Manager, Regulatory and Legislative Affairs for
Lyondell-Citgo Refining. Mr. Swanbergs experience
includes technical and management assignments in project,
facility and corporate staff positions in all environmental,
safety and health areas. Prior to joining Coffeyville Resources,
he was Vice President of Sage Environmental Consulting, an
environmental consulting firm focused on petroleum refining and
petrochemicals, from September 2002 to June 2005.
Mr. Swanberg received a B.S. in Environmental Engineering
Technology from Western Kentucky University and an M.B.A from
the University of Tulsa.
Donna R. Ecton has been a member of the board of
directors of our general partner since March 2008.
Ms. Ecton is founder, chairman, and chief executive officer
of the management consulting firm EEI Inc, which she founded in
1998. Prior to founding EEI, she served as a board member of
H&R Block, Inc. from 1993 to 2007, a board member of
PETsMART, Inc. from 1994 to 1998, PETsMARTs chief
operating officer from 1996 to 1998, and as chairman, president
and chief executive officer of Business Mail Express, Inc., a
privately held expedited print/mail business, from 1995 to 1996.
Ms. Ecton was president and chief executive officer of Van
Houten North America Inc. from 1991 to 1994 and Andes Candies
Inc from 1991 to 1994. She has also held senior management
positions at Nutri/System, Inc. and Campbell Soup Company. She
started her business career in banking with both Chemical Bank
and Citibank N.A. Ms. Ecton is a member of the Council on
Foreign Relations in New York City. She was also elected to and
served on Harvard Universitys Board of Overseers.
Ms. Ecton received a B.A. in economics from Wellesley
College and an M.B.A. from the Harvard Graduate School of
Business Administration. We believe Ms. Ectons
significant background as both an executive officer and director
of public companies and experience in finance will be an asset
to our board. Her knowledge and experience will provide the
audit committee with valuable perspective in managing the
relationship with our independent accountants and the
performance of the financial auditing oversight.
Scott L. Lebovitz has been a member of the board of
directors of our general partner since October 2007. He has also
been a member of the board of directors of CVR Energy since
September 2006 and a member of the board of directors of
Coffeyville Acquisition II since October 2007. He was also
a member of the board of directors of Coffeyville Acquisition
from June 2005 until October 2007. Mr. Lebovitz is a
managing director in the Merchant Banking Division of Goldman,
Sachs & Co. Mr. Lebovitz joined Goldman,
Sachs & Co. in 1997 and became a managing director in
2007. He is a director of Energy Future Holdings Corp. and E.F.
Energy Holdings, LLC. Mr. Lebovitz previously served as a
director of Ruths Chris Steakhouse, Inc. He received his
B.S. in Commerce from the University of Virginia.
Mr. Lebovitzs history with the company adds
significant value and his financial background provides a
balanced perspective as we have faced a volatile marketplace.
His long service as our director gives him invaluable insights
into our history and growth and a valuable perspective of the
strategic direction of our businesses.
George E. Matelich has been a member of the board of
directors of our general partner since October 2007. He has also
been a member of the board of directors of CVR Energy since
September 2006 and a member of the board of directors of
Coffeyville Acquisition since June 2005. Mr. Matelich has
been a managing director of Kelso & Company since
1990. Mr. Matelich has been affiliated with Kelso since
1985. Mr. Matelich is a Certified Public Accountant and
holds a Certificate in Management Consulting. Mr. Matelich
received a B.A. in Business Administration from the University
of Puget Sound and an M.B.A. from the Stanford Graduate School
of Business.
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He is a director of Global Geophysical Services, Inc., Hunt
Marcellus, LLC and the American Prairie Foundation.
Mr. Matelich previously served as a director of FairPoint
Communications, Inc., Optigas, Inc., Shelter Bay Energy Inc. and
Waste Services, Inc. He is also a Trustee of the University of
Puget Sound and a member of the Stanford Graduate School of
Business Advisory Council. Mr. Matelichs long service
as a director with us gives him invaluable insights into our
history and growth and a valuable perspective of the strategic
direction of our businesses. Additionally, his experience with
other public companies provides depth of knowledge of business
and strategic considerations.
Frank M. Muller, Jr. has been a member of the board
of directors of our general partner since May 2008. Until August
2009, Mr. Muller served as the chairman and chief executive
officer of the technology design and manufacturing firm TenX
Technology, Inc., which he founded in 1985. He is currently the
president of Toby Enterprises, which he founded in 1999 to
invest in startup companies, and the chairman of Topaz
Technologies, Ltd., a software engineering company.
Mr. Muller was a senior vice president of The Coastal
Corporation from 1989 to 2001, focusing on business acquisitions
and joint ventures, and general manager of the Kensington
Company, Ltd. from 1984 to 1989. Mr. Muller started his
business career in the oil and chemical industries with Pepsico,
Inc. and Agrico Chemical Company. Mr. Muller served in the
United States Army from 1965 to 1973. Mr. Muller received a
B.S. and M.B.A. from Texas A&M University. We believe
Mr. Mullers experience in the chemical industry and
expertise in developing and growing new businesses will be an
asset to our board.
Stanley de J. Osborne has been a member of the board of
directors of our general partner since October 2007. He has also
been a member of the board of directors of CVR Energy since
September 2006 and a member of the board of directors of
Coffeyville Acquisition since June 2005. Mr. Osborne was a
Vice President of Kelso & Company from 2004 through
2007 and has been a managing director since 2007.
Mr. Osborne has been affiliated with Kelso since 1998.
Prior to joining Kelso, Mr. Osborne was an Associate at
Summit Partners. Previously, Mr. Osborne was an Associate
in the Private Equity Group and an Analyst in the Financial
Institutions Group at J.P. Morgan & Co. He
received a B.A. in Government from Dartmouth College.
Mr. Osborne is a director of Custom Building Products,
Inc., Global Geophysical Services, Inc., Hunt Marcellus, LLC,
Logans Roadhouse, Inc. and Traxys S.a.r.l.
Mr. Osborne previously served as a director of Optigas,
Inc. and Shelter Bay Energy Inc. His long service as our
director gives him invaluable insights into our history and
growth and a valuable perspective of the strategic direction of
our businesses.
John K. Rowan has been a member of the board of directors
of our general partner and a member of the board of directors of
Coffeyville Acquisition II since May 2010. Mr. Rowan
has been a vice president with Goldman, Sachs & Co.
since 2007. Mr. Rowan currently serves on the board of
directors for First Aviation Services, Inc. and Sprint
Industrial Corp. He also serves as the chairman of the board of
directors of the Bronx Success Academy. Mr. Rowan earned a
B.A. from Columbia University in economics. We believe
Mr. Rowans historical involvement with the company
provides the board with unique insight into our history and
growth and will provide valuable insight to our current and
future business strategies.
The directors of our general partner hold office until the
earlier of their death, resignation or removal.
Compensation
Discussion and Analysis
Overview
We do not currently directly employ any of the persons
responsible for the executive management of our business.
Pursuant to the services agreement between us, our general
partner and CVR Energy, among other matters:
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CVR Energy makes available to our general partner the services
of the CVR Energy executive officers and employees who serve as
our general partners executive officers; and
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We, our general partner and our operating subsidiary, as the
case may be, are obligated to reimburse CVR Energy for any
allocated portion of the costs that CVR Energy incurs in
providing compensation and benefits to such CVR Energy
employees, with the exception of costs attributable to
share-based compensation.
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Under the services agreement, either our general partner, CRNF
(our subsidiary) or we pay CVR Energy (i) all costs
incurred by CVR Energy or its affiliates in connection with the
employment of its employees, other than administrative
personnel, who provide us services under the agreement on a
full-time basis, but excluding share-based compensation;
(ii) a prorated share of costs incurred by CVR Energy or
its affiliates in connection with the employment of its
employees, including administrative personnel, who provide us
services under the agreement on a part-time basis, but excluding
share-based compensation, and such prorated share shall be
determined by CVR Energy on a commercially reasonable basis,
based on the percent of total working time that such shared
personnel are engaged in performing services for us;
(iii) a prorated share of certain administrative costs,
including office costs, services by outside vendors, other
sales, general and administrative costs and depreciation and
amortization; and (iv) various other administrative costs
in accordance with the terms of the agreement. Following the
first anniversary of this offering, either CVR Energy or our
general partner may terminate the services agreement upon at
least 180 days notice. For more information on this
services agreement, see Certain Relationships and Related
Party Transactions Agreements with CVR Energy.
The compensation of the executive officers of our general
partner is set by CVR Energy. These executive officers currently
receive all of their compensation and benefits from CVR Energy,
including compensation related to services provided to us, and
are not paid by us or our general partner. In the future, the
executive officers of our general partner may receive
equity-based compensation in connection with the Long-Term
Incentive Plan that we intend to adopt. Although we bear an
allocated portion of CVR Energys costs of providing
compensation and benefits to the CVR Energy employees who serve
as the executive officers of our general partner, we will have
no control over such costs and do not establish or direct the
compensation policies or practices of CVR Energy. We are
required to pay all compensation amounts allocated to us by CVR
Energy (except for share-based compensation), although we may
object to amounts that we deem unreasonable.
The weighted average percentages of the amount of time the
executive officers of our general partner spent on management of
our partnership in 2010 are as follows: John J. Lipinski (13%),
Stanley A. Riemann (15%), Edward A. Morgan (13%), Edmund S.
Gross (15%), Kevan A. Vick (100%) and Christopher
Swanberg (26%). These numbers are weighted because the
named executive officers of our general partner may spend a
different percentage of their time dedicated to our business
each quarter. The remainder of their time was spent working for
CVR Energy (other than Kevan Vick, who spent all of his time
working for our business). We estimate that the time spent by
these individuals working for us will increase following this
offering due to filing requirements and other responsibilities
associated with managing a public company.
Messrs. Lipinski, Morgan, Vick, Riemann and Gross are
referred to throughout this registration statement as the named
executive officers of our general partner, and are,
respectively, the Chief Executive Officer, Chief Financial
Officer and the next three most highly compensated executive
officers of our general partner (based on the portion of their
compensation attributable to services performed for us during
2010).
The following discussion is based on information provided to us
by CVR Energy. Our general partner is not involved in the
determination of the various elements of compensation discussed
below or CVR Energys decisions with respect to future
changes to the levels of the compensation of the named executive
officers of our general partner.
Compensation
Philosophy
CVR Energys executive compensation philosophy is threefold:
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To align the executive officers interest with that of the
stockholders and stakeholders, which provides long-term economic
benefits to the stockholders;
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To provide competitive financial incentives in the form of
salary, bonuses and benefits with the goal of retaining and
attracting talented and highly motivated executive
officers; and
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To maintain a compensation program whereby the executive
officers, through exceptional performance and equity ownership,
will have the opportunity to realize economic rewards
commensurate with appropriate gains of other equity holders and
stakeholders.
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Elements
of Compensation Program
The three primary components of CVR Energys compensation
program are salary, an annual discretionary cash bonus and
equity awards. While these three components are related, they
are viewed as separate and analyzed as such. Executive officers
are also provided with benefits that are generally available to
CVR Energys salaried employees.
CVR Energy believes that equity compensation is the primary
motivator in attracting and retaining executive officers. Salary
and discretionary cash bonuses are viewed as secondary; however,
the compensation committee views a competitive level of salary
and cash bonus as critical to retaining talented individuals.
CVR Energys compensation committee has not adopted any
formal or informal policies or guidelines for allocating
compensation between long-term and current compensation, between
cash and non-cash compensation, or among different forms of
compensation other than its belief that the most crucial
component is equity compensation. The decision is strictly made
on a subjective and individual basis after consideration of all
relevant factors. The Chief Executive Officer, while not a
member of CVR Energys compensation committee, reviews
information provided by the committees compensation
consultant, Longnecker & Associates
(Longnecker), as well as other relevant market
information and actively provides guidance and recommendations
to the committee regarding the amount and form of the
compensation of other executive officers and key employees.
Longnecker has been engaged by CVR Energy on behalf of its
compensation committee to assist the committee with its review
of executive officers compensation levels and the mix of
compensation as compared to peer companies, companies of similar
size and other relevant market information. To this end,
Longnecker performed a study including an analysis that
management reviewed and then provided to the compensation
committee for its use in making decisions regarding the salary,
bonus and other compensation amounts paid to named executive
officers. The following companies were included in the report
and analysis prepared by Longnecker as members of CVR
Energys peer group-the independent refining
companies of Frontier Oil Corporation, Holly Corporation and
Tesoro Corporation and the fertilizer businesses of CF
Industries Holdings Inc. and Terra Industries, Inc. Although no
specific target for total compensation or any particular element
of compensation was set relative to CVR Energys peer
group, the focus of Longneckers recommendations was
centered on compensation levels at the median or
50th percentile of the peer group.
Base Salary. In determining base salary
levels, the compensation committee of CVR Energy takes into
account the following factors: (i) CVR Energys
financial and operational performance for the year,
(ii) the previous years compensation level for each
executive officer, (iii) peer or market survey information
for comparable public companies and (iv) recommendations of
the chief executive officer, based on individual
responsibilities and performance, including each executive
officers commitment and ability to: (A) strategically
meet business challenges, (B) achieve financial results,
(C) promote legal and ethical compliance, (D) lead
their own business or business team for which they are
responsible and (E) diligently and effectively respond to
immediate needs of the volatile industry and business
environment.
Rather than establishing compensation solely on a formula-driven
basis, we understand that decisions by CVR Energys
compensation committee are made using an approach that considers
several important factors in developing compensation levels. For
example, CVR Energys compensation committee considers
whether individual base salaries reflect responsibility levels
and are reasonable, competitive and fair. In addition, in
setting base salaries, CVR Energys compensation committee
reviews published survey and peer group data prepared by
Longnecker and considers the applicability of the salary data in
view of the individual positions within CVR Energy.
Annual Bonus. Information about total cash
compensation paid by members of CVR Energys peer group is
used in determining both the level of bonus award and the ratio
of salary to bonus, as the compensation committee of CVR Energy
believes that maintaining a level of bonus and a ratio of fixed
salary to bonus (which may fluctuate) that is in line with those
of our competitors is an important factor in attracting and
retaining executives. The compensation committee of CVR Energy
also believes that a significant portion of executive
officers compensation should be at risk, which means that
a portion of the executive officers overall compensation
is not guaranteed
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and is determined based on individual and company performance.
Executive officers have greater potential bonus awards as the
authority and responsibility of an executive increases.
Employment agreements for each of the named executive officers
provide that the executive is eligible to receive an annual cash
bonus with a target bonus equal to a specified percentage of the
relevant executives annual base salary. Under the
employment agreements in effect during 2010, the 2010 target
bonuses were the following percentages of salary for the named
executive officers: Mr. Lipinski (250%), Mr. Morgan
(120%), Mr. Vick (80%), Mr. Riemann (200%) and
Mr. Gross (90%). These levels were in correlation with the
findings and recommendations by Longnecker based upon review of
CVR Energys peer group, and companies of similar size and
other relevant market information in order to balance the
overall 2010 total salary and bonus levels.
Historically, including with respect to 2010 bonuses, no
specific Company or individual performance criteria have been
established or communicated to the named executive officers at
the beginning of the performance period. Because no performance
criteria have been established at such time, the annual bonus
component of the named executive officers compensation has
not been intended to serve as an incentive to achieve particular
performance objectives over a specified period. Rather, CVR
Energys compensation committee has determined, at a
compensation committee meeting typically occurring during
November during the relevant performance year, the amount of
annual bonuses to be paid to the named executive officers. CVR
Energys compensation committee has considered various
factors with respect to Company performance
and/or
individual performance, none of which have been established in
advance. The committee has not been required to consider any
particular factors in determining bonuses and has considered
various factors, each of which has been subjectively considered.
At its discretion, CVR Energys compensation committee has
determined that bonuses may be paid in an amount equal to the
target percentage, less than the target percentage or greater
than the target percentage (or not at all), regardless of the
achievement of any factor relating to individual
and/or
company performance.
In November 2010, CVR Energys compensation committee met
to determine the amount of bonuses to be paid to the named
executive officers in respect of 2010. In making its
determinations, CVR Energys compensation committee
considered peer group information provided by Longnecker, as
well as company performance and each individual named executive
officers performance during 2010. With respect to company
performance, CVR Energys compensation committee reviewed
various general factors associated with the Companys
performance such as overall operational performance, financial
performance and factors affecting shareholder value, including
growth initiatives.
Specific items that were considered with respect to the
individual performance of the named executive officers during
2010 are as follows.
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John J. Lipinski demonstrated leadership and the capacity to
perform well in the challenging economic environment, leading
the company to emerge with a projected profitable year based
upon nine months results despite a first quarter that was
challenging industry-wide. In addition, Mr. Lipinski
contributed to an overall improved and strengthened balance
sheet, improvement of the companys capital structure and
enhancement and increased capacity of the crude gathering
business. Mr. Lipinski also provided direction and
leadership to CVR Energy generally and to the core management
team, which leadership generated operational achievements and
record operating performance levels of the refinery during the
first ten months of the year with decreased operating costs
resulting from increased efficiencies.
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Edward A. Morgan demonstrated leadership in the finance and
accounting organization and contributed to the companys
successful capital restructuring with the completion of credit
facility amendments and the issuance of senior notes.
Mr. Morgan also contributed to an improved and strengthened
balance sheet, with a focus on financing alternatives and the
development and enhancement of internal audit in-house resources.
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Kevan A. Vick demonstrated leadership within the fertilizer
business that contributed to the overall strong performance of
the facility, contributed to the completion of a successful
major scheduled turnaround with no unexpected increased costs,
and provided leadership and direction to the fertilizer team for
an effective response to the rupture of a high-pressure UAN
vessel resulting in a safe and prompt reopening of the facility.
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Stanley A. Riemann provided leadership and support to the
fertilizer business during its response to the rupture of a
high-pressure UAN vessel and provided direction.
Mr. Riemann also provided leadership at the refinery that
led to the refining assets being operated at a high degree of
reliability, thereby generating record
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levels of operating performance. Mr. Riemann also
contributed to reduction and efficiencies in the cost and
capital spend program. Additionally, Mr. Riemanns
leadership and direction resulted in continued favorable safety
records for both the refinery and the fertilizer facility.
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Edmund S. Gross effectively led CVR Energys legal
department. In addition, he managed significant litigation
matters for both CVR Energy as well as the refining and
fertilizer businesses. Not only has Mr. Gross been involved in
litigation matters, but he has also been directly involved in
the successful negotiation of significant commercial contracts
for both the refining and fertilizer businesses.
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Equity Awards. CVR Energy also uses equity
incentives to reward long-term performance. The issuance of
equity to executive officers is intended to generate significant
future value for each executive officer if CVR Energys
performance is outstanding and the value of CVR Energys
equity increases for all of its stockholders. CVR Energys
compensation committee believes that its equity incentives
promote long-term retention of executives. The equity incentives
issued, including to the named executive officers of our general
partner, were negotiated to a large degree at the time of the
acquisition of the CVR Energy business in June 2005 (with
additional awards that were not originally allocated in June
2005 issued in December 2006) in order to bring CVR
Energys compensation package in line with executives at
private equity portfolio companies, based on the private equity
market practices at that time. Any costs associated with equity
incentives awarded are borne wholly by CVR Energy. These profits
interests have not had any realization event to date, but in
connection with this offering, the members of Coffeyville
Acquisition III will receive proceeds from the sale of the
incentive distribution rights and the general partner interest.
See Certain Relationships and Related Party
Transactions.
Perquisites. CVR Energy pays for portions of
medical insurance and life insurance, as well as a medical
physical every three years, for the named executive officers.
Kevan A. Vick, who is involved in direct operations at our
facilities, receives use of a company vehicle. The total value
of all perquisites and personal benefits is less than $10,000
for each named executive officer.
Other Forms of Compensation. Each of the named
executive officers of our general partner has provisions in
their respective employment agreements with CVR Energy providing
for certain severance benefits in the event of termination
without cause or a resignation with good reason. These severance
provisions are described below in
Change-in-Control
and Termination Payments. These severance provisions were
negotiated between the named executive officers of our general
partner and CVR Energy.
Summary
Compensation Table
The following table sets forth the portion of compensation paid
by CVR Energy to the named executive officers of our general
partner that is attributable to services performed for us for
the year ended December 31, 2010, with the exception of stock
awards. Stock awards are not included in the Summary
Compensation Table as we are not obligated under the services
agreement to reimburse CVR Energy for any portion of share-based
compensation awarded to executives that dedicate a portion of
their time to our business and, accordingly, do not consider
such awards to be attributable to services performed for us. In
the case of Mr. Vick, who spends 100% of his time working
for us, these amounts represent the total compensation paid to
Mr. Vick by CVR Energy. With respect to other executives,
the amounts reflected in the total compensation column reflect
the portion of their total compensation attributable to services
performed for us during the applicable years. For example, since
Mr. Lipinski dedicated a weighted average of approximately
14% of his time to performing services for us, the amount
reflected in the total column of the Summary Compensation Table
for him represents approximately 14% of his total compensation
for 2010. The amount set forth in the total column reflects the
product of each respective named executive officers total
compensation earned in 2010 multiplied by the percentage of time
spent performing services for us, with such percentage weighted
among the various elements of compensation in accordance with
the allocation of each particular element to services performed
for the Partnership. The amount of compensation received by the
named executive officers of our general partner was determined
by CVR Energys compensation committee. We had no role in
determining these amounts. Under the services agreement among
us, our general partner and CVR Energy, we are required to
reimburse CVR Energy for all compensation that CVR Energy pays
these executives for services
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performed for us (except for share-based compensation), although
we may object to amounts that we deem unreasonable.
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|
|
|
|
All Other
|
|
|
|
|
Name and Principal
Position
|
|
Year
|
|
|
Salary ($)
|
|
|
Bonus ($)(1)
|
|
|
Compensation ($)
|
|
|
Total ($)
|
|
John J. Lipinski, Chief Executive
|
|
|
2009
|
|
|
|
170,400
|
|
|
|
426,000
|
|
|
|
2,614
|
(3)
|
|
|
599,014
|
|
Officer(2)
|
|
|
2010
|
|
|
|
138,916
|
|
|
|
266,667
|
|
|
|
1,390
|
|
|
|
406,973
|
|
Edward A. Morgan, Chief Financial
|
|
|
2009
|
|
|
|
42,837
|
|
|
|
64,238
|
|
|
|
34,335
|
(5)
|
|
|
141,410
|
|
Officer(2)(4)
|
|
|
2010
|
|
|
|
49,469
|
|
|
|
50,400
|
|
|
|
1,204
|
|
|
|
101,073
|
|
Kevan A. Vick, Executive Vice President and Fertilizer General
|
|
|
2009
|
|
|
|
245,000
|
|
|
|
196,000
|
|
|
|
13,929
|
(6)
|
|
|
454,929
|
|
Manager(2)
|
|
|
2010
|
|
|
|
245,000
|
|
|
|
196,000
|
|
|
|
16,178
|
|
|
|
457,178
|
|
Stanley A. Riemann, Chief Operating
|
|
|
2009
|
|
|
|
140,270
|
|
|
|
280,540
|
|
|
|
4,148
|
(3)
|
|
|
424,958
|
|
Officer(2)
|
|
|
2010
|
|
|
|
62,493
|
|
|
|
124,500
|
|
|
|
1,895
|
|
|
|
188,888
|
|
Edmund S. Gross, Senior Vice
|
|
|
2009
|
|
|
|
94,500
|
|
|
|
94,500
|
|
|
|
3,682
|
(3)
|
|
|
192,682
|
|
President and General
Counsel(2)(6)
|
|
|
2010
|
|
|
|
52,254
|
|
|
|
45,804
|
|
|
|
1,915
|
|
|
|
99,973
|
|
|
|
|
(1)
|
|
Bonuses are reported for the year
in which they were earned, though they may have been paid the
following year.
|
|
(2)
|
|
The table does not include the fair
value of stock awards granted to the named executive officers in
2009 and 2010 because such amounts were not reimbursed by us.
|
|
|
|
(3)
|
|
For 2010, includes the portion of
the following benefits for the relevant named executive officers
that were reimbursed by us in accordance with the services
agreement described herein: (a) company contributions to
the named executive officers accounts under CVR
Energys 401(k) plan and (b) premiums paid on behalf
of the named executive officers with respect to CVR
Energys basic life insurance program. Note that premiums
paid on behalf of the named executive officers with respect to
CVR Energys executive life insurance program are not
included because such amounts are not reimbursed by us.
|
|
|
|
(4)
|
|
In the case of Mr. Morgan, his
compensation amounts for 2009 reflect amounts earned following
the date he joined CVR Energy in May 2009.
|
|
|
|
(5)
|
|
For 2010, includes the portion of
the following benefits for Mr. Morgan that were reimbursed
by us in accordance with the services agreement described
herein: (a) company contribution to the named executive
officers accounts under CVR Energys 401(k) plan and
(b) premiums paid on behalf of the named executive officers
with respect to CVR Energys basic life insurance program.
Note that premiums paid on behalf of the named executive
officers with respect to CVR Energys executive life
insurance program are not included because such amounts are not
reimbursed by us.
|
|
|
|
(6)
|
|
For 2010, includes the portion of
the following benefits for Mr. Vick that were reimbursed by
us in accordance with the services agreement described herein:
(a) car allowance, (b) company contribution to the
named executive officers accounts under CVR Energys
401(k) plan and (c) premiums paid on behalf of the named
executive officers with respect to CVR Energys basic life
insurance program. Note that premiums paid on behalf of the
named executive officers with respect to CVR Energys
executive life insurance program are not included because such
amounts are not reimbursed by us.
|
Employment
Agreements
John J. Lipinski. On July 12, 2005,
Coffeyville Resources, LLC entered into an employment agreement
with Mr. Lipinski, as chief executive officer, which was
subsequently assumed by CVR Energy and amended and restated
effective as of January 1, 2008. Mr. Lipinskis
employment agreement was amended and restated effective
January 1, 2010 and subsequently amended and restated on
January 1, 2011. The agreement has a rolling term of three
years so that at the end of each month it automatically renews
for one additional month, unless otherwise terminated by CVR
Energy or Mr. Lipinski. Mr. Lipinski receives an
annual base salary of $900,000 effective as of January 1,
2011. Mr. Lipinski is also eligible to receive a
performance-based annual cash bonus with a target payment equal
to 250% of his annual base salary to be based upon individual
and/or
company performance criteria as established by the compensation
committee of the board of directors of CVR Energy for each
fiscal year. In addition, Mr. Lipinski is entitled to
participate in such health, insurance, retirement and other
employee benefit plans and programs of CVR Energy as in effect
from time to time on the same basis as other senior executives
of CVR Energy. The agreement requires Mr. Lipinski to abide
by a perpetual restrictive covenant relating to non-disclosure
and also includes covenants relating to non-solicitation and
non-competition that govern during his
116
employment and thereafter for the period severance is paid and,
if no severance is paid, for one year following termination of
employment. In addition, Mr. Lipinskis agreement
provides for certain severance payments that may be due
following the termination of his employment under certain
circumstances, which are described below under
Change-in-Control
and Termination Payments.
Edward A. Morgan, Kevan A. Vick, Stanley A. Riemann and
Edmund S. Gross. On July 12, 2005,
Coffeyville Resources, LLC entered into employment agreements
with each of Messrs. Riemann and Gross. The agreements were
subsequently assumed by CVR Energy and amended and restated
between the respective executives and CVR Energy effective as of
December 29, 2007. Each of these agreements was amended and
restated effective January 1, 2010 and subsequently amended
and restated on January 1, 2011. The agreements have a term
of three years and expire in January 2014, unless otherwise
terminated earlier by the parties. Mr. Morgan entered into
an employment agreement with CVR Energy effective May 14,
2009, which was amended effective August 17, 2009. This
employment agreement was further amended and restated effective
January 1, 2010 and subsequently amended and restated on
January 1, 2011. Similarly, this agreement has a term of
three years and expires in January 2014, unless otherwise
terminated earlier by the parties. The agreements provide for an
annual base salary of $335,000 for Mr. Morgan, $253,000 for
Mr. Vick, $425,000 for Mr. Riemann and $362,000 for
Mr. Gross, each effective as of January 1, 2011. Each
executive officer is eligible to receive a performance-based
annual cash bonus to be based upon individual
and/or
company performance criteria as established by the compensation
committee of the board of directors of CVR Energy for each
fiscal year. The target annual bonus percentages for these
executive officers effective as of January 1, 2011 are as
follows: Mr. Morgan (120%), Mr. Vick (80%),
Mr. Riemann (200%) and Mr. Gross (100%). These
executives are also entitled to participate in such health,
insurance, retirement and other employee benefit plans and
programs of CVR Energy as in effect from time to time on the
same basis as other senior executives of CVR Energy. The
agreements require these executive officers to abide by a
perpetual restrictive covenant relating to non-disclosure and
also include covenants relating to non-solicitation and, except
in the case of Mr. Gross, non-competition during the
executives employment and for one year following
termination of employment. In addition, these agreements provide
for certain severance payments that may be due following the
termination of employment under certain circumstances, which are
described below under
Change-in-Control
and Termination Payments.
Compensation
of Directors
Officers, employees and directors of CVR Energy who serve as
directors of our general partner will not receive additional
compensation for their service as a director of our general
partner. We anticipate that each independent director will
receive compensation for attending meetings of our general
partners board of directors and committees thereof.
Historically, our independent directors received an annual
director fee of $75,000 in cash, with the audit committee chair
receiving an additional fee of $15,000 per year in cash.
Following the closing of this offering, independent directors
will receive an annual director fee of $50,000 in cash plus
$50,000 in phantom units, with the audit committee chair
receiving an additional fee of $15,000 per year in cash. In
addition, upon the consummation of this offering, Ms. Ecton
and Mr. Muller will each receive a one-time award of
phantom units with values of $250,000 and $150,000,
respectively. These phantom units are expected to vest six
months following the grant date. Each director will also be
reimbursed for
out-of-pocket
expenses in connection with attending meetings of the board of
directors (and committees thereof) of our general partner and
for other
director-related
education expenses. Each director will be fully indemnified by
us for his actions associated with being a director to the
fullest extent permitted under Delaware law.
The following table provides compensation information for the
year ended December 31, 2010 for each independent director
of our general partner.
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or Paid in
|
|
|
|
|
Name
|
|
Cash
|
|
|
Total Compensation
|
|
|
Donna R.
Ecton(1)
|
|
$
|
90,000
|
|
|
$
|
90,000
|
|
Frank M. Muller, Jr.
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
|
|
|
(1)
|
|
In addition to the $75,000 annual
fee earned by Ms. Ecton for her service on the board of
directors of our general partner, she also received an
additional $15,000 for her service as chair of the audit
committee.
|
117
Reimbursement
of Expenses of Our General Partner
Our general partner and its affiliates will be reimbursed for
expenses incurred on our behalf under the services agreement.
See Certain Relationships and Related Party
Transactions Agreements with CVR Energy
Services Agreement for a description of our services
agreement. These expenses include the costs of employee, officer
and director compensation and benefits properly allocable to us,
and all other expenses necessary or appropriate to the conduct
of our business and allocable to us. These expenses also include
costs incurred by CVR Energy or its affiliates in rendering
corporate staff and support services to us pursuant to the
services agreement, including a pro rata portion of the
compensation of CVR Energys executive officers who provide
management services to us (based on the amount of time such
executive officers devote to our business). We expect for the
year ending December 31, 2011 that the total amount paid to
our general partner and its affiliates (including amounts paid
to CVR Energy pursuant to the services agreement) will be
approximately $10.3 million.
Our partnership agreement provides that our general partner will
determine which of its and its affiliates expenses are
allocable to us and the services agreement provides that CVR
Energy will invoice us monthly for services provided thereunder.
Our general partner may dispute the costs that CVR Energy
charges us under the services agreement, but we will not be
entitled to a refund of any disputed cost unless it is
determined not to be a reasonable cost incurred by CVR Energy in
connection with services it provided.
Retirement
Plan Benefits
Prior to the completion of this offering, our employees
(including the executive officers of our general partner) were
covered by a defined-contribution 401(k) plan sponsored and
administered by CVR Energy. Our operating subsidiarys
contributions for our employees under the 401(k) plan sponsored
and administered by CVR Energy were $0.3 million,
$0.4 million and $0.4 million for the years ended
December 31, 2008, 2009 and 2010, respectively. Upon the
completion of this offering, we intend that our employees will
continue to participate in CVR Energys plan.
Change-in-Control
and Termination Payments
Under the terms of our general partners named executive
officers employment agreements with CVR Energy, they may
be entitled to severance and other benefits from CVR Energy
following the termination of their employment with CVR Energy.
The amounts reflected in this section have not been pro-rated
based on the amount of time spent working for us because we do
not reimburse CVR Energy for costs associated with terminations
of employment under the services agreement. The amounts of
potential post-employment payments and benefits in the narrative
and table below assume that the triggering event took place on
December 31, 2010; however, except with respect to salary,
which is as of December 31, 2010, they are based on the
terms of the employment agreements in effect as of
January 1, 2011.
John J. Lipinski. If Mr. Lipinskis
employment is terminated either by CVR Energy without cause and
other than for disability or by Mr. Lipinski for good
reason (as these terms are defined in his employment agreement),
then in addition to any accrued amounts, including any base
salary earned but unpaid through the date of termination, any
earned but unpaid annual bonus for completed fiscal years, any
unused accrued paid time off and any unreimbursed expenses
(Accrued Amounts), Mr. Lipinski is entitled to
receive as severance (a) salary continuation for
36 months (b) a pro-rata target bonus for the year in
which termination occurs and (c) the continuation of
medical benefits for 36 months at active-employee rates or
until such time as Mr. Lipinski becomes eligible for
medical benefits from a subsequent employer. In addition, if
Mr. Lipinskis employment is terminated either by CVR
Energy without cause and other than for disability or by
Mr. Lipinski for good reason (as these terms are defined in
his employment agreement) within one year following a change in
control (as defined in his employment agreements) or in
specified circumstances prior to and in connection with a change
in control, Mr. Lipinski will receive
1/12
of his target bonus for the year of termination for each month
of the 36 month period during which he is entitled to
severance.
If Mr. Lipinskis employment is terminated as a result
of his disability, then in addition to any Accrued Amounts and
any payments to be made to Mr. Lipinski under disability
plan(s), Mr. Lipinski is entitled to (a) disability
payments equal to, in the aggregate, Mr. Lipinskis
base salary as in effect immediately before his
118
disability (the estimated total amount of this payment is set
forth in the relevant table below) and (b) a pro-rata
target bonus for the year in which termination occurs. Such
supplemental disability payments will be made in installments
for a period of 36 months from the date of disability. As a
condition to receiving these severance payments and benefits,
Mr. Lipinski must (a) execute, deliver and not revoke
a general release of claims and (b) abide by restrictive
covenants as detailed below. If Mr. Lipinskis
employment is terminated at any time by reason of his death,
then in addition to any Accrued Amounts Mr. Lipinskis
beneficiary (or his estate) will be paid (a) the base salary
Mr. Lipinski would have received had he remained employed
through the remaining term of his employment agreement and
(b) a pro-rata target bonus for the year in which
termination occurs. Notwithstanding the foregoing, CVR Energy
may, at its option, purchase insurance to cover the obligations
with respect to either Mr. Lipinskis supplemental
disability payments or the payments due to
Mr. Lipinskis beneficiary or estate by reason of his
death. Mr. Lipinski will be required to cooperate in
obtaining such insurance. Upon a termination by reason of
Mr. Lipinskis retirement, in addition to any Accrued
Amounts, Mr. Lipinski will receive (a) continuation of
medical and dental benefits for 36 months at
active-employee rates or until such time as Mr. Lipinski
becomes eligible for such benefits from a subsequent employer,
(b) provision of an office at CVR Energys headquarters and
use of CVR Energys facilities and administrative support,
each at CVR Energys expense, for 36 months and
(c) a pro-rata target bonus for the year in which
termination occurs.
In the event that Mr. Lipinski is eligible to receive
continuation of medical and dental benefits at active-employee
rates but is not eligible to continue to receive benefits under
CVR Energys plans pursuant to the terms of such plans or a
determination by the insurance providers, CVR Energy will use
reasonable efforts to obtain individual insurance policies
providing Mr. Lipinski with such benefits at the same cost
to CVR Energy as providing him with continued coverage under CVR
Energys plans. If such coverage cannot be obtained, CVR
Energy will pay Mr. Lipinski on a monthly basis during the
relevant continuation period, an amount equal to the amount CVR
Energy would have paid had he continued participation in CVR
Energys medical and dental plans.
If any payments or distributions due to Mr. Lipinski would
be subject to the excise tax imposed under Section 4999 of
the Code, then such payments or distributions will be cut
back only if that reduction would be more beneficial to
him on an after-tax basis than if there was no reduction. The
estimated total amounts payable to Mr. Lipinski (or his
beneficiary or estate in the event of death) in the event of
termination of employment under the circumstances described
above are set forth in the table below. Mr. Lipinski would
solely be entitled to Accrued Amounts, if any, upon the
termination of employment by CVR Energy for cause, by him
voluntarily without good reason, or by reason of his retirement.
The agreement requires Mr. Lipinski to abide by a perpetual
restrictive covenant relating to non-disclosure. The agreement
also includes covenants relating to non-solicitation and
non-competition during Mr. Lipinskis employment term,
and thereafter during the period he receives severance payments
or supplemental disability payments, as applicable, or for one
year following the end of the term (if no severance or
disability payments are payable).
Edward A. Morgan, Kevan A. Vick, Stanley A. Riemann and
Edmund S. Gross. Pursuant to their employment
agreements, if the employment of Messrs. Morgan, Vick,
Riemann or Gross is terminated either by CVR Energy without
cause and other than for disability or by the executive officer
for good reason (as such terms are defined in their respective
employment agreements), then these executive officers are
entitled, in addition to any Accrued Amounts, to receive as
severance (a) salary continuation for 12 months
(18 months for Mr. Riemann), (b) a pro-rata
target bonus for the year in which termination occurs and (c)
the continuation of medical and dental benefits for
12 months (18 months for Mr. Riemann) at
active-employee rates or until such time as the executive
officer becomes eligible for such benefits from a subsequent
employer. In addition, if the employment of the named executive
officers is terminated either by CVR Energy without cause and
other than for disability or by the executives for good reason
(as these terms are defined in their employment agreements)
within one year following a change in control (as defined in
their employment agreements) or in specified circumstances prior
to and in connection with a change in control, they are also
entitled to receive additional benefits. For
Messrs. Morgan, Riemann and Gross, the severance period and
benefit continuation period is extended to 24 months for
Messrs. Morgan and Gross and 30 months for Mr. Riemann
and they will also receive monthly payments equal to
1/12
of their respective target bonuses for the year of termination
during the 24 (or 30) month severance period.
Mr. Vick will receive monthly payments equal to
1/12
of his respective target bonus for the year of termination for
12 months. Upon a termination by reason of these
executives employment upon retirement, in addition to any
Accrued Amounts, they will receive (a) a pro-rata target
bonus for the year in which termination occurs and (b)
continuation of
119
medical benefits for 24 months at active-employee rates or
until such time as they become eligible for medical benefits
from a subsequent employer.
In the event that Messrs. Morgan, Vick, Riemann and Gross
are eligible to receive continuation of medical and dental
benefits at active-employee rates but are not eligible to
continue to receive benefits under CVR Energys plans
pursuant to the terms of such plans or a determination by the
insurance providers, CVR Energy will use reasonable efforts to
obtain individual insurance policies providing the executives
with such benefits at the same cost to CVR Energy as providing
them with continued coverage under CVR Energys plans. If
such coverage cannot be obtained, CVR Energy will pay the
executives on a monthly basis during the relevant continuation
period, an amount equal to the amount CVR Energy would have paid
had they continued participation in CVR Energys medical
and dental plans.
As a condition to receiving these severance payments and
benefits, the executives must (a) execute, deliver and not
revoke a general release of claims and (b) abide by
restrictive covenants as detailed below. The agreements provide
that if any payments or distributions due to an executive
officer would be subject to the excise tax imposed under
Section 4999 of the Code, then such payments or
distributions will be cut back only if that reduction would be
more beneficial to the executive officer on an after-tax basis
than if there were no reduction. These executive officers would
solely be entitled to Accrued Amounts, if any, upon the
termination of employment by CVR Energy for cause, by him
voluntarily without good reason, or by reason of retirement,
death or disability. The agreements require each of the
executive officers to abide by a perpetual restrictive covenant
relating to non-disclosure. The agreements also include
covenants relating to non-solicitation and, except in the case
of Mr. Gross, covenants relating to non-competition during
their employment terms and for one year following the end of the
terms.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance
|
|
Benefit Continuation
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
without Cause
|
|
|
|
|
|
|
|
without Cause
|
|
|
|
|
|
|
|
|
or with Good
|
|
|
|
|
|
|
|
or with Good
|
|
|
Death
|
|
Disability
|
|
Retirement
|
|
Reason
|
|
Death
|
|
Disability
|
|
Retirement
|
|
Reason
|
|
|
|
|
|
|
|
|
(1)
|
|
(2)
|
|
|
|
|
|
|
|
(1)
|
|
(2)
|
|
John J. Lipinski
|
|
$
|
4,950,000
|
|
|
$
|
4,950,000
|
|
|
$
|
2,250,000
|
|
|
$
|
4,950,000
|
|
|
$
|
11,700,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
26,788
|
|
|
$
|
26,788
|
|
|
$
|
26,788
|
|
Edward A. Morgan
|
|
|
|
|
|
|
|
|
|
|
378,000
|
|
|
|
693,000
|
|
|
|
1,764,000
|
|
|
|
|
|
|
|
|
|
|
|
25,620
|
|
|
|
12,810
|
|
|
|
25,620
|
|
Kevan A. Vick
|
|
|
|
|
|
|
|
|
|
|
196,000
|
|
|
|
441,000
|
|
|
|
637,000
|
|
|
|
|
|
|
|
|
|
|
|
25,620
|
|
|
|
12,810
|
|
|
|
12,810
|
|
Stanley A. Riemann
|
|
|
|
|
|
|
|
|
|
|
830,000
|
|
|
|
1,452,500
|
|
|
|
3,942,500
|
|
|
|
|
|
|
|
|
|
|
|
17,859
|
|
|
|
13,394
|
|
|
|
22,324
|
|
Edmund S. Gross
|
|
|
|
|
|
|
|
|
|
|
347,000
|
|
|
|
694,000
|
|
|
|
1,735,000
|
|
|
|
|
|
|
|
|
|
|
|
25,620
|
|
|
|
12,810
|
|
|
|
25,620
|
|
|
|
|
(1)
|
|
Severance payments and benefits in
the event of termination without cause or resignation for good
reason not in connection with a change in control.
|
|
(2)
|
|
Severance payments and benefits in
the event of termination without cause or resignation for good
reason in connection with a change in control.
|
Each of the named executive officers has been granted shares of
restricted stock granted pursuant to the CVR Energy, Inc. 2007
Long Term Incentive Plan. In connection with joining CVR Energy
on May 14, 2009, Mr. Morgan was awarded
25,000 shares of restricted stock. On December 18,
2009, Mr. Morgan was granted 38,168 shares of
restricted stock and Mr. Gross was awarded
15,268 shares of restricted stock. On July 16, 2010,
Messrs. Lipinski, Morgan, Vick, Riemann and Gross were
granted 222,532, 41,725, 13,909, 69,542 and 59,110 shares
of restricted stock, respectively. On December 31, 2010,
Messrs. Lipinski, Morgan, Vick, Riemann and Gross were
granted 222,333, 41,502, 14,526, 68,347 and 45,719 shares
of restricted stock, respectively.
Subject to vesting requirements, the named executive officers
are required to retain at least 50% of their respective shares
for a period equal to the lesser of (a) three years,
commencing with the date of the award, or (b) as long as
such individual remains an officer of CVR Energy (or an
affiliate) at the level of Vice President or higher. The named
executive officers have the right to vote their shares of
restricted stock immediately, although the shares are subject to
transfer restrictions and vesting requirements that lapse in
one-third annual increments beginning on the first anniversary
of the date of grant, subject to immediate vesting under certain
circumstances. The shares granted to Mr. Morgan in May 2009
become immediately vested in the event of his death or
disability. All other grants of restricted stock become
immediately vested in the event of the relevant named executive
officers death, disability or retirement, or in the event
of any of the following: (a) such named executive
officers employment is
120
terminated other than for cause within the one year period
following a change in control of CVR Energy, Inc.; (b) such
named executive officer resigns from employment for good reason
within the one year period following a change in control; or
(c) such named executive officers employment is
terminated under certain circumstances prior to a change in
control. The terms disability, retirement, cause, good reason
and change in control are all defined in the CVR LTIP.
The following table reflects the value of accelerated vesting of
the unvested restricted stock awards held by the named executive
officers assuming the triggering event took place on
December 31, 2010, and based on the closing price of CVR
Energy common stock as of such date, which was $15.18 per share.
Value of
Accelerated Vesting of Restricted Stock Awards
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Termination without
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Cause or
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Death
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Disability
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Retirement
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with Good Reason
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(1)
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(2)
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John J. Lipinski
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$
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6,753,050
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$
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6,753,050
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$
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6,753,050
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$
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6,753,050
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Edward A. Morgan
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$
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1,902,630
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$
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1,902,630
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$
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1,902,630
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$
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1,649,640
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Kevan A. Vick
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$
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431,643
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$
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431,643
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$
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431,643
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$
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431,643
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Stanley A. Riemann
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$
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2,093,155
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$
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2,093,155
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$
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2,093,155
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$
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2,093,155
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Edmund S. Gross
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$
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1,745,806
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$
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1,745,806
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$
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1,745,806
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$
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1,745,806
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(1)
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Termination without cause or
resignation for good reason not in connection with a
change in control.
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(2)
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Termination without cause or
resignation for good reason in connection with a change in
control.
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CVR
Partners, LP Long-Term Incentive Plan
General
Prior to the completion of this offering, the board of directors
of our general partner intends to adopt the CVR Partners, LP
Long-Term Incentive Plan, or LTIP. Individuals who will be
eligible to receive awards under the LTIP include CVR
Partners and its subsidiaries and parents
employees, officers, consultants and directors. The LTIP will
allow for the grant of options, unit appreciation rights,
distribution equivalent rights, restricted units, phantom units
and other unit-based awards, each in respect of common units
representing limited partner interests in CVR Partners. A
summary of the principal features of the LTIP is provided below.
Common
Units Available for Issuance
The LTIP authorizes a pool
of
common units representing limited partner interests in CVR
Partners. Whenever any outstanding award granted under the LTIP
expires, is canceled, is forfeited, is settled in cash or is
otherwise terminated for any reason without having been
exercised or payment having been made in respect of the entire
award, the number of common units available for issuance under
the LTIP shall be increased by the number of common units
previously allocable to the expired, canceled, settled or
otherwise terminated portion of the award.
Source
of Common Units; Cost
Common units to be delivered with respect to awards may be
newly-issued common units, common units acquired by our general
partner in the open market, common units already owned by our
general partner or us, common units acquired by our general
partner directly from us or any other person or any combination
of the foregoing. Our general partner will be entitled to
reimbursement by us for the cost incurred in acquiring such
common units. With respect to options, our general partner will
be entitled to reimbursement from us for the difference between
the cost it incurs in acquiring these common units and the
proceeds it receives from an optionee at the time of exercise.
Thus, we will bear the cost of the options. If we issue new
common units with respect to these awards, the total number of
common units outstanding will increase, and our general partner
will remit the proceeds it receives from a participant, if any,
upon exercise of an award to us. With respect to any awards
settled in cash, our general partner will be entitled to
reimbursement by us for the amount of the cash settlement.
121
Administration
and Eligibility
The LTIP would be administered by a committee, which would
initially be the compensation committee of the board of
directors of our general partner. The committee would determine
who is eligible to participate in the LTIP, determine the types
of awards to be granted, prescribe the terms and conditions of
all awards, and construe and interpret the terms of the LTIP.
All decisions made by the committee would be final, binding and
conclusive.
Types
of Awards
Options
The compensation committee is authorized to grant options to
participants. The exercise price of any option must be equal to
or greater than the fair market value of a common unit on the
date the option is granted. The term of an option cannot exceed
ten years, except that options may be exercised for up to one
year following the death of a participant even if such period
extends beyond the ten year term. Subject to the terms of the
LTIP, the options terms and conditions, which include but
are no limited to, exercise price, vesting, treatment of the
award upon termination of employment, and expiration of the
option, would be determined by the committee and set forth in an
award agreement. Payment for common units purchased upon
exercise of an option must be made in full at the time of
purchase. The exercise price may be paid (i) in cash or its
equivalent (e.g., check), (ii) in common units already
owned by the participant, on terms determined by the committee,
(iii) in the form of other property as determined by the
committee, (iv) through participation in a cashless
exercise procedure involving a broker or (v) by a
combination of the foregoing.
Unit
Appreciation Rights (UARs)
The compensation committee is authorized, either alone or in
connection with the grant of an option, to grant UARs to
participants. The terms and conditions of a UAR award would be
determined by the committee and set forth in an award agreement.
UARs may be exercised at such times and be subject to such other
terms, conditions, and provisions as the committee may impose.
The committee may establish a maximum amount per common unit
that would be payable upon exercise of a UAR. A UAR would
entitle the participant to receive, on exercise of the UAR, an
amount equal to the product of (i) the excess of the fair
market value of a unit on the date preceding the date of
surrender over the fair market value of a common unit on the
date the UAR was issued, or, if the UAR is related to an option,
the per-unit
exercise price of the option and (ii) the number of common
units subject to the UAR or portion thereof being exercised.
Subject to the discretion of the committee, payment of a UAR may
be made in cash, common units or a combination thereof.
Distribution
Equivalent Rights
The compensation committee is authorized to grant distribution
equivalent rights either in tandem with an award or as a
separate award. The terms and conditions applicable to each
distribution equivalent right would be determined by the
committee and set forth in an award agreement. Amounts payable
in respect of distribution equivalent rights may be payable
currently or, if applicable, deferred until the lapsing of
restrictions on the distribution equivalent rights or until the
vesting, exercise, payment, settlement or other lapse of
restrictions on the award to which the distribution equivalent
rights relate; provided that distribution equivalent rights may
not contain payment or other terms that could adversely affect
the option or award to which it relates under Section 409A of
the Code or otherwise.
Restricted
Units and Phantom Units
The compensation committee is authorized to grant restricted
units and phantom units, subject to such terms and conditions as
determined by the committee and set forth in an award agreement.
Restricted units and phantom units may not be sold, transferred,
pledged, or otherwise transferred until the time, or until the
satisfaction of such other terms, conditions, and provisions, as
the committee may determine. When the period of restriction on
restricted units terminates, unrestricted common units would be
delivered. Unless the committee determines otherwise at the time
of grant, restricted units carry full voting rights and other
rights as a unitholder, including rights to receive
distributions. At the time an award of restricted units is
granted, the committee may determine that
122
the payment to the participant of distributions would be
deferred until the lapsing of the restrictions imposed upon the
common units and whether deferred dividends are to be converted
into additional common units or held in cash. The deferred
distributions would be subject to the same forfeiture
restrictions and restrictions on transferability as the
restricted units with respect to which they were paid. Each
phantom unit would represent the right of the participant to
receive a payment upon vesting of the phantom unit or on any
later date specified by the committee. The payment would equal
the fair market value of a common unit as of the date the
phantom unit was granted, the vesting date, or such other date
as determined by the committee at the time the phantom unit was
granted. At the time of grant, the committee may provide a
limitation on the amount payable in respect of each phantom
unit. The committee may provide for a payment in respect of
phantom units in cash or in common units having a fair market
value equal to the payment to which the participant has become
entitled.
Other
Unit-Based Awards
The compensation committee is authorized to grant other
unit-based awards to participants as additional compensation for
service to us or a subsidiary or in lieu of cash or other
compensation to which participants have become entitled. Other
unit-based awards may be subject to other terms and conditions,
which may vary from time to time and among participants, as the
committee determines to be appropriate.
Amendment
and Termination of the LTIP
The board of directors of our general partner has the right to
amend the LTIP, except that it may not amend the LTIP in a
manner that would impair or adversely affect the rights of the
holder of an award without the award holders consent. In
addition, the board of directors of our general partner may not
amend the LTIP absent unitholder approval to the extent such
approval is required by applicable law, regulation or exchange
requirement. The LTIP will terminate on the tenth anniversary of
the date of approval by the board of directors of our general
partner. The board of directors of our general partner may
terminate the LTIP at any earlier time, except that termination
cannot in any manner impair or adversely affect the rights of
the holder of an award without the award holders consent.
No
Repricing of Options or UARs
Unless our unitholders approve such adjustment, the committee
would not have authority to make any adjustments to options or
UARs that would reduce or would have the effect of reducing the
exercise price of an option or UAR previously granted under the
LTIP (except as provided under Adjustments below).
Change
in Control
The effect, if any, of a change in control on each of the awards
granted under the LTIP may be set forth in the applicable award
agreement.
Adjustments
In the event of a reclassification, recapitalization, merger,
consolidation, reorganization, spin-off,
split-up,
stock dividend, issuance of warrants, rights or debentures,
stock distribution, stock split or reverse stock split, cash
distribution, property distribution, combination or exchange of
units, repurchase of units, or similar transaction or other
change in corporate structure affecting our common units,
adjustments and other substitutions will be made to the LTIP,
including adjustments in the maximum number of common units
subject to the LTIP and adjustments to outstanding awards
granted under the LTIP as the compensation committee determines
appropriate. In the event of our merger or consolidation,
liquidation or dissolution, outstanding options and awards will
be treated as provided for in the agreement entered into in
connection with the transaction, or, if not so provided in such
agreement, holders of options awards will be entitled to receive
in respect of each common unit subject to any outstanding
options or awards, upon exercise of any option or payment or
transfer in respect of any award, the same number and kind of
stock, securities, cash, property or other consideration that
each holder of a common unit was entitled to receive in the
transaction in respect of a common unit; provided, however, that
such stock, securities, cash, property, or other consideration
shall remain subject to all of the conditions, restrictions and
performance criteria which were applicable to the options and
awards prior to such transaction.
123
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information regarding beneficial
ownership of our common units following this offering by:
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our general partner;
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each of our general partners directors;
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each of our general partners executive officers;
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each unitholder known by us to beneficially hold five percent or
more of our outstanding units; and
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all of our general partners named executive officers and
directors as a group.
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Beneficial ownership is determined under the rules of the SEC
and generally includes voting or investment power with respect
to securities. Unless indicated below, to our knowledge, the
persons and entities named in the table have sole voting and
sole investment power with respect to all units beneficially
owned, subject to community property laws where applicable.
Except as otherwise indicated, the business address for each of
our beneficial owners is
c/o CVR
Partners, LP, 2277 Plaza Drive, Suite 500, Sugar Land,
Texas 77479. The table does not reflect any common units that
directors and executive officers may purchase in this offering
through the directed unit program described under
Underwriters.
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Percentage of
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|
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Total Common
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|
|
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Units to be
|
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|
Common Units to be
|
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Beneficially
|
Name of Beneficial
Owner
|
|
Beneficially Owned
|
|
Owned(1)
|
|
CVR GP,
LLC(2)
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|
|
Coffeyville Resources,
LLC(3)
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%
|
John J. Lipinski
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Stanley A. Riemann
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Edward A. Morgan
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Edmund S. Gross
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Kevan A. Vick
|
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Christopher G. Swanberg
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Donna R. Ecton
|
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Scott L. Lebovitz
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|
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|
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George E. Matelich
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Frank M. Muller, Jr.
|
|
|
|
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Stanley de J. Osborne
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John K. Rowan
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|
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All directors and executive officers of our general partner as a
group (12 persons)
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|
|
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*
|
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Less than 1%
|
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(1)
|
|
Based
on
common units outstanding following this offering.
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|
(2)
|
|
CVR GP, LLC, a wholly-owned
subsidiary of Coffeyville Resources, is our general partner and
manages and operates our business.
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(3)
|
|
Coffeyville Resources, LLC is an
indirect wholly-owned subsidiary of CVR Energy, a publicly
traded company. The directors of CVR Energy are John J.
Lipinski, C. Scott Hobbs, Scott L. Lebovitz, George E. Matelich,
Steve A. Nordaker, Stanley de J. Osborne, John K. Rowan, Joseph
E. Sparano and Mark E. Tomkins. The units owned by Coffeyville
Resources, LLC, as reflected in the table, are common units. The
table assumes the underwriters do not exercise their option to
purchase
additional common units and such units are therefore issued to
Coffeyville Resources upon the options expiration. If such
option is exercised in full, Coffeyville Resources will
beneficially own common units,
or % of total common units outstanding.
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124
The following table sets forth, as of March 1, 2011, the
number of shares of common stock of CVR Energy owned by each of
the executive officers and directors of our general partner and
all directors and executive officers of our general partner as a
group.
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Shares Beneficially
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Owned As of
|
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March 1, 2011
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Name and Address
|
|
Number
|
|
Percent
|
|
John J.
Lipinski(a)
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622,336
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|
*
|
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Stanley A.
Riemann(b)
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137,889
|
|
|
|
*
|
|
Edward A. Morgan
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140,824
|
|
|
|
*
|
|
Edmund S.
Gross(c)
|
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|
119,496
|
|
|
|
*
|
|
Kevan A.
Vick(d)
|
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|
29,435
|
|
|
|
*
|
|
Christopher G.
Swanberg(e)
|
|
|
44,273
|
|
|
|
*
|
|
Donna R. Ecton
|
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3,500
|
|
|
|
*
|
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Scott L.
Lebovitz(f)
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8,353
|
|
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|
*
|
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Frank M. Muller, Jr.
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|
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200
|
|
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|
*
|
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George E.
Matelich(g)
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7,988,179
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9.1
|
%
|
Stanley de J.
Osborne(g)
|
|
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7,988,179
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9.1
|
%
|
John K. Rowan
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|
|
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|
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All directors and executive officers, as a group
(12 persons)
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9,094,485
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|
10.4
|
%
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(a)
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|
Mr. Lipinski also indirectly
owns 20,113 shares of common stock of CVR Energy through
his interests in common units of Coffeyville Acquisition but
does not have the power to vote or dispose of these additional
shares.
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(b)
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Mr. Riemann also indirectly
owns 12,377 shares of common stock of CVR Energy through
his interests in common units of Coffeyville Acquisition but
does not have the power to vote or dispose of these shares.
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|
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(c)
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Mr. Gross also indirectly owns
928 shares of common stock of CVR Energy through his
interests in common units of Coffeyville Acquisition but does
not have the power to vote or dispose of these additional shares.
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(d)
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Mr. Vick also indirectly owns
7,736 shares of common stock of CVR Energy through his
interests in common units of Coffeyville Acquisition but does
not have the power to vote or dispose of these additional shares.
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(e)
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Mr. Swanberg also indirectly
owns 773 shares of common stock of CVR Energy through his
interests in common units of Coffeyville Acquisition but does
not have the power to vote or dispose of these additional shares.
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(f)
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Represents shares beneficially
owned by Goldman, Sachs & Co. Mr. Lebovitz is a
managing director of Goldman, Sachs & Co. Mr. Lebovitz
disclaims beneficial ownership of these shares of common stock
of CVR Energy except to the extent of his pecuniary interest, if
any.
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(g)
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Represents shares owned by
Coffeyville Acquisition which is controlled by the Kelso Funds.
Messrs. Matelich and Osborne are the sole directors of
Coffeyville Acquisition. Kelso Investment Associates VII, L.P.,
or KIA VII, a Delaware limited partnership, and KEP VI, LLC, or
KEP VI, a Delaware limited liability company, are members of
Coffeyville Acquisition and own substantially all of the common
units of Coffeyville Acquisition. KIA VII owns common units of
Coffeyville Acquisition that correspond to 6,240,910 shares
of common stock of CVR Energy, and KEP VI owns common units in
Coffeyville Acquisition that correspond to 1,545,368 shares
of common stock of CVR Energy. KIA VII and KEP VI, due to their
common control, could be deemed to beneficially own each of the
others shares of common stock of CVR Energy but each
disclaims such beneficial ownership. Messrs. Berney, Bynum,
Connors, Goldberg, Loverro, Matelich, Moore, Nickell, Osborne,
Wahrhaftig and Wall (the Kelso Individuals) may be
deemed to share beneficial ownership of shares of common stock
of CVR Energy owned of record or beneficially owned by KIA VII,
KEP VI and Coffeyville Acquisition by virtue of their status as
managing members of KEP VI and of Kelso GP VII, LLC, a Delaware
limited liability company, the principal business of which is
serving as the general partner of Kelso GP VII, L.P., a Delaware
limited partnership, the principal business of which is serving
as the general partner of KIA VII. Each of the Kelso Individuals
share investment and voting power with respect to the ownership
interests owned by KIA VII, KEP VI and Coffeyville Acquisition
but disclaim beneficial ownership of such interests.
Mr. Collins may be deemed to share beneficial ownership of
shares of common stock owned of record or beneficially owned by
KEP VI and Coffeyville Acquisition by virtue of his status as a
managing member of KEP VI. Mr. Collins shares investment
and voting power with the Kelso Individuals with respect to
ownership interests owned by KEP VI and Coffeyville Acquisition
but disclaims beneficial ownership of such interests.
Coffeyville Acquisition may elect to sell its shares of CVR
Energy at any time.
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125
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
After this offering, Coffeyville Resources, a wholly-owned
subsidiary of CVR Energy, will own
(i) common
units, representing approximately %
of our outstanding units
(approximately % if the
underwriters exercise their option to purchase additional common
units in full) and (ii) our general partner with its
non-economic general partner interest (which will not entitle it
to receive distributions) in us.
Distributions
and Payments to CVR Energy and its Affiliates
The following table summarizes the distributions and payments
made or to be made by us to CVR Energy and its affiliates
(including our general partner) and Coffeyville Acquisition III
in connection with the formation, ongoing operation and any
liquidation of CVR Partners, LP. These distributions and
payments were or will be determined by and among affiliated
entities and, consequently, are not the result of
arms-length negotiations.
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Formation Stage |
|
The consideration received by CVR
|
|
30,333,333 special units.
|
Energy and its affiliates for the contribution of
assets and liabilities to
|
|
The general partner interest and associated
incentive distribution rights, or IDRs.
|
us in October 2007
|
|
Our agreement, contingent on our completing an
initial public or private offering, to reimburse Coffeyville
Resources for certain capital expenditures made with respect to
the nitrogen fertilizer business.
|
|
|
|
Pre-IPO Operational Stage |
|
Distributions of Operating Cash Flow |
|
In 2008, we paid a distribution of
$50.0 million to Coffeyville Resources.
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|
Loans to Coffeyville Resources |
|
In 2009 and 2010, we maintained a lending
relationship with Coffeyville Resources in order to supplement
Coffeyville Resources working capital needs. We were paid
interest on those borrowings, which we recorded as a due from
affiliate balance, equal to the interest rate Coffeyville
Resources paid on its revolving credit facility. The
$160.0 million due from affiliate balance, which bore
interest at a rate of 8.5% per annum for the year ended
December 31, 2010, was distributed to Coffeyville Resources
on December 31, 2010.
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Offering Stage |
|
Distributions to Coffeyville Resources |
|
We will distribute to Coffeyville Resources all cash
on our balance sheet before the closing date of this offering
(other than cash in respect of prepaid sales).
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|
We will use approximately $18.4 million of the
proceeds of this offering to make a distribution to Coffeyville
Resources in satisfaction of our obligation to reimburse it for
certain capital expenditures made with respect to the nitrogen
fertilizer business.
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|
We will also use approximately
$ million of the proceeds of
this offering to make a special distribution to Coffeyville
Resources in order to, among other things, fund the offer to
purchase Coffeyville Resources senior secured notes
required upon consummation of this offering;
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We will also draw our new $125.0 million term
loan in full, and make a special distribution to Coffeyville
Resources of $ million of the
proceeds therefrom in order to, among other things, fund the
offer to purchase Coffeyville Resources senior secured
notes required upon consummation of this offering.
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126
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|
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Purchase of CVR GP, LLC |
|
We will use approximately $26.0 million of the
proceeds of this offering to purchase (and subsequently
extinguish) the IDRs owned by our general partner. The proceeds
of this sale will be paid as a distribution to the owners of
Coffeyville Acquisition III, which include the Goldman
Sachs Funds, the Kelso Funds and members of our senior
management.
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Conversion of Special Units |
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In connection with this offering, all of the special
units owned by CVR Energy and its affiliates will be converted
into
common units.
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Post-IPO Operational Stage |
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Distributions to CVR Energy and its affiliates
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We will generally make cash distributions to the
unitholders pro rata, including to Coffeyville Resources, as the
holder of common units. Immediately following this offering,
based on ownership of our common units at such time, CVR Energy
and its subsidiaries will own
approximately % of our common units
and would receive a pro rata percentage of the available cash
that we distribute in respect thereof.
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Payments to our general partner and its affiliates
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We will reimburse our general partner and its
affiliates for all expenses incurred on our behalf. In addition
we will reimburse CVR Energy for certain operating expenses and
for the provision of various general and administrative services
for our benefit under the services agreement.
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Liquidation Stage |
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Liquidation |
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Upon our liquidation, our unitholders will be
entitled to receive liquidating distributions according to their
respective capital account balances.
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Agreements
with CVR Energy
In connection with the formation of CVR Partners and the initial
public offering of CVR Energy in October 2007, we entered into
several agreements with CVR Energy and its affiliates that
govern the business relations among us, CVR Energy and its
affiliates, and our general partner. In connection with the
Transactions, we intend to amend and restate certain of the
intercompany agreements and to enter into several new agreements
with CVR Energy and its affiliates. The agreements being amended
include our partnership agreement, the terms of which are more
fully described under The Partnership Agreement and
elsewhere in this prospectus. These agreements were not the
result of arms-length negotiations and the terms of these
agreements are not necessarily at least as favorable to the
parties to these agreements as terms which could have been
obtained from unaffiliated third parties.
Contribution
Agreement
In connection with the Transactions, we intend to enter into an
amended and restated contribution, conveyance and assumption
agreement with various affiliates of CVR Energy in order to
facilitate the consummation of the Transactions. Pursuant to
this agreement, (1) we will distribute all of our cash on
hand, other than cash in respect of prepaid sales, to
Coffeyville Resources, (2) CVR Special GP will exchange its
33,303,000 special GP units for a specified amount of
our common units, (3) Coffeyville Resources will exchange its
30,333 special LP units for a specified amount of our
common units, (4) CVR Special GP will merge with and into
Coffeyville Resources, (5) we will use the net proceeds of
this offering to repay Coffeyville Resources for capital
expenditures incurred previously, to make a distribution to
Coffeyville Resources, and to redeem the IDRs from CVR GP, with
the remainder to be used for general corporate purposes,
(6) Coffeyville Resources and CVR GP will execute an
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amended and restated partnership agreement, (7) CVR GP
will distribute the proceeds it receives from the redemption of
the IDRs to Coffeyville Acquisition III, (8) Coffeyville
Acquisition III will sell its interest in CVR GP to Coffeyville
Resources and (9) upon the earlier to occur of the
expiration of the over-allotment option period or the exercise
in full of the over-allotment option, we will issue to
Coffeyville Resources a number of common units equal to the
excess, if any, of the total number of option units over the
number of common units, if any, actually purchased by the
underwriters in connection with the exercise of their
overallotment option.
Coke
Supply Agreement
We entered into a pet coke supply agreement with CVR Energy in
October 2007 pursuant to which CVR Energy supplies us with pet
coke. This agreement provides that CVR Energy must deliver to us
during each calendar year an annual required amount of pet coke
equal to the lesser of (i) 100 percent of the pet coke
produced at its petroleum refinery or (ii) 500,000 tons of
pet coke. We are also obligated to purchase this annual required
amount. If CVR Energy produces more than 41,667 tons of pet coke
during a calendar month, then we will have the option to
purchase the excess at the purchase price provided for in the
agreement. If we decline to exercise this option, CVR Energy may
sell the excess to a third party.
The price which we will pay for the pet coke is based on the
lesser of a pet coke price derived from the price received by us
for UAN (subject to a UAN-based price ceiling and floor) and a
pet coke index price but in no event will the pet coke price be
less than zero. We also pay any taxes associated with the sale,
purchase, transportation, delivery, storage or consumption of
the pet coke. We are entitled to offset any amount payable for
the pet coke against any amount due from CVR Energy under the
feedstock and shared services agreement. If we fail to pay an
invoice on time, we will pay interest on the outstanding amount
payable at a rate of three percent above the prime rate.
In the event CVR Energy delivers pet coke to us on a short term
basis and such pet coke is off-specification on more than
20 days in any calendar year, there will be a price
adjustment to compensate us
and/or
capital contributions will be made to us to allow us to modify
our equipment to process the pet coke received. If CVR Energy
determines that there will be a change in pet coke quality on a
long-term basis, then it will be required to notify us of such
change with at least three years notice. We will then
determine the appropriate changes necessary to our nitrogen
fertilizer plant in order to process such off-specification pet
coke. CVR Energy will compensate us for the cost of making such
modifications
and/or
adjust the price of pet coke on a mutually agreeable
commercially reasonable basis.
The terms of the pet coke supply agreement provide benefits both
to us and CVR Energys petroleum business. The cost of the
pet coke supplied by CVR Energy to us in most cases will be
lower than the price which we otherwise would pay to third
parties. The cost to us will be lower both because the actual
price paid will be lower and because we will pay significantly
reduced transportation costs (since the pet coke is supplied by
an adjacent facility which will involve no freight or tariff
costs). In addition, because the cost we pay will be
formulaically related to the price received for UAN (subject to
a UAN based price floor and ceiling), we will enjoy lower pet
coke costs during periods of lower revenues regardless of the
prevailing pet coke market.
In return for CVR Energy receiving a potentially lower price for
pet coke in periods when the pet coke price is impacted by lower
UAN prices, it enjoys the following benefits associated with the
disposition of a low value by-product of the refining process:
avoiding the capital cost and operating expenses associated with
handling pet coke; enjoying flexibility in its crude slate and
operations as a result of not being required to meet a specific
pet coke quality; and avoiding the administration, credit risk
and marketing fees associated with selling pet coke.
We may be obligated to provide security for our payment
obligations under the agreement if in CVR Energys sole
judgment there is a material adverse change in our financial
condition or liquidity position or in our ability to make
payments. This security shall not exceed an amount equal to 21
times the average daily dollar value of pet coke we purchase for
the 90-day
period preceding the date on which CVR Energy gives us notice
that it has deemed that a material adverse change has occurred.
Unless otherwise agreed by CVR Energy and us, we can provide
such security by means of a standby or documentary letter of
credit, prepayment, a surety instrument, or a combination of the
foregoing. If we do not provide such security, CVR Energy may
require us to pay for future deliveries of pet coke on a
cash-on-delivery
basis, failing which it may suspend delivery of pet coke until
such security is provided and
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terminate the agreement upon 30 days prior written
notice. Additionally, we may terminate the agreement within
60 days of providing security, so long as we provide five
days prior written notice.
The agreement has an initial term of 20 years, which will
be automatically extended for successive five year renewal
periods. Either party may terminate the agreement by giving
notice no later than three years prior to a renewal date. The
agreement is also terminable by mutual consent of the parties or
if a party breaches the agreement and does not cure within
applicable cure periods. Additionally, the agreement may be
terminated in some circumstances if substantially all of the
operations at our nitrogen fertilizer plant or the refinery are
permanently terminated, or if either party is subject to a
bankruptcy proceeding or otherwise becomes insolvent.
Either party may assign its rights and obligations under the
agreement to an affiliate of the assigning party, to a
partys lenders for collateral security purposes, or to an
entity that acquires all or substantially all of the equity or
assets of the assigning party related to the refinery or
fertilizer plant, as applicable, in each case subject to
applicable consent requirements.
The agreement contains an obligation to indemnify the other
party and its affiliates against liability arising from breach
of the agreement, negligence, or willful misconduct by the
indemnifying party or its affiliates. The indemnification
obligation will be reduced, as applicable, by amounts actually
recovered by the indemnified party from third parties or
insurance coverage. The agreement also contains a provision that
prohibits recovery of lost profits or revenue, or special,
incidental, exemplary, punitive or consequential damages from
either party or certain affiliates.
Our pet coke cost per ton purchased from CVR Energy averaged
$30, $22 and $11 for the years ended December 31, 2008,
2009 and 2010, respectively. Total purchases of pet coke from
CVR Energy were approximately $11.1 million,
$7.9 million and $4.0 million for the years ended
December 31, 2008, 2009 and 2010, respectively. Third-party
pet coke prices averaged $39, $37 and $40 for the years ended
December 31, 2008, 2009 and 2010, respectively. Total
purchases of pet coke from third parties were approximately
$3.0 million, $5.0 million and $3.4 million for
the years ended December 31, 2008, 2009 and 2010,
respectively.
Feedstock
and Shared Services Agreement
We entered into a feedstock and shared services agreement with
CVR Energy in October 2007, pursuant to which we and CVR Energy
provide feedstock and other services to each other. These
feedstocks and services are utilized in the respective
production processes of CVR Energys refinery and our
nitrogen fertilizer plant. Feedstocks provided under the
agreement include, among others, hydrogen, high-pressure steam,
nitrogen, instrument air, oxygen and natural gas. The feedstock
and shared services agreement is being amended and restated in
connection with this offering. The description below reflects
the amended and restated agreement.
We are obligated to provide CVR Energy hydrogen from time to
time, and to the extent available, CVR Energy has agreed to
provide us with hydrogen from time to time. The agreement
provides hydrogen supply and pricing terms for sales of hydrogen
by both parties. In connection with the closing of this
offering, we intend to amend the feedstock and shared services
agreement to provide that we will only be obligated to provide
hydrogen to CVR Energy upon its demand if, in the sole
discretion of the board of directors of our general partner,
sales of hydrogen to the refinery would not adversely affect our
tax treatment. See Material U.S. Federal Income Tax
Consequences Partnership Status.
The agreement provides that both parties must deliver
high-pressure steam to one another under certain circumstances.
We must make available to CVR Energy any high-pressure steam
produced by the nitrogen fertilizer plant that is not required
for the operation of the nitrogen fertilizer plant. CVR Energy
must use commercially reasonable efforts to provide
high-pressure steam to us for purposes of allowing us to
commence and recommence operation of the nitrogen fertilizer
plant from time to time, and also for use at the Linde air
separation plant adjacent to CVR Energys facility. CVR
Energy is not required to provide such high-pressure steam if
doing so would have a material adverse effect on the
refinerys operations. The price for such high pressure
steam is calculated using a formula that is based on steam flow
and the price of natural gas actually paid by CVR Energy.
We are also obligated to make available to CVR Energy any
nitrogen produced by the Linde air separation plant that is not
required for the operation of our nitrogen fertilizer plant, as
determined by us in a commercially
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reasonable manner. The price for the nitrogen is based on a cost
of $0.035 cents per kilowatt hour, as adjusted to reflect
changes in our electric bill.
The agreement also provides that both we and CVR Energy must
deliver instrument air to one another in some circumstances. We
must make instrument air available for purchase by CVR Energy at
a minimum flow rate, to the extent produced by the Linde air
separation plant and available to us. The price for such
instrument air is $18,000 per month, prorated according to the
number of days of use per month, subject to certain adjustments,
including adjustments to reflect changes in our electric bill.
To the extent that instrument air is not available from the
Linde air separation plant and is available from CVR Energy, CVR
Energy is required to make instrument air available to us for
purchase at a price of $18,000 per month, prorated according to
the number of days of use per month, subject to certain
adjustments, including adjustments to reflect changes in CVR
Energys electric bill.
In connection with this offering, we also intend to amend the
agreement to provide a mechanism pursuant to which we would
transfer a tail gas stream (which is otherwise flared) to CVR
Energy to fuel one of its boilers. We would receive the benefit
of eliminating a waste gas stream and recover the fuel value of
the tail gas stream. CVR Energy would receive the benefit of
fuel abatement for the boiler. In addition, CVR Energy would
receive a discount on the fuel value to enable it to recover
over time the capital costs for completing the project, and a
return on its investment.
With respect to oxygen requirements, we are obligated to provide
oxygen produced by the Linde air separation plant and made
available to us to the extent that such oxygen is not required
for operation of our nitrogen fertilizer plant. The oxygen is
required to meet certain specifications and is to be sold at a
fixed price.
The agreement also addresses the means by which we and CVR
Energy obtain natural gas. Currently, natural gas is delivered
to both our nitrogen fertilizer plant and the refinery pursuant
to a contract between CVR Energy and Atmos Energy Corp., or
Atmos. Under the feedstock and shared services agreement, we
will reimburse CVR Energy for natural gas transportation and
natural gas supplies purchased on our behalf. At our request or
at the request of CVR Energy, in order to supply us with natural
gas directly, both parties will be required to use their
commercially reasonable efforts to (i) add us as a party to
the current contract with Atmos or reach some other mutually
acceptable accommodation with Atmos whereby both we and CVR
Energy would each be able to receive, on an individual basis,
natural gas transportation service from Atmos on similar terms
and conditions as set forth in the current contract, and
(ii) purchase natural gas supplies on their own account.
The agreement also addresses the allocation of various other
feedstocks, services and related costs between the parties. Sour
water, water for use in fire emergencies, finished product tank
capacity, costs associated with security services, and costs
associated with the removal of excess sulfur are all allocated
between the two parties by the terms of the agreement. The
agreement also requires us to reimburse CVR Energy for utility
costs related to a sulfur processing agreement between
Tessenderlo Kerley, Inc., or Tessenderlo Kerley, and CVR Energy.
We have a similar agreement with Tessenderlo Kerley. Otherwise,
costs relating to both our and CVR Energys existing
agreements with Tessenderlo Kerley are allocated equally between
the two parties except in certain circumstances.
The parties may temporarily suspend the provision of feedstocks
or services pursuant to the terms of the agreement if repairs or
maintenance are necessary on applicable facilities.
Additionally, the agreement imposes minimum insurance
requirements on the parties and their affiliates.
The agreement has an initial term of 20 years, which will
be automatically extended for successive five-year renewal
periods. Either party may terminate the agreement, effective
upon the last day of a term, by giving notice no later than
three years prior to a renewal date. The agreement will also be
terminable by mutual consent of the parties or if one party
breaches the agreement and does not cure within applicable cure
periods and the breach materially and adversely affects the
ability of the terminating party to operate its facility.
Additionally, the agreement may be terminated in some
circumstances if substantially all of the operations at the
nitrogen fertilizer plant or the refinery are permanently
terminated, or if either party is subject to a bankruptcy
proceeding, or otherwise becomes insolvent.
Either party is entitled to assign its rights and obligations
under the agreement to an affiliate of the assigning party, to a
partys lenders for collateral security purposes, or to an
entity that acquires all or substantially all of the equity or
assets of the assigning party related to the refinery or
fertilizer plant, as applicable, in each case subject to
applicable consent requirements. The agreement contains an
obligation to indemnify the other party and its
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affiliates against liability arising from breach of the
agreement, negligence, or willful misconduct by the indemnifying
party or its affiliates. The indemnification obligation will be
reduced, as applicable, by amounts actually recovered by the
indemnified party from third parties or insurance coverage. The
agreement also contains a provision that prohibits recovery of
lost profits or revenue, or special, incidental, exemplary,
punitive or consequential damages from either party or certain
affiliates.
Raw
Water and Facilities Sharing Agreement
We entered into a raw water and facilities sharing agreement
with CVR Energy in October 2007 which (i) provides for the
allocation of raw water resources between the refinery and our
nitrogen fertilizer plant and (ii) provides for the
management of the water intake system (consisting primarily of a
water intake structure, water pumps, meters, and a short run of
piping between the intake structure and the origin of the
separate pipes that transport the water to each facility) which
draws raw water from the Verdigris River for both our facility
and CVR Energys refinery. This agreement provides that a
water management team consisting of one representative from each
party to the agreement will manage the Verdigris River water
intake system. The water intake system is owned and operated by
CVR Energy. The agreement provides that both companies have an
undivided one-half interest in the water rights which will allow
the water to be removed from the Verdigris River for use at our
nitrogen fertilizer plant and CVR Energys refinery. We
intend to enter into an amended and restated cross-easement
agreement in connection with this offering in order to make
several minor and technical adjustment to the agreement.
The agreement provides that both our nitrogen fertilizer plant
and the refinery are entitled to receive sufficient amounts of
water from the Verdigris River each day to enable them to
conduct their businesses at their appropriate operational
levels. However, if the amount of water available from the
Verdigris River is insufficient to satisfy the operational
requirements of both facilities, then such water shall be
allocated between the two facilities on a prorated basis. This
prorated basis will be determined by calculating the percentage
of water used by each facility over the two calendar years prior
to the shortage, making appropriate adjustments for any
operational outages involving either of the two facilities.
Costs associated with operation of the water intake system and
administration of water rights will be allocated on a prorated
basis, calculated by CVR Energy based on the percentage of water
used by each facility during the calendar year in which such
costs are incurred. However, in certain circumstances, such as
where one party bears direct responsibility for the modification
or repair of the water pumps, one party will bear all costs
associated with such activity. Additionally, we must reimburse
CVR Energy for electricity required to operate the water pumps
on a prorated basis that is calculated monthly.
Either we or CVR Energy are entitled to terminate the agreement
by giving at least three years prior written notice.
Between the time that notice is given and the termination date,
CVR Energy must cooperate with us to allow us to build our own
water intake system on the Verdigris River to be used for
supplying water to our nitrogen fertilizer plant. CVR Energy is
required to grant easements and access over its property so that
we can construct and utilize such new water intake system,
provided that no such easements or access over CVR Energys
property shall have a material adverse affect on its business or
operations at the refinery. We will bear all costs and expenses
for such construction if we are the party that terminated the
original water sharing agreement. If CVR Energy terminates the
original water sharing agreement, we may either install a new
water intake system at our own expense, or require CVR Energy to
sell the existing water intake system to us for a price equal to
the depreciated book value of the water intake system as of the
date of transfer.
Either party may assign its rights and obligations under the
agreement to an affiliate of the assigning party, to a
partys lenders for collateral security purposes, or to an
entity that acquires all or substantially all of the equity or
assets of the assigning party related to the refinery or
fertilizer plant, as applicable, in each case subject to
applicable consent requirements. The parties may obtain
injunctive relief to enforce their rights under the agreement.
The agreement contains an obligation to indemnify the other
party and its affiliates against liability arising from breach
of the agreement, negligence, or willful misconduct by the
indemnifying party or its affiliates. The indemnification
obligation will be reduced, as applicable, by amounts actually
recovered by the indemnified party from third parties or
insurance coverage. The agreement also contains a provision that
prohibits recovery of lost profits or revenue, or special,
incidental, exemplary, punitive or consequential damages from
either party or certain affiliates.
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The term of the agreement is perpetual unless (1) the
agreement is terminated by either party upon three years
prior written notice in the manner described above or
(2) the agreement is otherwise terminated by the mutual
written consent of the parties.
Real
Estate Transactions
Land Transfer. In January 2008, CVR Energy
transferred five parcels of land consisting of approximately
30 acres located on the Coffeyville, Kansas site to us. No
consideration was exchanged. The land was transferred for
purposes of (i) creating clean distinctions between the
refinery and the fertilizer plant property, (ii) providing
us with additional space for completing the UAN expansion
through which we would increase our UAN production capacity by
400,000 tons per year and (iii) providing us with
additional storage area for pet coke.
Cross-Easement Agreement. We entered into a
cross-easement agreement with CVR Energy in October 2007 so that
both we and CVR Energy can access and utilize each others
land in certain circumstances in order to operate our respective
businesses. The agreement grants easements for the benefit of
both parties and establishes easements for operational
facilities, pipelines, equipment, access, and water rights,
among other easements. The intent of the agreement is to
structure easements which provides flexibility for both parties
to develop their respective properties, without depriving either
party of the benefits associated with the continuous reasonable
use of the other partys property.
The agreement provides that facilities located on each
partys property will generally be owned and maintained by
the property-owning party; provided, however, that in certain
specified cases where a facility that benefits one party is
located on the other partys property, the benefited party
will have the right to use, and will be responsible for
operating and maintaining, the overlapping facility.
The easements granted under the agreement are non-exclusive to
the extent that future grants of easements do not interfere with
easements granted under the agreement. The duration of the
easements granted under the agreement will vary, and some will
be perpetual. Easements pertaining to certain facilities that
are required to carry out the terms of our other agreements with
CVR Energy will terminate upon the termination of such related
agreements. We have obtained a water rights easement from CVR
Energy which is perpetual in duration. See Raw
Water and Facilities Sharing Agreement.
The agreement contains an obligation to indemnify, defend and
hold harmless the other party against liability arising from
negligence or willful misconduct by the indemnifying party. The
agreement also requires the parties to carry minimum amounts of
employers liability insurance, commercial general
liability insurance, and other types of insurance. If either
party transfers its fee simple ownership interest in the real
property governed by the agreement, the new owner of the real
property will be deemed to have assumed all of the obligations
of the transferring party under the agreement, except that the
transferring party will retain liability for all obligations
under the agreement which arose prior to the date of transfer.
Lease Agreement. We have entered into a lease
agreement with CVR Energy under which we lease certain office
and laboratory space. The lease will be extended in connection
with the consummation of this offering. The initial term of this
lease agreement will expire in October 2017, but will permit us
to terminate the lease at any time during the initial term by
providing 180 days prior written notice. In addition,
we have the option to renew the lease agreement for up to five
additional one-year periods by providing CVR Energy with notice
of renewal at least 60 days prior to the expiration of the
then-existing term.
Environmental
Agreement
We entered into an environmental agreement with CVR Energy in
October 2007 which provides for certain indemnification and
access rights in connection with environmental matters affecting
the refinery and the nitrogen fertilizer plant. We entered into
two supplements to the environmental agreement in February and
July 2008 to confirm that CVR Energy remains responsible for
existing environmental conditions on land transferred by CVR
Energy to us, and to incorporate a known contamination map, a
comprehensive pet coke management plan and a new third-party
coke handling agreement.
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To the extent that one partys property experiences
environmental contamination due to the activities of the other
party and the contamination is known at the time the agreement
was entered into, the contaminating party is required to
implement all government-mandated environmental activities
relating to the contamination, or else indemnify the
property-owning party for expenses incurred in connection with
implementing such measures.
To the extent that liability arises from environmental
contamination that is caused by CVR Energy but is also
commingled with environmental contamination caused by us, CVR
Energy may elect in its sole discretion and at its own cost and
expense to perform government mandated environmental activities
relating to such liability, subject to certain conditions and
provided that CVR Energy will not waive any rights to
indemnification or compensation otherwise provided for in the
agreement.
The agreement also addresses situations in which a partys
responsibility to implement such government-mandated
environmental activities as described above may be hindered by
the property-owning partys creation of capital
improvements on the property. If a contaminating party bears
such responsibility but the property-owning party desires to
implement a planned and approved capital improvement project on
its property, the parties must meet and attempt to develop a
soil management plan together. If the parties are unable to
agree on a soil management plan 30 days after receiving
notice, the property-owning party may proceed with its own
commercially reasonable soil management plan. The contaminating
party is responsible for the costs of disposing of hazardous
materials pursuant to such plan.
If the property-owning party needs to do work that is not a
planned and approved capital improvement project but is
necessary to protect the environment, health, or the integrity
of the property, other procedures will be implemented. If the
contaminating party still bears responsibility to implement
government-mandated environmental activities relating to the
property and the property-owning party discovers contamination
caused by the other party during work on the capital improvement
project, the property-owning party will give the contaminating
party prompt notice after discovery of the contamination, and
will allow the contaminating party to inspect the property. If
the contaminating party accepts responsibility for the
contamination, it may proceed with government-mandated
environmental activities relating to the contamination, and it
will be responsible for the costs of disposing of hazardous
materials relating to the contamination. If the contaminating
party does not accept responsibility for such contamination or
fails to diligently proceed with government-mandated
environmental activities related to the contamination, then the
contaminating party must indemnify and reimburse the
property-owning party upon the property-owning partys
demand for costs and expenses incurred by the property-owning
party in proceeding with such government-mandated environmental
activities.
The agreement also provides for indemnification in the case of
contamination or releases of hazardous materials that are
present but unknown at the time the agreement is entered into to
the extent such contamination or releases are identified in
reasonable detail during the period ending five years after the
date of the agreement. The agreement further provides for
indemnification in the case of contamination or releases which
occur subsequent to the date the agreement is entered into. If
one party causes such contamination or release on the other
partys property, the latter party must notify the
contaminating party, and the contaminating party must take steps
to implement all government-mandated environmental activities
relating to the contamination, or else indemnify the
property-owning party for the costs associated with doing such
work.
The agreement also grants each party reasonable access to the
other partys property for the purpose of carrying out
obligations under the agreement. However, both parties must keep
certain information relating to the environmental conditions on
the properties confidential. Furthermore, both parties are
prohibited from investigating soil or groundwater conditions
except as required for government-mandated environmental
activities, in responding to an accidental or sudden
contamination of certain hazardous materials, or in connection
with implementation of a comprehensive pet coke management plan
as discussed below.
In accordance with the agreement, the parties developed a
comprehensive pet coke management plan after the execution of
the environmental agreement. The plan established procedures for
the management of pet coke and the identification of significant
pet coke-related contamination. Also, the parties agreed to
indemnify and defend one another and each others
affiliates against liabilities arising under the pet coke
management plan or relating to a failure to comply with or
implement the pet coke management plan.
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Either party will be entitled to assign its rights and
obligations under the agreement to an affiliate of the assigning
party, to a partys lenders for collateral security
purposes, or to an entity that acquires all or substantially all
of the equity or assets of the assigning party related to the
refinery or fertilizer plant, as applicable, in each case
subject to applicable consent requirements. The term of the
agreement is for at least 20 years, or for so long as the
feedstock and shared services agreement is in force, whichever
is longer. The agreement also contains a provision that
prohibits recovery of lost profits or revenue, or special,
incidental, exemplary, punitive or consequential damages from
either party or certain of its affiliates.
Omnibus
Agreement
We entered into an omnibus agreement with our general partner
and CVR Energy in October 2007. We will amend and restate this
agreement in connection with the consummation of this offering.
The following discussion describes the material terms of the
amended and restated omnibus agreement.
Under the omnibus agreement we have agreed not to, and will
cause our controlled affiliates not to, engage in, whether by
acquisition or otherwise, (i) the ownership or operation
within the United States of any refinery with processing
capacity greater than 20,000 bpd whose primary business is
producing transportation fuels or (ii) the ownership or
operation outside the United States of any refinery, regardless
of its processing capacity or primary business, or a refinery
restricted business, in either case, for so long as CVR Energy
and certain of its affiliates continue to own at least 50% of
our outstanding units. The restrictions will not apply to:
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any refinery restricted business acquired as part of a business
or package of assets if a majority of the value of the total
assets or business acquired is not attributable to a refinery
restricted business, as determined in good faith by our general
partners board of directors; however, if at any time we
complete such an acquisition, we must, within 365 days of
the closing of the transaction, offer to sell the
refinery-related assets to CVR Energy for their fair market
value plus any additional tax or other similar costs that would
be required to transfer the refinery-related assets to CVR
Energy separately from the acquired business or package of
assets;
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engaging in any refinery restricted business subject to the
offer to CVR Energy described in the immediately preceding
bullet point pending CVR Energys determination whether to
accept such offer and pending the closing of any offers CVR
Energy accepts;
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engaging in any refinery restricted business if CVR Energy has
previously advised us that it has elected not to cause it to
acquire or seek to acquire such business; or
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acquiring up to 9.9% of any class of securities of any publicly
traded company that engages in any refinery restricted business.
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Under the omnibus agreement, CVR Energy has agreed not to, and
will cause its controlled affiliates other than us not to,
engage in, whether by acquisition or otherwise, the production,
transportation or distribution, on a wholesale basis, of
fertilizer in the contiguous United States, or a fertilizer
restricted business, for so long as CVR Energy and certain of
its affiliates continue to own at least 50% of our outstanding
units. The restrictions do not apply to:
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any fertilizer restricted business acquired as part of a
business or package of assets if a majority of the value of the
total assets or business acquired is not attributable to a
fertilizer restricted business, as determined in good faith by
CVR Energys board of directors, as applicable; however, if
at any time CVR Energy completes such an acquisition, it must,
within 365 days of the closing of the transaction, offer to
sell the fertilizer-related assets to us for their fair market
value plus any additional tax or other similar costs that would
be required to transfer the fertilizer-related assets to us
separately from the acquired business or package of assets;
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engaging in any fertilizer restricted business subject to the
offer to us described in the immediately preceding bullet point
pending our determination whether to accept such offer and
pending the closing of any offers the we accept;
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134
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engaging in any fertilizer restricted business if we have
previously advised CVR Energy that we have elected not to
acquire such business; or
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acquiring up to 9.9% of any class of securities of any publicly
traded company that engages in any fertilizer restricted
business.
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Under the omnibus agreement, we have also agreed that CVR Energy
will have a preferential right to acquire any assets or group of
assets that do not constitute assets used in a fertilizer
restricted business. In determining whether to exercise any
preferential right under the omnibus agreement, CVR Energy will
be permitted to act in its sole discretion, without any
fiduciary obligation to us or the unitholders whatsoever. These
obligations will continue so long as CVR Energy owns our general
partner directly or indirectly.
Services
Agreement
We entered into a services agreement with our general partner
and CVR Energy in October 2007, pursuant to which we and our
general partner obtain certain management and other services
from CVR Energy. The agreement will be amended and restated in
connection with the consummation of this offering. The amended
and restated agreement is described below. Under this agreement,
our general partner has engaged CVR Energy to conduct our
day-to-day
business operations. CVR Energy provides us with the following
services under the agreement, among others:
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services from CVR Energys employees in capacities
equivalent to the capacities of corporate executive officers,
except that those who serve in such capacities under the
agreement shall serve us on a shared, part-time basis only,
unless we and CVR Energy agree otherwise;
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administrative and professional services, including legal,
accounting services, human resources, insurance, tax, credit,
finance, government affairs and regulatory affairs;
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management of our property and the property of our operating
subsidiary in the ordinary course of business;
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recommendations on capital raising activities to the board of
directors of our general partner, including the issuance of debt
or equity interests, the entry into credit facilities and other
capital market transactions;
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managing or overseeing litigation and administrative or
regulatory proceedings, and establishing appropriate insurance
policies for us, and providing safety and environmental advice;
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recommending the payment of distributions; and
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managing or providing advice for other projects, including
acquisitions, as may be agreed by CVR Energy and our general
partner from time to time.
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As payment for services provided under the agreement, we, our
general partner, or CRNF, our operating subsidiary, must pay CVR
Energy (i) all costs incurred by CVR Energy or its
affiliates in connection with the employment of its employees,
other than administrative personnel, who provide us services
under the agreement on a full-time basis, but excluding
share-based compensation; (ii) a prorated share of costs
incurred by CVR Energy or its affiliates in connection with the
employment of its employees, including administrative personnel,
who provide us services under the agreement on a part-time
basis, but excluding share-based compensation, and such prorated
share shall be determined by CVR Energy on a commercially
reasonable basis, based on the percent of total working time
that such shared personnel are engaged in performing services
for us; (iii) a prorated share of certain administrative
costs, including office costs, services by outside vendors,
other sales, general and administrative costs and depreciation
and amortization; and (iv) various other administrative
costs in accordance with the terms of the agreement, including
travel, insurance, legal and audit services, government and
public relations and bank charges. We must pay CVR Energy within
15 days for invoices it submits under the agreement.
We and our general partner are not required to pay any
compensation, salaries, bonuses or benefits to any of CVR
Energys employees who provide services to us or our
general partner on a full-time or part-time basis; CVR Energy
will continue to pay their compensation. However, personnel
performing the actual
day-to-day
business and operations at the nitrogen fertilizer plant level
will be employed directly by us and our subsidiaries, and we
will bear all personnel costs for these employees.
135
Either CVR Energy or our general partner may temporarily or
permanently exclude any particular service from the scope of the
agreement upon 180 days notice. CVR Energy also has
the right to delegate the performance of some or all of the
services to be provided pursuant to the agreement to one of its
affiliates or any other person or entity, though such delegation
does not relieve CVR Energy from its obligations under the
agreement. Beginning one year after the completion of this
offering, either CVR Energy or our general partner may terminate
the agreement upon at least 180 days notice, but not
more than one years notice. Furthermore, our general
partner may terminate the agreement immediately if CVR Energy
becomes bankrupt, or dissolves and commences liquidation or
winding-up.
In order to facilitate the carrying out of services under the
agreement, we, on the one hand, and CVR Energy and its
affiliates, on the other, have granted one another certain
royalty-free, non-exclusive and non-transferable rights to use
one anothers intellectual property under certain
circumstances.
The agreement also contains an indemnity provision whereby we,
our general partner, and CRNF, as indemnifying parties, agree to
indemnify CVR Energy and its affiliates (other than the
indemnifying parties themselves) against losses and liabilities
incurred in connection with the performance of services under
the agreement or any breach of the agreement, unless such losses
or liabilities arise from a breach of the agreement by CVR
Energy or other misconduct on its part, as provided in the
agreement. The agreement also contains a provision stating that
CVR Energy is an independent contractor under the agreement and
nothing in the agreement may be construed to impose an implied
or express fiduciary duty owed by CVR Energy, on the one hand,
to the recipients of services under the agreement, on the other
hand. The agreement prohibits recovery of lost profits or
revenue, or special, incidental, exemplary, punitive or
consequential damages from CVR Energy or certain affiliates,
except in cases of gross negligence, willful misconduct, bad
faith, reckless disregard in performance of services under the
agreement, or fraudulent or dishonest acts on our part.
For the year ended December 31, 2010, the total amount paid
or payable to CVR Energy pursuant to the services agreement was
$10.6 million and we paid no other amounts to our general
partner and its affiliates (other than CVR Energy).
Trademark
License Agreement
In connection with this offering, we will enter into a trademark
license agreement pursuant to which CVR Energy will grant us a
non-exclusive, non-transferrable license to use the CVR Partners
and Coffeyville Resources logos in connection with our business.
We have agreed to use the marks only in the form and manner and
with appropriate legends as prescribed from time to time by CVR
Energy, and have agreed that the nature and quality of the
business that uses the marks will conform to standards set by
CVR Energy. Either party can terminate the license with 60
days prior notice.
Registration
Rights Agreement
In connection with this offering, we will enter into an amended
and restated registration rights agreement with Coffeyville
Resources, pursuant to which we may be required to register the
sale of the common units it holds. Under the amended and
restated registration rights agreement, Coffeyville Resources
will have the right to request that we register the sale of
common units held by it on its behalf on six occasions,
including requiring us to make available shelf registration
statements permitting sales of common units into the market from
time to time over an extended period. In addition, Coffeyville
Resources and its permitted transferees will have the ability to
exercise certain piggyback registration rights with respect to
their securities if we elect to register any of our equity
interests. The registration rights agreement also includes
provisions dealing with holdback agreements, indemnification and
contribution, and allocation of expenses. All of our common
units held by Coffeyville Resources and any permitted transferee
will be entitled to these registration rights, except that the
demand registration rights may only be transferred in whole and
not in part.
136
Distributions
of the Proceeds of the Sale of the General Partner and Incentive
Distribution Rights by Coffeyville Acquisition III
Coffeyville Acquisition III, the owner of our general partner
(and the associated incentive distribution rights) immediately
prior to this offering, is owned by the Goldman Sachs Funds, the
Kelso Funds, a former board member, our managing general
partners executive officers, and other members of CVR
Energys management. Coffeyville Acquisition III is
expected to distribute the proceeds of its sale of our general
partner and the IDRs to its members pursuant to its limited
liability company agreement. Each of the entities and
individuals named below is expected to receive the following
approximate amounts in respect of their common units and
override units in Coffeyville Acquisition III:
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Amount to be Distributed by
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Entity/Individual
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Coffeyville Acquisition
III
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(in millions)
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The Goldman Sachs Funds
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$
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11.7
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The Kelso Funds
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$
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11.5
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John J. Lipinski
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$
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1.1
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Stanley A. Riemann
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$
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0.4
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Edmund S. Gross
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$
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0.1
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Kevan A. Vick
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$
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0.2
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All management members, as a group
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$
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2.4
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Total distributions
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$
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26.0
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137
CONFLICTS
OF INTEREST AND FIDUCIARY DUTIES
Conflicts
of Interest
Conflicts of interest exist and may arise in the future as a
result of the relationships between our general partner and its
affiliates (including Coffeyville Resources and CVR Energy), on
the one hand, and us and our public unitholders, on the other
hand. Conflicts may arise as a result of (1) the overlap of
directors and officers between our general partner and CVR
Energy, which may result in conflicting obligations by these
officers and directors, and (2) duties of our general
partner to act for the benefit of CVR Energy and its
stockholders, which may conflict with our interests and the
interests of our public unitholders. The directors and officers
of our general partner have fiduciary duties to manage our
general partner in a manner beneficial to Coffeyville Resources,
its owner, and the stockholders of CVR Energy, its indirect
parent. At the same time, our general partner has a contractual
duty under our partnership agreement to manage us in a manner
that is in our best interests.
Whenever a conflict arises between our general partner, on the
one hand, and us or any other public unitholder, on the other,
our general partner will resolve that conflict. Our partnership
agreement contains provisions that replace default fiduciary
duties with contractual corporate governance standards as set
forth therein. Our partnership agreement also restricts the
remedies available to unitholders for actions taken that,
without such replacement, might constitute breaches of fiduciary
duty.
Our general partner will not be in breach of its obligations
under our partnership agreement or its duties to us or our
unitholders if the resolution of a conflict is:
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approved by the conflicts committee of the board of directors of
our general partner, although our general partner is not
obligated to seek such approval;
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approved by the vote of a majority of the outstanding common
units, excluding any units owned by the general partner or any
of its affiliates, although our general partner is not obligated
to seek such approval;
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on terms no less favorable to us than those generally being
provided to or available from unrelated third parties; or
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fair and reasonable to us, taking into account the totality of
the relationships between the parties involved, including other
transactions that may be particularly favorable or advantageous
to us.
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Our general partner may, but is not required to, seek the
approval of such resolution from the conflicts committee of its
board of directors or from the common unitholders. If our
general partner does not seek approval from the conflicts
committee and its board of directors determines that the
resolution or course of action taken with respect to the
conflict of interest satisfies either of the standards set forth
in the third and fourth bullet points above, then it will be
presumed that, in making its decision, the board of directors
acted in good faith, and in any proceeding brought by or on
behalf of any limited partner or the partnership, the person
bringing or prosecuting such proceeding will have the burden of
overcoming such presumption. Unless the resolution of a conflict
is specifically provided for in our partnership agreement, our
general partner or the conflicts committee may consider any
factors it determines in good faith to consider when resolving a
conflict. When our partnership agreement requires someone to act
in good faith, it requires that person to reasonably believe
that he is acting in the best interests of the partnership,
unless the context otherwise requires.
Conflicts of interest could arise in the situations described
below, among others.
We
rely primarily on the executive officers of our general partner,
who also serve as the senior management team of CVR Energy and
its affiliates, to manage most aspects of our business and
affairs.
We rely primarily on the executive officers of our general
partner, who also serve as the senior management team of CVR
Energy and its affiliates to manage most aspects of our business
and affairs.
Although we have entered into a services agreement with CVR
Energy under which we compensate CVR Energy for the services of
its management, CVR Energys management is not required to
devote any specific amount of time to our business and may
devote a substantial majority of their time to the business of
CVR Energy
138
rather than to our business. Moreover, following the one year
anniversary of this offering, CVR Energy can terminate the
services agreement at any time, subject to a
180-day
notice period. In addition, the executive officers of CVR
Energy, including its chief executive officer, chief operating
officer, chief financial officer and general counsel, will face
conflicts of interest if decisions arise in which we and CVR
Energy have conflicting points of view or interests.
Our
general partners affiliates may compete with
us.
Our partnership agreement provides that our general partner will
be restricted from engaging in any business activities other
than acting as our general partner, guaranteeing debt of its
affiliates and those activities incidental to its ownership of
interests in us. However, except as provided in our partnership
agreement and the omnibus agreement, affiliates of our general
partner (which includes CVR Energy) are not prohibited from
engaging in other businesses or activities, including those that
might be in direct competition with us. See Certain
Relationship and Related Party Transactions
Agreements with CVR Energy Omnibus Agreement.
The
owners of our general partner are not required to share business
opportunities with us.
Our partnership agreement provides that the owners of our
general partner are permitted to engage in separate businesses
which directly compete with us and are not required to share or
communicate or offer any potential business opportunities to us
even if the opportunity is one that we might reasonably have
pursued. The partnership agreement provides that the owners of
our general partner will not be liable to us or any unitholder
for breach of any duty or obligation by reason of the fact that
such person pursued or acquired for itself any business
opportunity.
Neither
our partnership agreement nor any other agreement requires CVR
Energy or its affiliates to pursue a business strategy that
favors us or utilizes our assets or dictates what markets to
pursue or grow. CVR Energys directors and officers have a
fiduciary duty to make these decisions in the best interests of
the stockholders of CVR Energy, which may be contrary to our
interests.
The officers and certain directors of our general partner who
are also officers or directors of CVR Energy have fiduciary
duties to CVR Energy that may cause them to pursue business
strategies that disproportionately benefit CVR Energy or which
otherwise are not in our best interests.
Our
general partner is allowed to take into account the interests of
parties other than us (such as CVR Energy) in exercising certain
rights under our partnership agreement.
Our partnership agreement contains provisions that reduce the
standards to which our general partner would otherwise be held
by state fiduciary duty law. For example, our partnership
agreement permits our general partner to make a number of
decisions in its individual capacity, as opposed to in its
capacity as our general partner. This entitles our general
partner to consider only the interests and factors that it
desires, and it has no duty or obligation to give any
consideration to any interest of, or factors affecting, us, our
affiliates or any limited partner. Examples include the exercise
of its call right, its voting rights with respect to the units
it owns, its registration rights and the determination of
whether to consent to any merger or consolidation of the
partnership or amendment of the partnership agreement.
Our
general partner has limited its liability in the partnership
agreement and replaced default fiduciary duties with contractual
corporate governance standards set forth therein, thereby
restricting the remedies available to our unitholders for
actions that, without such replacement, might constitute
breaches of fiduciary duty.
In addition to the provisions described above, our partnership
agreement contains provisions that restrict the remedies
available to our unitholders for actions that might otherwise
constitute breaches of fiduciary duty. For example, our
partnership agreement:
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permits our general partner to make a number of decisions in its
individual capacity, as opposed to its capacity as general
partner, thereby entitling our general partner to consider only
the interests and factors
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139
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that it desires, and imposes no duty or obligation on our
general partner to give any consideration to any interest of, or
factors affecting, us, our affiliates or any limited partner;
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provides that our general partner shall not have any liability
to us or our unitholders for decisions made in its capacity as
general partner so long as it acted in good faith, meaning it
believed that the decision was in the best interests of our
partnership;
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generally provides that affiliated transactions and resolutions
of conflicts of interest not approved by the conflicts committee
of the board of directors of our general partner and not
involving a vote of unitholders must be on terms no less
favorable to us than those generally being provided to or
available from unrelated third parties or be fair and
reasonable to us, as determined by our general partner in
good faith, and that, in determining whether a transaction or
resolution is fair and reasonable, our general
partner may consider the totality of the relationships between
the parties involved, including other transactions that may be
particularly advantageous or beneficial to us;
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provides that our general partner and its officers and directors
will not be liable for monetary damages to us or our limited
partners for any acts or omissions unless there has been a final
and non-appealable judgment entered by a court of competent
jurisdiction determining that the general partner or its
officers or directors acted in bad faith or engaged in fraud or
willful misconduct or, in the case of a criminal matter, acted
with knowledge that the conduct was criminal; and
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provides that in resolving conflicts of interest, it will be
presumed that in making its decision, the general partner or its
conflicts committee acted in good faith, and in any proceeding
brought by or on behalf of any limited partner or the
partnership, the person bringing or prosecuting such proceeding
will have the burden of overcoming such presumption.
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By purchasing a common unit, a common unitholder will agree to
become bound by the provisions in our partnership agreement,
including the provisions discussed above. See
Fiduciary Duties.
Actions
taken by our general partner may affect the amount of cash
distributions to unitholders.
The amount of cash that is available for distribution to
unitholders is affected by decisions of the board of directors
of our general partner regarding such matters as:
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the expenses associated with being a public company and other
general and administrative expenses;
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interest expense and other financing costs related to current
and future indebtedness;
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amount and timing of asset purchases and sales;
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cash expenditures;
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borrowings; and
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issuance of additional units.
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Our partnership agreement permits us to borrow funds to make a
distribution on all outstanding units, and further provides that
we and our subsidiaries may borrow funds from our general
partner and its affiliates.
Our
general partner and its affiliates are not required to own any
of our common units. If our general partners affiliates
were to sell all or substantially all of their common units,
this would heighten the risk that our general partner would act
in ways that are more beneficial to itself than our common
unitholders.
Upon the closing of this offering, affiliates of our general
partner will own the majority of our outstanding units, but
there is no requirement that they continue to do so. The general
partner and its affiliates are permitted to sell all of their
common units, subject to certain limitations contained in our
partnership agreement. In addition, the current owners of our
general partner may sell the general partner interest to an
unrelated third party. If neither the general partner nor its
affiliates owned any of our common units, this would heighten
the risk that our general partner would act in ways that are
more beneficial to itself than our common unitholders.
140
We
will reimburse our general partner and its affiliates, including
CVR Energy, for expenses.
We will reimburse our general partner and its affiliates,
including CVR Energy, for costs incurred in managing and
operating us, including overhead costs incurred by CVR Energy in
rendering corporate staff and support services to us. Our
partnership agreement provides that the board of directors of
our general partner will determine in good faith the expenses
that are allocable to us and that reimbursement of overhead to
CVR Energy as described above is fair and reasonable to us. The
services agreement does not contain any cap on the amount we may
be required to pay pursuant to this agreement. See Certain
Relationships and Related Party Transactions
Agreements with CVR Energy Services Agreement.
Common
units are subject to our general partners call
right.
If at any time our general partner and its affiliates own more
than % of the
common units, our general partner will have the right, which it
may assign to any of its affiliates or to us, but not the
obligation, to acquire all, but not less than all, of the common
units held by public unitholders at a price not less than their
then-current market price, as calculated pursuant to the terms
of our partnership agreement. As a result, you may be required
to sell your common units at an undesirable time or price and
may not receive any return on your investment. You may also
incur a tax liability upon a sale of your common units. Our
general partner is not obligated to obtain a fairness opinion
regarding the value of the common units to be repurchased by it
upon exercise of the call right. There is no restriction in our
partnership agreement that prevents our manager from issuing
additional common units and exercising its call right. Our
general partner may use its own discretion, free of fiduciary
duty restrictions, in determining whether to exercise this
right. See The Partnership Agreement Call
Right.
Contracts between us, on the one hand, and our general
partner and its affiliates, on the other, will not be the result
of arms-length negotiations.
Our partnership agreement allows our general partner to
determine, in good faith, any amounts to pay itself or its
affiliates for any services rendered to us. Our general partner
may also enter into additional contractual arrangements with any
of its affiliates on our behalf. Neither our partnership
agreement nor any of the other agreements, contracts and
arrangements between us and our general partner and its
affiliates is or will be the result of arms-length
negotiations.
Our partnership agreement generally provides that if any
affiliated transaction, such as an agreement, contract or
arrangement between us and our general partner and its
affiliates, is:
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approved by a majority of the members of our conflicts committee;
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approved by a majority of outstanding common units (excluding
those owned by our general partner and its affiliates);
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on terms no less favorable to us than those generally being
provided to or available from unrelated third parties; or
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fair and reasonable to us, taking into account the
totality of the relationships between the parties involved
(including other transactions that may be particularly favorable
or advantageous to us)
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it will be deemed approved by all of our partners, and deemed to
not constitute a breach of our partnership agreement or any duty
thereunder or existing at law.
The prosecution of any disputes or disagreements that could
arise in the future under a contract or other agreement between
us and our general partner would give rise to an automatic
conflict of interest, as a common group of executive officers is
likely to be on both sides of the transaction.
Our general partner will determine, in good faith, the terms of
any of these related party transactions entered into after the
completion of this offering.
Our general partner and its affiliates will have no obligation
to permit us to use any of its facilities or assets, except as
may be provided in contracts entered into specifically dealing
with that use. There is no obligation of our general partner and
its affiliates to enter into any contracts of this kind.
141
Our
general partner intends to limit its liability regarding our
obligations.
Our general partner intends to limit its liability under
contractual arrangements (including our new credit facility) so
that the other party has recourse only to our assets and not
against our general partner or its assets. Our partnership
agreement provides that any action taken by our general partner
to limit its liability or our liability is not a breach of our
general partners fiduciary duties, even if we could have
obtained terms that are more favorable without the limitation on
liability.
Common
unitholders will have no right to enforce obligations of our
general partner and its affiliates under agreements with
us.
Any agreements between us, on the one hand, and our general
partner and its affiliates, on the other, will not grant to the
unitholders, separate and apart from us, the right to enforce
the obligations of our general partner and its affiliates in our
favor.
We may
choose not to retain separate counsel for ourselves or for the
holders of common units.
The attorneys, independent accountants and others who perform
services for us in this offering have been retained by our
general partner or its affiliates. Attorneys, independent
accountants and others who perform services for us in the future
will be selected by our general partner and may perform services
for our general partner and its affiliates. Our counsel in this
offering also represented CVR Energy in its initial public
offering and continues to represent CVR Energy from time to
time. We may retain separate counsel for ourselves or the
holders of common units in the event of a conflict of interest
between our general partner and its affiliates, on the one hand,
and us or the holders of common units, on the other, depending
on the nature of the conflict. We do not intend to do so in most
cases.
Except
in limited circumstances, our general partner has the power and
authority to conduct our business without limited partner
approval.
Under our partnership agreement, our general partner has full
power and authority to do all things, other than those items
that require unitholder approval or on such terms as it
determines to be necessary or appropriate to conduct our
business including, but not limited to, the following:
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the making of any expenditures, the lending or borrowing of
money, the assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of evidences of
indebtedness, including indebtedness that is convertible into
securities of the partnership, and the incurring of any other
obligations;
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the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies
having jurisdiction over our business or assets;
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the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any or all of our assets or the
merger or other combination of us with or into another person;
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the negotiation, execution and performance of any contracts,
conveyances or other instruments;
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the distribution of partnership cash;
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the selection and dismissal of employees and agents, outside
attorneys, accountants, consultants and contractors and the
determination of their compensation and other terms of
employment or hiring;
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the maintenance of insurance for our benefit and the benefit of
our partners;
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the formation of, or acquisition of an interest in, and the
contribution of property and the making of loans to, any further
limited or general partnerships, joint ventures, corporations,
limited liability companies or other entities;
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the control of any matters affecting our rights and obligations,
including the bringing and defending of actions at law or in
equity and otherwise engaging in the conduct of litigation,
arbitration or mediation and the incurring of legal expense and
the settlement of claims and litigation;
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the indemnification of any person against liabilities and
contingencies to the extent permitted by law;
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the purchase, sale or other acquisition or disposition of our
securities, or the issuance of additional options, rights,
warrants and appreciation rights relating to our
securities; and
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the entering into of agreements with any of its affiliates to
render services to us or to itself in the discharge of its
duties as our general partner.
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See The Partnership Agreement for information
regarding the voting rights of common unitholders.
Fiduciary
Duties
The Delaware Act provides that Delaware limited partnerships
may, in their partnership agreements, restrict, expand or
eliminate the fiduciary duties owed by general partners to other
partners and the partnership. Our partnership agreement has
eliminated these default fiduciary standards; instead, our
general partner is accountable to us and our unitholders
pursuant to the detailed contractual standards set forth in our
partnership agreement. The duties owed to unitholders by our
general partner are thus prescribed by our partnership agreement
and not by default fiduciary duties.
We have adopted these standards to allow our general partner or
its affiliates to engage in transactions with us that would
otherwise be prohibited by state law fiduciary standards and to
take into account the interests of other parties in addition to
our interests when resolving conflicts of interest. Without such
deviation from the default standards, such transactions could
result in violations of our general partners state law
fiduciary duties. We believe this is appropriate and necessary
because the board of directors of our general partner has duties
to manage our general partner in a manner beneficial to
Coffeyville Resources, its owner, and the stockholders of CVR
Energy, its indirect parent, and duties to manage us in a manner
that is in our best interests. Without these modifications, our
general partners ability to make decisions involving
conflicts of interest would be restricted. These modifications
also enable our general partner to take into consideration all
parties involved in the proposed action, so long as the
resolution is in our best interests. Further, these
modifications enable our general partner to attract and retain
experienced and capable directors. However, these modifications
disadvantage the common unitholders because they restrict the
rights and remedies that would otherwise be available to
unitholders for actions that, without such modifications, might
constitute breaches of fiduciary duty, as described below, and
permit our general partner to take into account the interests of
third parties in addition to our interests when resolving
conflicts of interest. The following is a summary of:
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the default fiduciary duties under by the Delaware Act;
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the standards contained in our partnership agreement that
replace the default fiduciary duties; and
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certain rights and remedies of limited partners contained in the
Delaware Act.
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State law fiduciary duty standards |
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Fiduciary duties are generally considered to include an
obligation to act in good faith and with due care and loyalty.
The duty of care, in the absence of a provision in a partnership
agreement providing otherwise, would generally require a general
partner to act for the partnership in the same manner as a
prudent person would act on his own behalf. The duty of loyalty,
in the absence of a provision in a partnership agreement
providing otherwise, would generally require that any action
taken or transaction engaged in be entirely fair to the
Partnership. |
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Partnership agreement modified standards |
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Our partnership agreement contains provisions that waive or
consent to conduct by our general partner and its affiliates
that might otherwise raise issues as to compliance with
fiduciary duties or applicable law. For example, our partnership
agreement provides that when our general partner is acting in
its capacity as our general partner, as opposed to in its
individual capacity, it must act in good faith and
will not be subject to any other standard under applicable law.
In addition, when our general partner is acting in its
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as opposed to in its capacity as our general partner, it may act
without any fiduciary obligation to us or the unitholders
whatsoever. These contractual standards reduce the obligations
to which our general partner would otherwise be held. |
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Our partnership agreement generally provides that affiliated
transactions and resolutions of conflicts of interest not
involving a vote of unitholders and that are not approved by the
conflicts committee of the board of directors of our general
partner must be: |
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on terms no less favorable to us than those
generally being provided to or available from unrelated third
parties; or
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fair and reasonable to us, taking into
account the totality of the relationships between the parties
involved (including other transactions that may be particularly
favorable or advantageous to us).
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All conflicts of interest disclosed in this prospectus
(including our agreements and other arrangements with CVR
Energy) have been approved by all of our partners under the
terms of our partnership agreement. |
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If our general partner does not seek approval from the conflicts
committee of its board of directors or the common unitholders,
and its board of directors determines that the resolution or
course of action taken with respect to the conflict of interest
satisfies either of the standards set forth in the bullet points
above, then it will be presumed that, in making its decision,
the board of directors, which may include board members affected
by the conflict of interest, acted in good faith, and in any
proceeding brought by or on behalf of any limited partner or the
partnership, the person bringing or prosecuting such proceeding
will have the burden of overcoming such presumption. These
standards reduce the obligations to which our general partner
would otherwise be held. |
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In addition to the other more specific provisions limiting the
obligations of our general partner, our partnership agreement
further provides that our general partner and its officers and
directors will not be liable for monetary damages to us or our
limited partners for errors of judgment or for any acts or
omissions unless there has been a final and non-appealable
judgment by a court of competent jurisdiction determining that
the general partner or its officers and directors acted in bad
faith or engaged in fraud or willful misconduct or, in the case
of a criminal matter, acted with knowledge that such
persons conduct was unlawful. |
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Rights and remedies of limited partners |
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The Delaware Act generally provides that a limited partner may
institute legal action on behalf of the partnership to recover
damages from a third party where a general partner has refused
to institute the action or where an effort to cause a general
partner to do so is not likely to succeed. These actions include
actions against a general partner for breach of its fiduciary
duties or of our partnership agreement. In addition, the
statutory or case law of some jurisdictions may permit a limited
partner to institute legal action on behalf of it and all other
similarly situated limited partners to recover damages from a
general partner for violations of its fiduciary duties to the
limited partners. |
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In order to become one of our limited partners, a common
unitholder is required to agree to be bound by the provisions in
our partnership agreement, including the provisions discussed
above. See Description of Our Common Units
Transfer of Common Units. This is in accordance with the
policy of the Delaware Act favoring the principle of freedom of
contract and the enforceability of partnership agreements. The
failure of a limited partner or assignee to sign a partnership
agreement does not render our partnership agreement
unenforceable against that person.
Under our partnership agreement, we must indemnify our general
partner and its officers, directors and managers, to the fullest
extent permitted by law, against liabilities, costs and expenses
incurred by our general partner or these other persons. We must
provide this indemnification unless there has been a final and
non-appealable judgment by a court of competent jurisdiction
determining that these persons acted in bad faith or engaged in
fraud or willful misconduct. We also must provide this
indemnification for criminal proceedings unless our general
partner or these other persons acted with knowledge that their
conduct was unlawful. Thus, our general partner could be
indemnified for its negligent or grossly negligent acts if it
meets the requirements set forth above. To the extent that these
provisions purport to include indemnification for liabilities
arising under the Securities Act, in the opinion of the SEC such
indemnification is contrary to public policy and therefore
unenforceable.
Related
Party Transactions
We have adopted policies for the review, approval and
ratification of transactions with related persons. At the
discretion of our general partners board of directors, a
proposed related party transaction may generally be approved by
the board in its entirety, or by a conflicts
committee meeting the definitional requirements for such a
committee under the Partnership Agreement.
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DESCRIPTION
OF OUR COMMON UNITS
Our
Common Units
The common units offered hereby represent limited partner
interests in us. The holders of common units are entitled to
participate in partnership distributions and exercise the rights
and privileges provided to limited partners under our
partnership agreement. For a description of the rights and
privileges of holders of our common units to partnership
distributions, see How We Make Cash Distributions
and Our Cash Distribution Policy and Restrictions on
Distributions. For a description of the rights and
privileges of limited partners under our partnership agreement,
including voting rights, see The Partnership
Agreement.
Transfer
Agent and Registrar
Duties. American Stock Transfer &
Trust Company will serve as registrar and transfer agent
for the common units. We pay all fees charged by the transfer
agent for transfers of common units, except the following, which
must be paid by unitholders:
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surety bond premiums to replace lost or stolen certificates,
taxes and other governmental charges;
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special charges for services requested by a holder of a common
unit; and
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other similar fees or charges.
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There is no charge to unitholders for disbursements of our
quarterly cash distributions. We will indemnify the transfer
agent, its agents and each of their stockholders, directors,
officers and employees against all claims and losses that may
arise out of acts performed or omitted for its activities in
that capacity, except for any liability due to any gross
negligence or intentional misconduct of the indemnified person
or entity.
Resignation or Removal. The transfer agent may
resign, by notice to us, or be removed by us. The resignation or
removal of the transfer agent will become effective upon our
appointment of a successor transfer agent and registrar and its
acceptance of the appointment. If a successor has not been
appointed or has not accepted its appointment within
30 days after notice of the resignation or removal, our
general partner may act as the transfer agent and registrar
until a successor is appointed.
Transfer
of Common Units
By transfer of common units in accordance with our partnership
agreement, each transferee of common units shall be admitted as
a limited partner with respect to the common units transferred
when such transfer and admission is reflected in our books and
records. Each transferee:
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represents that the transferee has the capacity, power and
authority to become bound by our partnership agreement;
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automatically agrees to be bound by the terms and conditions of,
and is deemed to have executed, our partnership
agreement; and
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gives the consents and approvals contained in our partnership
agreement, such as the approval of all transactions and
agreements entered into in connection with our formation and
this offering.
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A transferee will become a substituted limited partner of our
partnership for the transferred common units automatically upon
the recording of the transfer on our books and records. Our
general partner will cause any transfers to be recorded on our
books and records from time to time as necessary to accurately
reflect the transfers.
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We may, at our discretion, treat the nominee holder of a common
unit as the absolute owner. In that case, the beneficial
holders rights are limited solely to those that it has
against the nominee holder as a result of any agreement between
the beneficial owner and the nominee holder.
Common units are securities and are transferable according to
the laws governing transfer of securities. In addition to other
rights acquired upon transfer, the transferor gives the
transferee the right to become a limited partner in our
partnership for the transferred common units.
Until a common unit has been transferred on our books, we and
the transfer agent may treat the record holder of the common
unit as the absolute owner for all purposes, except as otherwise
required by law or stock exchange regulations.
Listing
We have applied to list our common units on the New York Stock
Exchange under the symbol UAN.
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THE
PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our
partnership agreement. The form of our partnership agreement is
included in this prospectus as Appendix A. We will provide
prospective investors with a copy of our partnership agreement
upon request at no charge.
We summarize the following provisions of our partnership
agreement elsewhere in this prospectus:
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with regard to distributions of cash, see How We Make Cash
Distributions;
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with regard to the fiduciary duties of our general partner, see
Conflicts of Interest and Fiduciary Duties;
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with regard to the authority of our general partner to manage
our business and activities, see Management
Management of CVR Partners, LP;
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with regard to the transfer of common units, see
Description of Our Common Units Transfer of
Common Units; and
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with regard to allocations of taxable income and taxable loss,
see Material U.S. Federal Income Tax
Consequences.
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Organization
and Duration
We were organized on June 12, 2007 and will have a
perpetual existence unless terminated pursuant to the terms of
our partnership agreement.
Purpose
Our purpose under our partnership agreement is limited to
engaging in any business activity that is approved by our
general partner and that lawfully may be conducted by a limited
partnership organized under Delaware law.
Although our general partner has the ability to cause us and our
subsidiary to engage in activities other than those related to
the nitrogen fertilizer business and activities now or hereafter
customarily conducted in conjunction with this business, our
general partner may decline to do so free of any fiduciary duty
or obligation whatsoever to us or the limited partners,
including any duty to act in good faith or in the best interests
of us or our limited partners. In general, our general partner
is authorized to perform all acts it determines to be necessary
or appropriate to carry out our purposes and to conduct our
business.
Capital
Contributions
Common unitholders are not obligated to make additional capital
contributions, except as described below under
Limited Liability. For a discussion of
our general partners right to contribute capital to
maintain its and its affiliates percentage interest if we
issue partnership interests, see Issuance of
Additional Partnership Interests.
Voting
Rights
The following is a summary of the unitholder vote required for
the matters specified below. Matters requiring the approval of a
unit majority require the approval of a majority of
the common units.
At the closing of this offering, CVR Energy will have the
ability to ensure passage of, as well as the ability to ensure
the defeat of, any amendment which requires a unit majority by
virtue of its % indirect ownership
of our common units.
In voting their common units, our general partner and its
affiliates will have no fiduciary duty or obligation whatsoever
to us or the limited partners, including any duty to act in good
faith or in the best interests of us or the limited partners.
The holders of a majority of the common units (including common
units deemed owned by our general partner) represented in person
or by proxy shall constitute a quorum at a meeting of such
common unitholders, unless any such action requires approval by
holders of a greater percentage of such units in which case the
quorum shall be such greater percentage.
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The following is a summary of the vote requirements specified
for certain matters under our partnership agreement:
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Issuance of additional partnership interests |
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No approval right. See Issuance of Additional
Partnership Interests. |
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Amendment of our partnership agreement |
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Certain amendments may be made by our general partner without
the approval of the common unitholders. Other amendments
generally require the approval of a unit majority. See
Amendment of Our Partnership Agreement. |
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Merger of our partnership or the sale of all or substantially
all of our assets |
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Unit majority in certain circumstances. See
Merger, Sale or Other Disposition of
Assets. |
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Dissolution of our partnership |
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Unit majority. See Termination and
Dissolution. |
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Continuation of our partnership upon dissolution |
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Unit majority. See Termination and
Dissolution. |
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Withdrawal of our general partner |
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Under most circumstances, the approval of a majority of the
common units, excluding common units held by our general partner
and its affiliates, is required for the withdrawal of our
general partner prior to March 31, 2021. See
Withdrawal or Removal of Our General
Partner. |
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Removal of our general partner |
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Not less than
662/3%
of the outstanding common units, including common units held by
our general partner and its affiliates. See
Withdrawal or Removal of Our General
Partner. |
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Transfer of the general partner interest |
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Our general partner may transfer all, but not less than all, of
its general partner interest in us without a vote of our
unitholders to an affiliate or another person in connection with
its merger or consolidation with or into, or sale of all or
substantially all of its assets to, such person. The approval of
a majority of the common units, excluding common units held by
our general partner and its affiliates, is required in other
circumstances for a transfer of the general partner interest to
a third party prior to March 31, 2021. See
Transfer of General Partner Interests. |
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Transfer of ownership interests in our general partner |
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No approval required at any time. See Transfer
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If any person or group other than our general partner and its
affiliates acquires beneficial ownership of 20% or more of any
class of units then outstanding, that person or group will lose
voting rights on all of such units. This loss of voting rights
does not apply to any person or group that acquires the units
from our general partner or its affiliates and any transferees
of that person or group approved by our general partner or to
any person or group who acquires the units with the specific
approval of our general partner.
Applicable
Law; Forum, Venue and Jurisdiction
Our partnership agreement is governed by Delaware law. Our
partnership agreement requires that any claims, suits, actions
or proceedings:
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arising out of or relating in any way to the partnership
agreement (including any claims, suits or actions to interpret,
apply or enforce the provisions of the partnership agreement or
the duties, obligations or liabilities
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among limited partners or of limited partners to us, or the
rights or powers of, or restrictions on, the limited partners or
us);
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brought in a derivative manner on our behalf;
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asserting a claim of breach of a fiduciary duty owed by any
director, officer or other employee of us or our general
partner, or owed by our general partner, to us or the limited
partners;
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asserting a claim arising pursuant to any provision of the
Delaware Act; or
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asserting a claim governed by the internal affairs doctrine
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shall be exclusively brought in the Court of Chancery of the
State of Delaware, regardless of whether such claims, suits,
actions or proceedings sound in contract, tort, fraud or
otherwise, are based on common law, statutory, equitable, legal
or other grounds, or are derivative or direct claims. By
purchasing a common unit, a limited partner is irrevocably
consenting to these limitations and provisions regarding claims,
suits, actions or proceedings and submitting to the exclusive
jurisdiction of the Court of Chancery of the State of Delaware
in connection with any such claims, suits, actions or
proceedings.
Limited
Liability
Assuming that a limited partner does not participate in the
control of our business within the meaning of the Delaware Act
and that it otherwise acts in conformity with the provisions of
our partnership agreement, its liability under the Delaware Act
will be limited, subject to possible exceptions, to the amount
of capital it is obligated to contribute to us for its common
units plus its share of any undistributed profits and assets. If
it were determined, however, that the right, or exercise of the
right, by the limited partners as a group:
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to remove or replace our general partner;
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to approve some amendments to our partnership agreement; or
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to take other action under our partnership agreement
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constituted participation in the control of our
business for the purposes of the Delaware Act, then the limited
partners could be held personally liable for our obligations
under the laws of Delaware to the same extent as our general
partner. This liability would extend to persons who transact
business with us who reasonably believe that the limited partner
is a general partner. Neither our partnership agreement nor the
Delaware Act specifically provides for legal recourse against
our general partner if a limited partner were to lose limited
liability through any fault of our general partner. While this
does not mean that a limited partner could not seek legal
recourse, we know of no precedent for such a claim in Delaware
case law.
Under the Delaware Act, a limited partnership may not make a
distribution to a partner if, after the distribution, all
liabilities of the limited partnership, other than liabilities
to partners on account of their partnership interests and
liabilities for which the recourse of creditors is limited to
specific property of the partnership, would exceed the fair
value of the assets of the limited partnership. For the purpose
of determining the fair value of the assets of a limited
partnership, the Delaware Act provides that the fair value of
property subject to liability for which recourse of creditors is
limited shall be included in the assets of the limited
partnership only to the extent that the fair value of that
property exceeds the nonrecourse liability. The Delaware Act
provides that a limited partner who receives a distribution and
knew at the time of the distribution that the distribution was
in violation of the Delaware Act shall be liable to the limited
partnership for the amount of the distribution for three years.
Under the Delaware Act, a substituted limited partner of a
limited partnership is liable for the obligations of his
assignor to make contributions to the partnership, except that
such person is not obligated for liabilities unknown to him at
the time he became a limited partner and that could not be
ascertained from the partnership agreement.
Our subsidiary conducts business in three states: Kansas,
Nebraska and Texas. We and our current subsidiary or any future
subsidiaries may conduct business in other states in the future.
Maintenance of our limited liability as a member of our
operating company may require compliance with legal requirements
in the jurisdictions in which our operating company conducts
business, including qualifying our subsidiaries to do business
there. We have
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attempted to limit our liability for the obligations of our
operating subsidiary by structuring it as a limited liability
company.
If, by virtue of our membership interest in our operating
subsidiary or otherwise, it were determined that we were
conducting business in any state without compliance with the
applicable limited partnership or liability company statute, or
that the right, or exercise of the right by the limited partners
as a group, to remove or replace our general partner, to approve
some amendments to our partnership agreement, or to take other
action under our partnership agreement constituted
participation in the control of our business for
purposes of the statutes of any relevant jurisdiction, then the
limited partners could be held personally liable for our
obligations under the law of that jurisdiction to the same
extent as our general partner under the circumstances. We will
operate in a manner that our general partner considers
reasonable and necessary or appropriate to preserve the limited
liability of the limited partners.
Issuance
of Additional Partnership Interests
Our partnership agreement authorizes us to issue an unlimited
number of additional partnership interests for the consideration
and on the terms and conditions determined by our general
partner without the approval of the unitholders.
It is possible that we will fund acquisitions through the
issuance of additional common units or other partnership
interests. Holders of any additional common units we issue will
be entitled to share equally with the then-existing holders of
common units in our quarterly cash distributions. In addition,
the issuance of additional common units or other partnership
interests may dilute the value of the interests of the
then-existing holders of common units in our net assets.
In accordance with Delaware law and the provisions of our
partnership agreement, we may also issue additional partnership
interests that, as determined by our general partner, have
special voting rights to which the common units are not entitled
or are senior in right of distribution to the common units. In
addition, our partnership agreement does not prohibit the
issuance by our subsidiary of equity interests, which may
effectively rank senior to the common units.
Our general partner will have the right, which it may from time
to time assign in whole or in part to any of its affiliates, to
purchase common units, whenever, and on the same terms that, we
issue those interests to persons other than our general partner
and its affiliates, to the extent necessary to maintain its and
its affiliates percentage interest, including such
interest represented by common units, that existed immediately
prior to each issuance. The holders of common units will not
have preemptive rights under our partnership agreement to
acquire additional common units or other partnership interests.
Amendment
of Our Partnership Agreement
General
Amendments to our partnership agreement may be proposed only by
our general partner. However, our general partner will have no
duty or obligation to propose any amendment and may decline to
do so free of any fiduciary duty or obligation whatsoever to us
or any partner, including any duty to act in good faith or in
the best interests of us or the limited partners. In order to
adopt a proposed amendment, other than the amendments discussed
below under No Unitholder Approval, our
general partner is required to seek written approval of the
holders of the number of common units required to approve the
amendment or call a meeting of the limited partners to consider
and vote upon the proposed amendment. Except as described below,
an amendment must be approved by a unit majority.
Prohibited
Amendments
No amendment may be made that would:
(1) enlarge the obligations of any limited partner or
general partner without its consent, unless approved by at least
a majority of the type or class of partner interests so affected;
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(2) enlarge the obligations of, restrict in any way any
action by or rights of, or reduce in any way the amounts
distributable, reimbursable or otherwise payable by us to our
general partner or any of its affiliates without the consent of
our general partner, which consent may be given or withheld in
its sole discretion;
(3) change certain of the terms under which we can be
dissolved; or
(4) change the term of the Partnership.
The provision of our partnership agreement preventing the
amendments having the effects described in any of the clauses
above can be amended upon the approval of the holders of at
least 90% of the outstanding common units, voting together as a
single class (including common units owned by our general
partner and its affiliates). Upon completion of this offering,
our general partner and its affiliates will own
approximately % of the outstanding
common units (approximately % if
the underwriters exercise their option to purchase additional
common units in full).
No
Unitholder Approval
Our general partner may generally make amendments to our
partnership agreement without the approval of any other partner
to reflect:
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a change in our name, the location of our principal place of
business, our registered agent or our registered office;
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the admission, substitution, withdrawal or removal of partners
in accordance with our partnership agreement;
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a change that our general partner determines to be necessary or
appropriate for us to qualify or to continue our qualification
as a limited partnership or a partnership in which the limited
partners have limited liability under the laws of any state or
to ensure that neither we nor our subsidiary will be treated as
an association taxable as a corporation or otherwise taxed as an
entity for U.S. federal income tax purposes (to the extent not
already so treated or taxed);
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an amendment that is necessary, in the opinion of our counsel,
to prevent us or our general partner or its directors, officers,
agents, or trustees from in any manner being subjected to the
provisions of the Investment Company Act of 1940, the Investment
Advisers Act of 1940, or plan asset regulations
adopted under the Employee Retirement Income Security Act of
1974, or ERISA, whether or not substantially similar to plan
asset regulations currently applied or proposed;
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an amendment that our general partner determines to be necessary
or appropriate for the creation, authorization, or issuance of
additional partnership interests or rights to acquire
partnership interests, as otherwise permitted by our partnership
agreement;
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any amendment expressly permitted in our partnership agreement
to be made by our general partner acting alone;
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an amendment effected, necessitated or contemplated by a merger
agreement that has been approved under the terms of our
partnership agreement;
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any amendment that our general partner determines to be
necessary or appropriate for the formation by us of, or our
investment in, any corporation, partnership or other entity, as
otherwise permitted by our partnership agreement;
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a change in our fiscal year or taxable year and related changes;
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mergers with or conveyances to another limited liability entity
that is newly formed and has no assets, liabilities or
operations at the time of the merger or conveyance other than
those it receives by way of the merger or conveyance; or
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any other amendments substantially similar to any of the matters
described above.
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152
In addition, our general partner may make amendments to our
partnership agreement without the approval of any partner if our
general partner determines that those amendments:
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do not adversely affect in any material respect the partners
considered as a whole or any particular class of partners;
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are necessary or appropriate to satisfy any requirements,
conditions, or guidelines contained in any opinion, directive,
order, ruling, or regulation of any federal or state agency or
judicial authority or contained in any federal or state statute;
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are necessary or appropriate to facilitate the trading of
limited partner interests or to comply with any rule,
regulation, guideline, or requirement of any securities exchange
on which the limited partner interests are or will be listed for
trading;
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are necessary or appropriate for any action taken by our general
partner relating to splits or combinations of common units under
the provisions of our partnership agreement; or
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are required to effect the intent expressed in this prospectus
or the intent of the provisions of our partnership agreement or
are otherwise contemplated by our partnership agreement.
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Opinion
of Counsel and Unitholder Approval
For amendments of the type not requiring unitholder approval,
our general partner will not be required to obtain an opinion of
counsel that an amendment will not result in a loss of limited
liability to the limited partners or result in our being treated
as an entity for U.S. federal income tax purposes in
connection with any of the amendments. No other amendments to
our partnership agreement will become effective without the
approval of holders of at least 90% of the outstanding common
units voting as a single class unless we first obtain an opinion
of counsel to the effect that the amendment will not affect the
limited liability under Delaware law of any of our limited
partners.
Any amendment that would have a material adverse effect on the
rights or preferences of any type or class of outstanding common
units in relation to other classes of units will require the
approval of at least a majority of the type or class of common
units so affected. Any amendment that would reduce the
percentage of units required to take any action, other than to
remove the general partner or call a meeting of unitholders must
be approved by the affirmative vote of partners whose aggregate
outstanding units constitute not less than the percentage sought
to be reduced.
Merger,
Sale or Other Disposition of Assets
A merger or consolidation or conversion of us requires the prior
consent of our general partner. However, our general partner
will have no duty or obligation to consent to any merger or
consolidation and may decline to do so free of any fiduciary
duty or obligation whatsoever to us or other partners, including
any duty to act in good faith or in the best interest of us or
the other partners.
In addition, our partnership agreement generally prohibits our
general partner, without the prior approval of the holders of a
unit majority, from causing us to sell, exchange or otherwise
dispose of all or substantially all of our assets in a single
transaction or a series of related transactions, including by
way of merger, consolidation or other combination. Our general
partner may, however, mortgage, pledge, hypothecate or grant a
security interest in all or substantially all of our assets
without that approval. Our general partner may also sell all or
substantially all of our assets under a foreclosure or other
realization upon those encumbrances without that approval.
Finally, our general partner may consummate any merger without
the prior approval of our unitholders if we are the surviving
entity in the transaction, our general partner has received an
opinion of counsel regarding limited liability and tax matters,
the transaction would not result in a material amendment to the
partnership agreement (other than an amendment that the general
partner could adopt without the consent of other partners), each
of our common units will be an identical unit of our partnership
following the transaction and the partnership securities to be
issued do not exceed 20% of our outstanding partnership
interests immediately prior to the transaction.
153
If the conditions specified in our partnership agreement are
satisfied, our general partner may convert us or our subsidiary
into a new limited liability entity or merge us or our
subsidiary into, or convey all of our assets to, a newly formed
entity, if the sole purpose of that conversion, merger or
conveyance is to effect a mere change in our legal form into
another limited liability entity, we have received an opinion of
counsel regarding limited liability and tax matters and the
governing instruments of the new entity provide the limited
partners and our general partner with the same rights and
obligations as contained in our partnership agreement. Our
unitholders are not entitled to dissenters rights of
appraisal under our partnership agreement or applicable Delaware
law in the event of a conversion, merger or consolidation, a
sale of substantially all of our assets or any other similar
transaction or event.
Termination
and Dissolution
We will continue as a limited partnership until terminated under
our partnership agreement. We will dissolve upon:
(1) the election of our general partner to dissolve us, if
approved by the holders of common units representing a unit
majority;
(2) there being no limited partners, unless we are
continued without dissolution in accordance with applicable
Delaware law;
(3) the entry of a decree of judicial dissolution of our
partnership; or
(4) the withdrawal or removal of our general partner or any
other event that results in its ceasing to be our general
partner other than by reason of a transfer of its general
partner interest in accordance with our partnership agreement or
withdrawal or removal following approval and admission of a
successor.
Upon a dissolution under clause (4), the holders of a unit
majority may also elect, within specific time limitations, to
continue our business on the same terms and conditions described
in our partnership agreement by appointing as a successor
general partner an entity approved by the holders of common
units representing a unit majority, subject to our receipt of an
opinion of counsel to the effect that:
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the action would not result in the loss of limited liability
under Delaware law of any limited partner; and
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neither our partnership nor our subsidiary would be treated as
an association taxable as a corporation or otherwise be taxable
as an entity for U.S. federal income tax purposes upon the
exercise of that right to continue (to the extent not already so
treated or taxed).
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Liquidation
and Distribution of Proceeds
Upon our dissolution, unless our business is continued, the
liquidator authorized to wind up our affairs will, acting with
all of the powers of our general partner that are necessary or
appropriate, liquidate our assets and apply the proceeds of the
liquidation as set forth in our partnership agreement. The
liquidator may defer liquidation or distribution of our assets
for a reasonable period of time or distribute assets to partners
in kind if it determines that a sale would be impractical or
would cause undue loss to our partners.
Withdrawal
or Removal of Our General Partner
Except as described below, our general partner has agreed not to
withdraw voluntarily as our general partner prior to
March 31, 2021 without obtaining the approval of the
holders of at least a majority of the outstanding common units
excluding common units held by our general partner and its
affiliates (including CVR Energy), and by giving
90 days written notice and furnishing an opinion of
counsel regarding limited liability and tax matters. On or after
March 31 2021, our general partner may withdraw as general
partner without first obtaining approval of any unitholder by
giving 90 days written notice, and that withdrawal
will not constitute a violation of our partnership agreement.
Notwithstanding the information above, our general partner may
withdraw without unitholder approval upon 90 days
notice to the unitholders if at least 50% of the outstanding
common units are held or controlled by one person and its
affiliates other than our general partner and its affiliates. In
addition, our partnership agreement permits our general partner
in some instances to sell or otherwise transfer all of its
general partner interest without the approval of the
unitholders. See Transfer of General Partner
Interest.
154
Upon withdrawal of our general partner under any circumstances,
other than as a result of a transfer by our general partner of
all or a part of its general partner interest in us, the holders
of a majority of the outstanding classes of common units voting
as a single class may select a successor to that withdrawing
general partner. If a successor is not elected, or is elected
but an opinion of counsel regarding limited liability and tax
matters cannot be obtained, we will be dissolved, wound up and
liquidated, unless within a specified period of time after that
withdrawal, the holders of a unit majority agree in writing to
continue our business and to appoint a successor general
partner. See Termination and Dissolution.
Our general partner may not be removed unless that removal is
approved by the vote of the holders of not less
than % of the outstanding common
units, voting together as a single class, including common units
held by our general partner and its affiliates, and we receive
an opinion of counsel regarding limited liability and tax
matters. Any removal of our general partner is also subject to
the approval of a successor general partner by the vote of the
holders of a majority of the outstanding common units. The
ownership of more than
331/3%
of the outstanding common units by our general partner and its
affiliates (including Coffeyville Resources) gives them the
ability to prevent our general partners removal. At the
closing of this offering, affiliates of our general partner will
own approximately % of the
outstanding common units
(approximately % if the
underwriters exercise their option to purchase additional common
units in full).
In the event of removal of our general partner under
circumstances where cause exists or withdrawal of our general
partner where that withdrawal violates our partnership
agreement, a successor general partner will have the option to
purchase the general partner interest of the departing general
partner for a cash payment equal to the fair market value of the
general partner interest. Under all other circumstances where
our general partner withdraws or is removed, the departing
general partner will have the option to require the successor
general partner to purchase the general partner interest of the
departing general partner for its fair market value. In each
case, this fair market value will be determined by agreement
between the departing general partner and the successor general
partner. If no agreement is reached, an independent investment
banking firm or other independent expert selected by the
departing general partner and the successor general partner will
determine the fair market value. Or, if the departing general
partner and the successor general partner cannot agree upon an
expert, then an expert chosen by agreement of the experts
selected by each of them will determine the fair market value.
If the option described above is not exercised by either the
departing general partner or the successor general partner, the
departing general partners general partner interest will
automatically convert into common units equal to the fair market
value of those interests as determined by an investment banking
firm or other independent expert selected in the manner
described in the preceding paragraph.
In addition, we will be required to reimburse the departing
general partner for all amounts due to the general partner,
including, without limitation, all employee-related liabilities,
including severance liabilities, incurred for the termination of
any employees employed by the departing general partner or its
affiliates for our benefit.
Transfer
of General Partner Interest
Except for the transfer by our general partner of all, but not
less than all, of its general partner interest in our
partnership to:
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an affiliate of our general partner (other than an
individual), or
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another entity as part of the merger or consolidation of our
general partner with or into another entity or the transfer by
our general partner of all or substantially all of its assets to
another entity,
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our general partner may not transfer all or any part of its
general partner interest to another person prior to
March 31, 2021 without the approval of both the holders of
at least a majority of the outstanding common units, excluding
common units held by our general partner and its affiliates. On
or after March 31, 2021, the general partner interest will
be freely transferable. As a condition of any transfer, the
transferee must, among other things, assume the rights and
duties of our general partner, agree to be bound by the
provisions of our partnership agreement and furnish an opinion
of counsel regarding limited liability and tax matters.
Our general partner and its affiliates may at any time transfer
common units to one or more persons, without unitholder approval.
155
Transfer
of Ownership Interests in Our General Partner
At any time, the owners of our general partner may sell or
transfer all or part of their ownership interests in our general
partner to an affiliate or a third party without the approval of
our unitholders.
Change of
Management Provisions
Our partnership agreement contains specific provisions that are
intended to discourage a person or group from attempting to
remove CVR GP, LLC as our general partner or otherwise change
management. See Withdrawal or Removal of Our
General Partner for a discussion of certain consequences
of the removal of our general partner. If any person or group
other than our general partner and its affiliates acquires
beneficial ownership of 20% or more of any class of common
units, that person or group loses voting rights on all of its
common units. This loss of voting rights does not apply in
certain circumstances. See Voting Rights.
Call
Right
If at any time our general partner and its affiliates own more
than % of the then-issued and outstanding limited
partner interests of any class, our general partner will have
the right, which it may assign in whole or in part to any of its
affiliates or to us, to acquire all, but not less than all, of
the limited partner interests of the class held by public
unitholders, as of a record date to be selected by our general
partner, on at least 10 but not more than 60 days
notice. Immediately following this offering the only class of
limited partner interest outstanding will be the common units,
and affiliates of our general partner will own % of
the total outstanding common units.
The purchase price in the event of such an acquisition will be
the greater of:
(1) the highest price paid by our general partner or any of
its affiliates for any limited partner interests of the class
purchased within the 90 days preceding the date on which
our general partner first mails notice of its election to
purchase those limited partner interests; and
(2) the average of the daily closing prices of the limited
partner interests over the 20 trading days preceding the date
three days before notice of exercise of the call right is first
mailed.
As a result of our general partners right to purchase
outstanding common units, a holder of common units may have its
common units purchased at an undesirable time or at a price that
may be lower than market prices at various times prior to such
purchase or lower than a unitholder may anticipate the market
price to be in the future. The U.S. federal income tax
consequences to a unitholder of the exercise of this call right
are the same as a sale by that unitholder of his common units in
the market. See Material U.S. Federal Income Tax
Consequences Disposition of Common Units.
Non-Citizen
Assignees; Redemption
If our general partner, with the advice of counsel, determines
we are subject to U.S. federal, state or local laws or
regulations that create a substantial risk of cancellation or
forfeiture of any property that we have an interest in because
of the nationality, citizenship or other related status of any
limited partner, then our general partner may adopt such
amendments to our partnership agreement as it determines
necessary or advisable to:
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obtain proof of the nationality, citizenship or other related
status of our limited partner (and their owners, to the extent
relevant); and
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permit us to redeem the common units held by any person whose
nationality, citizenship or other related status creates
substantial risk of cancellation or forfeiture of any property
or who fails to comply with the procedures instituted by the
board to obtain proof of the nationality, citizenship or other
related status. The redemption price in the case of such
redemption will be the average of the daily closing prices per
unit for the 20 consecutive trading days immediately prior to
the date set for redemption.
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156
Non-Taxpaying
Assignees; Redemption
To avoid any adverse effect on the maximum applicable rates
chargeable to customers by our subsidiary, or in order to
reverse an adverse determination that has occurred regarding
such maximum rate, our partnership agreement provides our
general partner the power to amend the agreement. If our general
partner, with the advice of counsel, determines that our not
being treated as an association taxable as a corporation or
otherwise taxable as an entity for U.S. federal income tax
purposes, coupled with the tax status (or lack of proof thereof)
of one or more of our partners, has, or is reasonably likely to
have, a material adverse effect on the maximum applicable rates
chargeable to customers by our current or future subsidiaries,
then our general partner may adopt such amendments to our
partnership agreement as it determines necessary or advisable to:
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obtain proof of the U.S. federal income tax status of our
partner (and their owners, to the extent relevant); and
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permit us to redeem the common units held by any person whose
tax status has or is reasonably likely to have a material
adverse effect on the maximum applicable rates or who fails to
comply with the procedures instituted by the general partner to
obtain proof of the U.S. federal income tax status. The
redemption price in the case of such redemption will be the
average of the daily closing prices per unit for the 20
consecutive trading days immediately prior to the date set for
redemption.
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Meetings;
Voting
Except as described below regarding a person or group owning 20%
or more of any class of units then outstanding, unitholders who
are record holders of common units on the record date will be
entitled to notice of, and to vote at, meetings of our
unitholders and to act upon matters for which approvals may be
solicited. Our general partner does not anticipate that any
meeting of unitholders will be called in the foreseeable future.
Any action that is required or permitted to be taken by the
unitholders may be taken either at a meeting of the unitholders
or without a meeting if consents in writing describing the
action so taken are signed by holders of the number of units
necessary to authorize or take that action at a meeting.
Meetings of the unitholders may be called by our general partner
or by unitholders owning at least 20% of the outstanding units
of the class for which a meeting is proposed. Unitholders may
vote either in person or by proxy at meetings. The holders of a
majority of the outstanding units of the class or classes for
which a meeting has been called, represented in person or by
proxy, will constitute a quorum unless any action by the
unitholders requires approval by holders of a greater percentage
of the units, in which case the quorum will be the greater
percentage.
Each record holder of a unit has a vote according to his
percentage interest in us, although additional limited partner
interests having special voting rights could be issued. See
Issuance of Additional Partnership
Interests. However, if at any time any person or group,
other than our general partner and its affiliates, a direct or
subsequently approved transferee of our general partner or their
affiliates, or, upon the approval by the general partner, any
other unitholder, acquires, in the aggregate, beneficial
ownership of 20% or more of any class of units then outstanding,
that person or group will lose voting rights on all of its units
and the units may not be voted on any matter and will not be
considered to be outstanding when sending notices of a meeting
of unitholders, calculating required votes, determining the
presence of a quorum, or for other similar purposes. Common
units held in nominee or street name account will be voted by
the broker or other nominee in accordance with the instruction
of the beneficial owner unless the arrangement between the
beneficial owner and his nominee provides otherwise.
Any notice, demand, request, report, or proxy material required
or permitted to be given or made to record holders of common
units under our partnership agreement will be delivered to the
record holder by us or by the transfer agent.
Status as
Limited Partner or Assignee
Except as described above under Limited
Liability, the common units will be fully paid, and
unitholders will not be required to make additional
contributions. By transfer of common units in accordance with
our partnership agreement, each transferee of common units will
be admitted as a limited partner with respect to the common
units transferred when such transfer and admission is reflected
in our books and records.
157
Indemnification
Under our partnership agreement we will indemnify the following
persons in most circumstances, to the fullest extent permitted
by law, from and against 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
threatened, pending or completed claims, demands, actions, suits
or proceedings:
(1) our general partner;
(2) any departing general partner;
(3) any person who is or was a director, officer,
fiduciary, trustee, manager or managing member of us or our
subsidiary, our general partner or any departing general partner;
(4) any person who is or was serving as a director,
officer, fiduciary, trustee, manager or managing member of
another person owing a fiduciary duty to us or our subsidiary at
the request of a general partner or any departing general
partner;
(5) any person who controls our general partner; or
(6) any person designated by our general partner.
Any indemnification under these provisions will only be out of
our assets. Unless they otherwise agree, our general partner
will not be personally liable for, or have any obligation to
contribute or loan funds or assets to us to enable us to
effectuate, indemnification. We may purchase insurance against
liabilities asserted against and expenses incurred by persons
for our activities, regardless of whether we would have the
power to indemnify the person against liabilities under our
partnership agreement.
Reimbursement
of Expenses
Our partnership agreement requires us to reimburse our general
partner for (1) all direct and indirect expenses it incurs
or payments it makes on our behalf (including salary, bonus,
incentive compensation and other amounts paid to any person,
including affiliates of our general partner, to perform services
for us or for the general partner in the discharge of its duties
to us) and (2) all other expenses reasonably allocable to
us or otherwise incurred by our general partner in connection
with operating our business (including expenses allocated to our
general partner by its affiliates). Our general partner is
entitled to determine the expenses that are allocable to us.
Books and
Reports
Our general partner is required to keep appropriate books of our
business at our principal offices. The books will be maintained
for both tax and financial reporting purposes on an accrual
basis. For tax and fiscal reporting purposes, our fiscal year is
the calendar year.
We will furnish or make available to record holders of our
common units, within 105 days after the close of each
fiscal year, an annual report containing audited financial
statements and a report on those financial statements by our
independent public accountants. Except for our fourth quarter,
we will also furnish or make available a report containing our
unaudited financial statements within 50 days after the
close of each quarter. We will be deemed to have made any such
report available if we file such report with the SEC on EDGAR or
make the report available on a publicly available website which
we maintain.
We will furnish each record holder of a unit with tax
information reasonably required for federal and state income tax
reporting purposes within 90 days after the close of each
calendar year. This information is expected to be furnished in
summary form so that some complex calculations normally required
of partners can be avoided. Our ability to furnish this summary
information to unitholders will depend on the cooperation of
unitholders in supplying us with specific information. Every
unitholder will receive information to assist him in determining
his federal and state tax liability and filing his federal and
state income tax returns, regardless of whether he supplies us
with information.
158
In addition, CVR Energy will have full and complete access to
any records relating to our business, and our general partner
will cause its officers and independent accountants to be
available to discuss our business and affairs with CVR
Energys officers, agents and employees.
Right to
Inspect Our Books and Records
Our partnership agreement provides that a limited partner can,
for a purpose reasonably related to his/her interest as a
limited partner, upon reasonable demand and at his own expense,
have furnished to him:
(1) a current list of the name and last known address of
each record holder;
(2) all information reasonably required to facilitate the
preparation and filing of a limited partners federal,
state and local income tax returns for each year;
(3) information as to the amount of cash, and a description
and statement of the agreed value of any other capital
contribution, contributed or to be contributed by each partner
and the date on which each became a partner;
(4) copies of our partnership agreement, our certificate of
limited partnership, related amendments and powers of attorney
under which they have been executed;
(5) information regarding the status of our business and
financial condition (provided that obligation shall be satisfied
to the extent the limited partner is furnished our most recent
annual report and any subsequent quarterly or periodic reports
required to be filed (or which would be required to be filed)
with the SEC pursuant to Section 13 of the Exchange
Act); and
(6) any other information regarding our affairs that our
general partner determines is just and reasonable.
Our general partner may, and intends to, keep confidential from
the limited partners trade secrets or other information
the disclosure of which our general partner believes in good
faith is not in our best interests or that we are required by
law or by agreements with third parties to keep confidential.
Registration
Rights
Under our partnership agreement, we have agreed to register for
resale under the Securities Act and applicable state securities
laws any units sold by our general partner or any of its
affiliates if an exemption from the registration requirements is
not otherwise available. We will not be required to effect more
than two registrations pursuant to this provision in any
twelve-month period, and our general partner can defer filing a
registration statement for up to six months if it determines
that this would be in our best interests due to a pending
transaction, investigation or other event. We have also agreed
that, if we at any time propose to file a registration statement
for an offering of partnership interests for cash, we will use
all commercially reasonable efforts to include such number of
partnership interests in such registration statement as any of
our general partner or any of its affiliates shall request. We
are obligated to pay all expenses incidental to these
registrations, other than underwriting discounts and
commissions. The registration rights in our partnership
agreement are applicable with respect to our general partner and
its affiliates after it ceases to be a general partner for up to
two years following the effective date of such cessation. In
addition, in connection with this offering, we will enter into
an amended and restated registration rights agreement with
Coffeyville Resources, pursuant to which we may be required to
register the sale of the common units it holds. See Common
Units Eligible for Future Sale.
159
COMMON
UNITS ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, there will
be
common units
outstanding,
of which will be owned by Coffeyville Resources, assuming the
underwriters do not exercise their option to purchase additional
common units; if they exercise such option in full, Coffeyville
Resources will
own
common units. The sale of these common units could have an
adverse impact on the price of our common units or on any
trading market that may develop.
The
common units sold in this offering
(or
common units if the underwriters exercise their option to
purchase additional common units in full) will generally be
freely transferable without restriction or further registration
under the Securities Act. However, any common units held by an
affiliate of ours may not be resold publicly except
in compliance with the registration requirements of the
Securities Act or under an exemption from the registration
requirements of the Securities Act pursuant to Rule 144 or
otherwise. Rule 144 permits securities acquired by an
affiliate of ours to be sold into the market in an amount that
does not exceed, during any three-month period, the greater of:
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1% of the total number of the class of securities
outstanding; or
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the average weekly reported trading volume of the common units
for the four calendar weeks prior to the sale.
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Sales under Rule 144 by our affiliates are also subject to
specific manner of sale provisions, holding period requirements,
notice requirements and the availability of current public
information about us. A person who is not deemed to have been an
affiliate of ours at any time during the three months preceding
a sale, and who has beneficially owned common units for at least
six months, would be entitled to sell those common units under
Rule 144 without regard to the volume, manner of sale and
notice requirements of Rule 144 so long as we comply with
the current public information requirement for the next six
months after the six-month holding period expires.
Our partnership agreement provides that we may issue an
unlimited number of limited partner interests of any type
without a vote of the unitholders. Any issuance of additional
common units or other equity interests would result in a
corresponding decrease in the proportionate ownership interest
in us represented by, and could adversely affect the cash
distributions to and market price of, common units then
outstanding. See The Partnership Agreement
Issuance of Additional Partnership Interests.
Under our partnership agreement, our general partner and its
affiliates have the right to cause us to register under the
Securities Act and applicable state securities laws the offer
and sale of any units that they hold. Subject to the terms and
conditions of the partnership agreement, these registration
rights allow our general partner and its affiliates or their
assignees holding any units to require registration of any of
these units and to include any of these units in a registration
by us of other units, including units offered by us or by any
unitholder. Our general partner will continue to have these
registration rights for two years after it ceases to be a
general partner. In connection with any registration of this
kind, we will indemnify each unitholder participating in the
registration and its officers, directors and controlling persons
from and against any liabilities under the Securities Act or any
applicable state securities laws arising from the registration
statement or prospectus. We will bear all costs and expenses
incidental to any registration, excluding any underwriting
discounts and commissions. Our general partner and its
affiliates also may sell their units in private transactions at
any time, subject to compliance with applicable laws.
In connection with this offering, we will enter into an amended
and restated registration rights agreement with Coffeyville
Resources. Under this agreement, Coffeyville Resources will have
the right to cause us to register under the Securities Act and
applicable state securities laws the offer and sale of any units
that it holds, subject to certain limitations. See Certain
Relationships and Related Party Transactions
Agreements with CVR Energy Registration Rights
Agreement.
We, Coffeyville Resources, our general partner, and the
directors and executive officers of our general partner have
agreed not to sell any common units until 180 days after
the date of this prospectus, subject to certain exceptions. See
Underwriters for a description of these
lock-up
provisions.
In addition, we intend to file a registration statement on
Form S-8
under the Securities Act to
register
common units issuable under our long-term incentive plan. This
registration statement is expected to be filed following the
effective date of the registration statement of which this
prospectus is a part and will be effective upon filing. Units
issued under our long-term incentive plan will be eligible for
resale in the public market without restriction after the
effective date of the
Form S-8
registration statement, subject to Rule 144 limitations
applicable to affiliates.
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MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES
This section is a summary of the material U.S. federal
income tax consequences that may be relevant to prospective
unitholders. To the extent this section discusses
U.S. federal income taxes, that discussion is based upon
current provisions of the Internal Revenue Code, existing and
proposed Treasury Regulations, and current administrative
rulings and court decisions, all of which are subject to change.
Changes in these authorities may cause the U.S. federal
income tax consequences to a prospective unitholder to vary
substantially from the consequences described below. Unless the
context otherwise requires, references in this section to
us or we are references to CVR Partners,
LP and CRNF, our operating subsidiary.
This section does not address all U.S. federal income tax
matters that affect us or our unitholders. Moreover, this
section focuses on unitholders who are individual citizens or
residents of the United States (as determined for
U.S. federal income tax purposes), whose functional
currency is the U.S. dollar and who hold common units as
capital assets (generally, property that is held as an
investment). This section has only limited applicability to
unitholders that are corporations, partnerships (and entities
treated as partnerships for U.S. federal income tax
purposes), estates, trusts, nonresident aliens or other
unitholders subject to specialized tax treatment, such as
tax-exempt institutions,
non-U.S. persons,
individual retirement accounts, employee benefit plans, real
estate investment trusts, or REITs, or mutual funds.
Accordingly, we encourage each prospective unitholder to
consult, and depend on, his own tax advisor in analyzing the
U.S. federal, state, local and
non-U.S. tax
consequences particular to him resulting from the ownership or
disposition of common units.
We are relying on opinions and advice of Vinson &
Elkins L.L.P. with respect to the matters described in this
section. An opinion of counsel represents only that
counsels best legal judgment and does not bind the IRS or
the courts. Accordingly, the opinions and statements made herein
may not be sustained by a court if contested by the IRS. Any
contest with the IRS of the matters described herein may
materially and adversely impact the market for our common units
and the prices at which our common units trade. In addition, the
costs of any contest with the IRS, including legal, accounting
and related fees, will result in a reduction in cash available
for distribution to our unitholders and thus will be borne
indirectly by our unitholders. Furthermore, our tax treatment or
the tax treatment of an investment in us, may be significantly
modified by future legislative or administrative changes or
court decisions. Any modifications may or may not be
retroactively applied.
All statements of law and legal conclusions, but not statements
of fact, contained in this section, except as described below or
otherwise noted, are the opinion of Vinson & Elkins
L.L.P. and are based on the accuracy of the representations made
by us to them for this purpose.
For the reasons described below, Vinson & Elkins
L.L.P. has not rendered an opinion with respect to the following
specific U.S. federal income tax issues: (1) the
treatment of a unitholder whose common units are loaned to a
short seller to cover a short sale of our common units (please
read Tax Consequences of Common Unit
Ownership Treatment of Short Sales);
(2) whether our monthly convention for allocating taxable
income and losses is permitted by existing Treasury Regulations
(please read Disposition of Common
Units Allocations Between Transferors and
Transferees); and (3) whether our method for taking
into account Section 743 adjustments is sustainable in
certain cases (please read Tax Consequences of
Common Unit Ownership Section 754
Election and Uniformity of Common
Units).
Partnership
Status
We expect to be treated as a partnership for U.S. federal
income tax purposes and therefore, generally will not be liable
for U.S. federal income taxes. Instead, as described in
detail below, each of our unitholders is required to take into
account his respective share of our items of income, gain, loss
and deduction in computing his U.S. federal income tax
liability as if the unitholder had earned the income directly,
even if no cash distributions are made to the unitholder.
Distributions by us to a unitholder generally do not give rise
to income or gain taxable to him unless the amount of cash
distributed to him is in excess of his adjusted basis in his
common units.
Section 7704 of the Internal Revenue Code provides that a
publicly traded partnership will, as a general rule, be treated
as a corporation for U.S. federal income tax purposes.
However, under an exception, referred to as the Qualifying
Income Exception, if 90% or more of the partnerships
gross income for every taxable year consists of
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qualifying income, the partnership will continue to
be treated as a partnership for U.S. federal income tax
purposes. Qualifying income includes income and gains derived
from the production, marketing and transportation of fertilizer,
and the production, transportation, storage and processing of
crude oil, natural gas and products thereof. Other types of
qualifying income include interest (other than from a financial
business), dividends, gains from the sale of real property and
gains from the sale or other disposition of capital assets held
for the production of income that constitutes qualifying income.
We estimate that less than 1% of our current gross income is not
qualifying income; however, the portion of our income that is
qualifying income could change from time to time. No ruling has
been sought from the IRS, and the IRS has made no determination
as to our status for U.S. federal income tax purposes or
whether our gross income is qualifying income under
Section 7704 of the Internal Revenue Code. Instead, we will
rely on the opinion of Vinson & Elkins, L.L.P. on such
matters. Based upon and subject to this estimate, the factual
representations made by us and our general partner regarding the
composition of our gross income and the other representations
set forth below, Vinson & Elkins L.L.P. is of the
opinion that we will be classified as a partnership and our
operating subsidiary will be disregarded as an entity separate
from us for U.S. federal income tax purposes.
In rendering its opinion, Vinson & Elkins L.L.P. has
relied on factual representations made by us and our general
partner. The representations made by us and our general partner
upon which Vinson & Elkins L.L.P. has relied include,
without limitation:
(a) Neither we nor our operating subsidiary has elected or
will elect to be treated as a corporation for U.S. federal
income tax purposes; and
(b) For each taxable year, more than 90% of our gross
income has been or will be income that Vinson & Elkins
L.L.P. has opined or will opine is qualifying income
within the meaning of Section 7704(d) of the Internal
Revenue Code.
We believe that these representations are true and expect that
these representations will continue to be true in the future.
If we fail to meet the Qualifying Income Exception, other than a
failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery (in which case
the IRS may also require us to make adjustments with respect to
our unitholders or pay other amounts), we will be treated as if
we had transferred all of our assets, subject to liabilities, to
a newly formed corporation, on the first day of the year in
which we fail to meet the Qualifying Income Exception, in return
for stock in that corporation, and then distributed that stock
to our unitholders in liquidation of their interests in us. This
deemed contribution and liquidation generally should not result
in the recognition of taxable income by our unitholders or us so
long as we, at that time, do not have liabilities in excess of
the tax basis of our assets. Thereafter, we would be treated as
a corporation for U.S. federal income tax purposes.
If we were treated as a corporation for U.S. federal income
tax purposes in any taxable year, either as a result of a
failure to meet the Qualifying Income Exception or otherwise,
our items of income, gain, loss and deduction would be taken
into account by us in determining the amount of our
U.S. federal income tax liability, rather than being passed
through to our unitholders. In addition, any distribution made
to a unitholder would be treated as taxable dividend income to
the extent of our current or accumulated earnings and profits,
or, in the absence of earnings and profits, a nontaxable return
of capital, to the extent of the unitholders tax basis in
his common units, or taxable capital gain, after the
unitholders tax basis in his common units is reduced to
zero. Accordingly, our taxation as a corporation would result in
a material reduction in the anticipated cash flow and after tax
return to our unitholders, likely causing a substantial
reduction of the value of our units.
The remainder of this section assumes that we will be classified
as a partnership for U.S. federal income tax purposes.
Limited
Partner Status
Unitholders who are admitted as limited partners of CVR
Partners, as well as unitholders whose common units are held in
street name or by a nominee and who have the right to direct the
nominee in the exercise of all substantive rights attendant to
the ownership of their common units, will be treated as partners
of CVR Partners for U.S. federal
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income tax purposes. For a discussion related to the risks of
losing partner status as a result of short sales, please read
Tax Consequences of Common Unit
Ownership Treatment of Short Sales.
Unitholders who are not treated as partners in us are urged to
consult their own tax advisors with respect to the tax
consequences applicable to them under the circumstances.
The references to unitholders in the remainder of
this section are to persons who are treated as partners in CVR
Partners for U.S. federal income tax purposes.
Tax
Consequences of Common Unit Ownership
Flow-Through of Taxable Income. Subject to the
discussion below under
Entity-Level Collections of Unitholder
Taxes with respect to payments we may be required to make
on behalf of our unitholders, we will not pay any
U.S. federal income tax on our taxable income. Instead,
each unitholder will be required to report on his
U.S. federal income tax return his share of our income,
gains, losses and deductions for our taxable year or years
ending with or within his taxable year without regard to whether
we make cash distributions to him. Consequently, we may allocate
income to a unitholder even if that unitholder has not received
a cash distribution. Our taxable year ends on December 31.
Treatment of Distributions. Distributions made
by us to a unitholder generally will not be taxable to the
unitholder for U.S. federal income tax purposes. Cash
distributions made by us to a unitholder in an amount that
exceeds the unitholders tax basis in his common units
immediately before the distribution, however, generally will
result in the unitholder recognizing gain taxable in the manner
described under Disposition of Common
Units below. Any reduction in a unitholders share of
our liabilities for which no partner, including our general
partner, bears the economic risk of loss, known as
nonrecourse liabilities, will be treated as a
distribution by us of cash to that unitholder. To the extent our
distributions cause a unitholders at-risk
amount to be less than zero at the end of any taxable year, he
must recapture any losses deducted in previous years. Please
read Limitations on Deductibility of
Losses.
A decrease in a unitholders percentage interest in us
because of our issuance of additional common units will decrease
his share of our nonrecourse liabilities, and thus will result
in a corresponding deemed distribution of cash to the
unitholder. For this purpose, a unitholders share of our
nonrecourse liabilities generally will be based upon that
unitholders share of the unrealized appreciation (or
depreciation) in our assets, to the extent thereof, with any
additional amount allocated based on the unitholders share
of our profits. A non-pro rata distribution of money or
property, including a non-pro rata distribution deemed to result
from a decrease in a unitholders share of our nonrecourse
liabilities, may result in ordinary income to a unitholder,
regardless of his tax basis in his common units, if the
distribution reduces the unitholders share of our
unrealized receivables, including depreciation
recapture and substantially appreciated inventory
items, both as defined in Section 751 of the Internal
Revenue Code, and collectively, Section 751
Assets. To that extent, a unitholder will be treated as
having received his proportionate share of the Section 751
Assets and having exchanged those assets with us in return for
the non-pro rata portion of the actual distribution made to him.
This latter deemed exchange generally will result in the
unitholders realization of ordinary income, which will
equal the excess of (1) the non-pro rata portion of that
distribution over (2) the unitholders tax basis
(generally zero) for the share of Section 751 Assets deemed
relinquished in the exchange.
Ratio of Taxable Income to Distributions. We
estimate that a purchaser of our common units in this offering
who owns those common units from the date of closing of this
offering through the record date for distributions for the
twelve months ending December 31, 2012 will be allocated,
on a cumulative basis, an amount of U.S. federal taxable
income for that period that will be approximately %
or less of the cash distributed to him with respect to that
period. Thereafter, the ratio of allocable taxable income to
cash distributions to our unitholders could substantially
increase. These estimates are based upon the assumption that
gross income from operations will approximate the forecasted
annual distribution on all common units and other assumptions
with respect to capital expenditures, cash flow, net working
capital and anticipated cash distributions. Our estimates and
assumptions are subject to, among other things, numerous
business, economic, regulatory, legislative, competitive and
political uncertainties beyond our control. Further, the
estimates are based on current tax law and tax reporting
positions that we will adopt and with which the IRS could
disagree. Accordingly, we cannot assure you that these estimates
will
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prove to be correct. The actual percentage of distributions as a
ratio to taxable income could be higher or lower than expected,
and any differences could be material and could materially
affect the value of our common units. For example, the ratio of
allocable taxable income to cash distributions to a purchaser of
common units in this offering will be greater, and perhaps
substantially greater, than our estimate with respect to the
period described above if:
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gross income from operations exceeds the amount required to make
anticipated quarterly distributions on all common units, yet we
only distribute the anticipated quarterly distributions on all
common units; or
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we make a future offering of common units and use the net
proceeds of this offering in a manner that does not produce
substantial additional deductions during the period described
above, such as to repay indebtedness outstanding at the time of
this offering or to acquire property that is not eligible for
depreciation or amortization for U.S. federal income tax
purposes or that is depreciable or amortizable at a rate
significantly slower than the rate applicable to our assets at
the time of this offering.
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Basis of Common Units. A unitholders
U.S. federal income tax basis in his common units initially
will be the amount he paid for the common units plus his share
of our nonrecourse liabilities at the time of purchase. That
basis generally will be increased by his share of our income and
by any increases in his share of our nonrecourse liabilities,
and will be decreased, but not below zero, by distributions to
the unitholder from us, by the unitholders share of our
losses, by any decreases in the unitholders share of our
nonrecourse liabilities and by the unitholders share of
our expenditures that are not deductible in computing taxable
income and are not required to be capitalized.
Limitations on Deductibility of Losses. The
deduction by a unitholder of his share of our losses will be
limited to the tax basis in his common units and, in the case of
an individual, estate, trust, or corporation (if more than 50%
of the corporations stock is owned directly or indirectly
by or for five or fewer individuals or a specific type of
tax-exempt organization) to the amount for which the unitholder
is considered to be at risk with respect to our
activities, if that is less than his tax basis. A unitholder
subject to these limitations must recapture losses deducted in
previous years to the extent that distributions cause his
at-risk amount to be less than zero at the end of any taxable
year. Losses disallowed to a unitholder or recaptured as a
result of these limitations will carry forward and will be
allowable as a deduction in a later year to the extent of the
unitholders basis or at-risk amount, whichever is the
limiting factor. Upon the taxable disposition of a unit, any
gain recognized by a unitholder can be offset by losses that
were previously suspended by the at-risk limitation but may not
be offset by losses suspended by the basis limitation. Any loss
previously suspended by the at-risk or basis limitation, to the
extent not used to offset such gain, would no longer be usable.
In general, a unitholder will be at risk to the extent of his
U.S. federal income tax basis of his common units,
excluding any portion of that basis attributable to his share of
our nonrecourse liabilities, reduced by (i) any portion of
that basis representing amounts otherwise protected against loss
because of a guarantee, stop loss agreement or other similar
arrangement and (ii) any amount of money the unitholder
borrows to acquire or hold his common units, if the lender of
those borrowed funds owns an interest in us, is related to
another unitholder or can look only to the common units for
repayment. A unitholders at-risk amount will increase or
decrease as the tax basis of the unitholders common units
increases or decreases, other than as a result of increases or
decreases in the unitholders share of our nonrecourse
liabilities.
In addition to the basis and at-risk limitations on the
deductibility of losses, passive activity loss limitations
generally apply to limit the deductibility of losses incurred by
individuals, estates, trusts and some closely-held corporations
and personal service corporations from passive
activities, which are generally trade or business
activities in which the taxpayer does not materially
participate. The passive activity loss limitations are applied
separately with respect to each publicly traded partnership.
Consequently, any passive activity losses we generate will only
be available to offset our passive activity income generated in
the future and will not be available to offset income from other
passive activities or investments, including a unitholders
investments in other publicly traded partnerships, or salary or
active business income. Passive activity losses that are not
deductible because they exceed a unitholders share of
passive activity income we generate may be deducted in full when
he disposes of his entire investment in us in a fully taxable
transaction with an unrelated party. The passive activity loss
limitations are applied after other applicable limitations on
deductions, including the at-risk rules and the basis limitation.
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Limitations on Interest Deductions. The
deductibility of a non-corporate taxpayers
investment interest expense is generally limited to
the amount of that taxpayers net investment
income. Investment interest expense includes:
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interest on indebtedness properly allocable to property held for
investment;
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our interest expense attributed to portfolio income; and
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the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
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The computation of a unitholders investment interest
expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a common
unit. Net investment income includes gross income from property
held for investment and amounts treated as portfolio income
under the passive loss rules, less deductible expenses, other
than interest, directly connected with the production of
investment income, but generally does not include gains
attributable to the disposition of property held for investment
or qualified dividend income. The IRS has indicated that net
passive income earned by a publicly traded partnership will be
treated as investment income to its partners for purposes of the
investment interest expense limitation. In addition, the
unitholders share of our portfolio income will be treated
as investment income.
Entity-Level Collections of Unitholder
Taxes. If we are required or elect under
applicable law to pay any U.S. federal, state, local or
non-U.S. income
tax on behalf of any unitholder or any former unitholder, we are
authorized to pay those taxes from our funds and treat payment
as a distribution of cash to the unitholder on whose behalf the
payment was made. If the payment is made on behalf of a
unitholder whose identity cannot be determined, we are
authorized to treat the payment as a distribution to all current
unitholders. We are authorized to amend our partnership
agreement in the manner necessary to maintain uniformity of
intrinsic tax characteristics of units and to adjust later
distributions, so that after giving effect to these
distributions, the priority and characterization of
distributions otherwise applicable under our partnership
agreement is maintained as nearly as is practicable. Payments by
us as described above could give rise to an overpayment of tax
on behalf of an individual unitholder in which event the
unitholder would be entitled to claim a refund of the
overpayment amount. Unitholders are urged to consult their tax
advisors to determine the consequences to them of any tax
payment we make on their behalf.
Allocation of Income, Gain, Loss and
Deduction. In general, our items of income, gain,
loss and deduction will be allocated among our unitholders for
capital account and U.S. federal income tax purposes in
accordance with their percentage interests in us. Although we do
not expect that our operations will result in the creation of
negative capital accounts, if negative capital accounts
nevertheless result, items of our income and gain will be
allocated in an amount and manner sufficient to eliminate the
negative balance as quickly as possible.
Specified items of our income, gain, loss and deduction will be
allocated under Section 704(c) of the Internal Revenue Code
to account for (i) any difference between the
U.S. federal income tax basis and fair market value of
property contributed to us by CVR Energy that exists at the time
of such contribution or (ii) any difference between the tax
basis and fair market value of our assets at the time of an
offering, together referred to in this discussion as the
Book-Tax Disparity. In addition, items of recapture
income will be specially allocated to the extent possible to the
unitholder who was allocated the deduction giving rise to the
treatment of that gain as recapture income in order to minimize
the recognition of ordinary income by other unitholders.
An allocation of items of our income, gain, loss or deduction,
other than an allocation required by Section 704(c) of the
Internal Revenue Code to eliminate a Book-Tax Disparity, will
generally be given effect for U.S. federal income tax
purposes in determining a partners share of an item of
income, gain, loss or deduction only if the allocation has
substantial economic effect as determined under
Treasury Regulations. In any other case, a unitholders
share of an item will be determined on the basis of his interest
in us, which will be determined by taking into account all the
facts and circumstances, including:
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his relative contributions to us;
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the interests of all the partners in profits and losses;
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the interest of all the partners in cash flow; and
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the rights of all the partners to distributions of capital upon
liquidation.
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Vinson & Elkins L.L.P. is of the opinion that, with
the exception of the issues described in
Section 754 Election and
Disposition of Common Units
Allocations Between Transferors and Transferees,
allocations under our amended and restated partnership agreement
will be given effect for U.S. federal income tax purposes
in determining a unitholders share of an item of our
income, gain, loss or deduction.
Treatment of Short Sales. A unitholder whose
common units are loaned to a short seller to cover a
short sale of units may be considered as having disposed of
those common units. If so, he would no longer be treated for
U.S. federal income tax purposes as a partner with respect
to those common units during the period of the loan and may
recognize gain or loss from the disposition. As a result, during
this period:
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any of our income, gain, loss or deduction with respect to those
common units would not be reportable by the unitholder;
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any cash distributions received by the unitholder as to those
common units would be fully taxable; and
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all of these distributions may be subject to tax as ordinary
income.
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Vinson & Elkins L.L.P. has not rendered an opinion
regarding the tax treatment of a unitholder whose common units
are loaned to a short seller to cover a short sale of common
units due to a lack of controlling authority. Unitholders
desiring to assure their status as partners in us for
U.S. federal income tax purposes and avoid the risk of gain
recognition from a loan to a short seller are urged to consult a
tax advisor to discuss whether it is advisable to modify any
applicable brokerage account agreements to prohibit their
brokers from borrowing and lending their common units. The IRS
has announced that it is studying issues relating to the tax
treatment of short sales of partnership interests. Please read
Disposition of Common Units
Recognition of Gain or Loss.
Alternative Minimum Tax. Each unitholder will
be required to take into account his distributive share of any
items of our income, gain, loss or deduction for purposes of the
alternative minimum tax. The current minimum tax rate for
noncorporate taxpayers is 26% on the first $175,000 of
alternative minimum taxable income in excess of the exemption
amount and 28% on any additional alternative minimum taxable
income. Prospective unitholders are urged to consult with their
tax advisors as to the impact of an investment in units on their
liability for the alternative minimum tax.
Tax Rates. Under current law, the highest
marginal U.S. federal income tax rate applicable to
ordinary income of individuals is 35%, and the highest marginal
U.S. federal income tax rate applicable to long-term
capital gains (generally, gains from the sale or exchange of
certain investment assets held for more than one year) is 15%.
However, absent new legislation extending the current rates,
beginning January 1, 2013, the highest marginal
U.S. federal income tax rate applicable to ordinary income
and long-term capital gains of individuals will increase to
39.6% and 20%, respectively. Moreover, these rates are subject
to change by new legislation at any time.
The recently enacted Health Care and Education Affordability
Reconciliation Act of 2010 and the Patient Protection and
Affordable Care Act of 2010, is scheduled to impose a 3.8%
Medicare tax on net investment income earned by certain
individuals, estates and trusts for taxable years beginning
after December 31, 2012. For these purposes, investment
income generally includes a unitholders allocable share of
our income and gain realized by a unitholder from a sale of our
common units. In the case of an individual, the tax will be
imposed on the lesser of (i) the unitholders net
investment income from all investments, or (ii) the amount
by which the unitholders modified adjusted gross income
exceeds $250,000 (if the unitholder is married and filing
jointly or a surviving spouse), $125,000 (if the unitholder is
married and filing separately) or $200,000 (in any other case).
In the case of an estate or trust, the tax will be imposed on
the lesser of (i) undistributed net investment income or
(ii) the excess adjusted gross income over the dollar
amount at which the highest income tax bracket applicable to an
estate or trust begins.
Section 754 Election. We will make the
election permitted by Section 754 of the Internal Revenue
Code. That election is irrevocable without the consent of the
IRS. That election will generally permit us to adjust a
purchasing unitholders tax basis in our assets
(inside basis) under Section 743(b) of the
Internal Revenue Code to
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reflect his purchase price for the common units. The
Section 743(b) adjustment separately applies to any
unitholder who purchases outstanding common units from another
unitholder based upon the values and bases of our assets at the
time of the transfer to the purchaser, and belongs only to the
purchaser and not to other unitholders. The Section 743(b)
adjustment also does not apply to a person who purchases common
units directly from us. Please read, however,
Allocation of Income, Gain, Loss and
Deduction. For purposes of this discussion, a
unitholders inside basis in our assets will be considered
to have two components: (1) the unitholders share of
our tax basis in our assets (common basis) and
(2) the unitholders Section 743(b) adjustment to
that basis.
The timing and calculation of deductions attributable to
Section 743(b) adjustments to our common basis will depend
upon a number of factors, including the nature of the assets to
which the adjustment is allocable, the extent to which the
adjustment offsets any Internal Revenue Code Section 704(c)
type gain or loss with respect to an asset and certain elections
we make as to the manner in which we apply Internal Revenue Code
Section 704(c) principles with respect to an asset to which
the adjustment is applicable. Please read
Allocation of Income, Gain, Loss and
Deduction. The timing of these deductions may affect the
uniformity of our common units. Under our partnership agreement,
our general partner is authorized to take a position to preserve
the uniformity of our common units even if that position is not
consistent with these and any other applicable Treasury
Regulations or if the position would result in lower annual
depreciation or amortization deductions than would otherwise be
allowable to some unitholders. Please read
Uniformity of Common Units.
These positions are consistent with the methods employed by
other publicly traded partnerships but are inconsistent with the
existing Treasury Regulations and Vinson & Elkins
L.L.P. has not opined on the validity of this approach. The IRS
may challenge our position with respect to depreciating or
amortizing the Section 743(b) adjustment we take to
preserve the uniformity of our common units. Because a
unitholders tax basis for his common units is reduced by
his share of our items of deduction or loss, any position we
take that understates deductions will overstate the
unitholders basis in his common units, and may cause the
unitholder to understate gain or overstate loss on any sale of
such common units. Please read Disposition of
Common Units Recognition of Gain or Loss. If
such a challenge to such treatment were sustained, the gain from
the sale of common units may be increased without the benefit of
additional deductions.
A Section 754 election is advantageous if the
transferees tax basis in his common units is higher than
the common units share of the aggregate tax basis of our
assets immediately prior to the transfer. In that case, as a
result of the election, the transferee would have, among other
items, a greater amount of depreciation deductions and his share
of any gain or loss on a sale of our assets would be less.
Conversely, a Section 754 election is disadvantageous if
the transferees tax basis in his common units is lower
than those common units share of the aggregate tax basis
of our assets immediately prior to the transfer. Thus, the fair
market value of our common units may be affected either
favorably or unfavorably by the election. A tax basis adjustment
is required regardless of whether a Section 754 election is
made in the case of a transfer of an interest in us if we have a
substantial built-in loss immediately after the transfer, or if
we distribute property and have a substantial basis reduction.
Generally, a built-in loss or a basis reduction is substantial
if it exceeds $250,000.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of our assets and other matters. The IRS could seek to
reallocate some or all of any Section 743(b) adjustment we
allocated to our assets subject to depreciation to goodwill or
nondepreciable assets. Goodwill, as an intangible asset, is
generally
non-amortizable
or amortizable over a longer period of time or under a less
accelerated method than our tangible assets. We cannot assure
any unitholder that the determinations we make will not be
successfully challenged by the IRS or that the resulting
deductions will not be reduced or disallowed altogether. Should
the IRS require a different basis adjustment to be made, and
should, in our opinion, the expense of compliance exceed the
benefit of the election, we may seek permission from the IRS to
revoke our Section 754 election. If permission is granted,
a subsequent purchaser of units may be allocated more income
than he would have been allocated had the election not been
revoked.
Tax
Treatment of Operations
Accounting Method and Taxable Year. We use the
year ending December 31 as our taxable year and the accrual
method of accounting for U.S. federal income tax purposes.
Each unitholder will be required to include in
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income his share of our income, gain, loss and deduction for our
taxable year ending within or with his taxable year. In
addition, a unitholder who has a taxable year ending on a date
other than December 31 and who disposes of all of his common
units following the close of our taxable year but before the
close of his taxable year must include his share of our income,
gain, loss and deduction in his taxable income for his taxable
year, with the result that he will be required to include in
income for his taxable year his share of more than one year of
our income, gain, loss and deduction. Please read
Disposition of Common Units
Allocations Between Transferors and Transferees.
Deduction for U.S. Production
Activities. Subject to the limitations on the
deductibility of losses discussed above and the limitation
discussed below, our unitholders will be entitled to a
deduction, herein referred to as the Section 199 deduction,
equal to 9% of such unitholders qualified production
activities income, but not to exceed 50% of the
Form W-2
wages actually or deemed paid by the unitholder during the
taxable year and allocable to domestic production gross receipts.
Qualified production activities income is generally equal to
gross receipts from domestic production activities reduced by
cost of goods sold allocable to those receipts, other expenses
directly associated with those receipts, and a share of other
deductions, expenses and losses that are not directly allocable
to those receipts or another class of income. The products
produced must be manufactured, produced, grown or extracted in
whole or in significant part by the taxpayer in the United
States.
For a partnership, the Section 199 deduction is determined
at the partner level. To determine his Section 199
deduction, each unitholder will aggregate his share of the
qualified production activities income allocated to him from us
with the unitholders qualified production activities
income from other sources. Each unitholder must take into
account his distributive share of the expenses allocated to him
from our qualified production activities regardless of whether
we otherwise have taxable income. However, our expenses that
otherwise would be taken into account for purposes of computing
the Section 199 deduction are taken into account only if
and to the extent the unitholders share of losses and
deductions from all of our activities is not disallowed by the
tax basis rules, the at-risk rules or the passive activity loss
rules. Please read Tax Consequences of Common
Unit Ownership Limitations on Deductibility of
Losses.
The amount of a unitholders Section 199 deduction for
each year is limited to 50% of the IRS
Form W-2
wages actually or deemed paid by the unitholder during the
calendar year that are deducted in arriving at qualified
production activities income. Each unitholder is treated as
having been allocated IRS
Form W-2
wages from us equal to the unitholders allocable share of
our wages that are deducted in arriving at qualified production
activities income for that taxable year.
This discussion of the Section 199 deduction does not
purport to be a complete analysis of the complex legislation and
Treasury authority relating to the calculation of domestic
production gross receipts, qualified production activities
income, or IRS
Form W-2
wages, or how such items are allocated by us to unitholders.
Further, because the Section 199 deduction is required to
be computed separately by each unitholder, no assurance can be
given, and Vinson & Elkins, L.L.P. is unable to
express any opinion, as to the availability or extent of the
Section 199 deduction to our unitholders. Each prospective
unitholder is encouraged to consult his tax advisor to determine
whether the Section 199 deduction would be available to him.
Tax Basis, Depreciation and Amortization. The
tax basis of our assets will be used for purposes of computing
depreciation and cost recovery deductions and, ultimately, gain
or loss on the disposition of these assets. The
U.S. federal income tax burden associated with the
difference between the fair market value of our assets and their
tax basis immediately prior to (i) this offering will be
borne by our partners holding interests in us prior to this
offering, and (ii) any other offering will be borne by our
unitholders as of that time. Please read Tax
Consequences of Common Unit Ownership Allocation of
Income, Gain, Loss and Deduction. We may not be entitled
to any amortization deductions with respect to certain goodwill
or other intangible properties conveyed to us or held by us at
the time of any future offering. Please read
Uniformity of Common Units.
If we dispose of depreciable property by sale, foreclosure or
otherwise, all or a portion of any gain, determined by reference
to the amount of depreciation previously deducted and the nature
of the property, may be subject to the recapture rules and taxed
as ordinary income rather than capital gain. Similarly, a
unitholder who has taken cost recovery or depreciation
deductions with respect to property we own will likely be
required to recapture some or all
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of those deductions as ordinary income upon a sale of his
interest in us. Please read Tax Consequences
of Common Unit Ownership Allocation of Income, Gain,
Loss and Deduction and Disposition of
Common Units Recognition of Gain or Loss.
The costs we incur in offering and selling our common units
(called syndication expenses) must be capitalized
and cannot be deducted currently, ratably or upon our
termination. There are uncertainties regarding the
classification of costs as organization expenses, which may be
amortized by us, and as syndication expenses, which may not be
amortized by us. The underwriting discounts and commissions we
incur will be treated as syndication expenses.
Valuation and Tax Basis of Our Properties. The
U.S. federal income tax consequences of the ownership and
disposition of our common units will depend in part on our
estimates of the relative fair market values, and the initial
tax bases, of our assets. Although we may from time to time
consult with professional appraisers regarding valuation
matters, we will make many of the relative fair market value
estimates ourselves. These estimates and determinations of basis
are subject to challenge and will not be binding on the IRS or
the courts. If the estimates of fair market value or basis are
later found to be incorrect, the character and amount of items
of income, gain, loss or deduction previously reported by
unitholders could change, and unitholders could be required to
adjust their tax liability for prior years and incur interest
and penalties with respect to those adjustments.
Disposition
of Common Units
Recognition of Gain or Loss. A unitholder will
be required to recognize gain or loss on a sale of common units
equal to the difference between the unitholders amount
realized and tax basis for the units sold. A unitholders
amount realized will equal the sum of the cash and the fair
market value of other property received by him plus his share of
our nonrecourse liabilities attributable to the common units
sold. Because the amount realized includes a unitholders
share of our nonrecourse liabilities, the gain recognized on the
sale of common units could result in a tax liability in excess
of any cash received from the sale. For example, distributions
from us in excess of cumulative net taxable income allocated to
a unitholder results in a decrease in the unitholders
U.S. federal income tax basis in that common unit, which
will, in effect, become taxable income if the common unit is
sold at a price greater than the unitholders tax basis in
that common unit, even if the price received is less than has
original cost.
Except as noted below, gain or loss recognized by a unitholder
on the sale or exchange of a common unit will generally be
taxable as capital gain or loss. Capital gain recognized by an
individual on the sale of common units held for more than one
year will generally be taxed at a maximum U.S. federal
income tax rate of 15% through December 31, 2012 and 20%
thereafter (absent new legislation extending or adjusting the
current rate). Gain or loss recognized on the disposition of
common units will be separately computed and taxed as ordinary
income or loss under Section 751 of the Internal Revenue
Code to the extent attributable to assets giving rise to
depreciation recapture or other unrealized
receivables or inventory items we own. The
term unrealized receivables includes potential
recapture items, including depreciation recapture. Ordinary
income attributable to unrealized receivables, inventory items
and depreciation recapture may exceed net taxable gain realized
upon the sale of a common unit and may be recognized even if
there is a net taxable loss realized on the sale of a common
unit. Thus, a unitholder may recognize both ordinary income and
a capital loss upon a sale of common units. Net capital loss may
offset capital gains and no more than $3,000 of ordinary income
each year, in the case of individuals, and may only be used to
offset capital gain in the case of corporations.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those
interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of
those interests, a portion of that tax basis must be allocated
to the interests sold using an equitable
apportionment method, which generally means that the tax
basis allocated to the interest sold equals an amount that bears
the same relation to the partners tax basis in his entire
interest in the partnership as the value of the interest sold
bears to the value of the partners entire interest in the
partnership. Treasury Regulations under Section 1223 of the
Internal Revenue Code allow a selling unitholder who can
identify common units transferred with an ascertainable holding
period to elect to use the actual holding period of the common
units transferred. Thus, according to the ruling discussed
above, a unitholder will be unable to select high or low basis
common units to sell as would be the case with corporate stock,
but, according to the Treasury Regulations, may designate
specific
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common units sold for purposes of determining the holding period
of common units transferred. A unitholder electing to use the
actual holding period of common units transferred must
consistently use that identification method for all subsequent
sales or exchanges of common units. A unitholder considering the
purchase of additional common units or a sale of common units
purchased in separate transactions is urged to consult his tax
advisor as to the possible consequences of this ruling and
application of the Treasury Regulations.
Specific provisions of the Internal Revenue Code affect the
taxation of some financial products and securities, including
partnership interests, by treating a taxpayer as having sold an
appreciated partnership interest, one in which gain
would be recognized if it were sold, assigned or terminated at
its fair market value, if the taxpayer or related persons
enter(s) into:
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a short sale;
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an offsetting notional principal contract; or
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a futures or forward contract with respect to the partnership
interest or substantially identical property.
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Moreover, if a taxpayer has previously entered into a short
sale, an offsetting notional principal contract or a futures or
forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the
taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of
the Treasury is also authorized to issue regulations that treat
a taxpayer that enters into transactions or positions that have
substantially the same effect as the preceding transactions as
having constructively sold the financial position.
Allocations Between Transferors and
Transferees. In general, our taxable income or
loss will be determined annually, will be prorated on a monthly
basis and will be subsequently apportioned among our unitholders
in proportion to the number of common units owned by each of
them as of the opening of the applicable exchange on the first
business day of the month, which we refer to as the
Allocation Date. However, gain or loss realized on a
sale or other disposition of our assets other than in the
ordinary course of business will be allocated among the
unitholders on the Allocation Date in the month in which that
gain or loss is recognized. As a result, a unitholder
transferring common units may be allocated income, gain, loss
and deduction realized after the date of transfer.
Although simplifying conventions are contemplated by the
Internal Revenue Code and most publicly traded partnerships use
similar simplifying conventions, the use of this method may not
be permitted under existing Treasury Regulations. Recently,
however, the Department of the Treasury and the IRS issued
proposed Treasury Regulations that provide a safe harbor
pursuant to which a publicly traded partnership may use a
similar monthly simplifying convention to allocate tax items
among transferor and transferee unitholders, although such tax
items must be prorated on a daily basis. Nonetheless, the
proposed Treasury Regulations do not specifically authorize the
use of the proration method we have adopted. Existing publicly
traded partnerships are entitled to rely on these proposed
Treasury Regulations; however, they are not binding on the IRS
and are subject to change until final Treasury Regulations are
issued. Accordingly, Vinson & Elkins L.L.P. is unable
to opine on the validity of this method of allocating income and
losses between transferor and transferee unitholders. If this
method is not allowed under the Treasury Regulations, or only
applies to transfers of less than all of the unitholders
interest, our taxable income or losses might be reallocated
among the unitholders. We are authorized to revise our method of
allocation between transferor and transferee unitholders, as
well as unitholders whose interests vary during a taxable year,
to conform to a method permitted under future Treasury
Regulations.
A unitholder who disposes of common units prior to the record
date set for a cash distribution for a quarter will be allocated
items of our income, gain, loss and deductions attributable to
that quarter but will not be entitled to receive that cash
distribution.
Notification Requirements. A unitholder who
sells any of his common units is generally required to notify us
in writing of that sale within 30 days after the sale (or,
if earlier, January 15 of the year following the sale). A
purchaser of common units who purchases common units from
another unitholder also generally is required to notify us in
writing of that purchase within 30 days after the purchase.
Upon receiving such notifications, we are required to notify the
IRS of that transaction and to furnish specified information to
the transferor and transferee. Failure to notify us of a
transfer of common units may, in some cases, lead to the
imposition of penalties. However,
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these reporting requirements do not apply to a sale by an
individual who is a citizen of the United States and who effects
the sale or exchange through a broker who will satisfy such
requirements.
Constructive Termination. We will be
considered to have terminated our partnership for
U.S. federal income tax purposes if there are sales or
exchanges that, in the aggregate, constitute 50% or more of the
total interests in our capital and profits within a twelve-month
period. For purposes of measuring whether the 50% threshold is
reached, multiple sales of the same interest within a
twelve-month period are counted only once. A constructive
termination results in the closing of our taxable year for all
unitholders. In the case of a unitholder reporting on a taxable
year other than a fiscal year ending December 31, the
closing of our taxable year may result in more than one year of
our taxable income or loss being includable in his taxable
income for the year of termination. A constructive termination
occurring on a date other than December 31 will result in us
filing two tax returns (and could result in unitholders
receiving two Schedules K-1) for one fiscal year and the cost of
the preparation of these returns will be borne by all
unitholders. However, pursuant to an IRS relief procedure for
publicly traded partnerships that have technically terminated,
the IRS may allow, among other things, that we provide only a
single
Schedule K-1
to unitholders for the tax year in which the termination occurs.
We would be required to make new tax elections after a
termination, including a new election under Section 754 of
the Internal Revenue Code, and a termination would result in a
deferral of our deductions for depreciation. A termination could
also result in penalties if we were unable to determine that the
termination had occurred. Moreover, a termination might either
accelerate the application of, or subject us to, any tax
legislation enacted before the termination.
Uniformity
of Common Units
Because we cannot match transferors and transferees of common
units and because of other reasons, we must maintain uniformity
of the economic and tax characteristics of the common units to a
purchaser of these common units. In the absence of uniformity,
we may be unable to completely comply with a number of
U.S. federal income tax requirements, both statutory and
regulatory. A lack of uniformity could result from a literal
application of Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not anticipated to apply to a material portion of our
assets, and Treasury
Regulation Section 1.197-2(g)(3).
Any non-uniformity could have a negative impact on the value of
the common units. Please read Tax Consequences
of Common Unit Ownership Section 754
Election.
Our partnership agreement permits our general partner to take
positions in filing our tax returns that preserve the uniformity
of our units even under circumstances like those described
above. These positions may include reducing for some unitholders
the depreciation, amortization or loss deductions to which they
would otherwise be entitled or reporting a slower amortization
of Section 743(b) adjustments for some unitholders than
that to which they would otherwise be entitled.
Vinson & Elkins L.L.P. is unable to opine as to
validity of such filing positions. A unitholders basis in
common units is reduced by his share of our deductions (whether
or not such deductions were claimed on an individual income tax
return) so that any position that we take that understates
deductions will overstate the unitholders basis in his
common units, and may cause the unitholder to understate gain or
overstate loss on any sale of such common units. Please read
Disposition of Common Units
Recognition of Gain or Loss above and
Tax Consequences of Unit Ownership
Section 754 Election above. The IRS may challenge one
or more of any positions we take to preserve the uniformity of
common units. If such a challenge were sustained, the uniformity
of common units might be affected, and, under some
circumstances, the gain from the sale of common units might be
increased without the benefit of additional deductions.
Tax-Exempt
Organizations and Other Investors
Ownership of common units by employee benefit plans, other
tax-exempt organizations, non-resident aliens,
non-U.S. corporations
and other
non-U.S. persons
raises issues unique to those investors and, as described below,
may have substantially adverse tax consequences to them.
Prospective unitholders who are tax-exempt entities or
non-U.S. persons
should consult their tax advisors before investing in our common
units.
Employee benefit plans and most other organizations exempt from
U.S. federal income tax, including individual retirement
accounts and other retirement plans, are subject to
U.S. federal income tax on unrelated
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business taxable income. Virtually all of our income allocated
to a unitholder that is a tax-exempt organization will be
unrelated business taxable income and will be taxable to them.
Non-resident aliens and
non-U.S. corporations,
trusts or estates that own our common units will be considered
to be engaged in business in the United States because of the
ownership of common units. As a consequence, they will be
required to file U.S. federal tax returns to report their
share of our income, gain, loss or deduction and pay
U.S. federal income tax at regular rates on their share of
our net income or gain. Moreover, under rules applicable to
publicly traded partnerships, distributions to
non-U.S. unitholders
are subject to withholding at the highest applicable effective
tax rate. Each
non-U.S. unitholder
must obtain a taxpayer identification number from the IRS and
submit that number to our transfer agent on a
Form W-8BEN
or applicable substitute form in order to obtain credit for
these withholding taxes. A change in applicable law may require
us to change these procedures.
In addition, because a foreign corporation that owns common
units will be treated as engaged in a U.S. trade or
business, that corporation may be subject to the
U.S. branch profits tax at a rate of 30%, in addition to
regular U.S. federal income tax, on its share of our income
and gain, as adjusted for changes in the
non-U.S. corporations
U.S. net equity, which is effectively connected
with the conduct of a United States trade or business. That tax
may be reduced or eliminated by an income tax treaty between the
United States and the country in which the
non-U.S. corporate
unitholder is a qualified resident. In addition,
this type of unitholder is subject to special information
reporting requirements under Section 6038C of the Internal
Revenue Code.
A
non-U.S. unitholder
who sells or otherwise disposes of a unit will be subject to
U.S. federal income tax on gain realized from the sale or
disposition of that common unit to the extent the gain is
effectively connected with a U.S. trade or business of the
non-U.S. unitholder.
Under a ruling published by the IRS, interpreting the scope of
effectively connected income, a
non-U.S. unitholder
would be considered to be engaged in a trade or business in the
U.S. by virtue of the U.S. activities of the
partnership, and part or all of that unitholders gain
would be effectively connected with that unitholders
indirect U.S. trade or business. Moreover, under the
Foreign Investment in Real Property Tax Act, a
non-U.S. unitholder
generally will be subject to U.S. federal income tax upon
the sale or disposition of a common unit if (i) he owned
(directly or constructively applying certain attribution rules)
more than 5% of our units at any time during the five-year
period ending on the date of such disposition and (ii) 50%
or more of the fair market value of all of our assets consisted
of U.S. real property interests at any time during the
shorter of the period during which such unitholder held the
units or the
5-year
period ending on the date of disposition. Currently, more than
50% of our assets consist of U.S. real property interests
and we do not expect that percentage to change in the
foreseeable future. Therefore,
non-U.S. unitholders
may be subject to U.S. federal income tax on gain from the
sale or disposition of their common units.
Administrative
Matters
Information Returns and Audit Procedures. We
intend to furnish to each unitholder, within 90 days after
the close of each calendar year, specific tax information,
including a
Schedule K-1,
which describes his share of our income, gain, loss and
deduction for our preceding taxable year. In preparing this
information, which will not be reviewed by counsel, we will take
various accounting and reporting positions, some of which have
been mentioned earlier, to determine each unitholders
share of our income, gain, loss and deduction. We cannot assure
our unitholders that those positions will yield a result that
conforms to the requirements of the Internal Revenue Code,
Treasury Regulations or administrative interpretations of the
IRS. Neither we nor Vinson & Elkins L.L.P. can assure
prospective unitholders that the IRS will not successfully
contend in court that those positions are impermissible. Any
challenge by the IRS could negatively affect the value of our
common units.
The IRS may audit our U.S. federal income tax information
returns. Adjustments resulting from an IRS audit may require
each unitholder to adjust a prior years tax liability, and
possibly may result in an audit of his return. Any audit of a
unitholders return could result in adjustments not related
to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for
purposes of U.S. federal tax audits, judicial review of
administrative adjustments by the IRS and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings
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with the partners. The Internal Revenue Code requires that one
partner be designated as the Tax Matters Partner for
these purposes. Our partnership agreement names Coffeyville
Resources, LLC as our Tax Matters Partner.
The Tax Matters Partner will make some elections on our behalf
and on behalf of our unitholders. In addition, the Tax Matters
Partner can extend the statute of limitations for assessment of
tax deficiencies against our unitholders for items in our
returns. The Tax Matters Partner may bind a unitholder with less
than a 1% profits interest in us to a settlement with the IRS
unless that unitholder elects, by filing a statement with the
IRS, not to give that authority to the Tax Matters Partner. The
Tax Matters Partner may seek judicial review, by which all
unitholders are bound, of a final partnership administrative
adjustment and, if the Tax Matters Partner fails to seek
judicial review, judicial review may be sought by any unitholder
having at least a 1% interest in profits or by any group of our
unitholders having in the aggregate at least a 5% interest in
profits. However, only one action for judicial review will go
forward, and each unitholder with an interest in the outcome may
participate in that action.
A unitholder must file a statement with the IRS identifying the
treatment of any item on his U.S. federal income tax return
that is not consistent with the treatment of the item on our
return. Intentional or negligent disregard of this consistency
requirement may subject a unitholder to substantial penalties.
Nominee Reporting. Persons who hold an
interest in us as a nominee for another person are required to
furnish to us:
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(a)
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the name, address and taxpayer identification number of the
beneficial owner and the nominee;
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(b)
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a statement regarding whether the beneficial owner is:
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1.
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a person that is not a U.S. person;
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a foreign government, an international organization or any
wholly-owned agency or instrumentality of either of the
foregoing; or
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3.
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a tax-exempt entity;
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(c)
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the amount and description of common units held, acquired or
transferred for the beneficial owner; and
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(d)
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specific information including the dates of acquisitions and
transfers, means of acquisitions and transfers, and acquisition
cost for purchases, as well as the amount of net proceeds from
sales.
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Brokers and financial institutions are required to furnish
additional information, including whether they are
U.S. persons and specific information on common units they
acquire, hold or transfer for their own account. A penalty of
$50 per failure, up to a maximum of $100,000 per calendar year,
is imposed by the Internal Revenue Code for failure to report
that information to us. The nominee is required to supply the
beneficial owner of the common units with the information
furnished to us.
Accuracy-Related Penalties. An additional tax
equal to 20% of the amount of any portion of an underpayment of
tax that is attributable to one or more specified causes,
including negligence or disregard of rules or regulations,
substantial understatements of income tax and substantial
valuation misstatements, is imposed by the Internal Revenue
Code. No penalty will be imposed, however, for any portion of an
underpayment if it is shown that there was a reasonable cause
for the underpayment of that portion and that the taxpayer acted
in good faith regarding the underpayment of that portion.
For individuals, a substantial understatement of income tax in
any taxable year exists if the amount of the understatement
exceeds the greater of 10% of the tax required to be shown on
the return for the taxable year or $5,000. The amount of any
understatement subject to penalty is generally reduced if any
portion is attributable to a position adopted on the return:
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(1)
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for which there is, or was, substantial
authority; or
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(2)
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as to which there is a reasonable basis and the pertinent facts
of that position are disclosed on the return.
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If any item of income, gain, loss or deduction included in the
distributive shares of our unitholders might result in that kind
of an understatement of income for which no
substantial authority exists, we must disclose the
pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for our
unitholders to make adequate disclosure on their returns and to
take other actions as may be appropriate to permit our
unitholders to avoid liability for this penalty. More stringent
rules apply to tax shelters, which we do not believe
includes us, or any of our investments, plans or arrangements.
A substantial valuation misstatement exists if (i) the
value of any property, or the tax basis of any property, claimed
on a tax return is 150% or more of the amount determined to be
the correct amount of the valuation or tax basis, (ii) the
price for any property or services (or for the use of property)
claimed on any such return with respect to any transaction
between persons described in Internal Revenue Code
Section 482 is 200% or more (or 50% or less) of the amount
determined under Section 482 to be the correct amount of
such price, or (iii) the net Internal Revenue Code
Section 482 transfer price adjustment for the taxable year
exceeds the lesser of $5 million or 10% of the
taxpayers gross receipts. No penalty is imposed unless the
portion of the underpayment attributable to a substantial
valuation misstatement exceeds $5,000 ($10,000 for most
corporations). If the valuation claimed on a return is 200% or
re than the correct valuation, the penalty is increased to 40%.
We do not anticipate making any valuation misstatements.
Reportable Transactions. If we were to engage
in a reportable transaction, we (and possibly our
unitholders and others) would be required to make a detailed
disclosure of the transaction to the IRS. A transaction may be a
reportable transaction based upon any of several factors,
including the fact that it is a type of tax avoidance
transaction publicly identified by the IRS as a listed
transaction or that it produces certain kinds of losses
for partnerships, individuals, S corporations, and trusts
in excess of $2 million in any single year, or
$4 million in any combination of six successive tax years.
Our participation in a reportable transaction could increase the
likelihood that our U.S. federal income tax information
return (and possibly our unitholders tax returns) would be
audited by the IRS. Please read Information
Returns and Audit Procedures.
Moreover, if we were to participate in a reportable transaction
with a significant purpose to avoid or evade tax, or in any
listed transaction, our unitholders may be subject to the
following provisions of the American Jobs Creation Act of 2004:
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accuracy-related penalties with a broader scope, significantly
narrower exceptions, and potentially greater amounts than
described above at Accuracy-Related
Penalties;
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for those persons otherwise entitled to deduct interest on
federal tax deficiencies, nondeductibility of interest on any
resulting tax liability; and
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in the case of a listed transaction, an extended statute of
limitations.
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We do not expect to engage in any reportable
transactions.
State,
Local, Foreign and Other Tax Considerations
In addition to U.S. federal income taxes, our unitholders
likely will be subject to other taxes, such as state, local and
foreign income taxes, unincorporated business taxes, and estate,
inheritance or intangible taxes that may be imposed by the
various jurisdictions in which we conduct business or own or
control property or in which the unitholder is a resident.
Although an analysis of those various taxes is not presented
here, each prospective unitholder should consider their
potential impact on his investment in us. We currently own
assets and conduct business in Kansas, Nebraska and Texas.
Kansas and Nebraska currently impose a personal income tax on
individuals. Kansas and Nebraska also impose an income tax on
corporations and other entities. Texas currently imposes a
franchise tax on corporations and other entities. We may also
own property or do business in other jurisdictions in the
future. Although a unitholder may not be required to file a
return and pay taxes in some states because his income from that
state falls below the filing and payment requirement,
unitholders will be required to file income tax returns and to
pay income taxes in any state in which we conduct business or
own or control property and may be subject to penalties for
failure to comply with those requirements. In some states, tax
losses may not produce a tax benefit in the year incurred and
may not be available to offset income in subsequent taxable
years. Some of the states may require us, or we may elect, to
withhold a percentage of income from amounts to be
174
distributed to a unitholder who is not a resident of the state.
Withholding, the amount of which may be greater or less than a
particular unitholders income tax liability to the state,
generally does not relieve a nonresident unitholder from the
obligation to file an income tax return. Amounts withheld will
be treated as if distributed to our unitholders for purposes of
determining the amounts distributed by us. Please read
Tax Consequences of Common Unit
Ownership Entity-Level Collections of
Unitholder Taxes. Based on current law and our estimate of
our future operations, our general partner anticipates that any
amounts required to be withheld will not be material.
It is the responsibility of each unitholder to investigate the
legal and tax consequences, under the laws of pertinent states
and localities, of his investment in us. Vinson &
Elkins L.L.P. has not rendered an opinion on the state, local or
foreign tax consequences of an investment in us. We strongly
recommend that each prospective unitholder consult, and depend
on, his own tax counsel or other advisor with regard to those
matters. It is the responsibility of each unitholder to file all
tax returns that may be required of him.
175
INVESTMENT
IN CVR PARTNERS, LP BY EMPLOYEE BENEFIT PLANS
An investment in us by an employee benefit plan is subject to
additional considerations because the investments of these plans
are subject to the fiduciary responsibility and prohibited
transaction provisions of ERISA and restrictions imposed by
Section 4975 of the Internal Revenue Code. For these
purposes the term employee benefit plan includes,
but is not limited to, qualified pension, profit-sharing and
stock bonus plans, Keogh plans, simplified employee pension
plans and tax deferred annuities or IRAs established or
maintained by an employer or employee organization. Among other
things, consideration should be given to:
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whether the investment is prudent under
Section 404(a)(1)(B) of ERISA;
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whether in making the investment, that plan will satisfy the
diversification requirements of Section 404(a)(1)(C) of
ERISA; and
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whether the investment will result in recognition of unrelated
business taxable income by the plan and, if so, the potential
after-tax investment return.
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The person with investment discretion with respect to the assets
of an employee benefit plan, often called a fiduciary, should
determine whether an investment in us is authorized by the
appropriate governing instrument and is a proper investment for
the plan.
Section 406 of ERISA and Section 4975 of the Internal
Revenue Code prohibit employee benefit plans, and also IRAs that
are not considered part of an employee benefit plan, from
engaging in specified transactions involving plan
assets with parties that are parties in
interest under ERISA or disqualified persons
under the Internal Revenue Code with respect to the plan.
In addition to considering whether the purchase of common units
is a prohibited transaction, a fiduciary of an employee benefit
plan should consider whether the plan will, by investing in us,
be deemed to own an undivided interest in our assets, with the
result that our operations would be subject to the regulatory
restrictions of ERISA, including its prohibited transaction
rules, as well as the prohibited transaction rules of the
Internal Revenue Code.
The Department of Labor regulations provide guidance with
respect to whether the assets of an entity in which employee
benefit plans acquire equity interests would be deemed
plan assets under some circumstances. Under these
regulations, an entitys assets would not be considered to
be plan assets if, among other things:
(a) the equity interests acquired by employee benefit plans
are publicly offered securities i.e., the equity
interests are widely held by 100 or more investors independent
of the issuer and each other, freely transferable and registered
under some provisions of the federal securities laws;
(b) the entity is an operating company, meaning
it is primarily engaged in the production or sale of a product
or service other than the investment of capital either directly
or through a majority-owned subsidiary or subsidiaries; or
(c) there is no significant investment by benefit plan
investors, which is defined to mean that less than 25% of the
value of each class of equity interest is held by the employee
benefit plans referred to above and IRAs.
Our assets should not be considered plan assets
under these regulations because it is expected that the
investment will satisfy the requirements in (a) and
(b) above.
Plan fiduciaries contemplating a purchase of common units are
encouraged to consult with their own counsel regarding the
consequences under ERISA and the Internal Revenue Code in light
of the serious penalties imposed on persons who engage in
prohibited transactions or other violations.
176
UNDERWRITERS
Under the terms and subject to the conditions in an underwriting
agreement dated the date of this prospectus, the underwriters
named below, for whom Morgan Stanley & Co.
Incorporated, Barclays Capital Inc. and Goldman,
Sachs & Co. are acting as representatives, have
severally agreed to purchase, and we have agreed to sell to
them, severally, the number of common units indicated below.
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Number of
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Name
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Common Units
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Morgan Stanley & Co. Incorporated
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Barclays Capital Inc.
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Goldman, Sachs & Co.
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Total
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The underwriters and the representatives are collectively
referred to as the underwriters and the
representatives, respectively. The underwriters are
obligated to take and pay for all of the common units offered by
this prospectus, if any are taken, other than the common units
covered by the option described below unless and until this
option is exercised. The underwriting agreement provides that
the obligations of the several underwriters to pay for and
accept delivery of the common units are subject to a number of
conditions, including, among others, the accuracy of the
representations and warranties in the underwriting agreement,
listing of the common units on the New York Stock Exchange,
receipt of specified letters from counsel and our independent
registered public accounting firm, and receipt of specified
officers certificates.
Common units sold by the underwriters to the public will
initially be offered at the initial public offering price set
forth on the cover page of this prospectus. Any common units
sold by the underwriters to securities dealers may be sold at a
price that represents a concession not in excess of
$ per common unit under the
initial public offering price. If all of the common units are
not sold at the initial public offering price, the offering
price and other selling terms may from time to time be varied by
the representatives. The offering of the common units by the
underwriters is subject to receipt and acceptance and subject to
the underwriters right to reject any order in whole or in
part.
We have granted the underwriters an option to buy up
to
additional common units from us at the public offering price
listed on the cover page of this prospectus, less underwriting
discounts and commissions. They may exercise that option for
30 days from the date of this prospectus. To the extent the
option is exercised, each underwriter will become obligated,
subject to certain conditions, to purchase the same percentage
of the additional common units as the number listed next to the
underwriters name in the preceding table bears to the
total number of common units listed next to the names of all
underwriters in the preceding table.
If the underwriters do not exercise their option to purchase
additional common units, we will
issue
common units to Coffeyville Resources upon the options
expiration. If and to the extent the underwriters exercise their
option to purchase additional common units, the number of common
units purchased by the underwriters pursuant to such exercise
will be issued to the public and the remainder, if any, will be
issued to Coffeyville Resources. Accordingly, the exercise of
the underwriters option will not affect the total number
of common units outstanding.
The following table shows the per common unit and total
underwriting discounts and commissions to be paid to the
underwriters by us. These amounts are shown assuming both no
exercise and full exercise of the underwriters option to
purchase
additional common units.
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Total
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Per Unit
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No Exercise
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Full Exercise
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Public Offering Price
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$
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$
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$
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Underwriting discounts and commissions to be paid by us
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$
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$
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$
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Proceeds, before expenses, to us
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$
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$
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$
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We estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will
be approximately $ million.
177
The underwriters have informed us that they do not intend sales
to discretionary accounts to exceed 5% of the total number of
common units offered by them.
We have applied to list our common units on the New York Stock
Exchange under the symbol UAN.
We, Coffeyville Resources, our general partner, and the
executive officers and directors of our general partner have
agreed with the underwriters, subject to specified exceptions,
not to dispose of or hedge any of the common units or securities
convertible into or exchangeable for common units during the
period from the date of the preliminary prospectus continuing
through the date 180 days after the date of this
prospectus, except with the prior written consent of the
representatives. This agreement does not apply to issuances by
CVR Partners pursuant to any employee benefit or equity plans
existing as of the closing of this offering.
The 180-day
restricted period described in the preceding paragraph will be
automatically extended if: (1) during the last 17 days
of the
180-day
restricted period we issue an earnings release or announce
material news or a material event; or (2) prior to the
expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
15-day
period following the last day of the
180-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event.
The underwriters have informed us that they do not presently
intend to release common units or other securities subject to
the lock-up
agreements. Any determination to release any common units or
other securities subject to the
lock-up
agreements would be based on a number of factors at the time of
any such determination; such factors may include the market
price of the common units, the liquidity of the trading market
for the common units, general market conditions, the number of
common units or other securities subject to the
lock-up
agreements proposed to be sold, and the timing, purpose and
terms of the proposed sale.
In order to facilitate the offering of the common units, the
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of the common units. Specifically,
the underwriters may sell more units than they are obligated to
purchase under the underwriting agreement, creating a short
position. A short sale is covered if the short position is no
greater than the number of units available for purchase by the
underwriters under the over-allotment option. The underwriters
can close out a covered short sale by exercising the
over-allotment option or purchasing units in the open market. In
determining the source of units to close out a covered short
sale, the underwriters will consider, among other things, the
open market price of units compared to the price available under
the over-allotment option. The underwriters may also sell units
in excess of the over-allotment option, creating a naked short
position. The underwriters must close out any naked short
position by purchasing units in the open market. A naked short
position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of
the common units in the open market after pricing that could
adversely affect investors who purchase in this offering. As an
additional means of facilitating this offering, the underwriters
may bid for, and purchase, common units in the open market to
stabilize the price of the common units. These activities may
raise or maintain the market price of the common units above
independent market levels or prevent or retard a decline in the
market price of the common units. The underwriters are not
required to engage in these activities and may end any of these
activities at any time.
We and the underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the
Securities Act.
Because the Financial Industry Regulatory Authority, or FINRA,
views the common units offered under this prospectus as
interests in a direct participation program, this offering is
being made in compliance with Rule 2310 of the FINRA
conduct rules. Investor suitability with respect to the common
units should be judged similarly to the suitability with respect
to other securities that are listed for quotation on a national
securities exchange.
The underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory, investment management, investment
research, principal investment, hedging, financing and brokerage
activities. Certain of the underwriters and their respective
affiliates have, from time to time, performed, and may in the
future perform, various financial advisory, investment banking,
commercial banking and other services for us, our general
partner and CVR Energy, for which they received or will receive
customary fees and expenses. An affiliate of Goldman,
Sachs & Co. is the administrative agent and collateral
agent and a lender under our new credit facility. Affiliates of
Morgan Stanley & Co. Incorporated and
178
Barclays Capital Inc. are lenders under our new credit
facility. Coffeyville Acquisition III, the owner of our general
partner (and the associated IDRs) prior to this offering, is
owned by, among others, the Goldman Sachs Funds. Coffeyville
Acquisition III is expected to distribute the proceeds of
its sale of our general partner and the IDRs to its members
pursuant to the terms of its limited liability company
agreement, including approximately $11.7 million to the
Goldman Sachs Funds. See Certain Relationships and Related
Party Transactions Distributions of the Proceeds of
the Sale of the General Partner and Incentive Distribution
Rights by Coffeyville Acquisition III.
Furthermore, certain of the underwriters and their respective
affiliates may, from time to time, enter into arms-length
transactions with us in the ordinary course of their business.
In the ordinary course of their various business activities, the
underwriters and their respective affiliates may make or hold a
broad array of investments and actively trade debt and equity
securities (or related derivative securities) and financial
instruments (including bank loans) for their own account and for
the accounts of their customers, and such investment and
securities activities may involve securities or instruments of
CVR Partners or CVR Energy. The underwriters and their
respective affiliates may also make investment recommendations
or publish or express independent research views in respect of
such securities or instruments and may at any time hold, or
recommend to clients that they acquire, long or short positions
in such securities and instruments.
A prospectus in electronic format may be made available on
websites maintained by one or more underwriters, or selling
group members, if any, participating in this offering. The
representatives may agree to allocate a number of common units
to underwriters for sale to their online brokerage account
holders. Internet distributions will be allocated by the
representatives to the underwriters that may make Internet
distributions on the same basis as other allocations.
Pricing
of the Offering
Prior to this offering, there has been no public market for our
common units. The initial public offering price was determined
by negotiations between us and the representative. Among the
factors considered in determining the initial public offering
price were our future prospects and those of our industry in
general, our sales, earnings and certain other financial and
operating information in recent periods, and the market prices
of securities, and certain financial and operating information,
of companies engaged in activities similar to ours.
The estimated initial public offering price range set forth on
the cover page of this prospectus is subject to change as a
result of market conditions and other factors. We cannot assure
you that the prices at which the common units will sell in the
public market after this offering will not be lower than the
initial public offering price or that an active trading market
in our common units will develop and continue after this
offering.
Directed
Unit Program
At our request, the underwriters have reserved for sale, at the
initial public offering price, up to 6.5% of the common units
offered hereby for the directors, officers and employees of CVR
Partners and our general partner, and other persons who have
relationships with us. If purchased by these persons, these
common units will be subject to a
90-day
lock-up
restriction. The number of common units available for sale to
the general public will be reduced to the extent such persons
purchase such reserved common units. Any reserved common units
which are not so purchased will be offered by the underwriters
to the general public on the same terms as the other common
units offered hereby. John J. Lipinski, the chairman, chief
executive officer and president of our general partner, has
indicated an interest in purchasing approximately $3 million of
the common units being offered in this offering through this
program.
European
Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive, each underwriter
has represented and agreed that with effect from and including
the date on which the Prospectus Directive is implemented in
that Member State it has not made and will not make an offer of
common units which are the subject of the offering contemplated
by this prospectus to the public in that Member State other than:
(a) to any legal entity which is a qualified investor as
defined in the Prospectus Directive;
(b) to fewer than 100 or, if such Member State has
implemented the relevant provision of the 2010 PD Amending
Directive, 150, natural or legal persons (other than qualified
investors as defined in the Prospectus
179
Directive), as permitted under the Prospectus Directive, subject
to obtaining the prior consent of the representatives for any
such offer; or
(c) in any other circumstances falling within
Article 3(2) of the Prospectus Directive,
provided that no such offer of notes shall require CVR Partners
to publish a prospectus pursuant to Article 3 of the
Prospectus Directive or supplement a prospectus pursuant to
Article 16 of the Prospectus Directive.
For the purposes of the above, the expression an offer of
common units to the public in relation to any common units
in any Member State means the communication in any form and by
any means of sufficient information on the terms of the offer
and the common units to be offered so as to enable an investor
to decide to purchase or subscribe the common units, as the same
may be varied in that Member State by any measure implementing
the Prospectus Directive in that Member State, the expression
Prospectus Directive means Directive 2003/71/EC (and
amendments thereto, including the 2010 PD Amending Directive, to
the extent implemented in that Member State) and includes any
relevant implementing measure in that Member State and the
expression 2010 PD Amending Directive means
Directive 2010/73/EU.
United
Kingdom
This prospectus and any other material in relation to the common
units described herein is only being distributed to, and is only
directed at, persons in the United Kingdom that are qualified
investors within the meaning of Article 2(1)(e) of the
Prospective Directive (qualified investors) that
also (i) have professional experience in matters relating
to investments falling within Article 19(5) of the
Financial Services and Markets Act 2000 (Financial Promotion)
Order 2005, as amended, or the Order, (ii) who fall within
Article 49(2)(a) to (d) of the Order or (iii) to
whom it may otherwise lawfully be communicated (all such persons
together being referred to as relevant persons). The
common units are only available to, and any invitation, offer or
agreement to purchase or otherwise acquire such common units
will be engaged in only with, relevant persons. This prospectus
and its contents are confidential and should not be distributed,
published or reproduced (in whole or in part) or disclosed by
recipients to any other person in the United Kingdom. Any person
in the United Kingdom that is not a relevant person should not
act or rely on this prospectus or any of its contents.
Hong
Kong
The common units may not be offered or sold by means of any
document other than (i) in circumstances which do not
constitute an offer to the public within the meaning of the
Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (iii) in other
circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the common units may be
issued or may be in the possession of any person for the purpose
of issue (in each case whether in Hong Kong or elsewhere), which
is directed at, or the contents of which are likely to be
accessed or read by, the public in Hong Kong (except if
permitted to do so under the laws of Hong Kong) other than with
respect to common units which are or are intended to be disposed
of only to persons outside Hong Kong or only to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong)
and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
common units may not be circulated or distributed, nor may the
common units be offered or sold, or be made the subject of an
invitation for subscription or purchase, whether directly or
indirectly, to persons in Singapore other than (i) to an
institutional investor under Section 274 of the Securities
and Futures Act, Chapter 289 of Singapore (the
SFA), (ii) to a relevant person, or any person
pursuant to Section 275(1A), and in accordance with the
conditions, specified in Section 275 of the SFA or
(iii) otherwise pursuant to, and in accordance with the
conditions of, any other applicable provision of the SFA.
180
Where the common units are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire common
unit capital of which is owned by one or more individuals, each
of whom is an accredited investor; or (b) a trust (where
the trustee is not an accredited investor) whose sole purpose is
to hold investments and each beneficiary is an accredited
investor, common units, debentures and units of common units and
debentures of that corporation or the beneficiaries rights
and interest in that trust shall not be transferable for
6 months after that corporation or that trust has acquired
the common units under Section 275 except: (1) to an
institutional investor under Section 274 of the SFA or to a
relevant person, or any person pursuant to Section 275(1A),
and in accordance with the conditions, specified in
Section 275 of the SFA; (2) where no consideration is
given for the transfer; or (3) by operation of law.
Japan
The common units have not been and will not be registered under
the Financial Instruments and Exchange Law of Japan (the
Financial Instruments and Exchange Law) and each underwriter has
agreed that it will not offer or sell any common units, directly
or indirectly, in Japan or to, or for the benefit of, any
resident of Japan (which term as used herein means any person
resident in Japan, including any corporation or other entity
organized under the laws of Japan), or to others for re-offering
or resale, directly or indirectly, in Japan or to a resident of
Japan, except pursuant to an exemption from the registration
requirements of, and otherwise in compliance with, the Financial
Instruments and Exchange Law and any other applicable laws,
regulations and ministerial guidelines of Japan.
181
LEGAL
MATTERS
The validity of the common units and certain other legal matters
will be passed upon for us by Fried, Frank, Harris,
Shriver & Jacobson LLP, New York, New York. Certain
tax and other legal matters will be passed upon for us by
Vinson & Elkins L.L.P., New York, New York.
Debevoise & Plimpton LLP, New York, New York is acting
as counsel to the underwriters. Andrews Kurth LLP, Houston,
Texas is acting as counsel to the underwriters with respect to
certain tax and other legal matters. Fried, Frank, Harris,
Shriver & Jacobson LLP provides legal services to CVR
Energy, Inc. from time to time. Vinson & Elkins L.L.P.
provided legal services to Coffeyville Acquisition LLC in
connection with our formation. Debevoise & Plimpton
LLP has in the past provided, and continues to provide, legal
services to Kelso & Company, L.P., including relating
to Coffeyville Acquisition LLC.
EXPERTS
The consolidated financial statements of CVR Partners, LP and
subsidiary as of December 31, 2010 and 2009, and for each
of the years in the three-year period ended December 31,
2010 have been included herein (and in the registration
statement) in reliance upon the report of KPMG LLP, independent
registered public accounting firm, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the common units being
offered hereunder. This prospectus does not contain all of the
information set forth in the registration statement and the
exhibits and schedules to the registration statement. For
further information with respect to us and our common units, we
refer you to the registration statement and the exhibits filed
as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any
other document are not necessarily complete. If a contract or
document has been filed as an exhibit to the registration
statement, we refer you to the copy of the contract or document
that has been filed as an exhibit and reference thereto is
qualified in all respects by the terms of the filed exhibit. The
registration statement, including exhibits, may be inspected
without charge at the Public Reference Room of the SEC at
100 F Street, N.E., Washington, D.C. 20549, and
copies of all or any part of it may be obtained from that office
after payment of fees prescribed by the SEC. Information on the
operation of the Public Reference Room may be obtained by
calling the SEC at
1-800-SEC-0330.
The SEC maintains a web site that contains reports, proxy and
information statements and other information regarding
registrants that file electronically with the SEC at
http://www.sec.gov.
182
CVR
PARTNERS, LP
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Introduction
The unaudited pro forma condensed consolidated financial
statements of CVR Partners, LP have been derived from the
audited historical and unaudited historical financial statements
of CVR Partners, LP included elsewhere in this prospectus.
The pro forma condensed consolidated balance sheet as of
December 31, 2010 and the pro forma condensed consolidated
statements of operations for the year ended December 31,
2010 have been adjusted to give effect to the transactions
described in note 1 to the unaudited pro forma condensed
consolidated financial statements.
The unaudited pro forma condensed consolidated financial
statements are not necessarily indicative of the results that we
would have achieved had the transactions described herein
actually taken place at the dates indicated, and do not purport
to be indicative of future financial position or operating
results. The unaudited pro forma consolidated financial
statements should be read in conjunction with the audited and
unaudited financial statements of CVR Partners, LP, the related
notes and Managements Discussion and Analysis of
Financial Condition and Results of Operations included
elsewhere in this prospectus.
The pro forma adjustments are based on available information and
certain assumptions that we believe are reasonable. The pro
forma adjustments and certain assumptions are described in the
accompanying notes.
P-1
CVR
PARTNERS, LP
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
AS OF DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
|
|
Pro Forma
|
|
|
|
As of
|
|
|
Pro Forma
|
|
|
As of
|
|
|
|
December 31, 2010
|
|
|
Adjustments
|
|
|
December 31, 2010
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
42,745
|
|
|
$
|
(24,085
|
)(a)
|
|
$
|
143,660
|
|
|
|
|
|
|
|
|
250,000
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
(20,826
|
)(c)
|
|
|
|
|
|
|
|
|
|
|
|
(18,400
|
)(d)
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
(3,000
|
)(f)
|
|
|
|
|
|
|
|
|
|
|
|
(100,000
|
)(g)
|
|
|
|
|
|
|
|
|
|
|
|
(81,774
|
)(h)
|
|
|
|
|
|
|
|
|
|
|
|
(26,000
|
)(i)
|
|
|
|
|
Accounts receivable, net of allowance for doubtful accounts of
$43
|
|
|
5,036
|
|
|
|
|
|
|
|
5,036
|
|
Inventories
|
|
|
19,830
|
|
|
|
|
|
|
|
19,830
|
|
Due from affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets, including $2,587 on a
historical basis and $269 on a pro forma basis, respectively,
from affiliates
|
|
|
5,557
|
|
|
|
(2,089
|
)(c)
|
|
|
1,150
|
|
|
|
|
|
|
|
|
(2,318
|
)(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
73,168
|
|
|
|
96,508
|
|
|
|
169,676
|
|
Property, plant, and equipment, net of accumulated depreciation
|
|
|
337,938
|
|
|
|
|
|
|
|
337,938
|
|
Intangible assets, net
|
|
|
46
|
|
|
|
|
|
|
|
46
|
|
Goodwill
|
|
|
40,969
|
|
|
|
|
|
|
|
40,969
|
|
Deferred financing costs
|
|
|
|
|
|
|
3,000
|
(f)
|
|
|
3,000
|
|
Other long-term assets
|
|
|
44
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
452,165
|
|
|
$
|
99,508
|
|
|
$
|
551,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS CAPITAL
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, including $3,323 due from affiliates on a
historical and pro forma basis
|
|
$
|
17,758
|
|
|
$
|
(1,415
|
)(c)
|
|
$
|
16,343
|
|
Personnel accruals
|
|
|
1,848
|
|
|
|
|
|
|
|
1,848
|
|
Deferred revenue
|
|
|
18,660
|
|
|
|
|
|
|
|
18,660
|
|
Accrued expenses and other current liabilities
|
|
|
7,810
|
|
|
|
|
|
|
|
7,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
46,076
|
|
|
|
(1,415
|
)
|
|
|
44,661
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
125,000
|
(e)
|
|
|
125,000
|
|
Other long-term liabilities
|
|
|
3,886
|
|
|
|
|
|
|
|
3,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
3,886
|
|
|
|
125,000
|
|
|
|
128,886
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Special general partners interest, 30,303,000 units
issued and outstanding
|
|
|
397,951
|
|
|
|
(24,061
|
)(a)
|
|
|
|
|
|
|
|
|
|
|
|
(2,316
|
)(j)
|
|
|
|
|
|
|
|
|
|
|
|
(371,574
|
)(k)
|
|
|
|
|
Limited partners interest, 30,333 units issued and
outstanding
|
|
|
398
|
|
|
|
(24
|
)(a)
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)(j)
|
|
|
|
|
|
|
|
|
|
|
|
(372
|
)(k)
|
|
|
|
|
Managing general partners interest
|
|
|
3,854
|
|
|
|
(3,854
|
)(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
402,203
|
|
|
|
(402,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRO FORMA PARTNERS CAPITAL
|
Unitholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity held by public:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
units: common
units issued and outstanding
|
|
|
|
|
|
|
250,000
|
(b)
|
|
|
228,500
|
|
|
|
|
|
|
|
|
(21,500
|
)(c)
|
|
|
|
|
Equity held by parent:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
units: common
units issued and outstanding
|
|
|
|
|
|
|
371,946
|
(k)
|
|
|
149,626
|
|
|
|
|
|
|
|
|
(18,400
|
)(d)
|
|
|
|
|
|
|
|
|
|
|
|
(100,000
|
)(g)
|
|
|
|
|
|
|
|
|
|
|
|
(81,774
|
)(h)
|
|
|
|
|
|
|
|
|
|
|
|
(22,146
|
)(i)
|
|
|
|
|
General partner interest
|
|
|
|
|
|
|
|
(l)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pro forma partners capital
|
|
|
|
|
|
|
378,126
|
|
|
|
378,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
452,165
|
|
|
$
|
99,508
|
|
|
$
|
551,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
unaudited
pro forma condensed consolidated financial statements.
P-2
CVR
PARTNERS, LP
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
|
|
Pro Forma
|
|
|
|
Year Ended
|
|
|
Pro Forma
|
|
|
Year Ended
|
|
|
|
December 31, 2010
|
|
|
Adjustments
|
|
|
December 31, 2010
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Net sales
|
|
$
|
180,468
|
|
|
$
|
|
|
|
$
|
180,468
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sold (exclusive of depreciation and
amortization) Affiliates
|
|
|
5,764
|
|
|
|
|
|
|
|
5,764
|
|
Cost of product sold (exclusive of depreciation and
amortization) Third Parties
|
|
|
28,564
|
|
|
|
|
|
|
|
28,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,328
|
|
|
|
|
|
|
|
34,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (exclusive of depreciation and
amortization) Affiliates
|
|
|
2,308
|
|
|
|
|
|
|
|
2,308
|
|
Direct operating expenses (exclusive of depreciation and
amortization) Third Parties
|
|
|
84,371
|
|
|
|
|
|
|
|
84,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,679
|
|
|
|
|
|
|
|
86,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general & administrative expenses (exclusive
of depreciation and amortization) Affiliates
|
|
|
16,748
|
|
|
|
|
|
|
|
16,748
|
|
Selling, general & administrative expenses (exclusive
of depreciation and amortization) Third Parties
|
|
|
3,894
|
|
|
|
|
|
|
|
3,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,642
|
|
|
|
|
|
|
|
20,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,463
|
|
|
|
|
|
|
|
18,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
160,112
|
|
|
|
|
|
|
|
160,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
20,356
|
|
|
|
|
|
|
|
20,356
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and other financing costs
|
|
|
|
|
|
|
(5,000
|
)(a)
|
|
|
(5,735
|
)
|
|
|
|
|
|
|
|
(610
|
)(b)
|
|
|
|
|
|
|
|
|
|
|
|
(125
|
)(c)
|
|
|
|
|
Interest income
|
|
|
13,124
|
|
|
|
(13,117
|
)(d)
|
|
|
657
|
|
|
|
|
|
|
|
|
650
|
(e)
|
|
|
|
|
Other income (expense)
|
|
|
(148
|
)
|
|
|
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
12,976
|
|
|
|
(18,202
|
)
|
|
|
(5,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
33,332
|
|
|
|
(18,202
|
)
|
|
|
15,130
|
|
Income tax expense
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
33,306
|
|
|
$
|
(18,202
|
)
|
|
$
|
15,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common unitholders interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common unit (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common units outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
unaudited
pro forma condensed consolidated financial statements.
P-3
CVR
PARTNERS, LP
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1)
|
Organization
and Basis of Presentation
|
The unaudited pro forma condensed consolidated financial
statements have been prepared based upon the audited and
unaudited historical consolidated financial statements of CVR
Partners, LP (the Partnership).
The unaudited pro forma condensed consolidated financial
statements are not necessarily indicative of the results that
the Partnership would have achieved had the transactions
described herein actually taken place at the dates indicated,
and do not purport to be indicative of future financial position
or operating results. The unaudited pro forma condensed
consolidated financial statements should be read in conjunction
with the historical consolidated financial statements of the
Partnership, the related notes and Managements
Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this prospectus.
The pro forma adjustments have been prepared as if the
transactions described below had taken place on
December 31, 2010, in the case of the pro forma balance
sheet, or as of January 1, 2010, in the case of the pro
forma statement of operations.
The unaudited pro forma condensed consolidated financial
statements reflect the following transactions:
|
|
|
|
|
The Partnership will distribute to Coffeyville Resources, LLC
(CRLLC) all cash on its balance sheet before the
closing date of this offering of common units described in the
sixth bullet below (other than cash in respect of prepaid sales);
|
|
|
|
|
|
Each of CRLLCs and CVR Special GP, LLCs, or Special
GP, interests in the Partnership will be converted
into
and common
units, respectively;
|
|
|
|
|
|
Special GP, a wholly-owned subsidiary of CRLLC, will be merged
with and into CRLLC, with CRLLC continuing as the surviving
entity;
|
|
|
|
|
|
The Partnership will offer and
sell common
units to the public in this offering and pay related commissions
and expenses;
|
|
|
|
|
|
The Partnership will be released from its obligations as a
guarantor under CRLLCs existing ABL credit facility, its
9.0% First Lien Senior Secured Notes due 2015 and its 10.875%
Second Lien Senior Secured Notes due 2017;
|
|
|
|
|
|
The Partnerships general partner will sell to the
Partnership its incentive distribution rights, or IDRs, for
$26.0 million in cash (representing fair market value),
which will be paid as a distribution to its current owners,
which include affiliates of funds associated with Goldman,
Sachs & Co. and Kelso & Company, L.P., and
the Partnership will extinguish such IDRs;
|
|
|
|
|
|
The general partner of the Partnership and CRLLC, a wholly owned
subsidiary of CVR Energy, Inc. (CVR Energy), will
enter into a second amended and restated agreement of limited
partnership;
|
|
|
|
|
|
The Partnership will distribute $18.4 million of the
offering proceeds to CRLLC in satisfaction of the
Partnerships obligation to reimburse it for certain
capital expenditures it made with respect to the nitrogen
fertilizer business prior to October 24, 2007;
|
|
|
|
|
|
The Partnership will make a special distribution of
$ million of the proceeds of
this offering to CRLLC in order to, among other things, fund the
offer to purchase CRLLCs senior secured notes required
upon consummation of this offering;
|
|
|
|
|
|
The Partnership will enter into a new credit facility, which
will include a $125.0 million term loan and a
$25.0 million revolving credit facility both due in 2016,
will draw the $125.0 million term loan in full, pay
associated financing costs, and use $100.0 million of the
proceeds therefrom to fund a special distribution to CRLLC in
order to, among other things, fund the offer to purchase
CRLLCs senior secured notes required upon consummation of
this offering; and
|
P-4
CVR
PARTNERS, LP
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
Coffeyville Acquisition III LLC (CALLC III),
the current owner of CVR GP, LLC, the Partnerships general
partner, will sell the Partnerships general partner which
holds a non-economic general partner interest to CRLLC for
nominal consideration.
|
In addition, the pro forma statement of operations assumes that
the Partnership has distributed the due from affiliate balance
of $160.0 million (as of December 31, 2010) owed to
the Partnership by CRLLC on January 1, 2010.
Upon completion of the Partnerships initial public
offering, the Partnership anticipates incurring incremental
general and administrative expenses as a result of being a
publicly traded limited partnership, such as costs associated
with SEC reporting requirements, including annual and quarterly
reports to unitholders, tax return and
Schedule K-1
preparation and distribution, independent auditor fees, investor
relations activities and registrar and transfer agent fees. We
estimate that these incremental general and administrative
expenses will approximate $3.5 million per year. The
Partnerships unaudited pro forma condensed consolidated
financial statements do not reflect this $3.5 million in
incremental expenses.
In connection with the Partnerships initial public
offering, CRLLCs existing limited partner interests will
be converted into common units, the Partnerships special
general partner interests will be converted into common units,
and the Partnerships special general partner will be
merged with and into CRLLC, with CRLLC continuing as the
surviving entity. In addition, CVR GP, LLC will sell its
incentive distribution rights in the Partnership to the
Partnership, and these interests will be extinguished.
Additionally, CALLC III will sell CVR GP, LLC to CRLLC for
a nominal amount. Following the initial public offering, the
Partnership will have two types of partnership interest
outstanding:
|
|
|
|
|
common units representing limited partner interests, a portion
of which the Partnership will sell in the initial public
offering (approximately % of all of
the Partnerships outstanding units); and
|
|
|
|
a general partner interest, which is not entitled to any
distributions, will be held by the Partnerships general
partner.
|
|
|
(3)
|
Pro Forma
Balance Sheet Adjustments and Assumptions
|
|
|
|
(a) |
|
Reflects the distribution by the Partnership of all cash on hand
immediately prior to the completion of the initial public
offering to the Partnerships Special GP and Special LP
unit holders (other than cash in respect of prepaid sales). For
purposes of the pro forma balance sheet at December 31,
2010, this amount is limited to the cash on hand excluding
prepaid sales at December 31, 2010 of $24.1 million.
The Partnership estimates that the actual amount to be
distributed upon the closing of the initial public offering will
be approximately $36.4 million. |
|
|
|
(b) |
|
Reflects the issuance by CVR Partners
of
common units to the public at an initial offering price of
$ per common unit resulting in
aggregate gross proceeds of $250.0 million. |
|
|
|
(c) |
|
Reflects the payment of underwriting commissions of
$17.5 million and other estimated offering expenses of
$4.0 million for a total of $21.5 million which will
be allocated to the newly issued public common units. As of
December 31, 2010 of the $4.0 million of estimated
offering expenses $0.7 million had been prepaid and
$1.4 million had been accrued. |
|
|
|
(d) |
|
Reflects the distribution of approximately $18.4 million to
reimburse CRLLC for certain capital expenditures it made with
respect to the nitrogen fertilizer business prior to
October 24, 2007. |
|
(e) |
|
Reflects the term debt incurred of $125.0 million. |
|
|
|
(f) |
|
Reflects the estimated deferred financing costs of
$3.0 million associated with the new credit facility. |
|
|
|
(g) |
|
Reflects the distribution of term debt proceeds of
$100.0 million. |
|
(h) |
|
Reflects the distribution to CRLLC of
$ million of cash resulting
from the initial public offering. |
P-5
CVR
PARTNERS, LP
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
(i) |
|
Reflects the purchase of the IDRs of the managing general
partner interest for $26.0 million, which represents the
fair market value. |
|
|
|
(j) |
|
Reflects the elimination of the interest receivable associated
with the Due from Affiliate balance that was
distributed on December 31, 2010 in connection with the
Partnerships initial public offering. |
|
|
|
(k) |
|
Reflects the conversion of the Special GP and Special LP
interest holders units to common units. |
|
(l) |
|
Reflects the non-economic general partner interest with nominal
value. |
|
|
(4)
|
Pro Forma
Statement of Operations Adjustments and Assumptions
|
|
|
|
(a) |
|
Reflects the inclusion of interest expense relating to the new
credit facility at an assumed rate of 4.0% with no balance
outstanding under the revolver. A 1/8 percent change in interest
rate would result in a change in interest expense of
$0.2 million. |
|
|
|
(b) |
|
Reflects the amortization of related debt issuance costs of the
new credit facility over a five year term. |
|
|
|
(c) |
|
Reflects the commitment fee of 0.50% on the estimated unused
portion of the $25.0 million revolving credit facility. |
|
|
|
(d) |
|
The due from affiliate balance was distributed to CRLLC on
December 31, 2010 in connection with the Partnerships
initial public offering. Accordingly, such amounts will no
longer be owed to the Partnership. Reflects the elimination of
historical interest income generated from the outstanding due
from affiliate balance. |
|
|
|
(e) |
|
Reflects the inclusion of interest income earned on the average
cash balance. |
|
|
(5)
|
Pro Forma
Net Income Per Unit
|
Pro forma net income per unit is determined by dividing the pro
forma net income that would have been allocated, in accordance
with the provisions of the Partnerships partnership
agreement, to the common unitholders, by the number of common
units expected to be outstanding at the closing of this
offering. For purposes of this calculation, the Partnership
assumed that pro forma distributions were equal to pro forma net
income and that the number of units outstanding
was common
units. All units were assumed to have been outstanding since
January 1, 2010.
Basic and diluted pro forma net income per unit are equivalent
as there are no dilutive units at the date of closing of this
offering.
P-6
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors of CVR GP, LLC
and
The Managing General Partner of CVR Partners, LP:
We have audited the accompanying consolidated balance sheets of
CVR Partners, LP and subsidiary (the Company) as of
December 31, 2010 and 2009 and the related consolidated
statements of operations, partners capital, and cash flows
for each of the years in the three-year period ended
December 31, 2010. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of CVR Partners, LP and subsidiary as of
December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2010, in conformity
with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Houston, Texas
March 16, 2011
F-1
CVR
PARTNERS, LP
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
42,745
|
|
|
$
|
5,440
|
|
Accounts receivable, net of allowance for doubtful accounts of
$43 and $83, respectively
|
|
|
5,036
|
|
|
|
2,779
|
|
Inventories
|
|
|
19,830
|
|
|
|
21,936
|
|
Due from affiliate
|
|
|
|
|
|
|
131,002
|
|
Prepaid expenses and other current assets, including $2,587 and
$1,333 from affiliates at December 31, 2010 and
December 31, 2009, respectively
|
|
|
5,557
|
|
|
|
1,969
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
73,168
|
|
|
|
163,126
|
|
Property, plant, and equipment, net of accumulated depreciation
|
|
|
337,938
|
|
|
|
347,258
|
|
Intangible assets, net
|
|
|
46
|
|
|
|
56
|
|
Goodwill
|
|
|
40,969
|
|
|
|
40,969
|
|
Other long-term assets
|
|
|
44
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
452,165
|
|
|
$
|
551,499
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS CAPITAL
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable, including $3,323 and $1,304 due to affiliates
at December 31, 2010 and December 31, 2009,
respectively
|
|
$
|
17,758
|
|
|
$
|
7,476
|
|
Personnel accruals
|
|
|
1,848
|
|
|
|
1,614
|
|
Deferred revenue
|
|
|
18,660
|
|
|
|
10,265
|
|
Accrued expenses and other current liabilities
|
|
|
7,810
|
|
|
|
8,279
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
46,076
|
|
|
|
27,634
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
3,886
|
|
|
|
3,981
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
3,886
|
|
|
|
3,981
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Partners capital:
|
|
|
|
|
|
|
|
|
Special general partners interest, 30,303,000 units
issued and outstanding
|
|
|
397,951
|
|
|
|
515,514
|
|
Limited partners interest, 30,333 units issued and
outstanding
|
|
|
398
|
|
|
|
516
|
|
Managing general partners interest
|
|
|
3,854
|
|
|
|
3,854
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
402,203
|
|
|
|
519,884
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
452,165
|
|
|
$
|
551,499
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-2
CVR
PARTNERS, LP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Net sales
|
|
$
|
180,468
|
|
|
$
|
208,371
|
|
|
$
|
262,950
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sold (exclusive of depreciation and
amortization) Affiliates
|
|
|
5,764
|
|
|
|
9,506
|
|
|
|
11,084
|
|
Cost of product sold (exclusive of depreciation and
amortization) Third Parties
|
|
|
28,564
|
|
|
|
32,652
|
|
|
|
21,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,328
|
|
|
|
42,158
|
|
|
|
32,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (exclusive of depreciation and
amortization) Affiliates
|
|
|
2,308
|
|
|
|
2,136
|
|
|
|
388
|
|
Direct operating expenses (exclusive of depreciation and
amortization) Third Parties
|
|
|
84,371
|
|
|
|
82,317
|
|
|
|
85,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,679
|
|
|
|
84,453
|
|
|
|
86,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization) Affiliates
|
|
|
16,748
|
|
|
|
12,310
|
|
|
|
1,056
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization) Third Parties
|
|
|
3,894
|
|
|
|
1,902
|
|
|
|
8,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,642
|
|
|
|
14,212
|
|
|
|
9,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,463
|
|
|
|
18,685
|
|
|
|
17,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
160,112
|
|
|
|
159,508
|
|
|
|
146,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
20,356
|
|
|
|
48,863
|
|
|
|
116,807
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
13,124
|
|
|
|
8,999
|
|
|
|
2,045
|
|
Other income (expense)
|
|
|
(148
|
)
|
|
|
31
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
12,976
|
|
|
|
9,030
|
|
|
|
2,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
33,332
|
|
|
|
57,893
|
|
|
|
118,959
|
|
Income tax expense
|
|
|
26
|
|
|
|
15
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
33,306
|
|
|
$
|
57,878
|
|
|
$
|
118,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
CVR
PARTNERS, LP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
Managing
|
|
|
|
|
|
|
General
|
|
|
Limited
|
|
|
General
|
|
|
Total
|
|
|
|
Partners
|
|
|
Partners
|
|
|
Partners
|
|
|
Partners
|
|
|
|
Interest
|
|
|
Interest
|
|
|
Interest
|
|
|
Capital
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
396,242
|
|
|
$
|
397
|
|
|
$
|
3,854
|
|
|
$
|
400,493
|
|
Net income
|
|
|
118,815
|
|
|
|
119
|
|
|
|
|
|
|
|
118,934
|
|
Share-based compensation expense - Affiliates
|
|
|
(10,608
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
(10,619
|
)
|
Cash distribution
|
|
|
(49,950
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
454,499
|
|
|
|
455
|
|
|
|
3,854
|
|
|
|
458,808
|
|
Net income
|
|
|
57,820
|
|
|
|
58
|
|
|
|
|
|
|
|
57,878
|
|
Share-based compensation expense - Affiliates
|
|
|
3,195
|
|
|
|
3
|
|
|
|
|
|
|
|
3,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
515,514
|
|
|
|
516
|
|
|
|
3,854
|
|
|
|
519,884
|
|
Net income
|
|
|
33,273
|
|
|
|
33
|
|
|
|
|
|
|
|
33,306
|
|
Share-based compensation expense - Affiliates
|
|
|
9,004
|
|
|
|
9
|
|
|
|
|
|
|
|
9,013
|
|
Property distribution
|
|
|
(159,840
|
)
|
|
|
(160
|
)
|
|
|
|
|
|
|
(160,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
397,951
|
|
|
$
|
398
|
|
|
$
|
3,854
|
|
|
$
|
402,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
CVR
PARTNERS, LP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
33,306
|
|
|
$
|
57,878
|
|
|
$
|
118,934
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,463
|
|
|
|
18,685
|
|
|
|
17,987
|
|
Allowance for doubtful accounts
|
|
|
(39
|
)
|
|
|
20
|
|
|
|
47
|
|
Loss on disposition of fixed assets
|
|
|
1,897
|
|
|
|
16
|
|
|
|
3,815
|
|
Share-based compensation - Affiliates
|
|
|
9,013
|
|
|
|
3,198
|
|
|
|
(10,619
|
)
|
Write-off of CVR Partners, LP initial public offering costs
|
|
|
|
|
|
|
|
|
|
|
2,539
|
|
Accounts receivable
|
|
|
(2,218
|
)
|
|
|
3,191
|
|
|
|
(3,220
|
)
|
Inventories
|
|
|
2,106
|
|
|
|
5,695
|
|
|
|
(11,477
|
)
|
Insurance receivable
|
|
|
(4,500
|
)
|
|
|
|
|
|
|
|
|
Insurance proceeds
|
|
|
3,161
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(2,689
|
)
|
|
|
1,549
|
|
|
|
(2,566
|
)
|
Other long-term assets
|
|
|
1
|
|
|
|
(128
|
)
|
|
|
(8
|
)
|
Accounts payable
|
|
|
9,394
|
|
|
|
(9,224
|
)
|
|
|
10,131
|
|
Deferred revenue
|
|
|
8,395
|
|
|
|
4,517
|
|
|
|
(7,413
|
)
|
Accrued expenses and other current liabilities
|
|
|
(306
|
)
|
|
|
110
|
|
|
|
5,315
|
|
Other accrued long-term liabilities
|
|
|
(39
|
)
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
75,945
|
|
|
|
85,534
|
|
|
|
123,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(10,082
|
)
|
|
|
(13,388
|
)
|
|
|
(23,518
|
)
|
Insurance proceeds
|
|
|
1,114
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of assets
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(8,968
|
)
|
|
|
(13,370
|
)
|
|
|
(23,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred costs of initial public offering
|
|
|
(674
|
)
|
|
|
|
|
|
|
(2,283
|
)
|
Due from affiliate
|
|
|
(28,998
|
)
|
|
|
(75,799
|
)
|
|
|
(53,061
|
)
|
Partners cash distribution
|
|
|
|
|
|
|
|
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(29,672
|
)
|
|
|
(75,799
|
)
|
|
|
(105,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
37,305
|
|
|
|
(3,635
|
)
|
|
|
(5,397
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
5,440
|
|
|
|
9,075
|
|
|
|
14,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
42,475
|
|
|
$
|
5,440
|
|
|
$
|
9,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual of construction in progress additions
|
|
$
|
888
|
|
|
$
|
(4,872
|
)
|
|
$
|
3,661
|
|
Partners property distribution
|
|
$
|
(160,000
|
)
|
|
$
|
|
|
|
$
|
|
|
See accompanying notes to consolidated financial statements.
F-5
CVR
PARTNERS, LP
|
|
(1)
|
Formation
of the Partnership, Organization and Nature of
Business
|
CVR Partners, LP (referred to as CVR Partners, the
Partnership or the Company) is a
Delaware limited partnership, formed in June 2007 by CVR Energy,
Inc. (together with its subsidiaries, but excluding the
Partnership and its subsidiary, CVR Energy) to own
Coffeyville Resources Nitrogen Fertilizers, LLC
(CRNF), previously a wholly-owned subsidiary of CVR
Energy. CRNF is an independent producer and marketer of upgraded
nitrogen fertilizer products sold in North America. CRNF
operates a dual-train coke gasifier plant that produces
high-purity hydrogen, most of which is subsequently converted to
ammonia and upgraded to urea ammonium nitrate (UAN).
CRNF produces and distributes nitrogen fertilizer products,
which are used primarily by farmers to improve the yield and
quality of their crops. CRNFs principal products are
ammonia and UAN. These products are manufactured at CRNFs
facility in Coffeyville, Kansas. CRNFs product sales are
heavily weighted toward UAN, and all of its products are sold on
a wholesale basis.
In October 2007, CVR Energy, Inc., through its wholly-owned
subsidiary, Coffeyville Resources, LLC (CRLLC),
transferred CRNF, CRLLCs nitrogen fertilizer business, to
the Partnership. This transfer was not considered a business
combination as it was a transfer of assets among entities under
common control and, accordingly, balances were transferred at
their historical cost. The Partnership became the sole member of
CRNF. In consideration for CRLLC transferring its nitrogen
fertilizer business to the Partnership, (1) CRLLC directly
acquired 30,333 special LP units, representing a 0.1% limited
partner interest in the Partnership, (2) the
Partnerships special general partner, a wholly-owned
subsidiary of CRLLC, acquired 30,303,000 special GP units,
representing a 99.9% general partner interest in the
Partnership, and (3) the managing general partner, then
owned by CRLLC, acquired a managing general partner interest and
incentive distribution rights (IDRs) of the
Partnership. Immediately prior to CVR Energys initial
public offering, CVR Energy sold the managing general partner
interest (together with the IDRs) to Coffeyville
Acquisition III LLC (CALLC III), an entity
owned by funds affiliated with Goldman, Sachs & Co.
(the Goldman Sachs Funds) and Kelso &
Company, L.P. (the Kelso Funds) and members of CVR
Energys management team, for its fair market value on the
date of sale. As a result of CVR Energys indirect
ownership of the Partnerships special general partner, it
initially owned all of the interests in the Partnership (other
than the managing general partner interest and the IDRs) and
initially was entitled to all cash distributed by the
Partnership.
The Partnership is operated by CVR Energys senior
management team pursuant to a services agreement among CVR
Energy, the managing general partner, and the Partnership. The
Partnership is managed by the managing general partner and to
the extent described below, CVR Energy, through its 100%
ownership of the Partnerships special general partner. As
the owner of the special general partner of the Partnership, CVR
Energy has joint management rights regarding the appointment,
termination, and compensation of the chief executive officer and
chief financial officer of the managing general partner, has the
right to designate two members of the board of directors of the
managing general partner, and has joint management rights
regarding specified major business decisions relating to the
Partnership.
In accordance with the Contribution, Conveyance, and Assumption
Agreement by and between the Partnership and the partners, dated
as of October 24, 2007, since an initial private or public
offering of the Partnership was not consummated by
October 24, 2009, the managing general partner of the
Partnership can require CRLLC to purchase the managing GP
interest. This put right expires on the earlier of
(1) October 24, 2012 or (2) the closing of the
Partnerships initial private or public offering. If the
Partnerships initial private or public offering is not
consummated by October 24, 2012, CRLLC has the right to
require the managing general partner to sell the managing GP
interest to CRLLC. This call right expires on the closing of the
Partnerships initial private or public offering. In the
event of an exercise of a put right or a call right, the
purchase price will be the fair market value of the managing GP
interest at the time of the purchase determined by an
independent investment banking firm selected by CRLLC and the
managing general partner.
F-6
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On February 28, 2008, the Partnership filed a registration
statement with the Securities and Exchange Commission
(SEC) to effect an initial public offering of its
common units. On June 13, 2008, the managing general
partner of the Partnership decided to postpone, indefinitely,
the Partnerships initial public offering due to
then-existing market conditions for master limited partnerships.
The Partnership subsequently withdrew the registration
statement, at which time costs previously incurred and deferred
in connection with the offering were written off.
On December 20, 2010, the Partnership filed a registration
statement on
Form S-1
(File
No. 333-171270)
to effect an initial public offering of its common units
representing limited partner interests (the
Offering). The number of common units to be sold in
the Offering has not yet been determined. The Offering is
subject to numerous conditions including, without limitation,
market conditions, pricing, regulatory approvals (including
clearance from the SEC), compliance with contractual obligations
and reaching agreements with underwriters and lenders.
In connection with the Offering, it is expected that the
Partnerships special LP units will be converted into
common units, the Partnerships special GP units will be
converted into common units, and the Partnerships special
general partner will be merged with and into CRLLC, with CRLLC
continuing as the surviving entity. In addition, the managing
general partner will sell its IDRs to the Partnership, the
IDRs will be extinguished, and CALLC III will sell the
managing general partner to CRLLC for a nominal amount.
In October 2007, the managing general partner, the special
general partner, and CRLLC, as the limited partner, entered into
an amended and restated limited partnership agreement setting
forth the various rights and responsibilities of the partners of
CVR Partners. The Partnership also entered into a number of
agreements with CVR Energy and the managing general partner to
regulate certain business relations between the Partnership and
the other parties thereto. See Note 14 (Related Party
Transactions) for further discussion. In connection with
the Offering, certain agreements, including the amended and
restated limited partnership agreement, entered into in 2007
will be amended
and/or
restated. Additionally, in connection with the Offering, the
Partnership is expected to be released from its obligation as a
guarantor under CRLLCs asset-backed revolving credit
facility (ABL credit facility) and the indentures
which govern CRLLCs senior secured notes, as described
further in Note 13 (Commitments and
Contingencies).
On December 17, 2010, the board of directors of the
managing general partner of the Partnership and the manager of
CRLLC approved the purchase of the IDRs by the Partnership for a
purchase price of $26 million, subject to consummation of
the Offering. The purchase price will be paid out of proceeds
from the Offering. Once acquired, the Partnership will
extinguish the IDRs.
As of December 31, 2010, the Partnership had distributed
out of the Partners capital account $210,000,000 to CRLLC
and the special general partner in accordance with their
respective percentage interests. Of this amount, $50,000,000 was
distributed in May 2008 and the remaining $160,000,000 resulted
from the distribution of the due from affiliate balance in
December 2010.
|
|
(2)
|
Basis of
Presentation
|
CVR Partners is comprised of operations of the CRNF fertilizer
business. The accompanying consolidated financial statements of
CVR Partners, LP include the operations of CRNF. The
accompanying consolidated financial statements were prepared in
accordance with U.S. generally accepted accounting
principles (GAAP) and in accordance with the rules
and regulations of the SEC as described in further detail below.
Certain prior year amounts have been reclassified to conform to
current year presentation.
The accompanying consolidated financial statements have been
prepared in accordance with Article 3 of
Regulation S-X,
General instructions as to consolidated financial
statements. The consolidated financial statements include
certain costs of CVR Energy that were incurred on behalf of the
Partnership. These amounts represent certain selling, general
and administrative expenses (exclusive of depreciation and
amortization) and direct operating expenses (exclusive of
depreciation and amortization). These transactions represent
related party transactions and are governed by a services
agreement entered into in October 2007. See below and
Note 14
F-7
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Related Party Transactions) for additional
discussion of the services agreement and billing and allocation
of certain costs. The billings, allocations, related estimates
and assumptions are described more fully in Note 3
(Summary of Significant Accounting Policies). The
amounts charged or allocated to the Partnership are not
necessarily indicative of the cost that the Partnership would
have incurred had it operated as an independent entity for all
years presented.
In the opinion of the Companys management, the
accompanying audited consolidated financial statements reflect
all adjustments that are necessary to fairly present the
financial position of the Company as of December 31, 2010
and 2009 and the results of operations and cash flows of the
Company for the years ended December 31, 2010, 2009 and
2008.
In addition, the Company has evaluated subsequent events that
would require an adjustment to the Companys consolidated
financial statements or disclosure in the notes to the
consolidated financial statements through March 16, 2011,
the date of issuance of the consolidated financial statements.
|
|
(3)
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The accompanying Partnership consolidated financial statements
include the accounts of CVR Partners and CRNF, its wholly-owned
subsidiary. All intercompany accounts and transactions have been
eliminated in consolidation.
Cash
and Cash Equivalents
The Partnership considers all highly liquid money market account
and debt instruments with original maturities of three months or
less to be cash equivalents.
Accounts
Receivable, net
CVR Partners grants credit to its customers. Credit is extended
based on an evaluation of a customers financial condition;
generally, collateral is not required. Accounts receivable are
due on negotiated terms and are stated at amounts due from
customers, net of an allowance for doubtful accounts. Accounts
outstanding longer than their contractual payment terms are
considered past due. CVR Partners determines its allowance for
doubtful accounts by considering a number of factors, including
the length of time trade accounts are past due, the
customers ability to pay its obligations to CVR Partners,
and the condition of the general economy and the industry as a
whole. CVR Partners writes off accounts receivable when they
become uncollectible, and payments subsequently received on such
receivables are credited to the allowance for doubtful accounts.
Amounts collected on accounts receivable are included in net
cash provided by operating activities in the Consolidated
Statements of Cash Flows. At December 31, 2010, one
customer represented approximately 21% of the total accounts
receivable balance (excluding accounts receivable with
affiliates). At December 31, 2009, two customers
individually represented greater than 10% and collectively
represented approximately 31% of the total accounts receivable
balance (excluding accounts receivable with affiliates). The
largest concentration of credit for any one customer at
December 31, 2010 and 2009, was approximately 21% and 18%,
respectively, of the accounts receivable balance (excluding
accounts receivable with affiliates).
Inventories
Inventories consist of fertilizer products which are valued at
the lower of
first-in,
first-out (FIFO) cost, or market. Inventories also
include raw materials, catalysts, parts and supplies, which are
valued at the lower of moving-average cost, which approximates
FIFO, or market. The cost of inventories includes inbound
freight costs.
F-8
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Due
From Affiliate
CVR Partners historically maintained a lending relationship with
its affiliate CRLLC in order to supplement CRLLCs working
capital needs. As of December 31, 2010, the
Partnerships due from affiliate balance was $0 as the
result of the balance of $160,000,000 being distributed to CRLLC
and the special general partner in accordance with their
respective percentage interests. Amounts loaned to CRLLC are
included on the Consolidated Balance Sheets as a due from
affiliate. CVR Partners had the right to receive amounts owed
from CRLLC upon request. CVR Partners charged interest on these
borrowings at an interest rate equal to the applicable rate of
under CRLLCs first priority revolving credit facility. See
Note 14 (Related Party Transactions) for
further discussion of the due from affiliate.
Prepaid
Expenses and Other Current Assets
Prepaid expenses and other current assets consist of
prepayments, non-trade accounts receivables, affiliates
receivables and other general current assets. Prepaid expenses
and other current assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Accrued interest
receivables(1)
|
|
$
|
2,318
|
|
|
$
|
961
|
|
Deferred initial public offering costs
|
|
|
2,089
|
|
|
|
|
|
Other(1)
|
|
|
1,150
|
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,557
|
|
|
$
|
1,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The accrued interest receivable
represents amounts due from CRLLC, a related party, in
connection with the due from affiliate balance. Additionally,
included in the table above are amounts owed to the Partnership
related to activities associated with the feedstock and shared
services agreement. See Note 14 (Related Party
Transactions) for additional discussion of amounts owed to
the Partnership related to the due from affiliate balance and
detail of amounts owed to the Partnership related to the
feedstock and shared services agreement.
|
Property,
Plant, and Equipment
Additions to property, plant and equipment, including certain
costs allocable to construction and property purchases, are
recorded at cost. Depreciation is computed using principally the
straight-line method over the estimated useful lives of the
various classes of depreciable assets. The lives used in
computing depreciation for such assets are as follows:
|
|
|
|
|
Range of Useful
|
Asset
|
|
Lives, in Years
|
|
Improvements to land
|
|
15 to 20
|
Buildings
|
|
20 to 30
|
Machinery and equipment
|
|
5 to 30
|
Automotive equipment
|
|
5
|
Furniture and fixtures
|
|
3 to 7
|
The Companys leasehold improvements are depreciated on the
straight-line method over the shorter of the contractual lease
term or the estimated useful life. Expenditures for routine
maintenance and repair costs are expensed when incurred. Such
expenses are reported in direct operating expenses (exclusive of
depreciation and amortization) in the Companys
Consolidated Statements of Operations.
F-9
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
and Intangible Assets
Goodwill represents the excess of the cost of an acquired entity
over the fair value of the assets acquired less liabilities
assumed. Intangible assets are assets that lack physical
substance (excluding financial assets). Goodwill acquired in a
business combination and intangible assets with indefinite
useful lives are not amortized, and intangible assets with
finite useful lives are amortized. Goodwill and intangible
assets not subject to amortization are tested for impairment
annually or more frequently if events or changes in
circumstances indicate the asset might be impaired. CVR Partners
uses November 1 of each year as its annual valuation date for
the impairment test. The annual review of impairment is
performed by comparing the carrying value of its assets to its
estimated fair value, using a combination of the discounted cash
flow analysis and market approach. The Company performed its
annual impairment review of goodwill and concluded there was no
impairment in 2010 and 2009. See Note 7 (Goodwill and
Intangible Assets) for further information.
Planned
Major Maintenance Costs
The direct-expense method of accounting is used for planned
major maintenance activities. Maintenance costs are recognized
as expense when maintenance services are performed. During the
years ended December 31, 2010 and December 31, 2008,
the nitrogen fertilizer facility completed major scheduled
turnarounds. Costs of approximately $3,540,000 and $3,343,000,
associated with the 2010 and 2008 turnarounds, are included in
direct operating expenses (exclusive of depreciation and
amortization) for the years ended December 31, 2010 and
December 31, 2008, respectively. In connection with the
2010 and 2008 nitrogen fertilizer plants turnarounds, the
Company wrote off fixed assets with a net book value of
approximately $1,369,000 and $2,330,000, respectively. During
2009, there were no planned major maintenance activities.
Planned major maintenance activities generally occur every two
years.
Cost
Classifications
Cost of product sold (exclusive of depreciation and
amortization) includes cost of pet coke expense and freight and
distribution expenses.
Direct operating expenses (exclusive of depreciation and
amortization) includes direct costs of labor, maintenance and
services, energy and utility costs, property taxes,
environmental compliance costs as well as chemical and catalyst
and other direct operating expenses. Direct operating expenses
also include allocated non-cash share-based compensation
expenses from CVR Energy and CALLC III as discussed in Note 12
(Share-Based Compensation). Direct operating
expenses exclude depreciation and amortization of approximately
$18,453,000, $18,674,000 and $17,973,000 for the years ended
December 31, 2010, 2009 and 2008, respectively.
Selling, general and administrative expenses (exclusive of
depreciation and amortization) consist primarily of direct and
allocated legal expenses, treasury, accounting, marketing, human
resources and maintaining the corporate offices in Texas and
Kansas. Selling, general and administrative expenses also
include allocated non-cash share-based compensation expense from
CVR Energy and CALLC III as discussed in Note 12 (
Share-Based Compensation). Selling, general and
administrative expenses exclude depreciation and amortization of
approximately $10,000, $11,000 and $14,000 for the years ended
December 31, 2010, 2009 and 2008, respectively.
Income
Taxes
CVR Partners is a recognized partnership required to file a
federal income tax return with each partner separately taxed on
its share of CVR Partners taxable income. The Partnership
is not subject to income taxes except for a franchise tax in the
state of Texas. The income tax liability of the individual
partners is not reflected in the consolidated financial
statements of the Partnership.
F-10
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segment
Reporting
The Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) ASC Topic
280 Segment Reporting, established standards
for entities to report information about the operating segments
and geographic areas in which they operate. CVR Partners only
operates one segment and all of its operations are located in
the United States.
Impairment
of Long-Lived Assets
The Partnership accounts for long-lived assets in accordance
with an accounting standard issued by the FASB regarding the
treatment of the impairment or disposal of long-lived assets. As
required by this standard, the Partnership reviews long-lived
assets (excluding goodwill and intangible assets with indefinite
lives) for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future net cash flows expected to be
generated by the asset. If the carrying amount of an asset
exceeds its estimated undiscounted future net cash flows, an
impairment charge is recognized for the amount by which the
carrying amount of the assets exceeds their fair value. Assets
to be disposed of are reported at the lower of their carrying
value or fair value less cost to sell. No impairment charges
were recognized for any of the periods presented.
Revenue Recognition
Revenues for products sold are recorded upon delivery of the
products to customers, which is the point at which title is
transferred, the customer has the assumed risk of loss, and when
payment has been received or collection is reasonably assumed,
indicating that all significant obligations of CRNF have been
satisfied. Deferred revenue represents customer prepayments
under contracts to guarantee a price and supply of nitrogen
fertilizer in quantities expected to be delivered in the next
12 months in the normal course of business. Taxes collected
from customers and remitted to governmental authorities are not
included in reported revenues.
Shipping
Costs
Pass-through finished goods delivery costs reimbursed by
customers are reported in net sales, while an offsetting expense
is included in cost of product sold (exclusive of depreciation
and amortization).
Fair
Value of Financial Instruments
Financial instruments consisting of cash and cash equivalents,
accounts receivable, and accounts payable are carried at cost,
which approximates fair value, as a result of the short-term
nature of the instruments.
Share-Based
Compensation
CVR Partners has been allocated non-cash share-based
compensation expense from CVR Energy and from CALLC III. CVR
Energy and CALLC III account for share-based compensation in
accordance with ASC Topic 718 Compensation Stock
Compensation (ASC 718) as well as guidance
regarding the accounting for share-based compensation granted to
employees of an equity method investee. In accordance with
ASC 718, CVR Energy and CALLC III apply a fair-value based
measurement method in accounting for share-based compensation.
The Company recognizes the costs of the share-based compensation
incurred by CVR Energy and CALLC III on its behalf, primarily in
selling, general and administrative expenses (exclusive of
depreciation and amortization), and a corresponding increase or
decrease to Partners Capital, as the costs are incurred on
its behalf, following the guidance issued by the FASB regarding
the accounting for equity instruments that are issued to other
than employees for acquiring, or in conjunction with selling
goods or services, which require remeasurement at each reporting
period through the performance commitment period, or in the
Companys case, through the vesting period. Costs are
allocated by CVR Energy and CALLC III based upon the percentage
of time a CVR Energy
F-11
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
employee provides services to CVR Partners. In the event an
individuals roles and responsibilities change with respect
to services provided to CVR Partners, a reassessment is
performed to determine if the allocation percentages should be
adjusted. In accordance with the services agreement, CVR
Partners will not be responsible for the payment of cash related
to any share-based compensation allocated to it by CVR Energy.
Environmental
Matters
Liabilities related to future remediation costs of past
environmental contamination of properties are recognized when
the related costs are considered probable and can be reasonably
estimated. Estimates of these costs are based upon currently
available facts, internal and third-party assessments of
contamination, available remediation technology, site-specific
costs, and currently enacted laws and regulations. In reporting
environmental liabilities, no offset is made for potential
recoveries. Loss contingency accruals, including those for
environmental remediation, are subject to revision as further
information develops or circumstances change and such accruals
can take into account the legal liability of other parties.
Environmental expenditures are capitalized at the time of the
expenditure when such costs provide future economic benefits.
Use of
Estimates
Preparing consolidated financial statements in conformity with
U.S. GAAP requires management to make certain estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities
in the consolidated financial statements and the reported
amounts of revenues and expenses. Actual results could differ
materially from those estimates.
Estimates made in preparing these consolidated financial
statements include, among other things, estimates of
depreciation and amortization expense, the estimated future cash
flows and fair value of properties used in determining the need
for any impairment write-down, estimated allocations of selling,
general and administrative costs, including share-based awards,
the economic useful life of assets, the fair value of assets,
liabilities, provisions for uncollectible accounts receivable,
the results of litigation, and various other recorded or
disclosed amounts. Future changes in the assumptions used could
have a significant impact on reported results in future periods.
Related-Party
Transactions
CVR Energy, a related party, provides a variety of services to
the Partnership, including cash management and financing
services, employee benefits provided through CVR Energys
benefit plans, administrative services provided by CVR
Energys employees and management, insurance and office
space leased in CVR Energys headquarters building and
other locations. As such, the accompanying consolidated
financial statements include costs that have been incurred by
CVR Energy on behalf of the Partnership. These amounts incurred
by CVR Energy are then billed or allocated to the Partnership
and are properly classified on the Consolidated Statements of
Operations as either direct operating expenses (exclusive of
depreciation and amortization) or as selling, general and
administrative expenses (exclusive of depreciation and
amortization). The billing and allocation of such costs are
governed by the Services Agreement (the Agreement)
entered into by CVR Energy, Inc. and CVR Partners, LP and
affiliated companies in October 2007. The Agreement provides
guidance for the treatment of certain general and administrative
expenses and certain direct operating expenses incurred on the
Partnerships behalf. Such expenses include, but are not
limited to, salaries, benefits, share-based compensation
expense, insurance, accounting, tax, legal and technology
services. Where costs are specifically incurred on behalf of the
Partnership, the costs are billed directly to the Partnership.
See Note 14 (Related Party Transactions) for a
detailed discussion of the billing procedures and the basis for
calculating the charges for specific products and services.
F-12
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below reflects amounts billed in accordance with the
Agreement by CVR Energy to the Partnership for the years ended
December 31, 2010, 2009 and 2008, respectively.
Additionally, see Note 12 (Share-Based
Compensation) for amounts incurred by CVR Energy and
allocated to the Partnership with respect to share-based
compensation arrangements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Direct operating expenses (exclusive of depreciation and
amortization)
|
|
$
|
2,145
|
|
|
$
|
2,811
|
|
|
$
|
3,007
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization)
|
|
|
8,485
|
|
|
|
9,310
|
|
|
|
10,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,630
|
|
|
$
|
12,121
|
|
|
$
|
13,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Per Limited Partnership Unit
The Partnership has omitted net income per unit through the date
of the Offering because the Partnership has operated under a
different capital structure prior to the Offering compared to
the capital structure that will exist after the Offering, and,
therefore, the information is not meaningful.
New
Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update
(ASU)
No. 2010-06,
Improving Disclosures about Fair Value Measurements
an amendment to ASC Topic 820, Fair Value Measurements and
Disclosures. This amendment requires an entity to:
(i) disclose separately the amounts of significant
transfers in and out of Level 1 and Level 2 fair value
measurements and describe the reasons for the transfers,
(ii) present separate information for Level 3 activity
pertaining to gross purchases, sales, issuances, and settlements
and (iii) enhance disclosures of assets and liabilities
subject to fair value measurements. The provisions of ASU
No. 2010-06
are effective for the Company for interim and annual reporting
beginning after December 15, 2009, with one new disclosure
effective after December 15, 2010. The Company adopted this
ASU as of January 1, 2010. The adoption of this standard
did not impact the Companys financial position or results
of operations.
At December 31, 2010, the Partnership had 30,333 special LP
units outstanding, representing 0.1% of the total Partnership
units outstanding, and 30,303,000 special GP interests
outstanding, representing 99.9% of the total Partnership units
outstanding. In addition, the managing general partner owned the
managing general partner interest and the IDRs. CVR Energy
indirectly owns all of the interests in the Partnership (other
than the managing general partner interest and the IDRs) and is
entitled to all cash distributed by the Partnership. The
managing general partner contributed 1% of CRNFs interest
to the Partnership in exchange for its managing general partner
interest and the IDRs. See Note 1 (Formation of the
Partnership, Organization and Nature of Business) for
additional discussion related to the unitholders.
In connection with the Offering, it is expected that the
Partnerships limited partner interests will be converted
into common units, the Partnerships special GP units will
be converted into common units, and the Partnerships
special general partner will be merged with and into CRLLC, with
CRLLC continuing as the surviving entity. In addition, the
managing general partner will sell its IDRs to the Partnership,
the IDRs will be extinguished, and
F-13
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CALLC III will sell the managing general partner to CRLLC for a
nominal amount. Following the Offering, the Partnership will
have two types of partnership interest outstanding:
|
|
|
|
|
common units representing limited partner interests, a portion
of which the Partnership will sell in the Offering; and
|
|
|
|
a general partner interest, which is not entitled to any
distributions, and which will be held by the Partnerships
general partner.
|
Following the Offering, the Partnership expects to make
quarterly cash distributions to unitholders. The partnership
agreement will not require that the Partnership make cash
distributions on a quarterly or other basis. In connection with
the Offering, the board of directors of the general partner will
adopt a distribution policy, which it may change at any time.
The partnership agreement will authorize the Partnership to
issue an unlimited number of additional units and rights to buy
units for the consideration and on the terms and conditions
determined by the board of directors of the general partner
without the approval of the unitholders.
The general partner will manage and operate the Partnership.
Common unitholders will only have limited voting rights on
matters affecting the Partnership. In addition, common
unitholders will have no right to elect the general
partners directors on an annual or other continuing basis.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Finished goods
|
|
$
|
3,645
|
|
|
$
|
6,624
|
|
Raw materials and precious metals
|
|
|
4,077
|
|
|
|
4,089
|
|
Parts and supplies
|
|
|
12,108
|
|
|
|
11,223
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,830
|
|
|
$
|
21,936
|
|
|
|
|
|
|
|
|
|
|
F-14
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(6)
|
Property,
Plant, and Equipment
|
A summary of costs for property, plant, and equipment is as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Land and improvements
|
|
$
|
2,492
|
|
|
$
|
1,689
|
|
Buildings
|
|
|
724
|
|
|
|
650
|
|
Machinery and equipment
|
|
|
397,236
|
|
|
|
389,537
|
|
Automotive equipment
|
|
|
391
|
|
|
|
404
|
|
Furniture and fixtures
|
|
|
245
|
|
|
|
233
|
|
Construction in progress
|
|
|
32,776
|
|
|
|
33,182
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
433,864
|
|
|
$
|
425,695
|
|
Accumulated depreciation
|
|
|
95,926
|
|
|
|
78,437
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
337,938
|
|
|
$
|
347,258
|
|
|
|
|
|
|
|
|
|
|
|
|
(7)
|
Goodwill
and Intangible Assets
|
Goodwill
In connection with the 2005 acquisition by CALLC of all
outstanding stock owned by Coffeyville Holdings Group, LLC, CRNF
recorded goodwill of approximately $40,969,000. Goodwill and
other intangible assets accounting standards provide that
goodwill and other intangible assets with indefinite lives shall
not be amortized but shall be tested for impairment on an annual
basis. In accordance with these standards, CVR Partners
completed its annual test for impairment of goodwill as of
November 1, 2010 and 2009. Based on the results of the
test, no impairment of goodwill was recorded as of
December 31, 2010 or 2009. The annual review of impairment
is performed by comparing the carrying value of the Partnership
to its estimated fair value using a combination of the
discounted cash flow analysis and market approach.
The valuation analysis used in the analysis utilized a 50%
weighting of both income and market approaches as described
below:
|
|
|
|
|
Income Approach: To determine fair value, the
Company discounted the expected future cash flows for the
reporting unit utilizing observable market data to the extent
available. For the 2010 and 2009 valuation, the discount rates
used were 14.6% and 13.4%, respectively, representing the
estimated weighted-average costs of capital, which reflects the
overall level of inherent risk involved in the reporting unit
and the rate of return an outside investor would expect to earn.
|
|
|
|
Market-Based Approach: To determine the fair
value of the reporting unit, the Company also utilized a
market-based approach. The Company used the guideline company
method, which focuses on comparing the Companys risk
profile and growth prospects to select reasonably similar
companies.
|
Other
Intangible Assets
Contractual agreements with a fair market value of $145,000 were
acquired in 2005 in connection with the acquisition of CALLC of
all outstanding stock owned by Coffeyville Holdings Group, LLC.
The intangible value of these agreements is amortized over the
life of the agreements through September 2019. Amortization
expense of $10,000, $10,000 and $15,000, was recorded in
depreciation and amortization for the years ended
December 31, 2010, 2009 and 2008, respectively.
F-15
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(8)
|
Accrued
Expenses and Other Current Liabilities
|
Accrued expenses and other current liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Property taxes
|
|
$
|
7,025
|
|
|
$
|
5,807
|
|
Capital asset and dismantling obligation
|
|
|
250
|
|
|
|
750
|
|
Other accrued expenses
|
|
|
535
|
|
|
|
1,722
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,810
|
|
|
$
|
8,279
|
|
|
|
|
|
|
|
|
|
|
|
|
(9)
|
Nitrogen
Fertilizer Incident
|
On September 30, 2010, the nitrogen fertilizer plant
experienced an interruption in operations due to a rupture of a
high-pressure UAN vessel. All operations at the nitrogen
fertilizer facility were immediately shut down. No one was
injured in the incident.
The nitrogen fertilizer facility had previously scheduled a
major turnaround to begin on October 5, 2010. To minimize
disruption and impact to the production schedule, the turnaround
was accelerated. The turnaround was completed on
October 29, 2010, with the gasification and ammonia units
in operation. The fertilizer facility restarted production of
UAN on November 16, 2010 and as of December 31, 2010,
repairs to the facility as a result of the rupture were
substantially complete. Total gross costs recorded due to the
incident for the year ended December 31, 2010 were
approximately $10,522,000 for repairs and maintenance and other
associated costs. Included in this amount is a write-off of
$390,000 of net book value of property and $24,000 of catalyst
destroyed as a result of the incident. The repairs and
maintenance costs incurred are included in direct operating
expenses (exclusive of depreciation and amortization). Of the
costs incurred approximately $4,457,000 were capitalized.
The Company has historically maintained property damage
insurance under CVR Energys insurance policies which have
an associated deductible of $2,500,000. The Company anticipates
that substantially all of the repair costs in excess of the
$2,500,000 deductible should be covered by insurance. These
insurance policies also provide coverage for interruption to the
business, including lost profits, and reimbursement for other
expenses and costs the Company has incurred relating to the
damage and losses suffered for business interruption. This
coverage, however, only applies to losses incurred after a
business interruption of 45 days. In connection with the
incident, the Company recorded an insurance receivable in 2010
of $4,500,000, of which the Company received $4,275,000 as of
December 31, 2010 and the remaining amount of $225,000 was
received in January 2011. The recording of the insurance
receivable resulted in a reduction of direct operating expenses
(exclusive of depreciation and amortization).
The State of Texas enacted a franchise tax that required the
Partnership to pay a tax of 1.0% on the Partnerships
margin beginning with the 2008 taxable year, as
defined in the law, based on the Partnerships prior year
results. The margin to which the tax rate is applied generally
is calculated as the Texas percentage of the Partnerships
revenues for federal income tax purposes less the cost of the
products sold as defined by Texas law.
Under ASC Topic 740, Income Taxes (ASC 740),
taxes based on income like the Texas franchise tax are accounted
for using the liability method under which deferred income taxes
are recognized for the future tax effects of temporary
differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities using the
enacted statutory tax rates in effect at the end of the period.
A valuation allowance for deferred tax assets is recorded when
it is more likely than not that the benefit from the deferred
tax asset will not be realized.
F-16
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Temporary differences related to the Partnerships property
affect the Texas franchise tax. As a result, the Partnership
reflected a deferred tax liability in the amount of
approximately $37,000 and $33,000 at December 31, 2010 and
2009, respectively, included in the Consolidated Balance Sheets
of the Partnership. In addition, the Partnership reflected a
state income taxes payable of approximately $17,000 and $25,000
at December 31, 2010 and 2009, respectively, included in
accrued expenses and other current liabilities on the
Consolidated Balance Sheets of the Partnership. For the years
ended December 31, 2010, 2009 and 2008, the Partnership
recorded income tax expense of $26,000, $15,000 and $25,000,
respectively.
Effective January 1, 2008, CVR Partners adopted an
accounting standard issued by the FASB that clarify the
accounting for uncertainty in income taxes recognized in the
financial statements. If the probability of sustaining a tax
position is at least more likely than not, then the tax position
is warranted and recognition should be at the highest amount
which is greater than 50% likely of being realized upon ultimate
settlement. As of the date of adoption of this standard and at
December 31, 2010, CVR Partners did not believe it had any
tax positions that met the criteria for uncertain tax positions.
As a result, no amounts were recognized as a liability for
uncertain tax positions.
CVR Partners recognizes interest and penalties on uncertain tax
positions and income tax deficiencies in income tax expense. CVR
Partners did not recognize any interest or penalties for each of
the years ended December 31, 2010, 2009 or 2008 for
uncertain tax positions or income tax deficiencies, respectively.
CRLLC sponsors and administers a defined-contribution 401(k)
plan (the Plan) for the employees of CRNF.
Participants in the Plan may elect to contribute up to 50% of
their annual salaries, and up to 100% of their annual bonus
received pursuant to CVR Energys income sharing plan. CRNF
matches up to 75% of the first 6% of the participants
contribution. Participants in the Plan are immediately vested in
their individual contributions. The Plan has a three year
vesting schedule for CRNFs matching funds and contains a
provision to count service with any predecessor organization.
For the years ended December 31, 2010, 2009 and 2008,
CRNFs contributions under the Plan were $390,000, $373,000
and $338,000, respectively.
|
|
(12)
|
Share-Based
Compensation
|
Certain employees of CVR Partners and employees of CVR Energy
who perform services for the Partnership under the services
agreement with CVR Energy participate in equity compensation
plans of CVR Partners affiliates. Accordingly, CVR
Partners has recorded compensation expense for these plans in
accordance with Staff Accounting Bulletin, or SAB Topic 1-B
Allocations of Expenses and Related disclosures in
Financial Statements of Subsidiaries, Divisions or Lesser
Business Components of Another Entity and in accordance
with guidance regarding the accounting for share-based
compensation granted to employees of an equity method investee.
All compensation expense related to these plans for full-time
employees of CVR Partners has been allocated 100% to CVR
Partners. For employees covered by the services agreement with
CVR Energy, the Partnership records share-based compensation
relative to the percentage of time spent by each employee
providing services to the Partnership as compared to the total
calculated share-based compensation by CVR Energy. The
Partnership is not responsible for payment of share-based
compensation and all expense amounts are reflected as an
increase or decrease to Partners Capital.
In connection with CVR Energys initial public offering,
Coffeyville Acquisition LLC (CALLC) was split into
two entities: CALLC and Coffeyville Acquisition II LLC
(CALLC II). In connection with this split,
managements equity interest in CALLC, including both their
common units and non-voting override units, were split so that
half of managements equity interest was in CALLC and half
was in CALLC II.
For the years ended December 31, 2010, 2009 and 2008, the
estimated fair value of the override units of CALLC and CALLC II
was determined from a probability-weighted expected return
method. The probability-
F-17
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
weighted expected return method involves a forward-looking
analysis of possible future outcomes, the estimation of ranges
of future and present value under each outcome, and the
application of a probability factor to each outcome in
conjunction with the application of the current value of CVR
Energys common stock price with a Black-Scholes option
pricing formula, as remeasured at each reporting date until the
awards are vested.
For the year ended December 31, 2010, the estimated fair
value of the override units was determined using a
probability-weighted expected return method which utilized CALLC
IIIs cash flow projections and also considered the
proposed Offering of the Partnership including the purchase of
the managing GP interest (including the IDRs). For the years
ended December 31, 2009 and 2008, the estimated fair value
of the override units of CALLC III was determined using a
probability-weighted expected return method which utilized CALLC
IIIs cash flow projections, which were representative of
the nature of the interests held by CALLC III in the Partnership.
The following table provides key information for the share-based
compensation plans related to the override units of CALLC, CALLC
II and CALLC III.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Compensation Expense
|
|
|
|
Benchmark
|
|
|
Original
|
|
|
|
|
Increase (Decrease) for the
|
|
|
|
Value
|
|
|
Awards
|
|
|
|
|
Years Ended December 31,
|
|
Award Type
|
|
(per Unit)
|
|
|
Issued
|
|
|
Grant Date
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Override Operating Units(a)
|
|
$
|
11.31
|
|
|
|
919,630
|
|
|
June 2005
|
|
$
|
56
|
|
|
$
|
346
|
|
|
$
|
(1,516
|
)
|
Override Operating Units(b)
|
|
$
|
34.72
|
|
|
|
72,492
|
|
|
December 2006
|
|
|
1
|
|
|
|
18
|
|
|
|
(107
|
)
|
Override Value Units(c)
|
|
$
|
11.31
|
|
|
|
1,839,265
|
|
|
June 2005
|
|
|
4,751
|
|
|
|
1,207
|
|
|
|
(2,877
|
)
|
Override Value Units(d)
|
|
$
|
34.72
|
|
|
|
144,966
|
|
|
December 2006
|
|
|
217
|
|
|
|
64
|
|
|
|
(123
|
)
|
Override Units(e)
|
|
$
|
10.00
|
|
|
|
138,281
|
|
|
October 2007
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Override Units(f)
|
|
$
|
10.00
|
|
|
|
642,219
|
|
|
February 2008
|
|
|
473
|
|
|
|
5
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,498
|
|
|
$
|
1,640
|
|
|
$
|
(4,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
As CVR Energys common stock
price increases or decreases, compensation expense associated
with the unvested CALLC and CALLC II override units increases or
is reversed in correlation with the calculation of the fair
value under the probability-weighted expected return method.
|
Valuation
Assumptions
Significant assumptions used in the valuation of the Override
Operating Units (a) and (b) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Override Operating Units
|
|
|
(b) Override Operating Units
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Estimated forfeiture rate
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
CVR Energys closing stock price
|
|
$
|
6.86
|
|
|
$
|
4.00
|
|
|
$
|
6.86
|
|
|
$
|
4.00
|
|
Estimated fair value (per unit)
|
|
$
|
11.95
|
|
|
$
|
8.25
|
|
|
$
|
1.40
|
|
|
$
|
1.59
|
|
Marketability and minority interest discounts
|
|
|
20.0
|
%
|
|
|
15.0
|
%
|
|
|
20.0
|
%
|
|
|
15.0
|
%
|
Volatility
|
|
|
50.7
|
%
|
|
|
68.8
|
%
|
|
|
50.7
|
%
|
|
|
68.8
|
%
|
F-18
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On the tenth anniversary of the issuance of override operating
units, such units convert into an equivalent number of override
value units. Override operating units are forfeited upon
termination of employment for cause. As of December 31,
2010, these units were fully vested.
Significant assumptions used in the valuation of the Override
Value Units (c) and (d) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Override Value Units
|
|
|
(d) Override Value Units
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Estimated forfeiture rate
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Derived service period
|
|
|
6 years
|
|
|
|
6 years
|
|
|
|
6 years
|
|
|
|
6 years
|
|
|
|
6 years
|
|
|
|
6 years
|
|
CVR Energys closing stock price
|
|
$
|
15.18
|
|
|
$
|
6.86
|
|
|
$
|
4.00
|
|
|
$
|
15.18
|
|
|
$
|
6.86
|
|
|
$
|
4.00
|
|
Estimated fair value (per unit)
|
|
$
|
22.39
|
|
|
$
|
5.63
|
|
|
$
|
3.20
|
|
|
$
|
6.56
|
|
|
$
|
1.39
|
|
|
$
|
1.59
|
|
Marketability and minority interest discounts
|
|
|
20.0
|
%
|
|
|
20.0
|
%
|
|
|
15.0
|
%
|
|
|
20.0
|
%
|
|
|
20.0
|
%
|
|
|
15.0
|
%
|
Volatility
|
|
|
43.0
|
%
|
|
|
50.7
|
%
|
|
|
68.8
|
%
|
|
|
43.0
|
%
|
|
|
50.7
|
%
|
|
|
68.8
|
%
|
Unless the override unit committee of the board of directors of
CALLC, CALLC II or CALLC III, respectively, takes an action to
prevent forfeiture, override value units are forfeited upon
termination of employment for any reason other than cause,
except that in the event of termination of employment by reason
of death or disability, all override value units are initially
subject to forfeiture as follows:
|
|
|
|
|
Minimum
|
|
Forfeiture
|
|
Period Held
|
|
Percentage
|
|
|
2 years
|
|
|
75
|
%
|
3 years
|
|
|
50
|
%
|
4 years
|
|
|
25
|
%
|
5 years
|
|
|
0
|
%
|
(e) Override Units Using a binomial and
a probability-weighted expected return method that utilized
CALLC IIIs cash flow projections which includes expected
future earnings and the anticipated timing of IDRs, the
estimated grant date fair value of the override units was
approximately $3,000. As a non-contributing investor, CVR Energy
also recognized income equal to the amount that its interest in
the investees net book value has increased (that is its
percentage share of the contributed capital recognized by the
investee) as a result of the disproportionate funding of the
compensation cost. As of December 31, 2010 these units were
fully vested.
F-19
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(f) Override Units Using a
probability-weighted expected return method that utilized CALLC
IIIs cash flow projections which includes expected future
earnings and the anticipated timing of IDRs, the estimated grant
date fair value of the override units was approximately $3,000.
As a non-contributing investor, CVR Energy also recognized
income equal to the amount that its interest in the
investees net book value has increased (that is its
percentage share of the contributed capital recognized by the
investee) as a result of the disproportionate funding of the
compensation cost. Of the 642,219 units issued, 109,720
were immediately vested upon issuance and the remaining units
are subject to a forfeiture schedule. Significant assumptions
used in the valuation were as follows:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Estimated forfeiture rate
|
|
None
|
|
None
|
|
None
|
Derived Service Period
|
|
Forfeiture schedule
|
|
Forfeiture schedule
|
|
Forfeiture schedule
|
Estimated fair value (per unit)
|
|
$2.60
|
|
$0.08
|
|
$0.02
|
Marketability and minority interest discounts
|
|
10.0%
|
|
20.0%
|
|
20.0%
|
Volatility
|
|
47.6%
|
|
59.7%
|
|
64.3%
|
Assuming the allocation of costs from CVR Energy remains
consistent with the allocation percentages in place at
December 31, 2010 and based upon the estimated fair value
at December 31, 2010, there was approximately $588,000 of
unrecognized compensation expense related to non-voting override
units. This expense is expected to be recognized by CVR Partners
over a remaining period of approximately one year.
Phantom
Unit Plans
CVR Energy, through a wholly-owned subsidiary, has two Phantom
Unit Appreciation Plans (the Phantom Unit Plans)
whereby directors, employees, and service providers may be
awarded phantom points at the discretion of the board of
directors or the compensation committee. Holders of service
phantom points have rights to receive distributions when holders
of override operating units receive distributions. Holders of
performance phantom points have rights to receive distributions
when CALLC and CALLC II holders of override value units receive
distributions. There are no other rights or guarantees and the
plan expires on July 25, 2015, or at the discretion of the
compensation committee of the board of directors. As of
December 31, 2010, the issued Profits Interest (combined
phantom points and override units) represented 15.0% of combined
common unit interest and Profits Interest of CALLC and CALLC II.
The Profits Interest was comprised of approximately 11.1% of
override interest and approximately 3.9% of phantom interest.
The expense associated with these awards is based on the current
fair value of the awards which was derived from a
probability-weighted expected return method. The
probability-weighted expected return method involves a
forward-looking analysis of possible future outcomes, the
estimation of ranges of future and present value under each
outcome, and the application of a probability factor to each
outcome in conjunction with the application of the current value
of CVR Energys common stock price with a Black-Scholes
option pricing formula, as remeasured at each reporting date
until the awards are settled. Using CVR Energys closing
stock price at December 31, 2010, 2009 and 2008,
respectively, to determine CVR Energys equity value,
through an independent valuation process, the service phantom
interest and performance phantom interest were valued as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Service Phantom interest (per point)
|
|
$
|
14.64
|
|
|
$
|
11.37
|
|
|
$
|
8.25
|
|
Performance Phantom interest (per point)
|
|
$
|
21.25
|
|
|
$
|
5.48
|
|
|
$
|
3.20
|
|
F-20
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Compensation expense for the years ended December 31, 2010
and 2009, related to the Phantom Unit Plans was $3,212,000 and
$1,495,000, respectively. Compensation expense for the year
ended December 31, 2008 related to the Phantom Unit Plans
was reversed by $5,998,000.
Assuming the allocation of costs from CVR Energy remains
consistent with the allocations at December 31, 2010 and
based upon the estimated fair value at December 31, 2010,
there was approximately $140,000 of unrecognized compensation
expense related to the Phantom Unit Plans. This expense is
expected to be recognized over a period of approximately one
year.
Long-Term
Incentive Plan
CVR Energy has a Long-Term Incentive Plan (LTIP)
that permits the grant of options, stock appreciation rights,
non-vested shares, non-vested share units, dividend equivalent
rights, share awards and performance awards (including
performance share units, performance units and performance based
restricted stock). As of December 31, 2010, only non-vested
shares of CVR Energy common stock had been granted for the
benefit of CVR Energy and CRNF employees.
Non-Vested
Stock
Through the LTIP, shares of non-vested stock have been granted
to employees of CVR Energy and CRNF. Non-vested shares, when
granted, are valued at the closing market price of CVR
Energys common stock on the date of issuance and amortized
to compensation expense on a straight-line basis over the
vesting period of the stock. These shares generally vest over a
three-year period. Assuming the allocation of costs from CVR
Energy remains consistent with the allocation percentages in
place at December 31, 2010, there was approximately
$2,285,000 of total unrecognized compensation cost related to
non-vested shares to be recognized over a weighted-average
period of approximately two and one-half years. Inclusion of the
vesting table is not considered meaningful due to changes in
allocation percentages that occur from time to time. The
unrecognized compensation expense has been determined by the
number of unvested shares and respective allocation percentage
for individuals whom, as of December 31, 2010, compensation
expense has been allocated to the Partnership. As of
December 31, 2010, 1,142,915 unvested shares of CVR Energy
stock were utilized to calculate the unrecognized compensation
expense.
Compensation expense recorded for the years ended
December 31, 2010, 2009 and 2008, related to the non-vested
stock, was $303,000, $62,000 and $2,000, respectively.
|
|
(13)
|
Commitments
and Contingencies
|
The minimum required payments for CRNFs operating leases
and unconditional purchase obligations as of December 31,
2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Unconditional
|
|
|
|
Leases
|
|
|
Purchase
Obligations(1)
|
|
|
|
(in thousands)
|
|
|
Year ending December 31, 2011
|
|
$
|
4,464
|
|
|
$
|
11,918
|
|
Year ending December 31, 2012
|
|
|
4,476
|
|
|
|
12,072
|
|
Year ending December 31, 2013
|
|
|
3,664
|
|
|
|
12,526
|
|
Year ending December 31, 2014
|
|
|
2,029
|
|
|
|
12,606
|
|
Year ending December 31, 2015
|
|
|
1,173
|
|
|
|
12,689
|
|
Thereafter
|
|
|
1,028
|
|
|
|
103,314
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,834
|
|
|
$
|
165,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Partnerships purchase
obligation for pet coke from CVR Energy has been derived from a
calculation of the average pet coke price paid to CVR Energy
over the preceding two year period.
|
F-21
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CRNF leases railcars under long-term operating leases. Lease
expense for the years ended December 31, 2010, 2009 and
2008, totaled approximately $4,052,000, $4,031,000, and
$3,358,000, respectively. The lease agreements have various
remaining terms. Some agreements are renewable, at CRNFs
option, for additional periods. It is expected, in the ordinary
course of business, that leases will be renewed or replaced as
they expire.
CRNF has an agreement with the City of Coffeyville (the
City) pursuant to which it must make a series of
future payments for the supply, generation and transmission of
electricity and City margin based upon agreed upon rates. This
agreement has an expiration of July 1, 2019. Effective
August 2008 and through July 2010, the City began charging a
higher rate for electricity than what had been agreed to in the
contract. CRNF filed a lawsuit to have the contract enforced as
written and to recover other damages. CRNF paid the higher rates
under protest and subject to the lawsuit in order to obtain the
electricity. In August 2010, the lawsuit was settled and CRNF
received a return of funds totaling $4,788,000. This return of
funds was recorded in direct operating expenses (exclusive of
depreciation and amortization) in the Consolidated Statements of
Operations during the third quarter of 2010. In connection with
the settlement, the electrical services agreement was amended.
As a result of the amendment, the annual committed contractual
payments are estimated to be $1,943,000. As of December 31,
2010, the estimated remaining obligation of CRNF totaled
$16,514,000 through July 1, 2019. These estimates are
subject to change based upon the Companys actual usage.
During 2005, CRNF entered into the Amended and Restated
On-Site
Product Supply Agreement with Linde, Inc. Pursuant to the
agreement, which expires in 2020, CRNF is required to take as
available and pay approximately $300,000 per month, which amount
is subject to annual inflation adjustments, for the supply of
oxygen and nitrogen to the fertilizer operation. Expenses
associated with this agreement included in direct operating
expenses (exclusive of depreciation and amortization) for the
years ended December 31, 2010, 2009 and 2008, totaled
approximately $4,659,000, $4,106,000 and $3,928,000,
respectively.
CRNF entered into a sales agreement with Cominco Fertilizer
Partnership on November 20, 2007 to purchase equipment and
materials which comprise a nitric acid plant. CRNFs
obligation related to the execution of the agreement in 2007 for
the purchase of the assets was $3,500,000. On May 25, 2009,
CRNF and Cominco amended the contract increasing the liability
to $4,250,000. In consideration of the increased liability, the
timeline for removal of the equipment and payment schedule was
extended. The amendment sets forth payment milestones based upon
the timing of removal of identified assets. The balance of the
assets purchased are to be removed by November 20, 2013,
with final payment due at that time. As of December 31,
2010, $2,000,000 had been paid. Additionally, as of
December 31, 2010, $2,374,000 was accrued related to the
obligation to dismantle the unit. As of December 31, 2010,
the Company had accrued a total of $4,098,000 with respect to
the nitric acid plant and the related dismantling obligation. Of
this amount, $250,000 was included in accrued expenses and other
current liabilities and the remaining $3,848,000 was included in
other long-term liabilities on the Consolidated Balance Sheets.
The related asset amounts are included in
construction-in-progress
at December 31, 2010.
CRNF entered into a lease agreement effective October 25,
2007, with Coffeyville Resources Refining & Marketing,
LLC (CRRM), a related party, under which certain
office and laboratory space is leased. The agreement requires
CRNF to pay $8,000 on the first day of each calendar month
during the term of the agreement. The agreement has an initial
term of five years, but will be amended in connection with the
Offering to continue for an initial term of ten years, ending in
October 2017. See Note 14 (Related Party
Transactions) for further discussion.
From time to time, CRNF is involved in various lawsuits arising
in the normal course of business, including matters such as
those described below under, Environmental, Health, and
Safety (EHS) Matters, and those described
above. Liabilities related to such litigation are recognized
when the related costs are probable and can be reasonably
estimated. Management believes the Company has accrued for
losses for which it may ultimately be responsible. It is
possible managements estimates of the outcomes will change
within the next year due to uncertainties inherent in litigation
and settlement negotiations. In the opinion of management, the
ultimate resolution of any other litigation matters is not
expected to have a material adverse effect on the accompanying
consolidated financial statements. There can be no assurance
that managements beliefs or opinions with respect to
liability for potential litigation matters are accurate.
F-22
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CRNF received a ten year property tax abatement from Montgomery
County, Kansas in connection with its construction that expired
on December 31, 2007. In connection with the expiration of
the abatement, the county reassessed CRNFs nitrogen
fertilizer plant and classified the nitrogen fertilizer plant as
almost entirely real property instead of almost entirely
personal property. The reassessment has resulted in an increase
to annual property tax expense for CRNF by an average of
approximately $10.7 million per year for the years ended
December 31, 2008 and December 31, 2009, and
approximately $11.7 million for the year ended
December 31, 2010. CRNF does not agree with the
countys classification of the nitrogen fertilizer plant
and is currently disputing it before the Kansas Court of Tax
Appeals (COTA). However, CRNF has fully accrued and
paid for the property taxes the county claims are owed for the
years ended December 31, 2009 and 2008, and have fully
accrued such amounts for the year ended December 31, 2010.
The first payment in respect of CRNFs 2010 property taxes
was paid in December 2010 and the second payment will be
made in May 2011. These amounts are reflected as a direct
operating expense in the Consolidated Statements of Operations.
An evidentiary hearing before COTA occurred during the first
quarter of 2011 regarding the property tax claims for the year
ended December 31, 2008. CRNF believes COTA is likely to
issue a ruling sometime during 2011. However, the timing of a
ruling in the case is uncertain, and there can be no assurance
that CRNF will receive a ruling in 2011. If CRNF is successful
in having the nitrogen fertilizer plant reclassified as personal
property, in whole or in part, a portion of the accrued and paid
expenses would be refunded to CRNF, which could have a positive
material effect on the results of operations. If CRNF is not
successful in having the nitrogen fertilizer plant reclassified
as personal property, in whole or in part, CRNF expects that it
will pay taxes at or below the elevated rates described above.
CRNF entered into a coke supply agreement with CVR Energy in
October 2007 pursuant to which CVR Energy supplies CRNF with pet
coke. CRNF is obligated under this agreement to purchase the
lesser of (i) 100 percent of the pet coke produced at
its petroleum refinery or (ii) 500,000 tons of pet coke per
calendar year. The agreement has an initial term of
20 years. The price which the Partnership will pay for the
pet coke will be based on the lesser of a coke price derived
from the price received by the Partnership for UAN (subject to a
UAN based price ceiling and floor) or a coke index price but in
no event will the pet coke price be less than zero. See
Note 14 (Related Party Transactions) for
further information.
The Partnership and CRNF are guarantors under CRLLCs ABL
credit facility, as well as CRLLCs senior secured notes
and until February 22, 2011 were guarantors of the first
priority credit facility. On February 22, 2011, CRLLC
entered into the $250.0 million ABL credit facility that is
scheduled to mature in August 2015 and replaced the first
priority credit facility which was terminated. The ABL credit
facility will be used to finance ongoing working capital,
capital expenditures, letters of credit issuance and general
corporate needs. The ABL credit facility contains a feature that
permits an increase in borrowings of up to $500.0 million
(in the aggregate), subject to additional lender commitments. As
of December 31, 2010, the first priority credit facility
consisted of a $150,000,000 revolving credit facility and the
senior secured notes had an aggregate principal balance of
$472,500,000. $247,500,000 of the senior secured notes mature on
April 1, 2015 and the remaining $225,000,000 of senior
secured notes mature on April 1, 2017.
Environmental,
Health, and Safety (EHS) Matters
CRNF is subject to various stringent federal, state, and local
EHS rules and regulations. Liabilities related to EHS matters
are recognized when the related costs are probable and can be
reasonably estimated. Estimates of these costs are based upon
currently available facts, existing technology, site-specific
costs, and currently enacted laws and regulations. In reporting
EHS liabilities, no offset is made for potential recoveries.
Such liabilities include estimates of the Companys share
of costs attributable to potentially responsible parties which
are insolvent or otherwise unable to pay. All liabilities are
monitored and adjusted regularly as new facts emerge or changes
in law or technology occur.
CRNF owns and operates a facility utilized for the manufacture
of nitrogen fertilizers. Therefore, CRNF has exposure to
potential EHS liabilities related to past and present EHS
conditions at this location.
In 2005, CRNF agreed to participate in the State of Kansas
Voluntary Cleanup and Property Redevelopment Program
(VCPRP) to address a reported release of UAN at its
UAN loading rack. As of December 31, 2010 and 2009,
F-23
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
environmental accruals of $91,000 and $141,000, respectively,
were reflected in the consolidated balance sheets for probable
and estimated costs for remediation of environmental
contamination under the VCPRP. At December 31, 2010 the
entire balance was included in accrued expenses and other
current liabilities. At December 31, 2009, $85,000 of the
balance was included in accrued expenses and other current
liabilities. The accruals were determined based on an estimate
of payment costs through 2015, which scope of remediation was
arranged with the EPA and are discounted at the appropriate risk
free rates at December 31, 2010 and 2009, respectively. As
of December 31, 2010, the estimated future payments for
these required obligations are expected to be incurred in the
year ending December 31, 2011.
Management periodically reviews and, as appropriate, revises its
environmental accruals. Based on current information and
regulatory requirements, management believes that the accruals
established for environmental expenditures are adequate.
Environmental expenditures are capitalized when such
expenditures are expected to result in future economic benefits.
Capital expenditures for the years ended December 31, 2010,
2009 and 2008, were approximately $246,000, $887,000 and
$665,000, respectively, and were incurred to improve the
environmental compliance and efficiency of the operations.
CRNF believes it is in substantial compliance with existing EHS
rules and regulations. There can be no assurance that the EHS
matters described above or other EHS matters which may develop
in the future will not have a material adverse effect on the
business, financial condition, or results of operations.
|
|
(14)
|
Related
Party Transactions
|
CRLLC contributed its wholly-owned subsidiary CRNF to the
Partnership on October 24, 2007. In consideration for CRLLC
transferring CRNF to the Partnership, (1) CRLLC directly
acquired 30,333 special LP units, representing a 0.1% limited
partner interest in the Partnership at that time, (2) the
Partnerships special general partner, a wholly-owned
subsidiary of CRLLC, acquired 30,303,000 special GP units,
representing a 99.9% general partner interest in the Partnership
at that time, (3) the managing general partner, then owned
by CRLLC, acquired a managing general partner interest and IDRs
and (4) the Contribution, Conveyance and Assumption
Agreement provides that, contingent upon CVR Partners
completion of an initial public offering, the Partnership would
reimburse CRLLC for capital expenditures it incurred in
connection with the operations of the nitrogen fertilizer plant,
which were approximately $18.4 million during the two year
period prior to the sale of the managing general partner to
CALLC III, as described below.
Related
Party Agreements, effective October 25, 2007
In connection with the formation of CVR Partners and the initial
public offering of CVR Energy in October 2007, CVR Partners and
CRNF entered into several agreements with CVR Energy and its
subsidiaries that govern the business relations among CVR
Partners, CRNF, CVR Energy and its subsidiaries and its managing
general partner. Amounts owed to CVR Partners and CRNF from CVR
Energy and its subsidiaries with respect to these agreements are
included in prepaid expenses and other currents assets on the
Consolidated Balance Sheets. Conversely, amounts owed to CVR
Energy and its subsidiaries by CVR Partners and CRNF with
respect to these agreements are included in accounts payable on
the Consolidated Balance Sheets.
Feedstock
and Shared Services Agreement
CRNF entered into a feedstock and shared services agreement with
CRRM under which the two parties provide feedstock and other
services to one another. These feedstocks and services are
utilized in the respective production processes of CRRMs
refinery and CRNFs nitrogen fertilizer plant.
Pursuant to the feedstock agreement, CRNF and CRRM have the
right to transfer excess hydrogen to one another. Sales of
hydrogen to CRRM have been reflected as net sales for CVR
Partners. Receipts of hydrogen from CRRM have been reflected in
cost of product sold (exclusive of depreciation and
amortization) for CVR Partners. For the years ended
December 31, 2010, 2009 and 2008, the net sales generated
from the sale of hydrogen to CRRM were approximately
F-24
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$140,000, $812,000 and $8,967,000, respectively. For the years
ended December 31, 2010, 2009 and 2008, CVR Partners also
recognized $1,776,000, $1,635,000 and $0 of cost of product sold
(exclusive of depreciation and amortization) related to the
transfer of excess hydrogen from the refinery, respectively. At
December 31, 2010 and 2009, there was approximately $0 and
$153,000, respectively, of receivables included in prepaid
expenses and other current assets on the Consolidated Balance
Sheets associated with unpaid balances related to hydrogen sales.
The agreement provides that both parties must deliver
high-pressure steam to one another under certain circumstances.
Net reimbursed or (paid) direct operating expenses recorded
during the years ended December 31, 2010, 2009 and 2008
were approximately $(85,000), $215,000 and $(183,000),
respectively, related to high-pressure steam. Reimbursements or
paid amounts for each of the years on a gross basis were nominal.
CRNF is also obligated to make available to CRRM any nitrogen
produced by the Linde air separation plant that is not required
for the operation of the nitrogen fertilizer plant, as
determined by CRNF in a commercially reasonable manner.
Reimbursed direct operating expenses associated with nitrogen
for the years ended December 31, 2010, 2009 and 2008, were
approximately $768,000, $753,000 and $1,030,000, respectively.
There were no amounts paid by CRNF to CRRM for any of the years.
The agreement also provides that both CRNF and CRRM must deliver
instrument air to one another in some circumstances. CRNF must
make instrument air available for purchase by CRRM at a minimum
flow rate, to the extent produced by the Linde air separation
plant and available to CRNF. Reimbursed direct operating
expenses recorded for the years ended December 31, 2010,
2009 and 2008 were $0, $0 and $241,000, respectively.
Reimbursements or paid amounts for each of the years on a gross
basis were nominal.
At December 31, 2010 and 2009, receivables of $269,000 and
$219,000, respectively, were included in prepaid expenses and
other current assets on the Consolidated Balance Sheets
associated for amounts yet to be received related to components
of the feedstock and shared services agreement except amounts
related to hydrogen sales and pet coke purchases. At
December 31, 2010 and 2009, payables of $612,000 and
$408,000, respectively, were included in accounts payable on the
Consolidated Balance Sheets associated with unpaid balances
related to components of the feedstock and shared services
agreement, except amounts related to hydrogen sales and pet coke
purchases.
The agreement has an initial term of 20 years, which will
be automatically extended for successive five year renewal
periods. Either party may terminate the agreement, effective
upon the last day of a term, by giving notice no later than
three years prior to a renewal date. The agreement will also be
terminable by mutual consent of the parties or if one party
breaches the agreement and does not cure within applicable cure
periods and the breach materially and adversely affects the
ability of the terminating party to operate its facility.
Additionally, the agreement may be terminated in some
circumstances if substantially all of the operations at the
nitrogen fertilizer plant or the refinery are permanently
terminated, or if either party is subject to a bankruptcy
proceeding, or otherwise becomes insolvent.
Coke
Supply Agreement
CRNF entered into a coke supply agreement with CRRM pursuant to
which CRRM supplies CRNF with pet coke. This agreement provides
that CRRM must deliver to the Partnership during each calendar
year an annual required amount of pet coke equal to the lesser
of (i) 100 percent of the pet coke produced at
CRRMs petroleum refinery or (ii) 500,000 tons of pet
coke. CRNF is also obligated to purchase this annual required
amount. If during a calendar month CRRM produces more than
41,667 tons of pet coke, then CRNF will have the option to
purchase the excess at the purchase price provided for in the
agreement. If CRNF declines to exercise this option, CRRM may
sell the excess to a third party.
CRNF obtains most (over 70% on average during the last five
years) of the pet coke it needs from CRRMs adjacent crude
oil refinery pursuant to the pet coke supply agreement, and
procures the remainder on the open market. The price CRNF pays
pursuant to the pet coke supply agreement is based on the lesser
of a pet coke price derived from the price received for UAN, or
the UAN-based price, and a pet coke price index. The UAN-based
price begins with a pet coke price of $25 per ton based on a
price per ton for UAN (exclusive of transportation cost), or
F-25
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
netback price, of $205 per ton, and adjusts up or down $0.50 per
ton for every $1.00 change in the netback price. The UAN-based
price has a ceiling of $40 per ton and a floor of $5 per ton.
CRNF will also pay any taxes associated with the sale, purchase,
transportation, delivery, storage or consumption of the pet
coke. CRNF will be entitled to offset any amount payable for the
pet coke against any amount due from CRRM under the feedstock
and shared services agreement between the parties.
The agreement has an initial term of 20 years, which will
be automatically extended for successive five year renewal
periods. Either party may terminate the agreement by giving
notice no later than three years prior to a renewal date. The
agreement is also terminable by mutual consent of the parties or
if a party breaches the agreement and does not cure within
applicable cure periods. Additionally, the agreement may be
terminated in some circumstances if substantially all of the
operations at the nitrogen fertilizer plant or the refinery are
permanently terminated, or if either party is subject to a
bankruptcy proceeding or otherwise becomes insolvent.
Cost of pet coke associated with the transfer of pet coke from
CRRM to CRNF were approximately $3,988,000, $7,871,000 and
$11,084,000 for the year ended December 31, 2010, 2009 and
2008, respectively. Payables of $280,000 and $75,000 related to
the coke supply agreement were included in accounts payable on
the Consolidated Balance Sheets at December 31, 2010, and
2009, respectively.
Lease
Agreement
CRNF has entered into a lease agreement with CRRM under which it
leases certain office and laboratory space. The lease will be
extended in connection with the consummation of the Offering.
The initial term of the lease will expire in October 2017, but
will permit CRNF to terminate the lease at any time during the
initial term by providing 180 days prior written notice. In
addition, CRNF has the option to renew the lease agreement for
up to five additional one-year periods by providing CRRM with
notice of renewal at least 60 days prior to the expiration
of the then existing term. For the years ended December 31,
2010, 2009 and 2008, expense incurred related to the use of the
office and laboratory space totaled $96,000 for each of the
years then ended, respectively. There were no unpaid amounts
outstanding with respect to the lease agreement as of
December 31, 2010 and 2009, respectively.
Environmental
Agreement
CRNF entered into an environmental agreement with CRRM which
provides for certain indemnification and access rights in
connection with environmental matters affecting the refinery and
the nitrogen fertilizer plant. Generally, both CRNF and CRRM
have agreed to indemnify and defend each other and each
others affiliates against liabilities associated with
certain hazardous materials and violations of environmental laws
that are a result of or caused by the indemnifying partys
actions or business operations. This obligation extends to
indemnification for liabilities arising out of off-site disposal
of certain hazardous materials. Indemnification obligations of
the parties will be reduced by applicable amounts recovered by
an indemnified party from third parties or from insurance
coverage.
The agreement provides for indemnification in the case of
contamination or releases of hazardous materials that are
present but unknown at the time the agreement is entered into to
the extent such contamination or releases are identified in
reasonable detail during the period ending five years after the
date of the agreement. The agreement further provides for
indemnification in the case of contamination or releases which
occur subsequent to the date the agreement is entered into.
The term of the agreement is for at least 20 years, or for
so long as the feedstock and shared services agreement is in
force, whichever is longer.
CRNF entered into two supplements to the environmental agreement
in February and July 2008 to confirm that CRRM remains
responsible for existing environmental conditions on land
transferred by CRRM to CRNF, and to
F-26
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
incorporate a known contamination map, a comprehensive pet coke
management plan and a new third-party coke handling agreement.
Services
Agreement
CVR Partners entered into a services agreement with its managing
general partner, its special general partner and CVR Energy
pursuant to which it and its managing general partner obtain
certain management and other services from CVR Energy. Under
this agreement, the Partnerships managing general partner
has engaged CVR Energy to conduct its
day-to-day
business operations. CVR Energy provides CVR Partners with the
following services under the agreement, among others:
|
|
|
|
|
services from CVR Energys employees in capacities
equivalent to the capacities of corporate executive officers,
except that those who serve in such capacities under the
agreement shall serve the Partnership on a shared, part-time
basis only, unless the Partnership and CVR Energy agree
otherwise;
|
|
|
|
administrative and professional services, including legal,
accounting services, human resources, insurance, tax, credit,
finance, government affairs and regulatory affairs;
|
|
|
|
management of the Partnerships property and the property
of its operating subsidiary in the ordinary course of business;
|
|
|
|
recommendations on capital raising activities to the board of
directors of the Partnerships managing general partner,
including the issuance of debt or equity interests, the entry
into credit facilities and other capital market transactions;
|
|
|
|
managing or overseeing litigation and administrative or
regulatory proceedings, and establishing appropriate insurance
policies for the Partnership, and providing safety and
environmental advice;
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|
|
|
recommending the payment of distributions; and
|
|
|
|
managing or providing advice for other projects as may be agreed
by CVR Energy and its managing general partner from time to time.
|
As payment for services provided under the agreement, the
Partnership, its managing general partner or CRNF must pay CVR
Energy (i) all costs incurred by CVR Energy in connection
with the employment of its employees, other than administrative
personnel, who provide the Partnership services under the
agreement on a full-time basis, but excluding share-based
compensation; (ii) a prorated share of costs incurred by
CVR Energy in connection with the employment of its employees,
other than administrative personnel, who provide the Partnership
services under the agreement on a part-time basis, but excluding
share-based compensation, and such prorated share shall be
determined by CVR Energy on a commercially reasonable basis,
based on the percent of total working time that such shared
personnel are engaged in performing services for the
Partnership; (iii) a prorated share of certain
administrative costs, including office costs, services by
outside vendors, other sales, general and administrative costs
and depreciation and amortization; and (iv) various other
administrative costs in accordance with the terms of the
agreement, including travel, insurance, legal and audit
services, government and public relations and bank charges.
Effective January 1, 2010, the services agreement was
amended whereby a prorata share of administrative personnel
costs are charged to the Partnership by CVR Energy. The prorated
share is determined by CVR Energy on a commercially reasonable
basis, based on the percent of total working time that such
administrative personnel are engaged in performing services for
the Partnership. Prior to the amendment, the determination of
personnel costs associated with administrative personnel was
determined by a prorata share of personnel costs of
administrative personnel engaged in performing services based
upon a percentage of payroll of CRNF in proportion to the total
payroll of CRNF and the petroleum business of CVR Energy.
This agreement is expected to be amended in connection with the
Offering.
F-27
CVR
PARTNERS, LP
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In order to facilitate the carrying out of services under the
agreement, CVR Partners and CVR Energy have granted one another
certain royalty-free, non-exclusive and non-transferable rights
to use one anothers intellectual property under certain
circumstances.
Net amounts incurred under the services agreement for the years
ended December 31, 2010, 2009 and 2008, were approximately
$10,630,000, $12,121,000 and $13,055,000, respectively. Of these
charges approximately $8,485,000, $9,310,000 and $10,048,000,
respectively, are included in selling, general and
administrative expenses (exclusive of depreciation and
amortization). In addition, $2,145,000, $2,811,000 and
$3,007,000, respectively, are included in direct operating
expenses (exclusive of depreciation and amortization). For
services performed in connection with the services agreement,
the Company recognized personnel costs of $3,374,000, $3,702,000
and $3,846,000, respectively, for the years ended
December 31, 2010, 2009 and 2008. At December 31, 2010
and 2009, payables of $2,431,000 and $821,000, respectively,
were included in accounts payable on the Consolidated Balance
Sheets with respect to amounts billed in accordance with the
services agreement.
Due
from Affiliate
CVR Partners historically maintained a lending relationship with
its affiliate, CRLLC, in order to supplement CRLLCs
working capital needs. Amounts loaned to CRLLC are included on
the Consolidated Balance Sheets as a due from affiliate. CVR
Partners had the right to receive amounts owed from CRLLC upon
request.
At December 31, 2010 and 2009, the due from affiliate
balance totaled $0 and $131,002,000, respectively. On
December 31, 2010, the due from affiliate balance was
reduced to $0 as a result of the balance of $160,000,000 being
distributed by the Partnership to CRLLC and the special general
partner. For the year ended December 31, 2010 and 2009, the
weighted-average interest rate charged on the due from affiliate
balance was approximately 8.50% and 8.64%, respectively. The
interest rate applied to the due from affiliate balance was
derived from the applicable rate incurred in respect of
borrowings under CRLLCs first priority revolving credit
facility.
At December 31, 2010 and 2009, included in prepaid expenses
and other current assets on the Consolidated Balance Sheets are
receivables of $2,318,000 and $961,000, respectively, for
accrued interest with respect to amounts due from affiliate. For
the years ended December 31, 2010, 2009 and 2008, the
Partnership recognized interest income of $13,117,000,
$8,974,000 and $1,984,000, respectively, associated with the due
from affiliate.
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|
(15)
|
Major
Customers and Suppliers
|
Sales of nitrogen fertilizer to major customers were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Nitrogen Fertilizer
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
|
12
|
%
|
|
|
15
|
%
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|
|
13
|
%
|
Customer B
|
|
|
10
|
%
|
|
|
9
|
%
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|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
%
|
|
|
24
|
%
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to contracts with CVR Energy and its affiliates see
Note 14 (Related Party Transactions), the
Partnership maintains long-term contracts with one supplier.
Purchases from this supplier as a percentage of direct operating
expenses (exclusive of depreciation and amortization) were as
follows:
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|
December 31,
|
|
|
|
2010
|
|
|
2009
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|
|
2008
|
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|
Supplier A
|
|
|
5
|
%
|
|
|
5
|
%
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|
|
5
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%
|
F-28
Appendix A
FORM OF
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CVR PARTNERS, LP
TABLE OF
CONTENTS
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Page
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ARTICLE I
DEFINITIONS
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Section 1.1
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Definitions
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A-1
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Section 1.2
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Construction
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A-9
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|
ARTICLE II
ORGANIZATION
|
Section 2.1
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|
Formation
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A-9
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|
Section 2.2
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Name
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A-9
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Section 2.3
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Registered Office; Registered Agent; Principal Office; Other
Offices
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A-10
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Section 2.4
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Purpose and Business
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A-10
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Section 2.5
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Powers
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A-10
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Section 2.6
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Term
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A-10
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Section 2.7
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Title to Partnership Assets
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A-10
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|
ARTICLE III
RIGHTS OF LIMITED PARTNERS
|
Section 3.1
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Limitation of Liability
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A-11
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Section 3.2
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Management of Business
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A-11
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Section 3.3
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Outside Activities of the Limited Partners
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A-11
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Section 3.4
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Rights of Limited Partners
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A-11
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|
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP
INTERESTS;
REDEMPTION OF PARTNERSHIP INTERESTS
|
Section 4.1
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Certificates
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A-12
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Section 4.2
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Mutilated, Destroyed, Lost or Stolen Certificates
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A-12
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Section 4.3
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Record Holders
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A-12
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Section 4.4
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Transfer Generally
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A-13
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Section 4.5
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Registration and Transfer of Limited Partner Interests
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A-13
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|
Section 4.6
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Transfer of the General Partner Interest
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A-14
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Section 4.7
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|
Restrictions on Transfers
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A-14
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Section 4.8
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|
Eligibility Certificates; Ineligible Holders
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A-15
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|
Section 4.9
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|
Redemption of Partnership Interests of Ineligible Holders
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A-16
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|
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
|
Section 5.1
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|
Contributions by the General Partner and its Affiliates
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A-16
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|
Section 5.2
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Interest and Withdrawal
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A-17
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Section 5.3
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|
Capital Accounts
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A-17
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Section 5.4
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|
Issuances of Additional Partnership Interests
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A-19
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|
Section 5.5
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|
Preemptive Right
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A-20
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|
Section 5.6
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|
Splits and Combinations
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|
A-20
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|
Section 5.7
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|
Fully Paid and Non-Assessable Nature of Limited Partner Interests
|
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|
A-20
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|
Section 5.8
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|
Extinguishment of the IDRs
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A-20
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A-i
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Page
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ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
|
Section 6.1
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|
Allocations for Capital Account Purposes
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|
A-21
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|
Section 6.2
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|
Allocations for Tax Purposes
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|
A-23
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|
Section 6.3
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|
Distributions to Record Holders
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|
A-24
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|
|
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
|
Section 7.1
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|
Management
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|
A-24
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|
Section 7.2
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|
Certificate of Limited Partnership
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|
A-26
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|
Section 7.3
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|
Restrictions on the General Partners Authority
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|
|
A-26
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|
Section 7.4
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|
Reimbursement of the General Partner
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|
A-26
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|
Section 7.5
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|
Outside Activities
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A-27
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|
Section 7.6
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|
Loans from the General Partner; Loans or Contributions from the
Partnership or Group Members
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A-28
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|
Section 7.7
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|
Indemnification
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A-28
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|
Section 7.8
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|
Liability of Indemnitees
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|
A-30
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|
Section 7.9
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|
Resolution of Conflicts of Interest; Standards of Conduct and
Modification of Duties
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A-30
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|
Section 7.10
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|
Other Matters Concerning the General Partner
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|
A-31
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|
Section 7.11
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|
Purchase or Sale of Partnership Interests
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|
A-32
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|
Section 7.12
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|
Registration Rights of the General Partner and its Affiliates
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|
|
A-32
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|
Section 7.13
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|
Reliance by Third Parties
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|
A-33
|
|
|
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
|
Section 8.1
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|
Records and Accounting
|
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|
A-34
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|
Section 8.2
|
|
Fiscal Year
|
|
|
A-34
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|
Section 8.3
|
|
Reports
|
|
|
A-34
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|
|
ARTICLE IX
TAX MATTERS
|
Section 9.1
|
|
Tax Returns and Information
|
|
|
A-34
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|
Section 9.2
|
|
Tax Elections
|
|
|
A-35
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|
Section 9.3
|
|
Tax Controversies
|
|
|
A-35
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|
Section 9.4
|
|
Withholding
|
|
|
A-35
|
|
|
ARTICLE X
ADMISSION OF PARTNERS
|
Section 10.1
|
|
Admission of Limited Partners
|
|
|
A-35
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|
Section 10.2
|
|
Admission of Successor General Partner
|
|
|
A-36
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|
Section 10.3
|
|
Amendment of Agreement and Certificate of Limited Partnership
|
|
|
A-36
|
|
|
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
|
Section 11.1
|
|
Withdrawal of the General Partner
|
|
|
A-36
|
|
Section 11.2
|
|
Removal of the General Partner
|
|
|
A-37
|
|
Section 11.3
|
|
Interest of Departing General Partner and Successor General
Partner
|
|
|
A-38
|
|
Section 11.4
|
|
Withdrawal of Limited Partners
|
|
|
A-38
|
|
A-ii
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|
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|
Page
|
|
|
ARTICLE XII
DISSOLUTION AND LIQUIDATION
|
Section 12.1
|
|
Dissolution
|
|
|
A-39
|
|
Section 12.2
|
|
Continuation of the Business of the Partnership After Dissolution
|
|
|
A-39
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|
Section 12.3
|
|
Liquidator
|
|
|
A-39
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|
Section 12.4
|
|
Liquidation
|
|
|
A-40
|
|
Section 12.5
|
|
Cancellation of Certificate of Limited Partnership
|
|
|
A-40
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|
Section 12.6
|
|
Return of Contributions
|
|
|
A-40
|
|
Section 12.7
|
|
Waiver of Partition
|
|
|
A-40
|
|
Section 12.8
|
|
Capital Account Restoration
|
|
|
A-40
|
|
|
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
|
Section 13.1
|
|
Amendments to be Adopted Solely by the General Partner
|
|
|
A-41
|
|
Section 13.2
|
|
Amendment Procedures
|
|
|
A-42
|
|
Section 13.3
|
|
Amendment Requirements
|
|
|
A-42
|
|
Section 13.4
|
|
Special Meetings
|
|
|
A-42
|
|
Section 13.5
|
|
Notice of a Meeting
|
|
|
A-43
|
|
Section 13.6
|
|
Record Date
|
|
|
A-43
|
|
Section 13.7
|
|
Adjournment
|
|
|
A-43
|
|
Section 13.8
|
|
Waiver of Notice; Approval of Meeting; Approval of Minutes
|
|
|
A-43
|
|
Section 13.9
|
|
Quorum and Voting
|
|
|
A-43
|
|
Section 13.10
|
|
Conduct of a Meeting
|
|
|
A-44
|
|
Section 13.11
|
|
Action Without a Meeting
|
|
|
A-44
|
|
Section 13.12
|
|
Right to Vote and Related Matters
|
|
|
A-44
|
|
|
ARTICLE XIV
MERGER
|
Section 14.1
|
|
Authority
|
|
|
A-45
|
|
Section 14.2
|
|
Procedure for Merger or Consolidation
|
|
|
A-45
|
|
Section 14.3
|
|
Approval by Partners of Merger or Consolidation
|
|
|
A-46
|
|
Section 14.4
|
|
Certificate of Merger
|
|
|
A-46
|
|
Section 14.5
|
|
Amendment of Partnership Agreement
|
|
|
A-46
|
|
Section 14.6
|
|
Effect of Merger
|
|
|
A-47
|
|
|
|
|
|
|
|
|
|
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
|
Section 15.1
|
|
Right to Acquire Limited Partner Interests
|
|
|
A-47
|
|
A-iii
|
|
|
|
|
|
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|
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|
Page
|
|
|
ARTICLE XVI
GENERAL PROVISIONS
|
Section 16.1
|
|
Addresses and Notices
|
|
|
A-48
|
|
Section 16.2
|
|
Further Action
|
|
|
A-49
|
|
Section 16.3
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Binding Effect
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Section 16.4
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Integration
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Section 16.5
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Creditors
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Section 16.6
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Waiver
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Section 16.7
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Counterparts
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Section 16.8
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Applicable Law; Forum, Venue and Jurisdiction
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Section 16.9
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Invalidity of Provisions
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Section 16.10
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Consent of Partners
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Section 16.11
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Facsimile Signatures
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Section 16.12
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Third Party Beneficiaries
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A-iv
SECOND
AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF CVR PARTNERS, LP
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF CVR PARTNERS, LP, dated as
of ,
2011 and effective as of the Effective Time, is entered into by
and among CVR GP, LLC, a Delaware limited liability company, as
the General Partner, and Coffeyville Resources, LLC, a Delaware
limited liability company, as the Organizational Limited
Partner, together with any other Persons who become Partners in
the Partnership or parties hereto as provided herein. In
consideration of the covenants, conditions and agreements
contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The
following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the
terms used in this Agreement.
Adjusted Capital Account means the Capital
Account maintained for each Partner as of the end of each
taxable period 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)(1)
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 taxable
period, are reasonably expected to be allocated to such Partner
in subsequent taxable periods 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 taxable period, are reasonably expected to be made
to such Partner in subsequent taxable periods in accordance with
the terms of this Agreement or otherwise to the extent they
exceed offsetting increases to such Partners Capital
Account that are reasonably expected to occur during (or prior
to) the taxable period in which such distributions are
reasonably expected to be made (other than increases as a result
of a minimum gain chargeback pursuant to Sections 6.1(b)(i)
or 6.1(b)(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
any Partnership Interest shall be the amount that such
Adjusted Capital Account would be if such
Partnership Interest were the only interest in the
Partnership held by such Partner from and after the date on
which such Partnership Interest was first issued.
Adjusted Property means any property the
Carrying Value of which has been adjusted pursuant to
Sections 5.3(d)(i) or 5.3(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.
Agreed Allocation means any allocation, other
than a Required Allocation, of an item of income, gain, loss or
deduction pursuant to the provisions of Section 6.1,
including a Curative Allocation (if appropriate to the context
in which the term Agreed Allocation is used).
Agreed Value of any Contributed Property
means the fair market value of such property at the time of
contribution and in the case of an Adjusted Property, the fair
market value of such Adjusted Property on the date of the
revaluation event as described in Section 5.3(d), in both
cases as determined by the General Partner.
Agreement means this Second Amended and
Restated Agreement of Limited Partnership of CVR Partners, LP,
as it may be amended, supplemented or restated from time to time.
Amended Contribution Agreement means the
Amended and Restated Contribution Agreement,
dated ,
2011, by and among the Partnership, the General Partner,
Coffeyville Resources, Coffeyville Acquisition III, and the
Special General Partner, as such agreement may be amended,
restated, modified or replaced from time to time.
A-1
Associate means, when used to indicate a
relationship with any Person, (a) any corporation or
organization of which such Person is a director, officer,
manager, general partner or managing member 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.
Board of Directors means the board of
directors of the General Partner.
Book-Tax Disparity means with respect to any
item of Contributed Property or Adjusted Property, as of the
date of any determination, the difference between the Carrying
Value of such Contributed Property or Adjusted Property and the
adjusted basis thereof for U.S. federal income tax purposes
as of such date. A Partners share of the
Partnerships Book-Tax Disparities in all of its
Contributed Property and Adjusted Property will be reflected by
the difference between such Partners Capital Account
balance as maintained pursuant to Section 5.3 and the
hypothetical balance of such Partners Capital Account
computed as if it had been maintained strictly in accordance
with U.S. federal income tax accounting principles.
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, the State of Kansas
or the State of Texas shall not be regarded as a Business Day.
Capital Account means the capital account
maintained for a Partner pursuant to Section 5.3. The
Capital Account of a Partner in respect of a
Partnership Interest shall be the amount that such Capital
Account would be if such Partnership Interest were the only
interest in the Partnership held by such Partner from and after
the date on which such Partnership Interest was first
issued.
Capital Contribution means any cash, cash
equivalents or the Net Agreed Value of Contributed Property that
a Partner contributes to the Partnership or that is contributed
to the Partnership on behalf of a Partner (including, in the
case of an underwritten offering of Units, the amount of any
underwriting discounts or commissions).
Carrying Value means (a) with respect to
a Contributed Property or Adjusted Property, the Agreed Value of
such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the
Partners Capital Accounts in respect of such property, and
(b) with respect to any other Partnership property, the
adjusted basis of such property for U.S. federal income tax
purposes, all as of the time of determination. The Carrying
Value of any property shall be adjusted from time to time in
accordance with Section 5.3(d), and to reflect changes,
additions or other adjustments to the Carrying Value for
dispositions and acquisitions of Partnership properties, as
deemed appropriate by the General Partner.
Cause means a court of competent jurisdiction
has entered a final, non-appealable judgment finding that the
General Partner, as an entity, has materially breached a
material provision of this Agreement or is liable for actual
fraud or willful misconduct in its capacity as a general partner
of the Partnership.
Certificate means a certificate in such form
(including global form if permitted by applicable rules and
regulations) as may be adopted by the General Partner, issued by
the Partnership evidencing ownership of one or more
Partnership Interests. The initial form of certificate
approved by the General Partner for Common Units is attached as
Exhibit A to this Agreement.
Certificate of Limited Partnership means the
Certificate of Limited Partnership of the Partnership filed with
the Secretary of State of the State of Delaware as referenced in
Section 7.2, as such Certificate of Limited Partnership may
be amended, supplemented or restated from time to time.
claim (as used in Section 7.12(c)) has
the meaning assigned to such term in Section 7.12(c).
Closing Date means the first date on which
Common Units are sold by the Partnership to the Underwriters
pursuant to the provisions of the Underwriting Agreement.
Closing Price means, in respect of any class
of Limited Partner Interests, as of the date of determination,
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
A-2
reporting system with respect to securities listed or admitted
to trading on the principal National Securities Exchange on
which the respective Limited Partner Interests are listed or
admitted to trading or, if such Limited Partner Interests are
not listed or admitted to trading on any National Securities
Exchange, 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 primary reporting system then in use
in relation to such Limited Partner Interests of such class, or,
if on any such day such Limited Partner Interests of such class
are not quoted by any such organization, the average of the
closing bid and asked prices on such day as furnished by a
professional market maker making a market in such Limited
Partner Interests of such class selected by the General Partner,
or if on any such day no market maker is making a market in such
Limited Partner Interests of such class, the fair value of such
Limited Partner Interests on such day as determined by the
General Partner.
Code means the U.S. Internal Revenue
Code of 1986, as amended and in effect from time to time. Any
reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding
provision of any successor law.
Coffeyville Acquisition III means
Coffeyville Acquisition III LLC, a Delaware limited
liability company.
Coffeyville Resources means Coffeyville
Resources, LLC, a Delaware limited liability company.
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 Unit representing, when
outstanding, a fractional part of the Partnership Interests
of all Limited Partners, and having the rights and obligations
specified with respect to Common Units in this Agreement.
Conflicts Committee means a committee of the
Board of Directors composed entirely of one or more directors
who are not (a) officers or employees of the General
Partner, (b) officers, directors or employees of any
Affiliate of the General Partner or (c) holders of any
ownership interest in the General Partner or any of its
Affiliates, including any Group Member, other than Common Units
and other awards that are granted to such director under the
Long Term Incentive Plan and who also meet the independence
standards required of directors who serve on an audit committee
of a board of directors established by the Securities Exchange
Act and the rules and regulations of the Commission thereunder
and by (i) the National Securities Exchange on which any
class of Partnership Interests are listed or admitted to
trading or (ii) if no class of Partnership Interests is so
listed or traded, by the New York Stock Exchange, Inc.
Contributed Property means each property, 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 5.3(d), such property shall no longer constitute a
Contributed Property, but shall be deemed an Adjusted Property.
Contribution Agreement means that certain
Contribution, Conveyance and Assumption Agreement, dated as of
October 24, 2007, among the General Partner, the Special
General Partner, the Organizational Limited Partner and the
Partnership, together with the additional conveyance documents
and instruments contemplated or referenced thereunder.
Credit Agreement means the Credit Agreement,
dated as
of ,
2011, among the
Partnership, ,
and the other lenders party thereto, as such agreement may be
amended, modified, supplemented, replaced, refinanced or
otherwise restructured from time to time, including any
refinancing, restructuring or replacement by one or more other
credit agreements, indentures, purchase agreements or other
agreements, whether or not the amount covered thereby is
increased or decreased, and with the same or different
counterparties.
Curative Allocation means any allocation of
an item of income, gain, deduction, loss or credit pursuant to
the provisions of Section 6.1(b)(xi).
Current Market Price means, in respect of any
class of Partnership Interests, as of the date of
determination, the average of the daily Closing Prices per
Partnership Interest of such class for the 20 consecutive
Trading Days immediately prior to such date.
A-3
Delaware Act means the Delaware Revised
Uniform Limited Partnership Act, 6 Del C.
Section 17-101,
et seq., as amended, supplemented or restated from time
to time, and any successor to such statute.
Departing General Partner means a former
General Partner from and after the effective date of any
withdrawal or removal of such former General Partner pursuant to
Sections 11.1 or 11.2.
Economic Risk of Loss has the meaning set
forth in Treasury
Regulation Section 1.752-2(a).
Effective Time means the time of completion
of the redemption by the Partnership of the Incentive
Distribution Rights pursuant to the Amended Contribution
Agreement.
Eligibility Certificate has the meaning
assigned to such term in Section 4.8(b).
Eligibility Certification means a properly
completed certificate in such form as may be specified by the
General Partner by which a 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
Holder.
Eligible Holder means a Person that satisfies
the eligibility requirements established by the General Partner
for Partners pursuant to Section 4.8.
Event of Withdrawal has the meaning assigned
to such term in Section 11.1(a).
Fertilizer Restricted Businesses has the
meaning assigned to such term in the Omnibus Agreement.
General Partner means CVR GP, LLC, a Delaware
limited liability company, and its successors and permitted
assigns that are admitted to the Partnership as the general
partner of the Partnership, in their capacity as the general
partner of the Partnership.
General Partner Interest means the
non-economic management interest of the General Partner in the
Partnership (in its capacity as general partner without
reference to any Limited Partner Interest), which includes any
and all rights, powers and 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. The General Partner Interest does
not have any rights to ownership or profits or any rights to
receive distributions from operations or the liquidation or
winding-up
of the Partnership.
Gross Liability Value means, with respect to
any Liability of the Partnership described in Treasury
Regulation Section 1.752-7(b)(3)(i),
the amount of cash that a willing assignor would pay to a
willing assignee to assume such Liability in an
arms-length transaction.
Group means a Person that with or through any
of its Affiliates or Associates has any contract, arrangement,
understanding or relationship for the purpose of acquiring,
holding, voting (except voting pursuant to a revocable proxy or
consent given to such Person in response to a proxy or consent
solicitation made to 10 or more Persons), exercising investment
power or disposing of any Partnership Interests with any
other Person that beneficially owns, or whose Affiliates or
Associates beneficially own, directly or indirectly,
Partnership Interests.
Group Member means a member of the
Partnership Group.
Group Member Agreement means the partnership
agreement of any Group Member, other than the Partnership, that
is a limited or general partnership, the limited liability
company agreement of any Group Member that is a limited
liability company, the certificate of incorporation and bylaws
or similar organizational documents of any Group Member that is
a corporation, the joint venture agreement or similar governing
document of any Group Member that is a joint venture and the
governing or organizational or similar documents of any other
Group Member that is a Person other than a limited or general
partnership, limited liability company, corporation or joint
venture, as such may be amended, supplemented or restated from
time to time.
Holder as used in Section 7.12, has the
meaning assigned to such term in Section 7.12(a).
Incentive Distribution Rights means, prior to
their extinguishment pursuant to Section 5.1 hereto, a
non-voting Limited Partner Interest which conferred upon the
holder thereof the rights and obligations specifically provided
in the original Agreement of Limited Partnership of the
Partnership, as heretofore amended.
A-4
Indemnified Persons has the meaning assigned
to such term in Section 7.12(c).
Indemnitee means (a) the General
Partner, (b) any Departing General Partner, (c) any
Person who is or was a director, officer, fiduciary, trustee,
manager or managing member of any Group Member, the General
Partner or any Departing General Partner, (d) any Person
who is or was a manager, managing member, director, officer,
employee, agent, fiduciary or trustee of any Group Member, a
General Partner, any Departing General Partner or any of their
respective Affiliates, (e) any Person who is or was serving
at the request of the General Partner or any Departing General
Partner as a director, officer, fiduciary, trustee, manager or
managing member of another Person owing a fiduciary duty to any
Group Member; provided that a Person shall not be an Indemnitee
by reason of providing, on a
fee-for-services
basis, trustee, fiduciary or custodial services, (f) any
Person who controls or has previously controlled, directly or
indirectly, the General Partner and (g) any Person the
General Partner designates as an Indemnitee for
purposes of this Agreement because such Persons service,
status or relationship exposes such Person to potential claims,
demands, actions, suits or proceedings relating to the
Partnership Groups business and affairs.
Ineligible Holder has the meaning assigned to
such term in Section 4.8(c).
Initial Offering means the initial offering
and sale of Common Units to the public, as described in the
Registration Statement, including the offering and any sale of
Common Units pursuant to the Over-Allotment Option.
Limited Partner means, unless the context
otherwise requires, the Organizational Limited Partner, each
additional Person that becomes a Limited Partner pursuant to the
terms of this Agreement and any Departing General Partner or
Special General Partner upon the change of its status from
General Partner or Special General Partner to Limited Partner
pursuant to Section 11.3 or Section 5.1(c), in each
case in such Persons capacity as a limited partner of the
Partnership.
Limited Partner Interest means the ownership
interest of a Limited Partner in the Partnership, which may be
evidenced by Common Units or other Units or a combination
thereof or interest therein, and includes any and all benefits
to which such Limited Partner is entitled as provided in this
Agreement, together with all obligations of such Limited Partner
to comply with the terms and provisions of this Agreement.
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 Partners have the right to elect to
continue the business of the Partnership has expired without
such an election being made, and (b) in the case of any
other event giving rise to the dissolution of the Partnership,
the date on which such event occurs.
Liquidator means one or more Persons selected
by the General Partner to perform the functions described in
Section 12.4 as liquidating trustee of the Partnership
within the meaning of the Delaware Act.
Long Term Incentive Plan means the CVR
Partners, LP 2011 Long-Term Incentive Plan, as it may be
amended, restated or modified from time to time, or any equity
compensation plan successor thereto.
Merger Agreement has the meaning assigned to
such term in Section 14.1.
National Securities Exchange means an
exchange registered with the Commission under Section 6(a)
of the Securities Exchange Act (or any successor to such
Section) and any other securities exchange (whether or not
registered with the Commission under Section 6(a) of the
Securities Exchange Act (or successor to such Section)) that the
General Partner shall designate as a National Securities
Exchange for purposes of this Agreement.
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 by the Partnership, the Partnerships Carrying
Value of such property (as adjusted pursuant to
Section 5.3(d)(ii)) at the time such property is
distributed, reduced by any liabilities either assumed by such
Partner upon such distribution or to which such property is
subject at the time of distribution.
A-5
Net Income means, for any taxable period, the
excess, if any, of the Partnerships items of income and
gain for such taxable period over the Partnerships items
of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in
accordance with Section 5.3(b) and shall not include any
items specially allocated under Section 6.1(b).
Net Loss means, for any taxable period, the
excess, if any, of the Partnerships items of loss and
deduction for such taxable period over the Partnerships
items of income and for such taxable period. The items included
in the calculation of Net Loss shall be determined in accordance
with Section 5.3(b) and shall not include any items
specially allocated under Section 6.1(b).
Nonrecourse Built-in Gain means with respect
to any Contributed Properties or Adjusted Properties that are
subject to a mortgage or pledge securing a Nonrecourse
Liability, the amount of any taxable gain that would be
allocated to the Partners pursuant to Section 6.2(b) if
such properties were disposed of in a taxable transaction in
full satisfaction of such liabilities and for no other
consideration.
Nonrecourse Deductions means any and all
items of loss, deduction or expenditure (including any
expenditure described in Section 705(a)(2)(B) of the Code)
that, in accordance with the principles of Treasury
Regulation Section 1.704-2(b),
are attributable to a Nonrecourse Liability.
Nonrecourse Liability has the meaning set
forth in Treasury
Regulation Section 1.752-1(a)(2).
Notice of Election to Purchase has the
meaning assigned to such term in Section 15.1(b).
Omnibus Agreement means that certain Amended
and Restated Omnibus Agreement, dated as of
April , 2011, among CVR Energy, Inc., the
General Partner and the Partnership, as such may be amended,
supplemented or restated from time to time.
Opinion of Counsel means a written opinion of
counsel (who may be regular counsel to the Partnership or the
General Partner or any of its Affiliates) acceptable to the
General Partner.
Option Closing Date means the date or dates
on which any Common Units are sold by the Partnership to the
Underwriters upon exercise of the Over-Allotment Option.
Organizational Limited Partner means
Coffeyville Resources, LLC in its capacity as the organizational
limited partner of the Partnership pursuant to this Agreement.
Outstanding means, with respect to
Partnership Interests, all Partnership Interests that
are issued by the Partnership and reflected as outstanding on
the Partnerships books and records as of the date of
determination; provided, however, that if at any time any Person
or Group (other than the General Partner or its Affiliates,
including Coffeyville Resources, LLC and CVR Energy, Inc.)
beneficially owns 20% or more of the Outstanding Limited Partner
Interests of any class then Outstanding, none of the Limited
Partner Interests owned by such Person or Group shall be
entitled to 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 Limited Partner Interests so owned shall be
considered to be Outstanding for purposes of
Section 11.1(b)(iv) (such Partnership Interests shall
not, however, be treated as a separate class of
Partnership Interests for purposes of this Agreement or the
Delaware Act); provided, further, that the foregoing limitation
on voting of Partnership Interests shall not apply to
(i) any Person or Group who acquired 20% or more of the
Outstanding Limited Partner Interests of any class then
Outstanding directly from the General Partner or its Affiliates
(other than the Partnership), (ii) any Person or Group who
acquired 20% or more of the Outstanding Limited Partner
Interests of any class then Outstanding directly or indirectly
from a Person or Group described in clause (i) provided
that the General Partner shall have notified such Person or
Group in writing that such limitation shall not apply, or
(iii) any Person or Group who acquired 20% or more of any
Limited Partner Interests issued by the Partnership 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.
Partner Nonrecourse Debt has the meaning
given to such term in Treasury
Regulation Section 1.704-2(b)(4).
A-6
Partner Nonrecourse Debt Minimum Gain has the
meaning given to such term in Treasury Regulation
Section 1.704-2(i)(2).
Partner Nonrecourse Deductions means any and
all items of loss, deduction or expenditure (including any
expenditure described in Section 705(a)(2)(B) of the Code)
that, in accordance with the principles of Treasury
Regulation Section 1.704-2(i)(1),
are attributable to a Partner Nonrecourse Debt.
Partners means the General Partner and the
Limited Partners.
Partnership means CVR Partners, LP, a
Delaware limited partnership.
Partnership Group means the Partnership and
its Subsidiaries treated as a single entity.
Partnership Interest means an interest
in the Partnership, which shall include any General Partner
Interest and Limited Partner Interests but shall exclude any
options, rights, warrants and appreciation rights relating to an
equity interest in the Partnership and, for the purpose of
Section 7.12, shall include any interests into which such
Partnership Interests are convertible or for which such
Partnership Interests are exchangeable.
Partnership Minimum Gain means the amount of
partnership minimum gain determined in accordance
with the principles of Treasury
Regulation Sections 1.704-2(b)(2)
and 1.704-2(d).
Percentage Interest means as of any date of
determination (a) as to any Unitholder with respect to
Units, the product obtained by multiplying (i) 100% less
the percentage applicable to clause (b) below by
(ii) the quotient obtained by dividing (A) the number
of Units held by such Unitholder, by (B) the total number
of all Outstanding Units, and (b) as to the holders of
other Partnership Interests issued by the Partnership in
accordance with Section 5.4, the percentage established (or
determined as established) as a part of such issuance. The
Percentage Interest with respect to the General Partner Interest
shall at all times be zero.
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.
Pro Rata means (a) when used with
respect to Units or any class thereof, apportioned equally among
all designated Units in accordance with their relative
Percentage Interests and (b) when used with respect to
Partners or Record Holders, apportioned among all Partners or
Record Holders in accordance with their relative Percentage
Interests.
Purchase Date means the date determined by
the General Partner as the date for purchase of all Outstanding
Limited Partner Interests of a certain class (other than Limited
Partner Interests owned by the General Partner and its
Affiliates) pursuant to Article XV.
Quarter means, unless the context requires
otherwise, a fiscal quarter of the Partnership.
Rate Eligibility Trigger has the meaning
assigned to such term in Section 4.8(a)(i).
Recapture Income means any gain recognized by
the Partnership (computed without regard to any adjustment
required by Section 734 or Section 743 of the Code)
upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income
because it represents the recapture of deductions previously
taken with respect to such property or asset.
Record Date means the date established by the
General Partner or otherwise in accordance with this Agreement
for determining (a) the identity of the Record Holders
entitled to notice of, or to vote at, any meeting of Limited
Partners or entitled to vote by ballot or give approval of
Partnership action in writing without a meeting or entitled to
exercise rights in respect of any lawful action of Limited
Partners or (b) the identity of Record Holders entitled to
receive any report or distribution or to participate in any
offer.
Record Holder means (a) with respect to
Partnership Interests of any class of Partnership Interests
for which a Transfer Agent has been appointed, the Person in
whose name a Partnership Interest of such class is registered on
the books of the Transfer Agent as of the opening of business on
a particular Business Day, or (b) with respect to other
classes of Partnership Interests, the Person in whose name any
such other Partnership Interest is registered on the books
that the General Partner has caused to be kept as of the opening
of business on such Business Day.
A-7
Redeemable Interests means any
Partnership Interests for which a redemption notice has
been given, and has not been withdrawn, pursuant to
Section 4.9.
Registration Statement means the Registration
Statement on
Form S-1
(File
No. 333-171270)
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, including any related
registration statement filed pursuant to Rule 462(b) under
the Securities Act.
Required Allocations means any allocation of
an item of income, gain, loss or deduction pursuant to
Sections 6.1(b)(i), 6.1(b)(ii), 6.1(b)(iv), 6.1(b)(v),
6.1(b)(vi), 6.1(b)(vii) or 6.1(b)(ix).
Securities Act means the Securities Act of
1933, as amended, supplemented or restated from time to time and
any successor to such statute.
Securities Exchange Act means the Securities
Exchange Act of 1934, as amended, supplemented or restated from
time to time and any successor to such statute.
Special Approval means approval by a majority
of the members of the Conflicts Committee.
Special General Partner means CVR Special GP,
LLC, a Delaware limited liability company that was previously
admitted to the Partnership as special general partner of the
Partnership, and whose Special Units were exchanged for Common
Units pursuant to the Amended Contribution Agreement.
Special General Partner Interest means,
historically, the management and ownership interest of the
Special General Partner in the Partnership (in its capacity as
Special General Partner).
Special GP Units the 30,303,000 special GP
units which represented, prior to their exchange pursuant to the
Amended Contribution Agreement, the Special General Partner
Interest.
Special LP Units the 30,333 special LP units
which represented, prior to their exchange pursuant to the
Amended Contribution Agreement, all of the limited partner
interests in the Partnership.
Special Units means the Special GP Units and
the Special LP Units, collectively.
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 partner of such partnership, but only
if such Person, directly or by one or more Subsidiaries of such
Person, or a combination thereof, controls such partnership,
directly or indirectly, at the date of determination or
(c) any other Person in which such Person, one or more
Subsidiaries of such Person, or a combination thereof, directly
or indirectly, at the date of determination, has (i) at
least a majority ownership interest or (ii) the power to
elect or direct the election of a majority of the directors or
other governing body of such Person.
Surviving Business Entity has the meaning
assigned to such term in Section 14.2(b)(ii).
Trading Day means, for the purpose of
determining the Current Market Price of any class of Limited
Partner Interests, a day on which the principal National
Securities Exchange on which such class of Limited Partner
Interests is 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.
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 may be appointed from time to time by the
Partnership to act as registrar and transfer agent for any class
of Partnership Interests; provided that if no Transfer
Agent is specifically designated for any class of
Partnership Interests, the General Partner shall act in
such capacity.
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Underwriter means each Person named as an
underwriter in the Underwriting Agreement who purchases Common
Units pursuant thereto.
Underwriting Agreement means that certain
Underwriting Agreement
dated ,
2011, by and among the representatives of the Underwriters, the
Partnership, and the other parties thereto, providing for the
purchase of Common Units by the Underwriters, as supplemented by
the Joinder Agreement,
dated
2011, by the General Partner.
Unit means a Partnership Interest that
is designated as a Unit and shall include Common
Units.
Unit Majority means at least a majority of
the Outstanding Common Units.
Unitholders means the holders of Units.
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 5.3(d)) over (b) the Carrying Value of such
property as of such date (prior to any adjustment to be made
pursuant to Section 5.3(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 5.3(d) as of such date) over (b) the fair
market value of such property as of such date (as determined
under Section 5.3(d)).
Unrestricted Person means each Indemnitee,
each Partner and each Person who is or was a member, partner,
director, officer, employee or agent of any Group Member, the
General Partner or any Departing General Partner or any
Affiliate of any Group Member, the General Partner or any
Departing General Partner and any Person the General Partner
designates as an Unrestricted Person for purposes of
this Agreement.
U.S. GAAP means United States generally
accepted accounting principles, as in effect from time to time,
consistently applied.
Withdrawal Opinion of Counsel has the meaning
assigned to such term in Section 11.1(b).
Section 1.2 Construction. Unless
the context requires otherwise: (a) any pronoun used in
this Agreement shall include the corresponding masculine,
feminine or neuter forms; (b) references to Articles and
Sections refer to Articles and Sections of this Agreement;
(c) the terms include, includes,
including and words of like import shall be deemed
to be followed by the words without limitation; and
(d) the terms hereof, herein and
hereunder refer to this Agreement as a whole and not
to any particular provision of this Agreement. The table of
contents and headings contained in this Agreement are for
reference purposes only, and shall not affect in any way the
meaning or interpretation of this Agreement.
ARTICLE II
ORGANIZATION
Section 2.1 Formation. The
General Partner and the Organizational Limited Partner
previously formed the Partnership as a limited partnership
pursuant to the provisions of the Delaware Act. The General
Partner and the Organizational Limited Partner hereby amend and
restate the original Agreement of Limited Partnership of the
Partnership, as heretofore amended, in its entirety. This
amendment and restatement shall become effective on the date of
this Agreement. Except as expressly provided to the contrary in
this Agreement, the rights, duties, liabilities and obligations
of the Partners and the administration, dissolution and
termination of the Partnership shall be governed by the Delaware
Act.
Section 2.2 Name. The
name of the Partnership shall be CVR Partners, LP.
The Partnerships business may be conducted under any other
name or names as determined by the General Partner, including
the name of the General Partner. The words Limited
Partnership, the letters LP, or
Ltd. or similar words or letters shall be included
in the Partnerships name where necessary for the purpose
of complying with the laws of any jurisdiction
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that so requires. The General Partner may change the name of the
Partnership at any time and from time to time and shall notify
the Partners of such change in the next regular communication to
the Partners.
Section 2.3 Registered
Office; Registered Agent; Principal Office; Other
Offices. Unless and until changed by the General
Partner, the registered office of the Partnership in the State
of Delaware shall be located at 1209 Orange Street, Wilmington,
Delaware 19801, and the registered agent for service of process
on the Partnership in the State of Delaware at such registered
office shall be The Corporation Trust Company. The principal
office of the Partnership shall be located at 2277 Plaza Drive,
Suite 500, Sugar Land, Texas 77479 or such other place as
the General Partner may from time to time designate by notice to
the Partners. The Partnership may maintain offices at such other
place or places within or outside the State of Delaware as the
General Partner determines to be necessary or appropriate. The
address of the General Partner shall be 2277 Plaza Drive,
Suite 500, Sugar Land, Texas 77479 or such other place as
the General Partner may from time to time designate by notice to
the Partners.
Section 2.4 Purpose
and Business. The purpose and nature of the
business to be conducted by the Partnership shall be to engage
directly in, or enter into or form, hold and dispose of any
corporation, partnership, joint venture, limited liability
company or other arrangement to engage indirectly in, any
business activity that is approved by the General Partner, in
its sole discretion, and that lawfully may be conducted by a
limited partnership organized pursuant to the Delaware Act and,
in connection therewith, to exercise all of the rights and
powers conferred upon the Partnership pursuant to the agreements
relating to such business activity, and do anything necessary or
appropriate to the foregoing, including the making of capital
contributions or loans to a Group Member; provided, however,
that the General Partner shall not cause the Partnership to
engage, directly or indirectly, in any business activity that
the General Partner determines would be reasonably likely to
cause the Partnership to be treated as an association taxable as
a corporation or otherwise taxable as an entity for federal
income tax purposes. To the fullest extent permitted by law, the
General Partner shall have no duty or obligation to propose or
approve, and may, in its sole discretion, 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.
Section 2.6 Term. The
term of the Partnership commenced upon the filing of the
Certificate of Limited Partnership in accordance with the
Delaware Act and shall continue until the dissolution of the
Partnership in accordance with the provisions of
Article XII. The existence of the Partnership as a separate
legal entity shall continue until the cancellation of the
Certificate of Limited Partnership as provided in the Delaware
Act.
Section 2.7 Title
to Partnership Assets. Title to Partnership
assets, whether real, personal or mixed and whether tangible or
intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have
any ownership interest in such Partnership assets or any portion
thereof. Title to any or all of the Partnership assets may be
held in the name of the Partnership, the General Partner, one or
more of its Affiliates or one or more nominees, as the General
Partner may determine. The General Partner hereby declares and
warrants that any Partnership assets for which record title is
held in the name of the General Partner or one or more of its
Affiliates or one or more nominees shall be held by the General
Partner or such Affiliate or nominee for the use and benefit of
the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use
reasonable efforts to cause record title to such assets (other
than those assets in respect of which the General Partner
determines that the expense and difficulty of conveyancing makes
transfer of record title to the Partnership impracticable) to be
vested in the Partnership as soon as reasonably practicable;
provided, further, that, prior to the withdrawal or removal of
the General Partner or as soon thereafter as practicable, the
General Partner shall use reasonable efforts to effect the
transfer of record title to the Partnership and, prior to any
such transfer, will provide for the use of such assets in a
manner satisfactory to the General Partner. All Partnership
assets shall be recorded as the property of the Partnership in
its books and records, irrespective of the name in which record
title to such Partnership assets is held.
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ARTICLE III
RIGHTS OF
LIMITED PARTNERS
Section 3.1 Limitation
of Liability. The Limited Partners shall have no
liability under this Agreement except as expressly provided in
this Agreement or the Delaware Act.
Section 3.2 Management
of Business. No Limited Partner, in its capacity
as such, shall participate in the operation, management or
control (within the meaning of the Delaware Act) of the
Partnerships business, transact any business in the
Partnerships name or have the power to sign documents for
or otherwise bind the Partnership. Any action taken by any
Affiliate of the General Partner or any officer, director,
employee, manager, member, general partner, agent or trustee of
the General Partner or any of its Affiliates, or any officer,
director, employee, manager, member, general partner, agent or
trustee of a Group Member, in its capacity as such, shall not be
deemed to be participation in the control of the business of the
Partnership by a limited partner of the Partnership (within the
meaning of
Section 17-303(a)
of the Delaware Act) and shall not affect, impair or eliminate
the limitations on the liability of the Limited Partners under
this Agreement.
Section 3.3 Outside
Activities of the Limited Partners. Subject to
the provisions of Section 7.5 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, each Limited Partner shall be entitled to and
may have any business interests and engage in any business
activities in addition to those relating to the Partnership,
including business interests and activities in direct
competition with the Partnership Group. Neither the Partnership
nor any of the other Partners shall have any rights by virtue of
this Agreement in any business ventures of any Limited Partner.
Section 3.4 Rights
of Limited Partners.
(a) In addition to other rights provided by this Agreement
or by applicable law (other than
Section 17-305(a)
of the Delaware Act, the obligations of which are expressly
replaced in their entirety by the provisions below), and except
as limited by Section 3.4(b), each Limited Partner shall
have the right, for a purpose that is reasonably related, as
determined by the General Partner, to such Limited
Partners interest as a Limited Partner in the Partnership,
upon reasonable written demand stating the purpose of such
demand and at such Limited Partners own expense to obtain:
(i) true and full information regarding the status of the
business and financial condition of the Partnership (provided
that the requirements of this Section 3.4(a)(i) shall be
satisfied to the extent the Limited Partner is furnished the
Partnerships most recent annual report and any subsequent
quarterly or periodic reports required to be filed (or which
would be required to be filed) with the Commission pursuant to
Section 13 of the Exchange Act);
(ii) promptly after its becoming available, all information
reasonably required to facilitate the preparation and filing of
such Limited Partners federal, state and local income tax
returns for each year;
(iii) a current list of the name and last known business,
residence or mailing address of each Record Holder;
(iv) a copy of this Agreement and the Certificate of
Limited Partnership and all amendments thereto, together with
copies of the executed copies of all powers of attorney pursuant
to which this Agreement, the Certificate of Limited Partnership
and all amendments thereto have been executed;
(v) true and full information regarding the amount of cash
and a description and statement of the Net Agreed Value of any
other Capital Contribution by each Partner and that each Partner
has agreed to contribute in the future, and the date on which
each became a Partner; and
(vi) such other information regarding the affairs of the
Partnership as the General Partner determines is just and
reasonable.
(b) The General Partner may keep confidential from the
Limited Partners, for such period of time as the General Partner
deems reasonable, (i) any information that the General
Partner reasonably believes to be in the nature of trade secrets
or (ii) other information the disclosure of which the
General Partner believes (A) is not in the
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best interests of the Partnership Group, (B) could damage
the Partnership Group or its business or (C) that any Group
Member is required by law or by agreement with any third party
to keep confidential (other than agreements with Affiliates of
the Partnership the primary purpose of which is to circumvent
the obligations set forth in this Section 3.4).
ARTICLE IV
CERTIFICATES;
RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF
PARTNERSHIP INTERESTS
Section 4.1 Certificates. Notwithstanding
anything otherwise to the contrary herein, unless the General
Partner shall determine otherwise in respect of some or all of
any or all classes of Partnership Interests,
Partnership Interests shall not be evidenced by
certificates. Certificates that may be issued 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 the General Partner.
No Certificate for such class of Partnership Interests
shall be valid for any purpose until it has been countersigned
by the Transfer Agent; provided, however, that if the General
Partner elects to cause the Partnership to issue
Partnership Interests of such class in global form, the
Certificate shall be valid upon receipt of a certificate from
the Transfer Agent certifying that the
Partnership Interests have been duly registered in
accordance with the directions of the Partnership.
Section 4.2 Mutilated,
Destroyed, Lost or Stolen Certificates.
(a) If any mutilated Certificate is surrendered to the
Transfer Agent, the appropriate officers of the General Partner
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 Interests as the Certificate so surrendered.
(b) The appropriate officers of the General Partner on
behalf of the Partnership shall execute and deliver, and the
Transfer Agent shall countersign, a new Certificate in place of
any Certificate previously issued if the Record Holder of the
Certificate:
(i) makes proof by affidavit, in form and substance
satisfactory to the General Partner, that a previously issued
Certificate has been lost, destroyed or stolen;
(ii) requests the issuance of a new Certificate before the
General Partner has notice that the Certificate has been
acquired by a purchaser for value in good faith and without
notice of an adverse claim;
(iii) if requested by the General Partner, delivers to the
General Partner a bond, in form and substance satisfactory to
the General Partner, with surety or sureties and with fixed or
open penalty as the General Partner may direct, to indemnify the
Partnership, the Partners, the General Partner and the Transfer
Agent against any claim that may be made on account of the
alleged loss, destruction or theft of the Certificate; and
(iv) satisfies any other reasonable requirements imposed by
the General Partner.
If a Partner fails to notify the General Partner within a
reasonable period of time after such Partner has notice of the
loss, destruction or theft of a Certificate, and a transfer of
the Partner Interests represented by the Certificate is
registered before the Partnership, the General Partner or the
Transfer Agent receives such notification, the Partner shall be
precluded from making any claim against the Partnership, the
General Partner or the Transfer Agent for such transfer or for a
new Certificate.
(c) As a condition to the issuance of any new Certificate
under this Section 4.2, the General Partner may require the
payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the
Transfer Agent) reasonably connected therewith.
Section 4.3 Record
Holders. The Partnership shall be entitled to
recognize the Record Holder as the Partner with respect to any
Partnership Interest and, accordingly, shall not be bound
to recognize any equitable or other claim to, or interest in,
such Partnership Interest on the part of any other Person,
regardless of whether the
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Partnership shall have actual or other notice thereof, except as
otherwise provided by law or any applicable rule, regulation,
guideline or requirement of any National Securities Exchange on
which such Partnership Interests are listed or admitted to
trading. Without limiting the foregoing, when a Person (such as
a broker, dealer, bank, trust company or clearing corporation or
an agent of any of the foregoing) is acting as nominee, agent or
in some other representative capacity for another Person in
acquiring
and/or
holding Partnership Interests, as between the Partnership
on the one hand, and such other Persons on the other, such
representative Person shall be (a) the Record Holder of
such Partnership Interest and (b) bound by this Agreement
and shall have the rights and obligations of a Partner hereunder
as, and to the extent, provided herein.
Section 4.4 Transfer
Generally.
(a) The term transfer, when used in this
Agreement with respect to a Partnership Interest, shall
mean a transaction (i) by which the General Partner assigns
its General Partner Interest to another Person, and includes a
sale, assignment, gift, pledge, grant of security interest,
encumbrance, hypothecation, mortgage, exchange or any other
disposition by law or otherwise, or (ii) by which the
holder of a Limited Partner Interest assigns such Limited
Partner Interest to another Person who is or becomes a Limited
Partner, and includes a sale, assignment, gift, exchange or any
other disposition by law or otherwise (but not the pledge, grant
of security interest, encumbrance, hypothecation or mortgage),
including any transfer upon foreclosure or other exercise of
remedies of any pledge, security interest, encumbrance,
hypothecation or mortgage.
(b) No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and
conditions set forth in this Article IV. Any transfer or
purported transfer of a Partnership Interest not made in
accordance with this Article IV shall be, to the fullest
extent permitted by law, null and void.
(c) Nothing contained in this Agreement shall be construed
to prevent a disposition by any stockholder, member, partner or
other owner of any Partner of any or all of the shares of stock,
membership interests, partnership interests or other ownership
interests in such Partner and the term transfer
shall not mean any such disposition.
Section 4.5 Registration
and Transfer of Limited Partner Interests.
(a) The General Partner shall keep or cause to be kept on
behalf of the Partnership a register in which, subject to such
reasonable regulations as it may prescribe and subject to the
provisions of Section 4.5(b), the Partnership will provide
for the registration and transfer of Limited Partner Interests.
(b) The Partnership shall not recognize any transfer of
Limited Partner Interests evidenced by Certificates until the
Certificates evidencing such Limited Partner Interests are
surrendered for registration of transfer. No charge shall be
imposed by the General Partner for such transfer; provided, that
as a condition to the issuance of any new Certificate under this
Section 4.5, the General Partner may require the payment of
a sum sufficient to cover any tax or other governmental charge
that may be imposed with respect thereto. Upon surrender of a
Certificate for registration of transfer of any Limited Partner
Interests evidenced by a Certificate, and subject to the
provisions hereof, the appropriate officers of the General
Partner on behalf of the Partnership shall execute and deliver,
and in the case of Certificates evidencing Limited Partner
Interests, the Transfer Agent shall countersign and deliver, in
the name of the holder or the designated transferee or
transferees, as required pursuant to the holders
instructions, one or more new Certificates evidencing the same
aggregate number and type of Limited Partner Interests as was
evidenced by the Certificate so surrendered.
(c) By acceptance of the transfer of any Limited Partner
Interests in accordance with this Section 4.5 and except as
provided in Section 4.8, each transferee of a Limited
Partner Interest (including any nominee holder or an agent or
representative acquiring such Limited Partner Interests for the
account of another Person) (i) shall be admitted to the
Partnership as a Limited Partner with respect to the Limited
Partner Interests so transferred to such Person when any such
transfer or admission is reflected in the books and records of
the Partnership and such Limited Partner becomes the Record
Holder of the Limited Partner Interests so transferred,
(ii) shall become bound by the terms of this Agreement,
(iii) represents that the transferee has the capacity,
power and authority to enter into this Agreement, and
(iv) makes the consents and waivers contained in this
Agreement, all with or without execution of this Agreement. The
transfer of any Limited Partner Interests and the admission of
any new Limited Partner shall not constitute an amendment to
this Agreement.
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(d) Subject to (i) the foregoing provisions of this
Section 4.5, (ii) Section 4.3,
(iii) Section 4.7, (iv) with respect to any class
or series of Limited Partner Interests, the provisions of any
statement of designations or amendment of this Agreement
establishing such class or series, (v) any contractual
provisions binding on any Limited Partner and
(vi) provisions of applicable law including the Securities
Act, Limited Partner Interests shall be freely transferable.
Section 4.6 Transfer
of the General Partner Interest.
(a) Subject to Section 4.6(c) below, prior to
March 31, 2021, 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 Partners (excluding the General Partner and
its Affiliates) holding a majority of the Percentage Interests
of all Partners (excluding the Percentage Interests of the
General Partner and its Affiliates) or (ii) is of all, but
not less than all, of its General Partner Interest to
(A) an Affiliate of the General Partner (other than an
individual) or (B) another Person (other than an
individual) in connection with the merger or consolidation of
the General Partner with or into such other Person or the
transfer by the General Partner of all or substantially all of
its assets to such other Person.
(b) Subject to Section 4.6(c) below, on or after
March 31, 2021, the General Partner may transfer all or any
part of its General Partner Interest without Unitholder approval.
(c) Notwithstanding anything herein to the contrary, no
transfer by the General Partner of all or any part of its
General Partner Interest to another Person shall be permitted
unless (i) the transferee agrees to assume the rights and
duties of the General Partner under this Agreement and to be
bound by the provisions of this Agreement, (ii) the
Partnership receives an Opinion of Counsel that such transfer
would not result in the loss of limited liability under Delaware
law of any Limited Partner or cause the Partnership to be
treated as an association taxable as a corporation or otherwise
to be taxed as an entity for U.S. federal income tax
purposes (to the extent not already so treated or taxed) and
(iii) such transferee also agrees to purchase all (or the
appropriate portion thereof, if applicable) of the partnership
or membership interest of the General Partner as the general
partner or managing member, if any, of each other Group Member.
In the case of a transfer pursuant to and in compliance with
this Section 4.6, the transferee or successor (as the case
may be) shall, subject to compliance with the terms of
Section 10.2, be admitted to the Partnership as the General
Partner effective immediately prior to the transfer of the
General Partner Interest, and the business of the Partnership
shall continue without dissolution.
Section 4.7 Restrictions
on Transfers.
(a) Notwithstanding the other provisions of this
Article IV, no transfer of any Partnership Interests shall
be made if such transfer would (i) violate the then
applicable U.S. federal or state securities laws or rules
and regulations of the Commission, any state securities
commission or any other governmental authority with jurisdiction
over such transfer, (ii) terminate the existence or
qualification of the Partnership under the laws of the
jurisdiction of its formation, or (iii) cause the
Partnership to be treated as an association taxable as a
corporation or otherwise to be taxed as an entity for
U.S. 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 the General Partner
determines, with the advice of counsel, that such restrictions
are necessary or advisable to (i) avoid a significant risk
of the Partnership becoming taxable as a corporation or
otherwise becoming taxable as an entity for U.S. federal
income tax purposes or (ii) preserve the uniformity of
Limited Partner Interests (or any class or classes thereof). The
General Partner may impose such restrictions by amending this
Agreement; provided, however, that any amendment that would
result in the delisting or suspension of trading of any class of
Limited Partner Interests on the principal National Securities
Exchange on which such class of Limited Partner Interests is
then listed or admitted to trading must be approved, prior to
such amendment being effected, by the holders of at least a
majority of the Outstanding Limited Partner Interests of such
class.
(c) Nothing contained in this Article IV, or elsewhere
in this Agreement, shall preclude the settlement of any
transactions involving Partnership Interests entered into
through the facilities of any National Securities Exchange on
which such Partnership Interests are listed or admitted to
trading.
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Section 4.8 Eligibility
Certificates; Ineligible Holders.
(a) If at any time the General Partner determines, with the
advice of counsel, that
(i) the Partnerships status other than as an
association taxable as a corporation for U.S. federal
income tax purposes or the failure of the Partnership otherwise
to be subject to an entity-level tax for U.S. federal,
state or local income tax purposes, coupled with the tax status
(or lack of proof of the U.S. federal income tax status) of
one or more Partners, has or will reasonably likely have a
material adverse effect on the maximum applicable rate that can
be charged to customers by Subsidiaries of the Partnership (a
Rate Eligibility Trigger); or
(ii) any Group Member is subject to any federal, state or
local law or regulation that would create a substantial risk of
cancellation or forfeiture of any property in which the Group
Member has an interest based on the nationality, citizenship or
other related status of a Partner (a Citizenship
Eligibility Trigger);
then, the General Partner may adopt such amendments to this
Agreement as it determines to be necessary or advisable to
(x) in the case of a Rate Eligibility Trigger, obtain such
proof of the U.S. federal income tax status of the Partners
and, to the extent relevant, their beneficial owners, as the
General Partner determines to be necessary to establish those
Partners whose U.S. federal income tax status does not or
would not have a material adverse effect on the maximum
applicable rate that can be charged to customers by Subsidiaries
of the Partnership or (y) in the case of a Citizenship
Eligibility Trigger, obtain such proof of the nationality,
citizenship or other related status (or, if the General Partner
is a nominee holding for the account of another Person, the
nationality, citizenship or other related status of such Person)
of the Partner as the General Partner determines to be necessary
to establish and those Partners whose status as a Partner does
not or would not subject any Group Member to a significant risk
of cancellation or forfeiture of any of its properties or
interests therein.
(b) Such amendments may include provisions requiring all
Partners to certify as to their (and their beneficial
owners) status as Eligible Holders upon demand and on a
regular basis, as determined by the General Partner, and may
require transferees of Units to so certify prior to being
admitted to the Partnership as a Partner (any such required
certificate, an Eligibility Certificate).
(c) Such amendments may provide that any Partner who fails
to furnish to the General Partner within a reasonable period
requested proof of its (and its beneficial owners)
status as an Eligible Holder or if upon receipt of such
Eligibility Certificate or other requested information the
General Partner determines that a Partner is not an Eligible
Holder (such a Partner, an Ineligible
Holder), the Partnership Interests owned by such
Limited Partner shall be subject to redemption in accordance
with the provisions of Section 4.9. In addition, the
General Partner shall be substituted for all Limited Partners
that are Ineligible Holders as the Partner in respect of the
Ineligible Holders Partnership Interests.
(d) The General Partner shall, in exercising voting rights
in respect of Partnership Interests held by it on behalf of
Ineligible Holders, distribute the votes in the same ratios as
the votes of Partners (including the General Partner and its
Affiliates) in respect of Partnership Interests other than
those of Ineligible Holders are cast, either for, against or
abstaining as to the matter.
(e) Upon dissolution of the Partnership, an Ineligible
Holder shall have no right to receive a distribution in kind
pursuant to Section 12.4 but shall be entitled to the cash
equivalent thereof, and the Partnership shall provide cash in
exchange for an assignment of the Ineligible Holders share
of any distribution in kind. Such payment and assignment shall
be treated for Partnership purposes as a purchase by the
Partnership from the Ineligible Holder of his
Partnership Interest (representing his right to receive his
share of such distribution in kind).
(f) At any time after he can and does certify that he has
become an Eligible Holder, an Ineligible Holder may, upon
application to the General Partner, request that with respect to
any Partnership Interests of such Ineligible Holder not
redeemed pursuant to Section 4.9, such Ineligible Holder be
admitted as a Partner, and upon approval of the General Partner,
such Ineligible Holder shall be admitted as a Partner and shall
no longer constitute an Ineligible Holder and the General
Partner shall cease to be deemed to be the Partner in respect of
such Ineligible Holders Partnership Interests.
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Section 4.9 Redemption
of Partnership Interests of Ineligible Holders.
(a) If at any time a Partner fails to furnish an
Eligibility Certification or other information requested within
a reasonable period of time specified in amendments adopted
pursuant to Section 4.8, or if upon receipt of such
Eligibility Certification or other information the General
Partner determines, with the advice of counsel, that a Partner
is not an Eligible Holder, the Partnership may, unless the
Partner establishes to the satisfaction of the General Partner
that such Partner is an Eligible Holder or has transferred his
Partnership Interests to a Person who is an Eligible Holder
and who furnishes an Eligibility Certification to the General
Partner prior to the date fixed for redemption as provided
below, redeem the Partnership Interest of such Partner as
follows:
(i) The General Partner shall, not later than the
30th day before the date fixed for redemption, give notice
of redemption to the Partner, at his last address designated on
the records of the Partnership or the Transfer Agent, as
applicable, 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 redemption of the Redeemable
Interests (or, if later in the case of Redeemable Interests
evidenced by Certificates, 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 Partner would otherwise be entitled
in respect of the Redeemable Interests will accrue or be made.
(ii) The aggregate redemption price for Redeemable
Interests shall be an amount equal to the Current Market Price
(the date of determination of which shall be the date fixed for
redemption) of Partnership Interests of the class to be so
redeemed multiplied by the number of Partnership Interests
of each such class included among the Redeemable Interests. The
redemption price shall be paid, as determined by the General
Partner, in cash or by delivery of a promissory note of the
Partnership in the principal amount of the redemption price,
bearing interest at the rate of 8% annually and payable in three
equal annual installments of principal together with accrued
interest, commencing one year after the redemption date.
(iii) The Partner or his duly authorized representative
shall be entitled to receive the payment for the Redeemable
Interests at the place of payment specified in the notice of
redemption on the redemption date (or, if later in the case of
Redeemable Interests evidenced by Certificates, upon surrender
by or on behalf of the Partner at the place specified in the
notice of redemption, of the Certificate evidencing the
Redeemable Interests, duly endorsed in blank or accompanied by
an assignment duly executed in blank).
(iv) After the redemption date, Redeemable Interests shall
no longer constitute issued and Outstanding
Partnership Interests.
(b) The provisions of this Section 4.9 shall also be
applicable to Partnership Interests held by a Partner as
nominee of a Person determined to be an Ineligible Holder.
(c) Nothing in this Section 4.9 shall prevent the
recipient of a notice of redemption from transferring his
Partnership 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 Partnership Interest certifies to the satisfaction of
the General Partner that he is an Eligible Holder. 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 Contributions
by the General Partner and its Affiliates.
(a) In connection with the formation of the Partnership
under the Delaware Act, the General Partner made an initial
Capital Contribution to the Partnership in the amount of $1,000,
for a General Partner Interest in the Partnership and was
admitted as the Managing General Partner of the Partnership, and
the Special General Partner and Coffeyville Resources each made
an initial Capital Contribution to the Partnership in the amount
of $1,000 and
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were admitted as the Special General Partner and Limited
Partner, respectively, of the Partnership. Immediately after the
close of business on October 24, 2007, the initial $1,000
contributed by each of the Special General Partner and
Coffeyville Resources was refunded as provided in the
Contribution Agreement.
(b) Immediately after the close of business on
October 24, 2007 and pursuant to the Contribution
Agreement, Coffeyville Resources conveyed: (i) a portion of
its interest in Coffeyville Resources Nitrogen Fertilizer, LLC
to the Partnership on behalf of the General Partner, as a
Capital Contribution in exchange for the issuance to the General
Partner of the General Partner Interest; (ii) a portion of
its interest in Coffeyville Resources Nitrogen Fertilizer, LLC
to the Partnership on behalf of the Special General Partner, as
a Capital Contribution in exchange for the issuance to the
Special General Partner of Special GP Units; and (iii) the
remaining portion of its interest in Coffeyville Resources
Nitrogen Fertilizer, LLC to the Partnership as a Capital
Contribution in exchange for the issuance to Coffeyville
Resources of Special LP Units.
(c) Pursuant to the Amended Contribution Agreement,
(i) Coffeyville Resources contributed all of its Special LP
Units to the Partnership in exchange for the issuance to
Coffeyville Resources of 0.1% of the Sponsor Consideration (as
that term is defined in the Amended Contribution Agreement);
(ii) the Special General Partner contributed all of its
Special GP Units to the Partnership in exchange for the issuance
to the Special General Partner of 99.9% of the Sponsor
Consideration; (iii) the Partnership repurchased the
Incentive Distribution Rights from the General Partner in
exchange for $26.0 million, and the Incentive Distribution
Rights are being extinguished hereby; (iv) the General
Partner distributed $ million
to Coffeyville Acquisition III; and (v) the
Organizational Limited Partner will purchase the General Partner
from Coffeyville Acquisition III in exchange for $1,000.
Section 5.2 Interest
and Withdrawal. No interest on Capital
Contributions shall be paid by the Partnership. No Partner shall
be entitled to the withdrawal or return of its Capital
Contribution, except to the extent, if any, that distributions
made pursuant to this Agreement or upon dissolution of the
Partnership may be considered as the withdrawal or return of its
Capital Contribution by law and then only to the extent provided
for in this Agreement. Except to the extent expressly provided
in this Agreement, no Partner shall have priority over any other
Partner either as to the return of Capital Contributions or as
to profits, losses or distributions. Any such return shall be a
compromise to which all Partners agree within the meaning of
Section 17-502(b)
of the Delaware Act.
Section 5.3 Capital
Accounts.
(a) The Partnership shall maintain for each Partner (or a
beneficial owner of Partnership Interests held by a nominee in
any case in which the nominee has furnished the identity of such
owner to the Partnership in accordance with Section 6031(c)
of the Code or any other method acceptable to the General
Partner) owning a Partnership Interest a separate Capital
Account with respect to such Partnership Interest in
accordance with the rules of Treasury
Regulation Section 1.704-1(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount
of all Capital Contributions made to the Partnership with
respect to such Partnership Interest and (ii) all
items of Partnership income and gain (including income and gain
exempt from tax) computed in accordance with Section 5.3(b)
and allocated with respect to such Partnership Interest
pursuant to Section 6.1, and decreased by (x) the
amount of cash or Net Agreed Value of all actual and deemed
distributions of cash or property made with respect to such
Partnership Interest and (y) all items of Partnership
deduction and loss computed in accordance with
Section 5.3(b) and allocated with respect to such
Partnership Interest pursuant to Section 6.1.
(b) For purposes of computing the amount of any item of
income, gain, loss or deduction that is to be allocated pursuant
to Article VI and is to be reflected in the Partners
Capital Accounts, the determination, recognition and
classification of any such item shall be the same as its
determination, recognition and classification for
U.S. federal income tax purposes (including any method of
depreciation, cost recovery or amortization used for that
purpose), provided, that:
(i) Solely for purposes of this Section 5.3, the
Partnership shall be treated as owning directly its
proportionate share (as determined by the General Partner based
upon the provisions of the applicable Group Member Agreement) of
all property owned by (x) any other Group Member that is
classified as a partnership or is disregarded for
U.S. federal income tax purposes and (y) any other
entity that is classified as a partnership or is disregarded for
U.S. federal income tax purposes of which an entity
described in clause (x) of this Section 5.3(b)(i) is,
directly or indirectly, a partner, member or other equity holder.
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(ii) All fees and other expenses incurred by the
Partnership to promote the sale of (or to sell) a
Partnership Interest that can neither be deducted nor
amortized under Section 709 of the Code, if any, shall, for
purposes of Capital Account maintenance, be treated as an item
of deduction at the time such fees and other expenses are
incurred and shall be allocated among the Partners pursuant to
Section 6.1.
(iii) Except as otherwise provided in Treasury
Regulation Section 1.704-1(b)(2)(iv)(m),
the computation of all items of income, gain, loss and deduction
shall be made without regard to any election under
Section 754 of the Code that may be made by the Partnership
and, as to those items described in Section 705(a)(1)(B) or
705(a)(2)(B) of the Code, without regard to the fact that such
items are not includable in gross income or are neither
currently deductible nor capitalized for U.S. federal
income tax purposes. To the extent an adjustment to the adjusted
tax basis of any Partnership asset pursuant to
Section 734(b) or 743(b) of the Code is required, pursuant
to Treasury Regulation Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the
amount of such adjustment in the Capital Accounts shall be
treated as an item of gain or loss.
(iv) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as
if the adjusted basis of such property as of such date of
disposition were equal in amount to the Partnerships
Carrying Value with respect to such property as of such date.
(v) In accordance with the requirements of
Section 704(b) of the Code, any deductions for
depreciation, cost recovery or amortization attributable to any
Contributed Property shall be determined as if the adjusted
basis of such property on the date it was acquired by the
Partnership were equal to the Agreed Value of such property.
Upon an adjustment pursuant to Section 5.3(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) under
the rules prescribed by Treasury
Regulation Section 1.704-3(d)(2)
as if the adjusted basis of such property were equal to the
Carrying Value of such property immediately following such
adjustment.
(vi) If the Partnerships adjusted basis in a
depreciable or cost recovery property is reduced for
U.S. federal income tax purposes pursuant to
Section 50(c)(1) or 50(c)(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
taxable period 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 50(c)(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.
(vii) The Gross Liability Value of each Liability of the
Partnership described in Treasury
Regulation Section 1.752-7(b)(3)(i)
shall be adjusted at such times as provided in this Agreement
for an adjustment to Carrying Values. The amount of any such
adjustment shall be treated for purposes hereof as an item of
loss (if the adjustment increases the Carrying Value of such
Liability of the Partnership) or an item of gain (if the
adjustment decreases the Carrying Value of such Liability of the
Partnership).
(c) 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.
(d) (i) In accordance with Treasury
Regulation Section 1.704-1(b)(2)(iv)(f),
upon an issuance of additional Partnership Interests for
cash or Contributed Property, the issuance of Partnership
Interests as consideration for the provision of services or the
conversion of the General Partners (and its
Affiliates) Combined Interest to Common Units pursuant to
Section 11.3(b), 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, and any such
Unrealized Gain or Unrealized Loss shall be treated, for
purposes of maintaining Capital Accounts, as if it had been
recognized on an actual sale of each such property for an amount
equal to its fair market value immediately prior to such
issuance and had been allocated among the Partners at such time
pursuant to Section 6.1 in the same manner as any item of
gain or loss actually recognized during such period would have
been allocated; provided, however, that in the event of
an issuance of Partnership Interests for a de minimis
amount of cash or Contributed Property, or in the event of an
issuance of a de minimis amount of Partnership Interests as
consideration for the provision of services, the General Partner
may determine that such
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adjustments are unnecessary for the proper administration of the
Partnership. In determining such Unrealized Gain or Unrealized
Loss, the fair market value of all Partnership assets (including
cash or cash equivalents) immediately prior to the issuance of
additional Partnership Interests shall be determined by the
General Partner using such method of valuation as it may adopt.
In making its determination of the fair market values of
individual properties, the General Partner may determine that it
is appropriate to first determine an aggregate value for the
Partnership, based on the current trading price of the Common
Units, taking fully into account the fair market value of the
Partnership Interests of all Partners at such time, and
then allocate such aggregate value among the individual
properties of the Partnership (in such manner as it determines
is appropriate).
(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 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, and
any such Unrealized Gain or Unrealized Loss shall be treated,
for the purposes of maintaining Capital Accounts, as if it had
been recognized on an actual sale of each such property
immediately prior to such distribution for an amount equal to
its fair market value, and had been allocated to the Partners,
at such time, pursuant to Section 6.1 in the same manner as
any item of gain or loss actually recognized during such period
would have been allocated. In determining such Unrealized Gain
or Unrealized Loss the fair market value of all Partnership
assets (including cash or cash equivalents) immediately prior to
a distribution shall (A) in the case of an actual
distribution that is not made pursuant to Section 12.4 or
in the case of a deemed distribution, be determined in the same
manner as that provided in Section 5.3(d)(i) or (B) in
the case of a liquidating distribution pursuant to
Section 12.4, be determined by the Liquidator using such
method of valuation as it may adopt.
Section 5.4 Issuances
of Additional Partnership Interests.
(a) The Partnership may issue additional
Partnership Interests and options, rights, warrants and
appreciation rights relating to the Partnership Interests
for any Partnership purpose at any time and from time to time to
such Persons for such consideration and on such terms and
conditions as the General Partner shall determine, all without
the approval of any Partners.
(b) Each additional Partnership Interest authorized to
be issued by the Partnership pursuant to Section 5.4(a) may
be issued in one or more classes, or one or more series of any
such classes, with such designations, preferences, rights,
powers and duties (which may be senior or junior to existing
classes and series of Partnership Interests), as shall be
fixed by the General Partner, including (i) the right to
share in Partnership profits and losses or items thereof;
(ii) the right to share in Partnership distributions;
(iii) the rights upon dissolution and liquidation of the
Partnership; (iv) whether, and the terms and conditions
upon which, the Partnership may, or shall be required to, redeem
the Partnership Interest (including sinking fund
provisions); (v) whether such Partnership Interest is
issued with the privilege of conversion or exchange and, if so,
the terms and conditions of such conversion or exchange;
(vi) the terms and conditions upon which each
Partnership Interest will be issued, evidenced by
certificates and assigned or transferred; (vii) the method
for determining the Percentage Interest as to such
Partnership Interest; and (viii) the right, if any, of
each such Partnership Interest to vote on Partnership
matters, including matters relating to the relative rights,
preferences and privileges of such Partnership Interest.
(c) The General Partner shall take all actions that it
determines to be necessary or appropriate in connection with
(i) each issuance of Partnership Interests and
options, rights, warrants and appreciation rights relating to
Partnership Interests pursuant to this Section 5.4,
(ii) the conversion of the General Partners (and its
Affiliates) Combined Interest to Common Units pursuant to
the terms of this Agreement, (iii) reflecting the admission
of such additional Partners in the books and records of the
Partnership as the Record Holder of such Partnership Interests,
and (iv) all additional issuances of
Partnership Interests. The General Partner shall determine
the relative rights, powers and duties of the holders of the
Units or other Partnership Interests being so issued. The
General Partner shall do all things necessary to comply with the
Delaware Act and is authorized and directed to do all things
that it determines to be necessary or appropriate in connection
with any future issuance of Partnership Interests or in
connection with the conversion of the General Partners
(and its Affiliates) Combined Interest into Common Units
pursuant to the terms of this Agreement, including compliance
with any statute, rule, regulation or guideline of any
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federal, state or other governmental agency or any National
Securities Exchange on which the Units or other
Partnership Interests are listed or admitted to trading.
(d) No fractional Units shall be issued by the Partnership.
Section 5.5 Preemptive
Right. Except as provided in this
Section 5.5 or as otherwise provided in a separate
agreement by the Partnership, no Person shall have any
preemptive, preferential or other similar right with respect to
the issuance of any Partnership Interest, whether unissued,
held in the treasury or hereafter created. The General Partner
shall have the right, which it may from time to time assign in
whole or in part to any of its Affiliates, to purchase
Partnership Interests from the Partnership whenever, and on
the same terms that, the Partnership issues
Partnership Interests to Persons other than the General
Partner and its Affiliates, to the extent necessary to maintain
the Percentage Interests of the General Partner and its
Affiliates equal to that which existed immediately prior to the
issuance of such Partnership Interests.
Section 5.6 Splits
and Combinations.
(a) Subject to Section 5.6(d), the Partnership may
make a Pro Rata distribution of Partnership Interests to all
Record Holders or may effect a subdivision or combination of
Partnership Interests 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 or stated as a number of Units are
proportionately adjusted retroactively to the beginning of the
Partnership.
(b) Whenever such a distribution, subdivision or
combination of Partnership Interests 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 Interests to be held by each Record Holder
after giving effect to such distribution, subdivision,
combination or reorganization. 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,
combination or reorganization, the Partnership may issue
Certificates to the Record Holders of Partnership Interests
as of the applicable Record Date representing the new number of
Partnership Interests held by such Record Holders, or the
General Partner may adopt such other procedures that it
determines to be necessary or appropriate to reflect such
changes. If any such combination results in a smaller total
number of Partnership Interests Outstanding, the
Partnership shall require, as a condition to the delivery to a
Record Holder of any 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, combination or reorganization of
Partnership Interests. If a distribution, subdivision,
combination or reorganization of Partnership Interests
would result in the issuance of fractional Units but for the
provisions of Section 5.4(d) and this Section 5.6(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 5.7 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
Sections 17-607
or 17-804 of
the Delaware Act.
Section 5.8 Extinguishment
of the IDRs.
As of the Effective Time, all outstanding IDRs shall be
cancelled by the Partnership and shall cease to exist pursuant
to this Section 5.8.
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ARTICLE VI
ALLOCATIONS
AND DISTRIBUTIONS
Section 6.1 Allocations
for Capital Account Purposes. For purposes of
maintaining the Capital Accounts and in determining the rights
of the Partners among themselves, the Partnerships items
of income, gain, loss and deduction (computed in accordance with
Section 5.3(b)) for each taxable period shall be allocated
among the Partners as provided herein below.
(a) Net Income and Net Loss. After giving
effect to the special allocations set forth in
Section 6.1(b), Net Income and Net Loss for each taxable
period and all items of income, gain, loss and deduction taken
into account in computing Net Income and Net Loss for such
taxable period shall be allocated 100% to all Unitholders, Pro
Rata.
(b) 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(b), each Partners
Adjusted Capital Account balance shall be determined, and the
allocation of income or gain required hereunder shall be
effected, prior to the application of any other allocations
pursuant to this Section 6.1(b) with respect to such
taxable period (other than an allocation pursuant to
Sections 6.1(b)(vi) and 6.1(b)(vii)). This
Section 6.1(b)(i) is intended to comply with the
Partnership Minimum Gain chargeback requirement in Treasury
Regulation Section 1.704-2(f)
and shall be interpreted consistently therewith.
(ii) Chargeback of Partner Nonrecourse Debt Minimum
Gain. Notwithstanding the other provisions of
this Section 6.1 (other than Section 6.1(b)(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(b), each Partners Adjusted
Capital Account balance shall be determined, and the allocation
of income or gain required hereunder shall be effected, prior to
the application of any other allocations pursuant to this
Section 6.1(b), other than Section 6.1(b)(i) and other
than an allocation pursuant to Sections 6.1(b)(vi) and
6.1(b)(vii), with respect to such taxable period. This
Section 6.1(b)(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) with respect to a Unit exceeds
the amount of cash or the Net Agreed Value of property
distributed with respect to another Unit, 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 with respect to the
Unit receiving the smallest distribution and (bb) the number of
Units owned by the Unitholder receiving the greater distribution.
(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 gross income and gain shall be specially allocated
to such Partner in an amount and manner sufficient to eliminate,
to the extent required by the Treasury Regulations promulgated
under Section 704(b) of the Code, the deficit balance, if
any, in its Adjusted Capital Account created by such
adjustments, allocations or distributions as quickly as
possible; provided, that an allocation pursuant to this
Section 6.1(b)(iv) shall be made only if and to the extent
that such Partner would have a deficit balance in its
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Adjusted 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(b)(iv) were not in this Agreement.
(v) Gross Income Allocations. In the
event any Partner has a deficit balance in its Capital Account
at the end of any 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(b)(v) shall be made only if and to the extent
that such Partner would have a deficit balance in its Capital
Account as so adjusted after all other allocations provided for
in this Section 6.1 have been tentatively made as if
Section 6.1(b)(iv) this Section 6.1(b)(v) were not in
this Agreement.
(vi) Nonrecourse Deductions. Nonrecourse
Deductions for any taxable period shall be allocated to the
Partners, Pro Rata. If the General Partner determines that the
Partnerships Nonrecourse Deductions should be allocated in
a different ratio to satisfy the safe harbor requirements of the
Treasury Regulations promulgated under Section 704(b) of
the Code, the General Partner is authorized, upon notice to the
other Partners, to revise the prescribed ratio to the
numerically closest ratio that does satisfy such requirements.
(vii) Partner Nonrecourse
Deductions. Partner Nonrecourse Deductions for
any taxable period shall be allocated 100% to the Partner that
bears the Economic Risk of Loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions
are attributable in accordance with Treasury
Regulation Section 1.704-2(i).
If more than one Partner bears the Economic Risk of Loss with
respect to a Partner Nonrecourse Debt, such Partner Nonrecourse
Deductions attributable thereto shall be allocated between or
among such Partners in accordance with the ratios in which they
share such Economic Risk of Loss. This Section 6.1(b)(vii)
is intended to comply with Treasury Regulations
Section 1.704-2(i)(1)
and shall be interpreted consistently therewith.
(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,
Pro Rata.
(ix) Code Section 754
Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to
Section 734(b) or 743(b) of the Code is required, pursuant
to Treasury
Regulation Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the
amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such
basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner
in which their Capital Accounts are required to be adjusted
pursuant to such Section of the Treasury Regulations.
(x) Economic Uniformity; Changes in
Law. For the proper administration of the
Partnership and for the preservation of uniformity of the
Limited Partner Interests (or any class or classes thereof), the
General Partner shall (i) adopt such conventions as it
deems appropriate in determining the amount of depreciation,
amortization and cost recovery deductions; (ii) make
special allocations of income, gain, loss or deduction of
Unrealized Gain or Unrealized Loss; 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 6.1(b)(x) 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 of
the Partnership, and if such allocations are consistent with the
principles of Section 704 of the Code.
(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
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possible, the net amount of items of gross 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. In exercising
its discretion under this Section 6.1(b)(xi)(A), the
General Partner may take into account future Required
Allocations that, although not yet made, are likely to offset
other Required Allocations previously made. Allocations pursuant
to this Section 6.1(b)(xi)(A) shall only be made with
respect to Required Allocations to the extent the General
Partner determines that such allocations will otherwise be
inconsistent with the economic agreement among the Partners.
(B) The General Partner shall, with respect to each taxable
period, (1) apply the provisions of
Section 6.1(b)(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(b)(xi)(A) among the
Partners in a manner that is likely to minimize such economic
distortions.
Section 6.2 Allocations
for Tax Purposes.
(a) Except as otherwise provided herein, for
U.S. 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 U.S. federal
income tax purposes among the Partners in the manner provided
under Section 704(c) of the Code, and the Treasury
Regulations promulgated under Section 704(b) and 704(c) of
the Code, as determined appropriate by the General Partner
(taking into account the General Partners discretion under
Section 6.1(b)(x)); provided that the General Partner shall
apply the principles of Treasury
Regulation Section 1.704-3(d)
in all events.
(c) The General Partner may determine to depreciate or
amortize the portion of an adjustment under Section 743(b)
of the Code attributable to unrealized appreciation in any
Adjusted Property (to the extent of the unamortized Book-Tax
Disparity) using a predetermined rate derived from the
depreciation or amortization method and useful life applied to
the unamortized Book-Tax Disparity of such property, despite any
inconsistency of such approach with Treasury
Regulation Section 1.167(c)-l(a)(6)
or any successor regulations thereto. If the General Partner
determines that such reporting position cannot reasonably be
taken, the General Partner may adopt depreciation and
amortization conventions under which all purchasers acquiring
Limited Partner Interests in the same month would receive
depreciation and amortization deductions, based upon the same
applicable rate as if they had purchased a direct interest in
the Partnerships property. If the General Partner chooses
not to utilize such aggregate method, the General Partner may
use any other depreciation and amortization conventions to
preserve the uniformity of the intrinsic tax characteristics of
any Units, so long as such conventions would not have a material
adverse effect on the Limited Partners or Record Holders of any
class or classes of Limited Partner Interests.
(d) In accordance with Treasury
Regulation Sections 1.1245-1(e)
and 1.1250-1(f), 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.
(e) All items of income, gain, loss, deduction and credit
recognized by the Partnership for U.S. federal income tax
purposes and allocated to the Partners in accordance with the
provisions hereof shall be determined without regard to any
election under Section 754 of the Code that may be made by
the Partnership; provided, however, that such allocations, once
made, shall be adjusted (in the manner determined by the General
Partner) to take into account those adjustments permitted or
required by Sections 734 and 743 of the Code.
(f) Each item of Partnership income, gain, loss and
deduction shall, for U.S. federal income tax purposes, be
determined for each taxable period and prorated on a monthly
basis and shall be allocated to the Partners as of the opening
of the National Securities Exchange on which the
Partnerships Units are listed or admitted to trading on
the first Business Day of each month; provided, however, such
items for the period beginning on the Closing Date and
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ending on the last day of the month in which the Over-Allotment
Option is exercised in full or the expiration of the
Over-Allotment Option occurs shall be allocated to the Partners
as of the opening of the National Securities Exchange on which
the Partnerships Units are listed or admitted to trading
on the first Business Day of the next succeeding month; and
provided, further, that gain or loss on a sale or other
disposition of any assets of the Partnership or any other
extraordinary item of income, gain, loss or deduction, as
determined by the General Partner, shall be allocated to the
Partners as of the opening of the National Securities Exchange
on which the Partnerships Units are listed or admitted to
trading on the first Business Day of the month in which such
item is recognized for U.S. federal income tax purposes.
The General Partner may revise, alter or otherwise modify such
methods of allocation to the extent permitted or required by
Section 706 of the Code and the regulations or rulings
promulgated thereunder.
(g) Allocations that would otherwise be made to a Partner
under the provisions of this Article VI shall instead be
made to the 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 determined
by the General Partner.
Section 6.3 Distributions
to Record Holders.
(a) The Board of Directors may adopt a cash distribution
policy, which it may change from time to time without amendment
to this Agreement.
(b) The Partnership will make distributions, if any, to
Unitholders Pro Rata.
(c) All distributions required to be made under this
Agreement shall be made subject to
Sections 17-607
and 17-804
of the Delaware Act.
(d) Notwithstanding Section 6.3(b), in the event of
the dissolution and liquidation of the Partnership, cash shall
be applied and distributed solely in accordance with, and
subject to the terms and conditions of, Section 12.4.
(e) Each distribution in respect of a
Partnership Interest shall be paid by the Partnership,
directly or through any Transfer Agent or through any other
Person or agent, only to the Record Holder of such
Partnership Interest as of the Record Date set for such
distribution. Such payment shall constitute full payment and
satisfaction of the Partnerships liability in respect of
such payment, regardless of any claim of any Person who may have
an interest in such payment by reason of an assignment or
otherwise.
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 other Partner shall have
any management power over the business and affairs of the
Partnership. In addition to the powers now or hereafter granted
to a general partner of a limited partnership under applicable
law or that are granted to the General Partner under any other
provision of this Agreement, the General Partner, subject to
Section 7.3, shall have full power and authority to do all
things and on such terms as it determines to be necessary or
appropriate to conduct the business of the Partnership, to
exercise all powers set forth in Section 2.5 and to
effectuate the purposes set forth in Section 2.4, including
the following:
(i) the making of any expenditures, the lending or
borrowing of money, the assumption or guarantee of, or other
contracting for, indebtedness and other liabilities, the
issuance of evidences of indebtedness, including indebtedness
that is convertible or exchangeable into
Partnership Interests, and the incurring of any other
obligations;
(ii) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other
agencies having jurisdiction over the business or assets of the
Partnership;
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(iii) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any or all of the
assets of the Partnership or the merger or other combination of
the Partnership with or into another Person (the matters
described in this clause (iii) being subject however to any
prior approval that may be required by Section 7.3);
(iv) the use of the assets of the Partnership (including
cash on hand) for any purpose consistent with the terms of this
Agreement, including the financing of the conduct of the
operations of the Partnership Group; subject to
Section 7.6(a) the lending of funds to other Persons
(including other Group Members); the repayment or guarantee of
obligations of any Group Member; and the making of capital
contributions to any Group Member;
(v) the negotiation, execution and performance of any
contracts, conveyances or other instruments (including
instruments that limit the liability of the Partnership under
contractual arrangements to all or particular assets of the
Partnership, with the other party to the contract to have no
recourse against the General Partner or its assets other than
its interest in the Partnership, even if same results in the
terms of the transaction being less favorable to the Partnership
than would otherwise be the case);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees (including
employees having titles such as chief executive
officer, president, chief financial
officer, chief operating officer,
general counsel, vice president,
secretary and treasurer) and agents,
outside attorneys, accountants, consultants and contractors and
the determination of their compensation and other terms of
employment or hiring;
(viii) the maintenance of insurance for the benefit of the
Partnership Group, the Partners and Indemnitees;
(ix) the formation of, or acquisition of an interest in,
and the contribution of property and the making of loans to, any
further limited or general partnerships, joint ventures,
corporations, limited liability companies or other Persons
(including the acquisition of interests in, and the
contributions of property to, any Group Member from time to
time) subject to the restrictions set forth in Section 2.4;
(x) the control of any matters affecting the rights and
obligations of the Partnership, including the bringing and
defending of actions at law or in equity and otherwise engaging
in the conduct of litigation, arbitration or mediation and the
incurring of legal expense and the settlement of claims and
litigation;
(xi) the indemnification of any Person against liabilities
and contingencies to the extent permitted by law;
(xii) the entering into of listing agreements with any
National Securities Exchange and the delisting of some or all of
the Partnership Interests from, or requesting that trading
be suspended on, any such exchange (subject to any prior
approval required under Section 4.7);
(xiii) the purchase, sale or other acquisition or
disposition of Partnership Interests, or the issuance of
options, rights, warrants and appreciation rights relating to
Partnership Interests;
(xiv) the undertaking of any action in connection with the
Partnerships participation in the management of any Group
Member; and
(xv) the entering into of agreements with any of its
Affiliates to render services to a Group Member or to itself in
the discharge of its duties as General Partner of the
Partnership.
(b) Notwithstanding any other provision of this Agreement,
any Group Member Agreement, the Delaware Act or any applicable
law, rule or regulation, each of the Limited Partners and each
other Person who may acquire an interest in
Partnership Interests or is otherwise bound by this
Agreement hereby (i) approves, ratifies and confirms the
execution, delivery and performance by the parties thereto of
this Agreement, the Underwriting Agreement, the Omnibus
Agreement, the Credit 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 (in each case other than this Agreement,
without giving effect to any amendments, supplements or
restatements after the date
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hereof); (ii) agrees that the General Partner (on its own
or on behalf of the Partnership) is authorized to execute,
deliver and perform the agreements referred to in
clause (i) of this sentence and the other agreements, acts,
transactions and matters described in or contemplated by the
Registration Statement on behalf of the Partnership without any
further act, approval or vote of the Partners or the other
Persons who may acquire an interest in
Partnership Interests or is otherwise bound by this
Agreement; 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 Partners or any other Persons under this
Agreement (or any other agreements) or of any duty existing at
law, in equity or otherwise.
Section 7.2 Certificate
of Limited Partnership. The General Partner has
caused the Certificate of Limited Partnership to be filed with
the Secretary of State of the State of Delaware as required by
the Delaware Act. The General Partner shall use all reasonable
efforts to cause to be filed such other certificates or
documents that the General Partner determines to be necessary or
appropriate for the formation, continuation, qualification and
operation of a limited partnership (or a partnership in which
the limited partners have limited liability) in the State of
Delaware or any other state in which the Partnership may elect
to do business or own property. To the extent the General
Partner determines such action to be necessary or appropriate,
the General Partner shall file amendments to and restatements of
the Certificate of Limited Partnership and do all things to
maintain the Partnership as a limited partnership (or a
partnership or other entity in which the limited partners have
limited liability) under the laws of the State of Delaware or of
any other state in which the Partnership may elect to do
business or own property. Subject to the terms of
Section 3.4(a), the General Partner shall not be required,
before or after filing, to deliver or mail a copy of the
Certificate of Limited Partnership, any qualification document
or any amendment thereto to any Partner.
Section 7.3 Restrictions
on the General Partners Authority. 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 assets of the Partnership Group, taken
as a whole, in a single transaction or a series of related
transactions without the approval of a Unit Majority; provided,
however, that this provision shall not preclude or limit the
General Partners ability to mortgage, pledge, hypothecate
or grant a security interest in all or substantially all of the
assets of the Partnership Group and shall not apply to any
forced sale of any or all of the assets of the Partnership Group
pursuant to the foreclosure of, or other realization upon, any
such encumbrance.
Section 7.4 Reimbursement
of the General Partner.
(a) Except as provided in this Section 7.4 and
elsewhere in this Agreement, the General Partner shall not be
compensated for its services as a general partner or managing
member of any Group Member.
(b) The General Partner shall be reimbursed on a monthly
basis, or such other basis as the General Partner may determine,
for (i) all direct and indirect expenses it incurs or
payments it makes on behalf of the Partnership Group (including
salary, bonus, incentive compensation and other amounts paid to
any Person including Affiliates of the General Partner to
perform services for the Partnership Group or for the General
Partner in the discharge of its duties to the Partnership
Group), and (ii) all other expenses reasonably allocable to
the Partnership Group or otherwise incurred by the General
Partner in connection with operating the Partnership
Groups business (including expenses allocated to the
General Partner by its Affiliates). The General Partner shall
determine the expenses that are allocable to the Partnership
Group. Reimbursements pursuant to this Section 7.4 shall be
in addition to any reimbursement to the General Partner as a
result of indemnification pursuant to Section 7.7.
(c) The General Partner and its Affiliates may charge any
member of the Partnership Group a management fee to the extent
necessary to allow the Partnership Group to reduce the amount of
any state franchise or income tax or any tax based upon the
revenues or gross margin of any member of the Partnership Group
if the tax benefit produced by the payment of such management
fee or fees exceeds the amount of such fee or fees.
(d) The General Partner, without the approval of the other
Partners (who shall have no right to vote in respect thereof),
may propose and adopt on behalf of the Partnership benefit
plans, programs and practices (including plans, programs and
practices involving the issuance of Partnership Interests
or options to purchase or rights, warrants or appreciation
rights or phantom or tracking interests relating to
Partnership Interests), or cause the Partnership to
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issue Partnership Interests in connection with, or pursuant
to, any benefit plan, program or practice maintained or
sponsored by the General Partner or any of its Affiliates, in
each case for the benefit of employees and directors of the
General Partner or its Affiliates, any Group Member or their
Affiliates, 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 Interests
that the General Partner or such Affiliates are obligated to
provide to any employees or directors pursuant to any such
benefit plans, programs or practices. Expenses incurred by the
General Partner in connection with any such plans, programs and
practices (including the net cost to the General Partner or such
Affiliates of Partnership Interests purchased by the
General Partner or such Affiliates, from the Partnership or
otherwise, 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 benefit plans, programs or 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 Partners General Partner
Interest pursuant to Section 4.5(d).
Section 7.5 Outside
Activities.
(a) The General Partner, for so long as it is the General
Partner of the Partnership (i) agrees that its sole
business will be to act as a general partner or managing member,
as the case may be, of the Partnership and any other partnership
or limited liability company of which the Partnership is,
directly or indirectly, a partner or member and to undertake
activities that are ancillary or related thereto (including
being a limited partner in the Partnership) and (ii) shall
not engage in any business or activity or incur any debts or
liabilities except in connection with or incidental to
(A) its performance as general partner or managing member,
if any, of one or more Group Members or as described in or
contemplated by the Registration Statement, (B) the
acquiring, owning or disposing of debt securities or equity
interests in any Group Member, or (C) the guarantee of, and
mortgage, pledge or encumbrance of any or all of its assets in
connection with, any indebtedness of any Affiliate of the
General Partner.
(b) The Omnibus Agreement sets forth certain restrictions
on the ability of CVR Energy, Inc. and its controlled Affiliates
(other than the Partnership Group) to engage in Fertilizer
Restricted Businesses.
(c) Except as specifically restricted by the Omnibus
Agreement, each Unrestricted Person (other than the General
Partner) shall have the right to engage in businesses of every
type and description and other activities for profit and to
engage in and possess an interest in other business ventures of
any and every type or description, whether in businesses engaged
in or anticipated to be engaged in by any Group Member,
independently or with others, including business interests and
activities in direct competition with the business and
activities of any Group Member, and none of the same shall
constitute a breach of this Agreement or any duty otherwise
existing at law, in equity or otherwise, to any Group Member or
any Partner.
(d) Notwithstanding anything to the contrary in this
Agreement, the doctrine of corporate opportunity, or any
analogous doctrine, shall not apply to any Unrestricted Person
(including the General Partner). Except as specifically provided
in the Omnibus Agreement, no Unrestricted Person (including the
General Partner) who acquires knowledge of a potential
transaction, agreement, arrangement or other matter that may be
an opportunity for the Partnership shall have any duty to
communicate or offer such opportunity to the Partnership, and
such Unrestricted Person (including the General Partner) shall
not be liable to the Partnership, any Partner or any other
Person for breach of any fiduciary or other duty by reason of
the fact that such Unrestricted Person (including the General
Partner) pursues or acquires such opportunity for itself,
directs such opportunity to another Person or does not
communicate such opportunity or information to the Partnership.
(e) 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 Unrestricted Person (other than the General
Partner) in accordance with the provisions of this
Section 7.5 is hereby approved by the Partnership and all
Partners, and (ii) it shall be deemed not to be a breach of
any fiduciary duty or any other duty or obligation of any type
whatsoever of the General Partner or of any other Unrestricted
Person for the Unrestricted Person (other than the General
Partner) to engage in such business interests and activities in
preference to or to the exclusion of the Partnership and the
other Group Members; provided such
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Unrestricted Person does not engage in such business or activity
as a result of or using confidential or proprietary information
provided by or on behalf of the Partnership to such Unrestricted
Person.
(f) The General Partner and each of its Affiliates may
acquire Units or other Partnership Interests in addition to
those acquired on the Closing Date and, except as otherwise
expressly provided in this Agreement, shall be entitled to
exercise, at their option, all rights relating to all Units or
other Partnership Interests acquired by them. The term
Affiliates when used in this Section 7.5(f)
with respect to the General Partner shall not include any Group
Member.
(g) Notwithstanding anything in this Agreement to the
contrary, nothing herein shall be deemed to restrict Goldman,
Sachs & Co., Kelso & Company, L.P. or their
respective Affiliates (other than the General Partner), or their
respective successors and assigns as owners of interests in the
General Partner, from engaging in any banking, brokerage,
trading, market making, hedging, arbitrage, investment advisory,
financial advisory, anti-raid advisory, merger advisory,
financing, lending, underwriting, asset management, principal
investing, mergers & acquisitions or other activities
conducted in the ordinary course of their or their
Affiliates business in compliance with applicable law,
including without limitation buying and selling debt securities
or equity interests of any other Partner or Group Member,
entering into derivatives transactions regarding or shorting
equity interests of any other Partner or Group Member, serving
as a lender, underwriter or market maker or issuing research
with respect to debt securities or equity interests of any
Partner or Group Member or acquiring, selling, making
investments in or entering into other transactions or
undertaking any opportunities with companies or businesses in
the same or similar lines of business as any Partner or Group
Member or any other businesses.
Section 7.6 Loans
from the General Partner; Loans or Contributions from the
Partnership or Group Members.
(a) The General Partner or any of its Affiliates may, but
shall be under no obligation to, lend to any Group Member, and
any Group Member may borrow from the General Partner or any of
its Affiliates, funds needed or desired by the Group Member for
such periods of time and in such amounts as the General Partner
may determine; provided, however, that in any such case the
lending party may not charge the borrowing party interest at a
rate greater than the rate that would be charged the borrowing
party or impose terms less favorable to the borrowing party than
would be charged or imposed on the borrowing party by unrelated
lenders on comparable loans made on an arms length basis
(without reference to the lending partys financial
abilities or guarantees), all as determined by the General
Partner. The borrowing party shall reimburse the lending party
for any costs (other than any additional interest costs)
incurred by the lending party in connection with the borrowing
of such funds. For purposes of this Section 7.6(a) and
Section 7.6(b), the term Group Member shall
include any Affiliate of a Group Member that is controlled by
the Group Member.
(b) The Partnership may lend or contribute to any Group
Member, and any Group Member may borrow from the Partnership,
funds on terms and conditions determined by the General Partner.
(c) No borrowing by any Group Member or the approval
thereof by the General Partner shall be deemed to constitute a
breach of any duty, expressed or implied, of the General Partner
or its Affiliates to the Partnership or the Partners by reason
of the fact that the purpose or effect of such borrowing is
directly or indirectly to enable distributions to the General
Partner or its Affiliates (including in their capacities, if
applicable, as Limited 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
threatened, pending or completed claims, demands, actions, suits
or proceedings, whether civil, criminal, administrative or
investigative, and whether formal or informal and including
appeals, 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 and acting (or refraining to act) in
such capacity on behalf of or for the benefit of the
Partnership; provided, that the Indemnitee shall not be
indemnified and held harmless if there has been a final and
non-appealable judgment entered by a court of competent
jurisdiction determining that, in respect of the matter for
which the Indemnitee is seeking indemnification pursuant to this
Section 7.7, the
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Indemnitee acted in bad faith or engaged in fraud, willful
misconduct or, in the case of a criminal matter, acted with
knowledge that the Indemnitees conduct was unlawful. 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 appearing
at, participating in or defending any claim, demand, action,
suit or proceeding shall, from time to time, be advanced by the
Partnership prior to a final and non-appealable judgment entered
by a court of competent jurisdiction determining that, in
respect of the matter for which the Indemnitee is seeking
indemnification pursuant to this Section 7.7, that the
Indemnitee is not entitled to be indemnified upon receipt by the
Partnership of any undertaking by or on behalf of the Indemnitee
to repay such amount if it shall be ultimately determined that
the Indemnitee is not entitled to be indemnified as authorized
by 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, in equity or otherwise, both as to actions in the
Indemnitees capacity as an Indemnitee and as to actions in
any other capacity (including any capacity under the
Underwriting Agreement), and shall continue as to an Indemnitee
who has ceased to serve in such capacity and shall inure to the
benefit of the heirs, successors, assigns and administrators of
the Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse
the General Partner or its Affiliates for the cost of)
insurance, on behalf of the General Partner, its Affiliates, the
Indemnitees and such other Persons as the General Partner shall
determine, against any liability that may be asserted against,
or expense that may be incurred by, such Person in connection
with the Partnerships activities or such Persons
activities on behalf of the Partnership, regardless of whether
the Partnership would have the power to indemnify such Person
against such liability under the provisions of this Agreement.
In addition, the Partnership may enter into additional
indemnification agreements with any Indemnitee.
(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 an Indemnitee with respect to any employee benefit
plan in the performance of its duties for a purpose reasonably
believed by it to be in the best interest of the participants
and beneficiaries of the plan shall be deemed to be for a
purpose that is in the best 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 and their heirs, successors, assigns,
executors and administrators and shall not be deemed to create
any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this
Section 7.7 or any provision hereof shall in any manner
terminate, reduce or impair the right of any past, present or
future Indemnitee to be indemnified by the Partnership, nor the
obligations of the Partnership to indemnify any such Indemnitee
under and in accordance with the provisions of this
Section 7.7 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of
when such claims may arise or be asserted.
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Section 7.8 Liability
of Indemnitees.
(a) Notwithstanding anything to the contrary set forth in
this Agreement, no Indemnitee shall be liable for monetary
damages to the Partnership, the Partners or any other Persons
who have acquired interests in the Partnership Interests,
for losses sustained or liabilities incurred as a result of any
act or omission of an Indemnitee unless there has been a final
and non-appealable judgment entered by a court of competent
jurisdiction determining that, in respect of the matter in
question, the Indemnitee acted in bad faith or engaged in fraud,
willful misconduct or, in the case of a criminal matter, acted
with knowledge that the Indemnitees conduct was criminal.
(b) Subject to its obligations and duties as General
Partner set forth in Section 7.1(a), the General Partner
may exercise any of the powers granted to it by this Agreement
and perform any of the duties imposed upon it hereunder either
directly or by or through its agents, and the General Partner
shall not be responsible for any misconduct or negligence on the
part of any such agent appointed by the General Partner in good
faith.
(c) To the extent that, at law or in equity, an Indemnitee
has duties (including fiduciary duties) and liabilities relating
thereto to the Partnership or to the Partners, the General
Partner and any other Indemnitee acting in connection with the
Partnerships business or affairs shall not be liable to
the Partnership or to any Partner for its good faith reliance on
the provisions of this Agreement.
(d) Any amendment, modification or repeal of this
Section 7.8 or any provision hereof shall be prospective
only and shall not in any way affect the limitations on the
liability of the Indemnitees under this Section 7.8 as in
effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to
matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise
or be asserted.
Section 7.9 Resolution
of Conflicts of Interest; Standards of Conduct and Modification
of Duties.
(a) Unless otherwise expressly provided in this Agreement
or any Group Member Agreement, whenever a potential conflict of
interest exists or arises between the General Partner or any of
its Affiliates, on the one hand, and the Partnership, any Group
Member or any other Partner, on the other, any resolution or
course of action by the General Partner or any of its Affiliates
in respect of such conflict of interest shall be permitted and
deemed approved by all Partners, and shall not constitute a
breach of this Agreement, of any Group Member Agreement, of any
agreement contemplated herein or therein, or of any duty
hereunder or existing at law, in equity or otherwise, if the
resolution or course of action in respect of such conflict of
interest is (i) approved by Special Approval,
(ii) approved by the vote of a majority of the Common Units
(excluding Common Units owned by the General Partner and its
Affiliates), (iii) on terms no less favorable to the
Partnership than those generally being provided to or available
from unrelated third parties or (iv) fair and reasonable to
the Partnership, taking into account the totality of the
relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous
to the Partnership). The General Partner shall be authorized but
not required in connection with its resolution of such conflict
of interest to seek Special Approval or Common Unitholder
approval of such resolution, and the General Partner may also
adopt a resolution or course of action that has not received
Special Approval or Common Unitholder approval. If Special
Approval is sought, then it shall be presumed that, in making
its decision, the Conflicts Committee acted in good faith, and
if Special Approval or Common Unitholder approval is not sought
and the Board of Directors determines that the resolution or
course of action taken with respect to a conflict of interest
satisfies either of the standards set forth in
clauses (iii) or (iv) above, then it shall be presumed
that, in making its decision, the Board of Directors acted in
good faith, and in any proceeding brought by any Partner or by
or on behalf of such Partner or any other Partner or the
Partnership challenging such approval, the Person bringing or
prosecuting such proceeding shall have the burden of overcoming
such presumption. Notwithstanding anything to the contrary in
this Agreement or any duty otherwise existing at law or equity,
the existence of the conflicts of interest described in the
Registration Statement are hereby approved by all Partners and
shall not constitute a breach of this Agreement or of any duty
hereunder or existing at law, in equity or otherwise.
(b) Whenever the General Partner, or any committee of the
Board of Directors (including the Conflicts Committee), makes a
determination or takes or declines to take any other action, or
any of its Affiliates causes the General Partner to do so, in
its capacity as the general partner of the Partnership as
opposed to in its individual capacity, whether under this
Agreement, any Group Member Agreement or any other agreement
contemplated
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hereby or otherwise, then, unless another express standard is
provided for in this Agreement, the General Partner, such
committee or such Affiliates causing the General Partner to do
so, shall make such determination or take or decline to take
such other action in good faith and shall not be subject to any
other or different standards (including fiduciary standards)
imposed by this Agreement, any Group Member Agreement, any other
agreement contemplated hereby or under the Delaware Act or any
other law, rule or regulation or at equity. In order for a
determination or other action to be in good faith
for purposes of this Agreement, the Person or Persons making
such determination or taking or declining to take such other
action must believe that the determination or other action is in
the best interests of the Partnership.
(c) Whenever the General Partner makes a determination or
takes or declines to take any other action, or any of its
Affiliates causes it to do so, in its individual capacity as
opposed to in its capacity as the general partner of the
Partnership, whether under this Agreement, any Group Member
Agreement or any other agreement contemplated hereby or
otherwise, then the General Partner, or such Affiliates causing
it to do so, are entitled, to the fullest extent permitted by
law, to make such determination or to take or decline to take
such other action free of any duty (including any fiduciary
duty) or obligation whatsoever to the Partnership, any other
Partner or any other Person bound by this Agreement, and the
General Partner, or such Affiliates causing it to do so, shall
not, to the fullest extent permitted by law, be required to act
in good faith or pursuant to any other standard imposed by this
Agreement, any Group Member Agreement, any other agreement
contemplated hereby or under the Delaware Act or any other law,
rule or regulation or at equity. By way of illustration and not
of limitation, whenever the phrases, at the option of the
General Partner, in its sole discretion or
some variation of those phrases, are used in this Agreement, it
indicates that the General Partner is acting in its individual
capacity. For the avoidance of doubt, whenever the General
Partner votes or transfers its Partnership Interests, or
refrains from voting or transferring its
Partnership Interests, it shall be acting in its individual
capacity.
(d) Notwithstanding anything to the contrary in this
Agreement, the General Partner and its Affiliates shall have no
duty or obligation, express or implied, to (i) sell or
otherwise dispose of any asset of the Partnership Group other
than in the ordinary course of business or (ii) permit any
Group Member to use any facilities or assets of the General
Partner and its Affiliates, except as may be provided in
contracts entered into from time to time specifically dealing
with such use. Any determination by the General Partner or any
of its Affiliates to enter into such contracts shall be in its
sole discretion.
(e) Except as expressly set forth in this Agreement,
neither the General Partner nor any other Indemnitee shall have
any duties or liabilities, including fiduciary duties, to the
Partnership or any Partner and the provisions of this Agreement,
to the extent that they restrict, eliminate or otherwise modify
the duties and liabilities, including fiduciary duties, of the
General Partner or any other Indemnitee otherwise existing at
law or in equity, are agreed by the Partners to replace such
other duties and liabilities of the General Partner or such
other Indemnitee.
(f) The Partners hereby authorize the General Partner, on
behalf of the Partnership as a partner or member of a Group
Member, to approve of actions by the general partner or managing
member of such Group Member similar to those actions permitted
to be taken by the General Partner pursuant to this
Section 7.9.
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 advice
or opinion (including an Opinion of Counsel) of such Persons as
to matters that the General Partner reasonably believes to be
within such Persons professional or expert competence
shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such advice or 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 or the Partnerships duly authorized officers, a
duly appointed attorney or
attorneys-in-fact.
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Section 7.11 Purchase
or Sale of Partnership Interests. The
General Partner may cause the Partnership to purchase or
otherwise acquire Partnership Interests.
Section 7.12 Registration
Rights of the General Partner and its Affiliates.
(a) If (i) the General Partner or any of its
Affiliates (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 Interests 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 Interests (the Holder) to
dispose of the number of Partnership Interests it desires
to sell at the time it desires to do so without registration
under the Securities Act, then at the option and upon the
request of the Holder, the Partnership shall file with the
Commission as promptly as practicable after receiving such
request, and use all commercially reasonable efforts to cause to
become effective and remain effective for a period of not less
than six months following its effective date or such shorter
period as shall terminate when all Partnership Interests
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 Interests
specified by the Holder; provided, however, that the aggregate
offering price of any such offering and sale of
Partnership Interests covered by such registration
statement as provided for in this Section 7.12(a) shall not
be less than $5.0 million; provided further, that the
Partnership shall not be required to effect more than two
registrations pursuant to this Section 7.12(a) in any
twelve-month period; and provided further, however that if the
General Partner determines that a postponement of the requested
registration 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
(i) promptly prepare and file (A) such documents as
may be necessary to register or qualify the securities subject
to such registration under the securities laws of such states as
the Holder shall reasonably request; provided, however, that no
such qualification shall be required in any jurisdiction where,
as a result thereof, the Partnership would become subject to
general service of process or to taxation or qualification to do
business as a foreign corporation or partnership doing business
in such jurisdiction solely as a result of such registration,
and (B) such documents as may be necessary to apply for
listing or to list the Partnership Interests subject to
such registration on such National Securities Exchange as the
Holder shall reasonably request, and (ii) do any and all
other acts and things that may be necessary or appropriate to
enable the Holder to consummate a public sale of such
Partnership Interests 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 Partnership Interests for cash (other than an offering
relating solely to a benefit plan), the Partnership shall use
all commercially reasonable efforts to include such number or
amount of Partnership Interests held by any Holder in such
registration statement as the Holder shall request; provided,
that the Partnership is not required to make any effort or take
any action to so include the Partnership Interests of the
Holder once the registration statement becomes or is declared
effective by the Commission, including any registration
statement providing for the offering from time to time of
Partnership Interests pursuant to Rule 415 of the
Securities Act. 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 that in
their opinion the inclusion of all or some of the Holders
Partnership Interests would adversely and materially affect
the timing or success of the offering, the Partnership shall
include in such offering only that number or amount, if any, of
Partnership Interests held by the Holder that, in the
opinion of the managing underwriter or managing underwriters,
will not so adversely and materially affect the offering. Except
as set forth in Section 7.12(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.
(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
Partnerships obligation under Section 7.7, the
Partnership shall, to the fullest extent permitted by
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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 Interests were
registered under the Securities Act or any state securities or
Blue Sky laws, in any preliminary prospectus or issuer free
writing prospectus as defined in Rule 433 of the Securities
Act (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 free
writing prospectus or such amendment or supplement, in reliance
upon and in conformity with written information furnished to the
Partnership by or on behalf of such Indemnified Person
specifically for use in the preparation thereof.
(d) The provisions of Sections 7.12(a) and 7.12(b)
shall continue to be applicable with respect to the General
Partner (and any of the General Partners Affiliates) after
it ceases to be the General Partner, 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 Interests 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 Interests for which registration was
demanded during such two-year period. The provisions of
Section 7.12(c) shall continue in effect thereafter.
(e) The rights to cause the Partnership to register
Partnership Interests pursuant to this Section 7.12
may be assigned (but only with all related obligations) by a
Holder to a transferee or assignee of such
Partnership Interests, provided (i) the Partnership
is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or
assignee and the Partnership Interests with respect to
which such registration rights are being assigned; and
(ii) such transferee or assignee agrees in writing to be
bound by and subject to the terms set forth in this
Section 7.12.
(f) Any request to register Partnership Interests
pursuant to this Section 7.12 shall (i) specify the
Partnership Interests intended to be offered and sold by
the Person making the request, (ii) express such
Persons present intent to offer such
Partnership Interests for distribution, (iii) describe
the nature or method of the proposed offer and sale of
Partnership Interests, and (iv) contain the
undertaking of such Person to provide all such information and
materials and take all action as may be required in order to
permit the Partnership to comply with all applicable
requirements in connection with the registration of such
Partnership Interests.
(g) The Partnership may enter into separate registration
rights agreements with the General Partner or any of its
Affiliates.
Section 7.13 Reliance
by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the
Partnership shall be entitled to assume that the General Partner
and any officer of the General Partner authorized by the General
Partner to act on behalf of and in the name of the Partnership
has full power and authority to encumber, sell or otherwise use
in any manner any and all assets of the Partnership and to enter
into any authorized contracts on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner
or any such officer as if it were the Partnerships sole
party in interest, both legally and beneficially. Each Partner
hereby waives, to the fullest extent permitted by law, any and
all defenses or other remedies that may be available to such
Partner 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
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or its representatives be obligated to ascertain that the terms
of this Agreement have been complied with or to inquire into the
necessity or expedience of any act or action of the General
Partner or any such officer or its representatives. Each and
every certificate, document or other instrument executed on
behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and
every Person relying thereon or claiming thereunder that
(a) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full
force and effect, (b) the Person executing and delivering
such certificate, document or instrument was duly authorized and
empowered to do so for and on behalf of the Partnership and
(c) such certificate, document or instrument was duly
executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
ARTICLE VIII
BOOKS,
RECORDS, ACCOUNTING AND REPORTS
Section 8.1 Records
and Accounting. The General Partner shall keep or
cause to be kept at the principal office of the Partnership
appropriate books and records with respect to the
Partnerships business, including all books and records
necessary to provide to the Partners any information required to
be provided pursuant to Section 3.4(a). Any books and
records maintained by or on behalf of the Partnership in the
regular course of its business, including the record of the
Record Holders of Units or other Partnership Interests,
books of account and records of Partnership proceedings, may be
kept on, or be in the form of, computer disks, hard drives,
magnetic tape, photographs, micrographics or any other
information storage device; provided, that the books and records
so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership
shall be maintained, for financial reporting purposes, on an
accrual basis in accordance with U.S. GAAP.
Section 8.2 Fiscal
Year. The fiscal year of the Partnership shall be
a fiscal year ending December 31.
Section 8.3 Reports.
(a) As soon as practicable, but in no event later than
105 days after the close of each fiscal year of the
Partnership, the General Partner shall cause to be mailed or
made available, by any reasonable means, to each Record Holder
of a Unit or other Partnership Interest as of a date
selected by the General Partner, an annual report containing
financial statements of the Partnership for such fiscal year of
the Partnership, presented in accordance with U.S. GAAP,
including a balance sheet and statements of operations,
Partnership equity and cash flows, such statements to be audited
by a firm of independent public accountants selected by the
General Partner.
(b) As soon as practicable, but in no event later than
50 days after the close of each Quarter except the last
Quarter of each fiscal year, the General Partner shall cause to
be mailed or made available, by any reasonable means, to each
Record Holder of a Unit or other Partnership Interest, as
of a date selected by the General Partner, a report containing
unaudited financial statements of the Partnership and such other
information as may be required by applicable law, regulation or
rule of any National Securities Exchange on which the Units are
listed or admitted to trading, or as the General Partner
determines to be necessary or appropriate.
(c) The General Partner shall be deemed to have made a
report available to each Record Holder as required by this
Section 8.3 if it has either (i) filed such report
with the Commission via its Electronic Data Gathering, Analysis
and Retrieval system and such report is publicly available on
such system or (ii) made such report available on any
publicly available website maintained by the Partnership.
ARTICLE IX
TAX MATTERS
Section 9.1 Tax
Returns and Information. The Partnership shall
timely file all returns of the Partnership that are required for
federal, state and local income tax purposes on the basis of the
accrual method and the taxable period or years that it is
required by law to adopt, from time to time, as determined by
the General Partner. In the event the Partnership is required to
use a taxable period other than a year ending on
December 31, the General
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Partner shall use reasonable efforts to change the taxable
period of the Partnership to a year ending on December 31.
The tax information reasonably required by Record Holders for
federal and state income tax reporting purposes with respect to
a taxable period shall be furnished to them within 90 days
of the close of the calendar year in which the
Partnerships taxable period ends. The classification,
realization and recognition of income, gain, losses and
deductions and other items shall be on the accrual method of
accounting for U.S. federal income tax purposes.
Section 9.2 Tax
Elections.
(a) The Partnership shall make the election under
Section 754 of the Code in accordance with applicable
regulations thereunder, subject to the reservation of the right
to seek to revoke any such election upon the General
Partners determination that such revocation is in the best
interests of the 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 Partnership Interest
will be deemed to be the lowest quoted closing price of the
Partnership Interests on any National Securities Exchange on
which such Partnership Interests are listed or admitted to
trading during the calendar month in which such transfer is
deemed to occur pursuant to Section 6.2(f) without regard
to the actual price paid by such transferee.
(b) Except as otherwise provided herein, the General
Partner shall determine whether the Partnership should make any
other elections permitted by the Code.
Section 9.3 Tax
Controversies. Subject to the provisions hereof,
the General Partner shall designate the Organizational Limited
Partner, or such other Partner as the General Partner shall
designate, as the Tax Matters Partner (as defined in the Code)
and is authorized and required to represent the Partnership (at
the Partnerships expense) in connection with all
examinations of the Partnerships affairs by tax
authorities, including resulting administrative and judicial
proceedings, and to expend Partnership funds for professional
services and costs associated therewith. Each Partner agrees to
cooperate with the Tax Matters Partner and to do or refrain from
doing any or all things reasonably required by the Tax Matters
Partner to conduct such proceedings.
Section 9.4 Withholding. Notwithstanding
any other provision of this Agreement, the General Partner is
authorized to take any action that may be required to cause the
Partnership and other Group Members to comply with any
withholding requirements established under the Code or any other
federal, state or local law including pursuant to
Sections 1441, 1442, 1445 and 1446 of the Code. To the
extent that the Partnership is required or elects to withhold
and pay over to any taxing authority any amount resulting from
the allocation or distribution of income to any Partner
(including by reason of Section 1446 of the Code), the
General Partner may treat the amount withheld as a distribution
of cash pursuant to Section 6.3 in the amount of such
withholding from such Partner.
ARTICLE X
ADMISSION OF
PARTNERS
Section 10.1 Admission
of Limited Partners.
(a) By acceptance of the transfer of any Limited Partner
Interests in accordance with this Section 10.1 or the
issuance of any Limited Partner Interests in accordance
herewith, and except as provided in Section 4.8, each
transferee or other recipient of a Limited Partner Interest
(including any nominee holder or an agent or representative
acquiring such Limited Partner Interests for the account of
another Person) (i) shall be admitted to the Partnership as
a Limited Partner with respect to the Limited Partner Interests
so transferred or issued to such Person when any such transfer
or issuance is reflected in the books and records of the
Partnership, (ii) shall become bound by the terms of, and
shall be deemed to have agreed to be bound by, this Agreement,
(iii) shall become the Record Holder of the Limited Partner
Interests so transferred or issued, (iv) represents that
the transferee or other recipient has the capacity, power and
authority to enter into this Agreement, and (v) makes the
consents, acknowledgments and waivers contained in this
Agreement, all with or without execution of this Agreement. The
transfer of any Limited Partner Interests
and/or the
admission of any new Limited Partner shall not constitute an
amendment to this Agreement. A Person may become a Record Holder
without the consent or approval of any of the Partners. A Person
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may not become a Limited Partner without acquiring a Limited
Partner Interest. The rights and obligations of a Person who is
an Ineligible Holder shall be determined in accordance with
Section 4.8.
(b) The name and mailing address of each Limited Partner
shall be listed on the books and records of the Partnership
maintained for such purpose by the General Partner or the
Transfer Agent. The General Partner shall update its books and
records from time to time as necessary to reflect accurately the
information therein (or shall cause the Transfer Agent to do so,
as applicable). A Limited Partner Interest may be represented by
a Certificate, as provided in Section 4.1.
(c) Any transfer of a Limited Partner Interest shall not
entitle the transferee to share in the profits and losses, to
receive distributions, to receive allocations of income, gain,
loss, deduction or credit or any similar item or to any other
rights to which the transferor was entitled until the transferee
becomes a Limited Partner pursuant to Section 10.1(a).
Section 10.2 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 4.5(d) 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 4.5(d), provided, however, that no such successor
shall be admitted to the Partnership until compliance with the
terms of Section 4.5(d) has occurred and such successor has
executed and delivered such other documents or instruments as
may be required to effect such admission. Any such successor
shall, subject to the terms hereof, carry on the business of the
members of the Partnership Group without dissolution.
Section 10.3 Amendment
of Agreement and Certificate of Limited
Partnership. To effect the admission to the
Partnership of any Partner, the General Partner shall take all
steps necessary 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.
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 written notice to the other Partners;
(ii) The General Partner transfers all of its rights as
General Partner pursuant to Section 4.5(d);
(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) through (C) of this
Section 11.1(a)(iv); or (E) seeks, consents to or
acquiesces in the appointment of a trustee (but not a
debtor-in-possession),
receiver or liquidator of the General Partner or of all or any
substantial part of its properties;
(v) A final and non-appealable order of relief under
Chapter 7 of the United States Bankruptcy Code is entered
by a court with appropriate jurisdiction pursuant to a voluntary
or involuntary petition by or against the General
Partner; or
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(vi) (A) in the event the General Partner is a
corporation, a certificate of dissolution or its equivalent is
filed for the General Partner, or 90 days expire after the
date of notice to the General Partner of revocation of its
charter without a reinstatement of its charter, under the laws
of its state of incorporation; (B) in the event the General
Partner is a limited liability company or a partnership, 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
Sections 11.1(a)(iv), 11.1(a)(v), 11.1(a)(vi)(A),
11.1(a)(vi)(B), 11.1(a)(vi)(C) or 11.1(a)(vi)(E) occurs, the
withdrawing General Partner shall give notice to the 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 11:59 pm, prevailing Central
Time, on March 31, 2021, the General Partner voluntarily
withdraws by giving at least 90 days advance notice
of its intention to withdraw to the 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 under the Delaware Act or cause any Group
Member to be treated as an association taxable as a corporation
or otherwise to be taxed as an entity for U.S. federal
income tax purposes (to the extent not previously so treated or
taxed); (ii) at any time after 11:59 pm, prevailing Central
Time, on March 31, 2021, the General Partner voluntarily
withdraws by giving at least 90 days advance notice
to the Partners, such withdrawal to take effect on the date
specified in such notice; (iii) at any time that the
General Partner ceases to be the General Partner pursuant to
Section 11.1(a)(ii) or is removed pursuant to
Section 11.2; or (iv) notwithstanding clause (i)
of this sentence, at any time that the General Partner
voluntarily withdraws by giving at least 90 days
advance notice of its intention to withdraw to the other
Partners, such withdrawal to take effect on the date specified
in the notice, if at the time such notice is given one Person
and its Affiliates (other than the General Partner and its
Affiliates) own beneficially or of record or control at least
50% of the Outstanding Units. The withdrawal of the General
Partner from the Partnership upon the occurrence of an Event of
Withdrawal shall also constitute the withdrawal of the General
Partner as general partner or managing member, if any, to the
extent applicable, of the other Group Members. If the General
Partner gives notice of withdrawal pursuant to
Section 11.1(a)(ii), the holders of a Unit Majority, may,
prior to the effective date of such withdrawal, elect a
successor General Partner. The Person so elected as successor
General Partner shall automatically become the successor general
partner or managing member, to the extent applicable, of the
other Group Members of which the General Partner is a general
partner or a managing member. If, prior to the effective date of
the General Partners withdrawal, a successor is not
selected by the Partners as provided herein or the Partnership
does not receive a Withdrawal Opinion of Counsel, the
Partnership shall be dissolved in accordance with
Section 12.1, unless the business of the Partnership is
continued pursuant to Section 12.2. Any successor General
Partner elected in accordance with the terms of this
Section 11.1 shall be subject to the provisions of
Section 10.2.
Section 11.2 Removal
of the General Partner. The General Partner may
be removed if such removal is approved by the Partners holding
at least
662/3%
of the Outstanding Units (including Units held by the General
Partner and its Affiliates) voting as a single class. Any such
action by such holders for removal of the General Partner must
also provide for the election of a successor General Partner by
the Partners holding a majority of the outstanding Common Units
(including Common 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 10.2. The removal of the General Partner shall
also automatically constitute the removal of the General Partner
as general partner or managing member, to the extent applicable,
of the other Group Members of which the General Partner is a
general partner or a managing member. If a Person is elected as
a successor General Partner in accordance with the terms of this
Section 11.2, such Person shall, upon admission pursuant to
Section 10.2, automatically become a successor general
partner or managing member, to the extent applicable, of the
other Group Members of which the General Partner is a general
partner or a managing member. The right of the Partners to
remove the General Partner
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shall not exist or be exercised unless the Partnership has
received an opinion opining as to the matters covered by a
Withdrawal Opinion of Counsel. Any successor General Partner
elected in accordance with the terms of this Section 11.2
shall be subject to the provisions of Section 10.2.
Section 11.3 Interest
of Departing General Partner and Successor General Partner.
(a) In the event of (i) withdrawal of the General
Partner under circumstances where such withdrawal does not
violate this Agreement or (ii) removal of the General
Partner by the Partners under circumstances where Cause does not
exist, if the successor General Partner is elected in accordance
with the terms of Section 11.1 or 11.2, the Departing
General Partner shall have the option, exercisable prior to the
effective date of the withdrawal or removal of such Departing
General Partner, to require its successor to purchase its
General Partner Interest and its or its Affiliates general
partner interest (or equivalent interest), if any, in the other
Group Members (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
withdrawal or removal. If the General Partner is removed by the
Partners 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 (or if the business of the Partnership
is continued pursuant to Section 12.2 and the successor
General Partner is not the former General Partner), such
successor shall have the option, exercisable prior to the
effective date of the departure of such Departing General
Partner (or, in the event the business of the Partnership is
continued, prior to the date the business of the Partnership is
continued), to purchase the Combined Interest for such fair
market value of such Combined Interest. In either event, the
Departing General Partner shall be entitled to receive all
reimbursements due such Departing General Partner pursuant to
Section 7.4, including any employee related liabilities
(including severance liabilities), incurred in connection with
the termination of any employees employed by the Departing
General Partner or its Affiliates (other than any Group Member)
for the benefit of the Partnership or the other Group Members.
For purposes of this Section 11.3(a), the fair market value
of the Combined Interest shall be determined by agreement
between the Departing General Partner and its successor or,
failing agreement within 30 days after the effective date
of such Departing General Partners withdrawal or removal,
by an independent investment banking firm or other independent
expert selected by the Departing General Partner and its
successor, which, in turn, may rely on other experts, and the
determination of which shall be conclusive as to such matter. If
such parties cannot agree upon one independent investment
banking firm or other independent expert within 45 days
after the effective date of such withdrawal or removal, then the
Departing General Partner shall designate an independent
investment banking firm or other independent expert, the
Departing General Partners successor shall designate an
independent investment banking firm or other independent expert,
and such firms or experts shall mutually select a third
independent investment banking firm or independent expert, which
third independent investment banking firm or other independent
expert shall determine the fair market value of the Combined
Interest. In making its determination, such third independent
investment banking firm or other independent expert may consider
the then current trading price of Units on any National
Securities Exchange on which Units are then listed or admitted
to trading, the value of the Partnerships assets, the
rights and obligations of the Departing General Partner and
other factors it may deem relevant.
(b) If the Combined Interest is not purchased in the manner
set forth in Section 11.3(a), the Departing General Partner
(or its transferee) shall become a Limited Partner and the
Combined Interest shall be converted into Common Units pursuant
to a valuation made by an investment banking firm or other
independent expert selected pursuant to Section 11.3(a),
without reduction in such partnership Interest (but subject
to proportionate dilution by reason of the admission of its
successor). Any successor General Partner shall indemnify the
Departing General Partner (or its transferee) as to all debts
and liabilities of the Partnership arising on or after the date
on which the Departing General Partner (or its transferee)
becomes a Limited Partner. For purposes of this Agreement,
conversion of the Combined Interest to Common Units will be
characterized as if the Departing General Partner (or its
Affiliates) contributed the Combined Interest to the Partnership
in exchange for the newly issued Units.
Section 11.4 Withdrawal
of Limited Partners. No Limited Partner shall
have any right to withdraw from the Partnership; provided,
however, that when a transferee of a Limited Partners
Partnership Interest becomes a
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Record Holder of the Partnership Interest so transferred,
such transferring Limited Partner shall cease to be a Limited
Partner with respect to the Partnership Interest so transferred.
ARTICLE XII
DISSOLUTION
AND LIQUIDATION
Section 12.1 Dissolution. The
Partnership shall not be dissolved by the admission of
additional Partners or by the admission of a successor General
Partner in accordance with the terms of this Agreement. Upon the
removal or withdrawal of the General Partner, if a successor
General Partner is elected pursuant to Section 11.1 or
11.2, the Partnership shall not be dissolved and such successor
General Partner shall continue the business of the Partnership.
The Partnership shall dissolve, and (subject to
Section 12.2) its affairs shall be wound up, upon:
(a) an Event of Withdrawal of the General Partner as
provided in Section 11.1(a) (other than
Section 11.1(a)(ii)), unless a successor is elected and
such successor is admitted to the Partnership pursuant to
Section 10.2;
(b) an election to dissolve the Partnership by the General
Partner that is approved by the holders of a Unit Majority;
(c) the entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Delaware
Act; or
(d) at any time there are no Limited Partners, unless the
Partnership is continued without dissolution in accordance with
the Delaware Act.
Section 12.2 Continuation
of the Business of the Partnership After
Dissolution. Upon (a) an Event of Withdrawal
caused by the withdrawal or removal of the General Partner as
provided in Sections 11.1(a)(i) or 11.1(a)(iii) and the
failure of the Partners to select a successor to such Departing
General Partner pursuant to Sections 11.1 or 11.2, then
within 90 days thereafter, or (b) an event
constituting an Event of Withdrawal as defined in
Sections 11.1(a)(iv), 11.1(a)(v) or 11.1(a)(vi), then, to
the maximum extent permitted by law, within 180 days
thereafter, a Unit Majority may elect to continue the business
of the Partnership on the same terms and conditions set forth in
this Agreement by appointing as the successor General Partner a
Person approved by a Unit Majority. Unless such an election is
made within the applicable time period as set forth above, the
Partnership shall conduct only activities necessary to wind up
its affairs. If such an election is so made, then:
(i) the Partnership shall continue without dissolution
unless earlier dissolved in accordance with this
Article XII;
(ii) if the successor General Partner is not the former
General Partner, then the interest of the former General Partner
shall be treated in the manner provided in
Section 11.3; and
(iii) the successor General Partner shall be admitted to
the Partnership as General Partner, effective as of the Event of
Withdrawal, by agreeing in writing to be bound by this Agreement;
provided, that the right of a Unit Majority to approve a
successor General Partner and to continue the business of the
Partnership shall not exist and may not be exercised unless the
Partnership has received an Opinion of Counsel that (x) the
exercise of the right would not result in the loss of the
limited liability of any Limited Partner under the Delaware Act
and (y) neither the Partnership nor any successor limited
partnership would be treated as an association taxable as a
corporation or otherwise be taxable as an entity for
U.S. federal income tax purposes upon the exercise of such
right to continue (to the extent not already so treated or
taxed).
Section 12.3 Liquidator. Upon
dissolution of the Partnership, unless the business of the
Partnership is continued pursuant to Section 12.2, the
General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the General Partner)
shall be entitled to receive such compensation for its services
as may be approved by holders of at least a majority of the
Outstanding Common Units 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
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of the Outstanding Common Units. 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. The right to approve a successor or
substitute Liquidator in the manner provided herein shall be
deemed to refer also to any such successor or substitute
Liquidator approved in the manner herein provided. Except as
expressly provided in this Article XII, the Liquidator
approved in the manner provided herein shall have and may
exercise, without further authorization or consent of any of the
parties hereto, all of the powers conferred upon the General
Partner under the terms of this Agreement (but subject to all of
the applicable limitations, contractual and otherwise, upon the
exercise of such powers, other than the limitation on sale set
forth in Section 7.3) necessary or appropriate to carry out
the duties and functions of the Liquidator hereunder for and
during the period of time required to complete the winding up
and liquidation of the Partnership as provided for herein.
Section 12.4 Liquidation. The
Liquidator shall proceed to dispose of the assets of the
Partnership, discharge its liabilities, and otherwise wind up
its affairs in such manner and over such period as determined by
the Liquidator, subject to
Section 17-804
of the Delaware Act and the following:
(a) The assets may be disposed of by public or private sale
or by distribution in kind to one or more Partners on such terms
as the Liquidator and such Partner or Partners may agree. If any
property is distributed in kind, the Partner receiving the
property shall be deemed for purposes of Section 12.4(c) to
have received cash equal to its fair market value; and
contemporaneously therewith, appropriate cash distributions must
be made to the other Partners. The Liquidator may defer
liquidation or distribution of the Partnerships assets for
a reasonable time if it determines that an immediate sale or
distribution of all or some of the Partnerships assets
would be impractical or would cause undue loss to the Partners.
The Liquidator may distribute the Partnerships assets, in
whole or in part, in kind if it determines that a sale would be
impractical or would cause undue loss to the Partners.
(b) Liabilities of the Partnership include amounts owed to
the Liquidator as compensation for serving in such capacity
(subject to the terms of Section 12.3) and amounts to
Partners otherwise than in respect of their distribution rights
under Article VI. With respect to any liability that is
contingent, conditional or unmatured or is otherwise not yet due
and payable, the Liquidator shall either settle such claim for
such amount as it thinks appropriate or establish a reserve of
cash or other assets to provide for its payment. When paid, any
unused portion of the reserve shall be distributed as additional
liquidation proceeds.
(c) All property and all cash in excess of that required to
discharge liabilities as provided in Section 12.4(b) shall
be distributed to the Partners in accordance with, and to the
extent of, the positive 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 period 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
period (or, if later, within 90 days after said date of
such occurrence).
Section 12.5 Cancellation
of Certificate of Limited Partnership. Upon the
completion of the distribution of Partnership cash and property
as provided in Section 12.4 in connection with the
liquidation of the Partnership, the Certificate of Limited
Partnership and all qualifications of the Partnership as a
foreign limited partnership in jurisdictions other than the
State of Delaware shall be canceled and such other actions as
may be necessary to terminate the Partnership shall be taken.
Section 12.6 Return
of Contributions. The General Partner shall not
be personally liable for, and shall have no obligation to
contribute or loan any monies or property to the Partnership to
enable it to effectuate, the return of the Capital Contributions
of the 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.
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ARTICLE XIII
AMENDMENT OF
PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
Section 13.1 Amendments
to be Adopted Solely by the General Partner. Each
Partner agrees that the General Partner, without the approval of
any other Partner, may amend any provision of this Agreement and
execute, swear to, acknowledge, deliver, file and record
whatever documents may be required in connection therewith, to
reflect:
(a) a change in the name of the Partnership, the location
of the principal place of business of the Partnership, the
registered agent of the Partnership or the registered office of
the Partnership;
(b) admission, substitution, withdrawal or removal of
Partners in accordance with this Agreement;
(c) a change that the General Partner determines to be
necessary or appropriate to qualify or continue the
qualification of the Partnership as a limited partnership or a
partnership in which the Limited Partners have limited liability
under the laws of any state or to ensure that the Group Members
will not be treated as associations taxable as corporations or
otherwise taxed as entities for U.S. federal income tax
purposes;
(d) a change that the General Partner determines
(i) does not adversely affect the Partners (including any
particular class of Partnership Interests as compared to
other classes of Partnership Interests) in any material
respect, (ii) to be necessary or appropriate to
(A) satisfy any requirements, conditions or guidelines
contained in any opinion, directive, order, ruling or regulation
of any federal or state agency or judicial authority or
contained in any federal or state statute (including the
Delaware Act) or (B) facilitate the trading of the Units
(including the division of any class or classes of Outstanding
Units into different classes to facilitate uniformity of tax
consequences within such classes of Units) or comply with any
rule, regulation, guideline or requirement of any National
Securities Exchange on which any class of Partnership Interests
are or will be listed or admitted to trading, (iii) to be
necessary or appropriate in connection with action taken by the
General Partner pursuant to Section 5.6 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 period of the
Partnership and any other changes that the General Partner
determines to be necessary or appropriate as a result of a
change in the fiscal year or taxable period 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
CVR Energy, Inc. or their directors, officers, trustees or
agents from in any manner being subjected to the provisions of
the Investment Company Act of 1940, as amended, the Investment
Advisers Act of 1940, as amended, or plan asset
regulations adopted under the Employee Retirement Income
Security Act of 1974, as amended, regardless of whether such are
substantially similar to plan asset regulations currently
applied or proposed by the United States Department of Labor;
(g) an amendment that the General Partner determines to be
necessary or appropriate in connection with the creation,
authorization or issuance of any class or series of Partnership
Interests or any options, rights, warrants and appreciation
rights relating to an equity interest in the Partnership
pursuant to Section 5.4;
(h) any amendment expressly permitted in this Agreement to
be made by the General Partner acting alone;
(i) an amendment effected, necessitated or contemplated by
a Merger Agreement approved in accordance with Section 14.3;
(j) an amendment that the General Partner determines to be
necessary or appropriate to reflect and account for the
formation by the Partnership of, or investment by the
Partnership in, any corporation, partnership, joint venture,
limited liability company or other entity, in connection with
the conduct by the Partnership of activities permitted by the
terms of Section 2.4;
(k) a merger or conveyance pursuant to
Section 14.3(d); or
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(l) any other amendments substantially similar to the
foregoing.
Section 13.2 Amendment
Procedures. Amendments to this Agreement may be
proposed only by the General Partner. To the fullest extent
permitted by law, the General Partner shall have no duty or
obligation to propose or approve any amendment to this Agreement
and may decline to do so in its sole discretion and, in
declining to propose or approve an amendment, to the fullest
extent permitted by law shall not be required to act in good
faith or pursuant to any other standard imposed by this
Agreement, any Group Member Agreement, any other agreement
contemplated hereby or under the Delaware Act or any other law,
rule or regulation or at equity. An amendment shall be effective
upon its approval by the General Partner and 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 Partners holding a specified Percentage
Interest 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 Partners
holding the specified Percentage Interest or call a meeting of
the Partners to consider and vote on such proposed amendment.
The General Partner shall notify all Record Holders upon final
adoption of any such proposed amendments. The General Partner
shall be deemed to have notified all Record Holders as required
by this Section 13.2 if it has either (i) filed such
amendment with the Commission via its Electronic Data Gathering,
Analysis and Retrieval system and such amendment is publicly
available on such system or (ii) made such amendment
available on any publicly available website maintained by the
Partnership.
Section 13.3 Amendment
Requirements.
(a) Notwithstanding the provisions of Sections 13.1
and 13.2, no provision of this Agreement that establishes a vote
or approval of Partners holding a specified Percentage Interest
of the Partners (or a subset of the Partners) required to take
any action shall be amended, altered, changed, repealed or
rescinded in any respect that would have the effect of, in the
case of any provision of this Agreement other than
Section 11.2 or Section 13.4, reducing such percentage
unless such amendment is approved by the written consent or the
affirmative vote of Partners whose aggregate Percentage Interest
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 Partner without its consent, unless such
shall be deemed to have occurred as a result of an amendment
approved pursuant to Section 13.3(c), or (ii) enlarge
the obligations of, restrict, change or modify 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.
(c) Except as provided in Section 14.3 or
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. If the General
Partner determines an amendment does not satisfy the
requirements of Section 13.1(d)(i) because it adversely
affects one or more classes of Partnership Interests, as
compared to other classes of Partnership Interests, in any
material respect, such amendment shall only be required to be
approved by the adversely affected class or classes.
(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 Percentage Interests of all Partners voting as
a single class unless the Partnership obtains an Opinion of
Counsel to the effect that such amendment will not affect the
limited liability of any Limited Partner under applicable
partnership law of the state under whose laws the Partnership is
organized.
(e) Except as provided in Section 13.1, this
Section 13.3 shall only be amended with the approval of
Partners (including the General Partner and its Affiliates)
holding at least 90% of the Percentage Interests of all Partners.
Section 13.4 Special
Meetings. All acts of Partners to be taken
pursuant to this Agreement shall be taken in the manner provided
in this Article XIII. Special meetings of the Partners may
be called by the General Partner or by Limited Partners owning
20% or more of the Outstanding Units of the class or classes for
which a meeting is proposed. Limited Partners shall call a
special meeting by delivering to the General Partner one or more
requests in writing stating that the signing Partners wish to
call a special meeting and indicating the general or specific
purposes
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for which the special meeting is to be called. Within
60 days after receipt of such a call from 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 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 Partnership 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 Partners
entitled to notice of or to vote at a meeting of the 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 Partnership
Interests are listed or admitted to trading or U.S. federal
securities laws, in which case the rule, regulation, guideline
or requirement of such National Securities Exchange or
U.S. federal securities laws shall govern) or (b) in
the event that approvals are sought without a meeting, the date
by which Partners are requested in writing by the General
Partner to give such approvals. If the General Partner does not
set a Record Date, then (a) the Record Date for determining
the Partners entitled to notice of or to vote at a meeting of
the Partners shall be the close of business on the day next
preceding the day on which notice is given, and (b) the
Record Date for determining the Partners entitled to give
approvals without a meeting shall be the date the first written
approval is deposited with the Partnership in care of the
General Partner in accordance with Section 13.11.
Section 13.7 Adjournment. When
a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting and a new Record Date need not
be fixed, if the time and place thereof are announced at the
meeting at which the adjournment is taken, unless such
adjournment shall be for more than 45 days. At the
adjourned meeting, the Partnership may transact any business
which might have been transacted at the original meeting. If the
adjournment is for more than 45 days or if a new Record
Date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given in accordance with this
Article XIII.
Section 13.8 Waiver
of Notice; Approval of Meeting; Approval of
Minutes. The transactions of any meeting of
Partners, however called and noticed, and whenever held, shall
be as valid as if it had occurred at a meeting duly held after
regular call and notice, if a quorum is present either in person
or by proxy. Attendance of a Partner at a meeting shall
constitute a waiver of notice of the meeting, except
(i) when the Partner attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully
called or convened and (ii) that attendance at a meeting is
not a waiver of any right to disapprove the consideration of
matters required to be included in the notice of the meeting,
but not so included, if the disapproval is expressly made at the
meeting.
Section 13.9 Quorum
and Voting. The holders of a majority, by
Percentage Interest, of the Partnership Interests of the
class or classes for which a meeting has been called (including
Partnership Interests deemed owned by the General Partner)
represented in person or by proxy shall constitute a quorum at a
meeting of Partners of such class or classes unless any such
action by the Partners requires approval by holders of a greater
Percentage Interest, in which case the quorum shall be such
greater Percentage Interest. At any meeting of the Partners duly
called and held in accordance with this Agreement at which a
quorum is present, the act of Partners holding
Partnership Interests that in the aggregate represent a
majority of the Percentage Interest of those present in person
or by proxy at such meeting shall be deemed to constitute the
act of all 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 Partners holding
Partnership Interests that in the aggregate represent at least
such greater or different percentage shall be required;
provided, however, that if, as a matter of law or amendment to
this Agreement, approval by
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plurality vote of Partners (or any class thereof) is required to
approve any action, no minimum quorum shall be required. The
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 Partners
to leave less than a quorum, if any action taken (other than
adjournment) is approved by Partners holding the required
Percentage Interest specified in this Agreement. In the absence
of a quorum any meeting of Partners may be adjourned from time
to time by the affirmative vote of Partners with at least a
majority, by Percentage Interest, of the
Partnership Interests entitled to vote at such meeting
(including Partnership 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.
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 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 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
Partners may be taken without a meeting, without a vote and
without prior notice, if an approval in writing setting forth
the action so taken is signed by Partners owning
Partnership Interests representing not less than the
minimum Percentage Interest that would be necessary to authorize
or take such action at a meeting at which all the Partners were
present and voted (unless such provision conflicts with any
rule, regulation, guideline or requirement of any National
Securities Exchange on which Partnership Interests are
listed or admitted to trading, in which case the rule,
regulation, guideline or requirement of such National Securities
Exchange shall govern). Prompt notice of the taking of action
without a meeting shall be given to the Partners who have not
approved in writing. The General Partner may specify that any
written ballot submitted to 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
Partnership Interests held by the Partners, the Partnership
shall be deemed to have failed to receive a ballot for the
Partnership Interests that were not voted. If approval of
the taking of any action by the 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 and (b) 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. Nothing contained in this Section 13.11
shall be deemed to require the General Partner to solicit all
Partners in connection with a matter approved by the requisite
percentage of Partnership Interests acting by written
consent without a meeting.
Section 13.12 Right
to Vote and Related Matters.
(a) Only those Record Holders of Partnership 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 Partners or to act with respect to matters
as to which the Partners 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 Partners shall be deemed to be references to
the votes or acts of the Record Holders of
Partnership Interests.
(b) With respect to Partnership Interests that are
held for a Persons account by another Person (such as a
broker, dealer, bank, trust company or clearing corporation, or
an agent of any of the foregoing), in whose name
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such Partnership Interests are registered, such other
Person shall, in exercising the voting rights in respect of such
Partnership Interests on any matter, and unless the
arrangement between such Persons provides otherwise, vote such
Partnership 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 or into 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.
(a) Merger or consolidation of the Partnership pursuant to
this Article XIV requires the prior consent of the General
Partner, provided, however, that, to the fullest extent
permitted by law, the General Partner shall have no duty or
obligation to consent to any merger or consolidation of the
Partnership and may decline to do so free of any fiduciary duty
or obligation whatsoever to the Partnership or any Partner and,
in declining to consent to a merger or consolidation, shall not
be required to act in good faith or pursuant to any other
standard imposed by this Agreement, any Group Member Agreement,
any other agreement contemplated hereby or under the Delaware
Act or any other law, rule or regulation or at equity.
(b) If the General Partner shall determine to consent to
the merger or consolidation, the General Partner shall approve
the Merger Agreement, which shall set forth:
(i) the names and jurisdictions of formation or
organization of each of the business entities proposing to merge
or consolidate;
(ii) the name and jurisdiction of formation or organization
of the business entity that is to survive the proposed merger or
consolidation (the Surviving Business Entity);
(iii) the terms and conditions of the proposed merger or
consolidation;
(iv) the manner and basis of exchanging or converting the
equity interests 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 equity interests 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;
(v) a statement of any changes in the constituent documents
or the adoption of new constituent documents (the articles or
certificate of incorporation, articles of trust, declaration of
trust, certificate or agreement of limited partnership or other
similar charter or governing document) of the Surviving Business
Entity to be effected by such merger or consolidation;
(vi) the effective time of the merger, which may be the
date of the filing of the certificate of merger pursuant to
Section 14.4 or a later date specified in or determinable
in accordance with the Merger Agreement (provided, that if the
effective time of the merger is to be later than the date of the
filing of the certificate of
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merger, the effective time shall be fixed no later than the time
of the filing of the certificate of merger and stated
therein); and
(vii) such other provisions with respect to the proposed
merger or consolidation that the General Partner determines to
be necessary or appropriate.
Section 14.3 Approval
by Partners of Merger or Consolidation.
(a) Except as provided in Sections 14.3(d) or 14.3(e),
the General Partner, upon its approval of the Merger Agreement,
shall direct that the Merger Agreement be submitted to a vote of
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 Sections 14.3(d) or 14.3(e),
the Merger Agreement shall be approved upon receiving the
affirmative vote or consent 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 Partners holding a greater Percentage Interest or the
vote or consent of a specified percentage of any class of
Partners, in which case such greater Percentage Interest or
percentage vote or consent shall be required for approval of the
Merger Agreement.
(c) Except as provided in Sections 14.3(d) and
14.3(e), after such approval by vote or consent of the 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, without Partner approval, to convert the Partnership
or any Group Member into a new limited liability entity, to
merge the Partnership or any Group Member into, or convey all of
the Partnerships assets to, another limited liability
entity that shall be newly formed and shall have no assets,
liabilities or operations at the time of such conversion, merger
or conveyance other than those it receives from the Partnership
or other Group Member if (i) the General Partner has
received an Opinion of Counsel that the conversion, merger or
conveyance, as the case may be, would not result in the loss of
the limited liability of any Limited Partner or any Group Member
under the Delaware Act or cause the Partnership or any Group
Member to be treated as an association taxable as a corporation
or otherwise to be taxed as an entity for U.S. federal
income tax purposes (to the extent not already treated as such),
(ii) the sole purpose of such conversion, merger or
conveyance is to effect a mere change in the legal form of the
Partnership into another limited liability entity and
(iii) the governing instruments of the new entity provide
the Partners with the same rights and obligations as are herein
contained.
(e) Additionally, notwithstanding anything else contained
in this Article XIV or in this Agreement, the General
Partner is permitted, without Partner approval, to merge or
consolidate the Partnership with or into another entity if
(A) the General Partner has received an Opinion of Counsel
that the merger or consolidation, as the case may be, would not
result in the loss of the limited liability under the Delaware
Act of any Limited Partner or cause the Partnership to be
treated as an association taxable as a corporation or otherwise
to be taxed as an entity for U.S. federal income tax
purposes (to the extent not already treated as such),
(B) the merger or consolidation would not result in an
amendment to this Agreement, other than any amendments that
could be adopted pursuant to Section 13.1, (C) the
Partnership is the Surviving Business Entity in such merger or
consolidation, (D) each Partnership Interest
outstanding immediately prior to the effective date of the
merger or consolidation is to be an identical
Partnership Interest of the Partnership after the effective
date of the merger or consolidation, and (E) the number of
Partnership Interests to be issued by the Partnership in
such merger or consolidation does not exceed 20% of the
Partnership Interests Outstanding immediately prior to the
effective date of such merger or consolidation.
Section 14.4 Certificate
of Merger. Upon the required approval by the
General Partner and the Partners 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 Amendment
of Partnership Agreement. Pursuant to
Section 17-211(g)
of the Delaware Act, an agreement of merger or consolidation
approved in accordance with this Article XIV may
(a) effect any amendment to this Agreement or
(b) effect the adoption of a new partnership agreement for
the Partnership if it is
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the Surviving Business Entity. Any such amendment or adoption
made pursuant to this Section 14.5 shall be effective at
the effective time or date of the merger or consolidation.
Section 14.6 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.
(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 the General Partner and its Affiliates hold more
than % of the total Limited Partner
Interests of any class then Outstanding, the General Partner
shall then have the right, which right it may assign and
transfer in whole or in part to the Partnership or any Affiliate
of the General Partner, exercisable 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.
(b) If the General Partner, any Affiliate of the General
Partner or the Partnership elects to exercise the right to
purchase Limited Partner Interests granted pursuant to
Section 15.1(a), the General Partner shall deliver to the
Transfer Agent notice of such election to purchase (the
Notice of Election to Purchase) and
shall cause the Transfer Agent to mail a copy of such Notice of
Election to Purchase to the Record Holders of Limited Partner
Interests of such class (as of a Record Date selected by the
General Partner) at least 10, but not more than 60, days
prior to the Purchase Date. Such Notice of Election to Purchase
shall also be published for a period of at least three
consecutive days in at least two daily newspapers of general
circulation printed in the English language and circulated 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 (in the case of Limited
Partner Interests evidenced by Certificates), 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
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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 (in the case of Limited Partner Interests
evidenced by Certificates), 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).
ARTICLE XVI
GENERAL
PROVISIONS
Section 16.1 Addresses
and Notices. Any notice, demand, request, report
or proxy materials required or permitted to be given or made to
a Partner under this Agreement shall be in writing and shall be
deemed given or made when delivered in person or when sent by
first class United States mail or by other means of written
communication to the Partner at the address described below.
Any notice, payment or report to be given or made to a Partner
hereunder shall be deemed conclusively to have been given or
made, and the obligation to give such notice or report or to
make such payment shall be deemed conclusively to have been
fully satisfied, upon sending of such notice, payment or report
to the Record Holder of such Partnership Interests at his
address as shown on the records of the Transfer Agent or as
otherwise shown on the records of the Partnership, regardless of
any claim of any Person who may have an interest in such
Partnership Interests by reason of any assignment or
otherwise.
Notwithstanding the foregoing, if (i) a Partner shall
consent to receiving notices, demands, requests, reports or
proxy materials via electronic mail or by the Internet or
(ii) the rules of the Commission shall permit any report or
proxy materials to be delivered electronically or made available
via the Internet, any such notice, demand, request, report or
proxy materials shall be deemed given or made when delivered or
made available via such mode of delivery.
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 given or made in accordance with
the provisions of this Section 16.1 is returned marked to
indicate that such notice, payment or report was unable to be
delivered, such notice, payment or report and, in the case of
notices, payments or reports returned by the United States
Postal Service (or other physical mail delivery mail service
outside the United States of America), 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) or other delivery if
they are available for the Partner at the principal office of
the Partnership for a period of one year from the date of the
giving or making of such notice, payment or report to the other
Partners. Any notice to the Partnership shall be deemed given if
received by the General Partner at the principal office of the
Partnership designated pursuant to Section 2.3. The General
Partner may rely and shall be protected in relying on any notice
or other document from a Partner or other Person if believed by
it to be genuine.
The terms in writing, written
communications, written notice and words of
similar import shall be deemed satisfied under this Agreement by
use of
e-mail and
other forms of electronic communication.
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Section 16.2 Further
Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from
taking action as may be necessary or appropriate to achieve the
purposes of this Agreement.
Section 16.3 Binding
Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs,
executors, administrators, successors, legal representatives and
permitted assigns.
Section 16.4 Integration. This
Agreement constitutes the entire agreement among the parties
hereto pertaining to the subject matter hereof and supersedes
all prior agreements and understandings pertaining thereto.
Section 16.5 Creditors. None
of the provisions of this Agreement shall be for the benefit of,
or shall be enforceable by, any creditor of the Partnership.
Section 16.6 Waiver. No
failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof
shall constitute waiver of any such breach of any other
covenant, duty, agreement or condition.
Section 16.7 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
Partnership Interest, pursuant to Section 10.1(a)
without execution hereof.
Section 16.8 Applicable
Law; Forum, Venue and Jurisdiction.
(a) 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.
(b) Each of the Partners and each Person holding any
beneficial interest in the Partnership (whether through a
broker, dealer, bank, trust company or clearing corporation or
an agent of any of the foregoing or otherwise):
(i) irrevocably agrees that any claims, suits, actions or
proceedings (A) arising out of or relating in any way to
this Agreement (including any claims, suits or actions to
interpret, apply or enforce the provisions of this Agreement or
the duties, obligations or liabilities among Partners or of
Partners to the Partnership, or the rights or powers of, or
restrictions on, the Partners or the Partnership),
(B) brought in a derivative manner on behalf of the
Partnership, (C) asserting a claim of breach of a fiduciary
duty owed by any director, officer, or other employee of the
Partnership or the General Partner, or owed by the General
Partner, to the Partnership or the Partners, (D) asserting
a claim arising pursuant to any provision of the Delaware Act or
(E) asserting a claim governed by the internal affairs
doctrine shall be exclusively brought in the Court of Chancery
of the State of Delaware, in each case regardless of whether
such claims, suits, actions or proceedings sound in contract,
tort, fraud or otherwise, are based on common law, statutory,
equitable, legal or other grounds, or are derivative or direct
claims;
(ii) irrevocably submits to the exclusive jurisdiction of
the Court of Chancery of the State of Delaware in connection
with any such claim, suit, action or proceeding; and
(iii) agrees not to, and waives any right to, assert in any
such claim, suit, action or proceeding that (A) it is not
personally subject to the jurisdiction of the Court of Chancery
of the State of Delaware or of any other court to which
proceedings in the Court of Chancery of the State of Delaware
may be appealed, (B) such claim, suit, action or proceeding
is brought in an inconvenient forum, or (C) the venue of
such claim, suit, action or proceeding is improper,
(iv) expressly waives any requirement for the posting of a
bond by a party bringing such claim, suit, action or proceeding,
and (v) consents to process being served in any such claim,
suit, action or proceeding by mailing, certified mail, return
receipt requested, a copy thereof to such party at the address
in effect for notices hereunder, and agrees that such services
shall constitute good and sufficient service of process and
notice thereof; provided, nothing in clause (v) hereof
shall affect or limit any right to serve process in any other
manner permitted by law.
Section 16.9 Invalidity
of Provisions. If any provision or part of a
provision of this Agreement is or becomes, for any reason,
invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions and part
thereof contained herein shall not be affected thereby, and this
Agreement shall,
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to the fullest extent permitted by law, be reformed and
construed as if such invalid, illegal or unenforceable
provision, or part of a provision, had never been contained
herein, and such provision or part reformed so that it would be
valid, legal and enforceable to the maximum extent possible.
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.
Section 16.11 Facsimile
Signatures. The use of facsimile signatures
affixed in the name and on behalf of the transfer agent and
registrar of the Partnership on Certificates representing Units
is expressly permitted by this Agreement.
Section 16.12 Third
Party Beneficiaries. Each Partner agrees that
(a) any Indemnitee shall be entitled to assert rights and
remedies hereunder as a third-party beneficiary hereto with
respect to those provisions of this Agreement affording a right,
benefit or privilege to such Indemnitee, (b) any
Unrestricted Person shall be entitled to assert rights and
remedies hereunder as a third-party beneficiary hereto with
respect to those provisions of this Agreement affording a right,
benefit or privilege to such Unrestricted Person and
(c) Goldman, Sachs & Co., Kelso &
Company, L.P. and their respective Affiliates and successors and
assigns shall be entitled to assert rights and remedies
hereunder as a third-party beneficiary hereto with respect to
Section 7.5(g).
[REMAINDER
OF THIS PAGE INTENTIONALLY LEFT BLANK.]
A-50
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
GENERAL PARTNER:
CVR GP, LLC
Name:
COFFEYVILLE RESOURCES, LLC
Name:
Signature
Page to the
Second Amended and Restated Partnership Agreement
of
CVR Partners, LP
A-51
EXHIBIT A
to the Second Amended and Restated
Agreement of Limited Partnership of
CVR Partners, LP
Certificate
Evidencing Common Units
Representing Limited Partner Interests in
CVR Partners, LP
In accordance with Section 4.1 of the Second Amended and
Restated Agreement of Limited Partnership of CVR Partners, LP,
as amended, supplemented or restated from time to time (the
Partnership Agreement), CVR Partners,
LP, a Delaware limited partnership (the
Partnership), hereby certifies that
(the Holder) is the registered owner
of
Common Units representing limited partner interests in the
Partnership (the Common Units)
transferable on the books of the Partnership, in person or by
duly authorized attorney, upon surrender of this Certificate
properly endorsed. The rights, preferences and limitations of
the Common Units are set forth in, and this Certificate and the
Common Units represented hereby are issued and shall in all
respects be subject to the terms and provisions of, the
Partnership Agreement. Copies of the Partnership Agreement are
on file at, and will be furnished without charge on delivery of
written request to the Partnership at, the principal office of
the Partnership located at 2277 Plaza Drive, Suite 500,
Sugar Land, Texas 77479. Capitalized terms used herein but
not defined shall have the meanings given them in the
Partnership Agreement.
THE HOLDER OF THIS SECURITY ACKNOWLEDGES FOR THE BENEFIT OF CVR
PARTNERS, LP THAT THIS SECURITY MAY NOT BE SOLD, OFFERED,
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IF SUCH TRANSFER WOULD
(A) VIOLATE THE THEN APPLICABLE FEDERAL OR STATE SECURITIES
LAWS OR RULES AND REGULATIONS OF THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY
OTHER GOVERNMENTAL AUTHORITY WITH JURISDICTION OVER SUCH
TRANSFER, (B) TERMINATE THE EXISTENCE OR QUALIFICATION OF
CVR PARTNERS, LP UNDER THE LAWS OF THE STATE OF DELAWARE, OR
(C) CAUSE CVR PARTNERS, LP TO BE TREATED AS AN ASSOCIATION
TAXABLE AS A CORPORATION OR OTHERWISE TO BE TAXED AS AN ENTITY
FOR FEDERAL INCOME TAX PURPOSES (TO THE EXTENT NOT ALREADY SO
TREATED OR TAXED). CVR GP LLC, THE GENERAL PARTNER OF CVR
PARTNERS, LP, MAY IMPOSE ADDITIONAL RESTRICTIONS ON THE TRANSFER
OF THIS SECURITY IF IT RECEIVES AN OPINION OF COUNSEL THAT SUCH
RESTRICTIONS ARE NECESSARY TO AVOID A SIGNIFICANT RISK OF CVR
PARTNERS, LP BECOMING TAXABLE AS A CORPORATION OR OTHERWISE
BECOMING TAXABLE AS AN ENTITY FOR FEDERAL INCOME TAX PURPOSES.
THE RESTRICTIONS SET FORTH ABOVE SHALL NOT PRECLUDE THE
SETTLEMENT OF ANY TRANSACTIONS INVOLVING THIS SECURITY ENTERED
INTO THROUGH THE FACILITIES OF ANY NATIONAL SECURITIES EXCHANGE
ON WHICH THIS SECURITY IS LISTED OR ADMITTED TO TRADING.
The Holder, by accepting this Certificate, is deemed to have
(i) requested admission as, and agreed to become, a Limited
Partner and to have agreed to comply with and be bound by and to
have executed the Partnership Agreement, (ii) represented
and warranted that the Holder has all right, power and authority
and, if an individual, the capacity necessary to enter into the
Partnership Agreement and (iii) made the waivers and given
the consents and approvals contained in the Partnership
Agreement.
A-52
This Certificate shall not be valid for any purpose unless it
has been countersigned and registered by the Transfer Agent and
Registrar. This Certificate shall be governed by and construed
in accordance with the laws of the State of Delaware.
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Dated:
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CVR Partners, LP
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Countersigned and Registered by:
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By: CVR GP LLC
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[Transfer Agent],
As Transfer Agent and Registrar
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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A-53
[Reverse of
Certificate]
ABBREVIATIONS
The following abbreviations, when used in the inscription on the
face of this Certificate, shall be construed as follows
according to applicable laws or regulations:
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TEN COM as tenants in common
TEN ENT as tenants by the entireties
JT TEN as joint tenants with right of survivorship
and not as tenants in common
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UNIF GIFT/TRANSFERS MIN ACT
Custodian
(Cust) (Minor)
Under Uniform Gifts/Transfers to CD Minors Act (State)
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Additional abbreviations, though not in the above list, may also
be used.
ASSIGNMENT
OF COMMON UNITS OF
CVR PARTNERS, LP
FOR VALUE RECEIVED,
hereby assigns, conveys, sells and transfers unto
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(Please
print or typewrite name and address of assignee)
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(Please
insert Social Security or other identifying number of assignee)
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Common Units representing limited partner interests evidenced by
this Certificate, subject to the Partnership Agreement, and does
hereby irrevocably constitute and appoint
as its
attorney-in-fact
with full power of substitution to transfer the same on the
books of CVR Partners, LP
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Date:
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NOTE: The signature to any endorsement hereon must correspond
with the name as written upon the face of this Certificate in
every particular. without alteration, enlargement or change.
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THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C.
RULE 17Ad-15
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(Signature)
(Signature)
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No transfer of the Common Units evidenced hereby will be
registered on the books of the Partnership, unless the
Certificate evidencing the Common Units to be transferred is
surrendered for registration or transfer.
A-54
Appendix B
GLOSSARY
OF SELECTED TERMS
The following are definitions of certain terms used in this
prospectus.
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Acquisition |
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The acquisition of Predecessor on June 24, 2005 by
Coffeyville Acquisition LLC, an entity controlled by the Goldman
Sachs Funds and the Kelso Funds at that time. |
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Blue Johnson |
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Blue, Johnson & Associates, Inc. |
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capacity |
|
Capacity is defined as the throughput a process unit is capable
of sustaining, either on a calendar or stream day basis. The
throughput may be expressed in terms of maximum sustainable,
nameplate or economic capacity. The maximum sustainable or
nameplate capacities may not be the most economical. The
economic capacity is the throughput that generally provides the
greatest economic benefit based on considerations such as
feedstock costs, product values and downstream unit constraints. |
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catalyst |
|
A substance that alters, accelerates, or instigates chemical
changes, but is neither produced, consumed nor altered in the
process. |
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Coffeyville Acquisition III |
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Coffeyville Acquisition III LLC, the owner of CVR GP, LLC
prior to the Transactions, which is owned by the Goldman Sachs
Funds, the Kelso Funds and certain members of CVR Energys
senior management team. |
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Coffeyville Resources |
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Coffeyville Resources, LLC, the subsidiary of CVR Energy which
was our sole limited partner prior to this offering and which
will directly own our general partner and common units following
the Transactions. |
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corn belt |
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The primary corn producing region of the United States, which
includes Illinois, Indiana, Iowa, Minnesota, Missouri, Nebraska,
Ohio and Wisconsin. |
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CVR Energy |
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CVR Energy, Inc., a publicly traded company listed on the New
York Stock Exchange under the ticker symbol CVI,
which following this offering will indirectly own our general
partner. |
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ethanol |
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A clear, colorless, flammable oxygenated hydrocarbon. Ethanol is
typically produced chemically from ethylene, or biologically
from fermentation of various sugars from carbohydrates found in
agricultural crops and cellulosic residues from crops or wood.
It is used in the United States as a gasoline octane enhancer
and oxygenate. |
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farm belt |
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Refers to the states of Illinois, Indiana, Iowa, Kansas,
Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma,
South Dakota, Texas and Wisconsin. |
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feedstocks |
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Petroleum products, such as crude oil and natural gas liquids,
that are processed and blended into refined products, such as
gasoline, diesel fuel and jet fuel, that are produced by a
refinery. |
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general partner |
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CVR GP, LLC, our general partner which, following the
Transactions, will be a wholly-owned subsidiary of Coffeyville
Resources. |
B-1
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MMbtu |
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One million British thermal units: a measure of energy. One Btu
of heat is required to raise the temperature of one pound of
water one degree Fahrenheit. |
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the Partnership |
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We, us and our refer to our business, which is referred to in
our financial statements as (1) Predecessor from
January 1, 2005 until June 24, 2005 and
(2) Successor for all periods thereafter, unless the
context otherwise requires or as otherwise indicated. |
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pet coke |
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A coal-like substance that is produced during the refining
process. |
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plant gate price |
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The unit price of fertilizer, in dollars per ton, offered on a
delivered basis, and excluding shipment costs. |
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Predecessor |
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Coffeyville Resources Nitrogen Fertilizers, LLC, the subsidiary
of Coffeyville Group Holdings, LLC that held our business
between March 3, 2004 and June 24, 2005. |
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recordable incident |
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An injury, as defined by OSHA. All work-related deaths and
illnesses, and those work-related injuries which result in loss
of consciousness, restriction of work or motion, transfer to
another job, or require medical treatment beyond first aid. |
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slag |
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A glasslike substance removed from the gasifier containing the
metal impurities originally present in pet coke. |
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slurry |
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A byproduct of the fluid catalytic cracking process that is sold
for further processing or blending with fuel oil. |
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spot market |
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A market in which commodities are bought and sold for cash and
delivered immediately. |
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Successor |
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(1) Coffeyville Resources Nitrogen Fertilizers, LLC from
June 24, 2005 through October 23, 2007 and
(2) CVR Partners, LP and its consolidated subsidiary,
Coffeyville Resources Nitrogen Fertilizers, LLC, on and after
October 24, 2007. |
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syngas |
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A mixture of gases (largely carbon monoxide and hydrogen) that
results from heating coal in the presence of steam. |
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throughput |
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The volume processed through a unit or a refinery. |
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ton |
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One ton is equal to 2,000 pounds. |
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turnaround |
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A periodically required standard procedure to refurbish and
maintain a facility that involves the shutdown and inspection of
major processing units. |
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UAN |
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UAN is an aqueous solution of urea and ammonium nitrate used as
a fertilizer. |
B-2
Until ,
2011 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common units, whether or not
participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
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Item 13.
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Other
Expenses of Issuance and Distribution.
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The following table sets forth the costs and expenses to be paid
by the Registrant in connection with the sale of the common
units representing limited partner interests being registered
hereby. All amounts are estimates except for the SEC
registration fee, the Financial Industry Regulatory Authority,
or FINRA, filing fee and The New York Stock Exchange listing fee.
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SEC registration fee
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$
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20,065
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FINRA filing fee
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25,500
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The New York Stock Exchange listing fee
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200,000
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Accounting fees and expenses
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500,000
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Legal fees and expenses
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2,300,000
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Printing and engraving expenses
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850,000
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Transfer agent and registrar fees and expenses
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25,000
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Miscellaneous expenses
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79,435
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Total
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$
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4,000,000
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Item 14.
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Indemnification
of Directors and Officers.
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The section of the prospectus entitled The Partnership
Agreement Indemnification is incorporated
herein by reference and discloses that we will generally
indemnify the directors and officers of our general partner and
CVR Energy to the fullest extent permitted by law against all
losses, claims, damages or similar events. Subject to any terms,
conditions or restrictions set forth in the second amended and
restated partnership agreement,
Section 17-108
of the Delaware Revised Uniform Limited Partnership Act empowers
a Delaware limited partnership to indemnify and hold harmless
any partner or other person from and against all claims and
demands whatsoever.
Section 18-108
of the Delaware Limited Liability Company Act provides that a
Delaware limited liability company may indemnify and hold
harmless any member or manager or other person from and against
any and all claims and demands whatsoever. The limited liability
company agreement of CVR GP, LLC, our general partner, provides
for the indemnification of its directors and officers against
liabilities they incur in their capacities as such. The
Registrant may enter into indemnity agreements with each of its
current directors and officers to give these directors and
officers additional contractual assurances regarding the scope
of the indemnification set forth in the Registrants
limited liability company agreement and to provide additional
procedural protections.
The underwriting agreement that we expect to enter into with the
underwriters, to be filed as Exhibit 1.1 to this
registration statement, will contain indemnification and
contribution provisions.
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Item 15.
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Recent
Sales of Unregistered Securities.
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In October 2007, we issued 30,303,000 special general partner
units to CVR Special GP, LLC (a subsidiary of Coffeyville
Resources, LLC), 30,333 special limited partner units to
Coffeyville Resources, LLC, and the general partner interest to
CVR GP, LLC (a subsidiary of Coffeyville Resources, LLC at that
time). In consideration for these issuances, Coffeyville
Resources, LLC transferred to us all of the LLC interests in
Coffeyville Resources Nitrogen Fertilizers, LLC, which owned CVR
Energys nitrogen fertilizer business. These issuances were
exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended. Immediately prior to the
closing of this offering, as a result of the amendment and
restatement CVR Partners, LPs partnership agreement, the
special general partner units and special limited partner units
will be converted into common units.
II-1
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Item 16.
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Exhibits
and Financial Statement Schedules.
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(a) The following exhibits are filed herewith:
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Number
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Exhibit Title
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1
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.1*
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Form of Underwriting Agreement.
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3
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.1*
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Form of Amended and Restated Certificate of Limited Partnership
of CVR Partners, LP.
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3
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.2*
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Form of Second Amended and Restated Agreement of Limited
Partnership of CVR Partners, LP (incorporated by reference to
Appendix A to the Prospectus contained within the
Registrants Registration Statement on Form S-1).
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3
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.3
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Certificate of Formation of CVR GP, LLC.
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3
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.4*
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Form of Third Amended and Restated Limited Liability Company
Agreement of CVR GP, LLC.
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4
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.1*
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Specimen certificate for the common units (incorporated by
reference to Appendix A to the Prospectus contained within
the Registrants Registration Statement on Form S-1).
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5
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.1*
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Opinion of Fried, Frank, Harris, Shriver & Jacobson
LLP as to the legality of the securities being registered.
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8
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.1**
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Form of opinion of Vinson & Elkins L.L.P. relating to
tax matters.
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10
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.1
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License Agreement For Use of the Texaco Gasification Process,
Texaco Hydrogen Generation Process, and Texaco Gasification
Power Systems, dated as of May 30, 1997 by and between
Texaco Development Corporation and Farmland Industries, Inc., as
amended (certain portions of this exhibit have been omitted
pursuant to a request for confidential treatment).
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10
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.2
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Amended and Restated
On-Site
Product Supply Agreement dated as of June 1, 2005, between
Linde, Inc. (f/k/a The BOC Group, Inc.) and Coffeyville
Resources Nitrogen Fertilizers, LLC (certain portions of this
exhibit have been omitted pursuant to a request for confidential
treatment).
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10
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.2.1
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First Amendment to Amended and Restated On-Site Product Supply
Agreement, dated as of October 31, 2008, between Coffeyville
Resources Nitrogen Fertilizers, LLC and Linde, Inc.
(incorporated by reference to Exhibit 10.3 of the Form 10-Q
filed by CVR Energy, Inc. on November 13, 2008).
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10
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.3
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Amended and Restated Electric Services Agreement dated
August 1, 2010, between Coffeyville Resources Nitrogen
Fertilizers, LLC and the City of Coffeyville, Kansas
(incorporated by reference to Exhibit 10.1 of the
Form 8-K
filed by CVR Energy, Inc. on August 25, 2010).
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10
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.4
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Coke Supply Agreement, dated as of October 25, 2007, by and
between Coffeyville Resources Refining & Marketing,
LLC and Coffeyville Resources Nitrogen Fertilizers, LLC
(incorporated by reference to Exhibit 10.5 of the
Form 10-Q
filed by CVR Energy, Inc. on December 6, 2007).
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10
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.5*
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Form of Amended and Restated Cross Easement Agreement by and
between Coffeyville Resources Refining & Marketing,
LLC and Coffeyville Resources Nitrogen Fertilizers, LLC.
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10
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.6
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Environmental Agreement, dated as of October 25, 2007, by
and between Coffeyville Resources Refining &
Marketing, LLC and Coffeyville Resources Nitrogen Fertilizers,
LLC (incorporated by reference to Exhibit 10.7 of the
Form 10-Q
filed by CVR Energy, Inc. on December 6, 2007).
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10
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.6.1
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Supplement to Environmental Agreement, dated as of February 15,
2008, by and between Coffeyville Resources Refining and
Marketing, LLC and Coffeyville Resources Nitrogen Fertilizers,
LLC (incorporated by reference to Exhibit 10.17.1 of the Form
10-K filed by CVR Energy, Inc. on March 28, 2008).
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10
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.6.2
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Second Supplement to Environmental Agreement, dated as of July
23, 2008, by and between Coffeyville Resources Refining and
Marketing, LLC and Coffeyville Resources Nitrogen Fertilizers,
LLC (incorporated by reference to Exhibit 10.1 of the Form 10-Q
filed by CVR Energy, Inc. on August 14, 2008).
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10
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.7*
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Form of Amended and Restated Feedstock and Shared Services
Agreement by and between Coffeyville Resources
Refining & Marketing, LLC and Coffeyville Resources
Nitrogen Fertilizers, LLC.
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10
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.8
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Raw Water and Facilities Sharing Agreement, dated as of
October 25, 2007, by and between Coffeyville Resources
Refining & Marketing, LLC and Coffeyville Resources
Nitrogen Fertilizers, LLC (incorporated by reference to
Exhibit 10.9 of the
Form 10-Q
filed by CVR Energy, Inc. on December 6, 2007).
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10
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.9*
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Form of Amended and Restated Services Agreement by and among CVR
Partners, LP, CVR GP, LLC, and CVR Energy, Inc.
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II-2
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Number
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Exhibit Title
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10
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.10*
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Form of Amended and Restated Omnibus Agreement by and among CVR
Energy, Inc., CVR GP, LLC, and CVR Partners, LP.
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10
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.11*
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Form of Amended and Restated Registration Rights Agreement by
and among the CVR Partners, LP and Coffeyville Resources, LLC.
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10
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.12*
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Form of Amended and Restated Contribution, Conveyance and
Assumption Agreement, by and among Coffeyville Resources, LLC,
CVR GP, LLC, CVR Special GP, LLC, CVR Partners, LP and
Coffeyville Acquisition III LLC.
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10
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.13*
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CVR Partners, LP Long-Term Incentive Plan.
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10
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.13.1*
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Form of Director Phantom Unit Agreement
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10
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.13.2*
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Form Director Stock Option Agreement
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10
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.14**
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Form of Credit and Guaranty Agreement among Coffeyville
Resources Nitrogen Fertilizers, LLC, CVR Partners, LP, certain
subsidiaries of holdings party thereto, lenders party thereto,
and Goldman Sachs Lending Partners LLC.
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10
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.15
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Third Amended and Restated Employment Agreement, dated as of
January 1, 2011, by and between CVR Energy, Inc. and Edmund
S. Gross.
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10
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.16
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Third Amended and Restated Employment Agreement, dated as of
January 1, 2011, by and between CVR Energy, Inc. and John
J. Lipinski.
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10
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.17
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Second Amended and Restated Employment Agreement, dated as of
January 1, 2011, by and between CVR Energy, Inc. and Edward
Morgan.
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10
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.18
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Third Amended and Restated Employment Agreement, dated as of
January 1, 2011, by and between CVR Energy, Inc. and
Stanley A. Riemann.
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10
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.19
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Third Amended and Restated Employment Agreement, dated as of
January 1, 2011, by and between CVR Energy, Inc. and Kevan
A. Vick.
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21
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.1
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List of Subsidiaries of CVR Partners, LP.
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23
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.1*
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Consent of KPMG LLP.
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23
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.2*
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Consent of Fried, Frank, Harris, Shriver & Jacobson
LLP (included in Exhibit 5.1).
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23
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.3**
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Consent of Vinson & Elkins L.L.P. (included in
Exhibit 8.1).
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23
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.4
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Consent of Blue, Johnson & Associates, Inc.
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23
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.5
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Consent of BNA Subsidiaries, LLC (d/b/a Pike & Fisher).
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24
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.1
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Power of Attorney.
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* |
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Included with this filing. |
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** |
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To be provided by amendment. |
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Denotes management contract or compensatory plan or arrangement. |
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(b) |
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None. |
The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described in Item 14 above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a
II-3
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was
declared effective; and
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
The Registrant undertakes to send to each limited partner at
least on an annual basis a detailed statement of any
transactions with CVR GP, LLC, our general partner, or any of
its affiliates, and of fees, commissions, compensation and other
benefits paid, or accrued to, CVR GP, LLC or its affiliates for
the fiscal year completed, showing the amount paid or accrued to
each recipient and the services performed.
The Registrant undertakes to provide to the limited partners the
financial statements required by
Form 10-K
for the first full fiscal year of operations of the Partnership.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized in Sugar Land, Texas, on this 16th day of March,
2011.
CVR PARTNERS, LP
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|
|
|
By:
|
CVR GP, LLC, its
managing general partner
|
John J. Lipinski
Chairman of the Board, Chief Executive Officer and
President of CVR GP, LLC
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ John
J. Lipinski
John
J. Lipinski
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Chairman of the Board, Chief Executive Officer and President of
CVR GP, LLC (Principal Executive Officer)
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March 16, 2011
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/s/ Edward
A. Morgan
Edward
A. Morgan
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Chief Financial Officer and Treasurer of CVR GP, LLC (Principal
Financial and Accounting Officer)
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March 16, 2011
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*
Donna
R. Ecton
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Director of CVR GP, LLC
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March 16, 2011
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*
Scott
L. Lebovitz
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Director of CVR GP, LLC
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March 16, 2011
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*
George
E. Matelich
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Director of CVR GP, LLC
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March 16, 2011
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Frank
M. Muller, Jr.
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Director of CVR GP, LLC
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March 16, 2011
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Stanley
de J. Osborne
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Director of CVR GP, LLC
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March 16, 2011
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John
K. Rowan
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Director of CVR GP, LLC
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March 16, 2011
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*By:
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/s/ John
J. Lipinski
John
J. Lipinski
As Attorney-in-Fact
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II-5
exv1w1
Exhibit 1.1
CVR Partners, LP
[l] Common Units
Representing Limited Partner Interests
Underwriting Agreement
[l], 2011
Morgan Stanley & Co. Incorporated
Barclays Capital Inc.
Goldman, Sachs & Co.
As
representatives of the several Underwriters
named in Schedule I hereto,
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
CVR Partners, LP, a Delaware limited partnership (the Company), proposes, subject to the
terms and conditions stated herein, to issue and sell to the Underwriters named in Schedule I
hereto (the Underwriters), for whom Morgan Stanley & Co. Incorporated, Barclays Capital Inc. and
Goldman, Sachs & Co. (collectively, the Representatives) are acting as representatives, an
aggregate of [l] common units (the Firm LP Units) representing limited partner
interests in the Company (the Common Units), and, at the election of the Underwriters, up to
[l] Common Units (the Optional LP Units). The Firm LP Units and the Optional LP
Units that the Underwriters elect to purchase pursuant to Section 2 hereof are collectively called
the LP Units.
The Company, Coffeyville Resources Nitrogen Fertilizers, LLC, a Delaware limited liability
company and a direct wholly-owned subsidiary of the Company (Operating LLC), and Coffeyville
Resources, LLC, a Delaware limited liability company (Coffeyville Resources), hereby confirm
their agreement with the several Underwriters as set forth below. Concurrently with the First Time
of Delivery (as defined in Section 4 hereof), CVR GP, LLC, a Delaware limited liability company
(Managing GP), will enter into a joinder agreement to this Agreement, the form of which is
attached hereto as Annex II (the Joinder Agreement), pursuant to which Managing GP will become a
party to this Agreement and be considered a CVR Party (as defined below) to the same extent as if
it had executed this Agreement on the date hereof. The Company, Operating LLC, Coffeyville
Resources and, upon the execution and delivery of the Joinder
Agreement, Managing GP are collectively referred to herein as the CVR Parties and each
individually as a CVR Party.
This is to confirm the agreement concerning the purchase of the LP Units from the Company by
the Underwriters.
In connection with the sale of the LP Units hereunder, the Company and its affiliates will
enter into a series of transactions described in the Registration Statement (as defined below)
under the caption The Transactions and Our Structure and Organization (collectively, the
Transactions). This Agreement, the Joinder Agreement, the Amended and Restated Partnership
Agreement of the Company (the Partnership Agreement) and the new $[l] million
credit facility described in the Registration Statement under the caption Managements Discussion
and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesNew
Credit Facility (the New Credit Facility) are referred to herein, collectively, as the
Transaction Documents.
Morgan
Stanley & Co. Incorporated (Morgan Stanley) has
agreed to reserve up to 6.5% of the
Firm LP Units to be purchased by it under this Agreement for sale to the directors, officers and
employees of the Company and Managing GP and other persons who have relationships with the Company
(collectively, Participants), as set forth in the Pricing Prospectus (as defined in Section 1(i))
under the heading Underwriters (the Directed Unit Program). The Firm LP Units to be sold by
Morgan Stanley and its affiliates pursuant to the Directed Unit Program are referred to hereinafter
as the Directed LP Units. Any Directed LP Units not orally confirmed for purchase by any
Participant by the end of the business day on which this Agreement is executed will be offered to
the public by the Underwriters as set forth in the Pricing Prospectus.
1. The CVR Parties, jointly and severally, represent and warrant to, and agree with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-171270) (the Initial Registration
Statement) in respect of the LP Units has been filed with the Securities and Exchange Commission
(the Commission); the Initial Registration Statement and any post-effective amendment thereto,
each in the form heretofore delivered to you, and, excluding exhibits thereto, to you for each of
the other Underwriters, have been declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering
(a
Rule 462(b) Registration
Statement), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
Act), which became effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and no stop order suspending
the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or
the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose
has been initiated or, to the knowledge of the CVR Parties, threatened by the Commission (any
preliminary prospectus included in the Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and
2
regulations of the Commission under the Act is hereinafter called a Preliminary Prospectus;
the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement,
if any, including all exhibits thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with
Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial
Registration Statement at the time it was declared effective, each as amended at the time such part
of the Initial Registration Statement became effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective, are hereinafter collectively called the
Registration Statement; the Preliminary Prospectus relating to the LP Units that was included in
the Registration Statement immediately prior to the Applicable Time (as defined in Section 1(iii)
hereof) is hereinafter called the Pricing Prospectus; the final prospectus, in the form first
filed pursuant to Rule 424(b) under the Act, is hereinafter called the Prospectus; and any
issuer free writing prospectus as defined in Rule 433 under the Act relating to the LP Units is
hereinafter called an Issuer Free Writing Prospectus);
(ii) No order preventing or suspending the use of any Preliminary Prospectus or any Issuer
Free Writing Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the
time of filing thereof, conformed in all material respects to the requirements of the Act and the
rules and regulations of the Commission thereunder, and each Preliminary Prospectus, at the time of
filing thereof, did not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company by an Underwriter through
the Representatives expressly for use therein;
(iii) For the purposes of this Agreement, the Applicable Time is [l] (New
York City time) on the date of this Agreement. The Pricing Prospectus, when considered together
with the information listed on Schedule IIA hereto, as of the Applicable Time, did not include any
untrue statement of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were made, not
misleading; and each Issuer Free Writing Prospectus listed on Schedule IIB hereto does not conflict
with the information contained in the Registration Statement, the Pricing Prospectus or the
Prospectus and each such Issuer Free Writing Prospectus, as supplemented by and taken together with
the Pricing Prospectus as of the Applicable Time, did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading; provided, however,
that this representation and warranty shall not apply to statements or
3
omissions made in the Pricing Prospectus or an Issuer Free Writing Prospectus in reliance upon
and in conformity with information furnished in writing to the Company by an Underwriter through
the Representatives expressly for use therein;
(iv) The Registration Statement conforms, and the Prospectus and any further amendments or
supplements to the Registration Statement and the Prospectus will conform, in all material respects
to the requirements of the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to each part of the Registration Statement
and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company by an Underwriter
through the Representatives expressly for use therein;
(v) Each statement made in the Registration Statement, the Pricing Prospectus, the Prospectus
and each Issuer Free Writing Prospectus listed on Schedule IIB hereto within the coverage of Rule
175(b) under the Act, including (1) any projections or statements with respect to future available
cash or future cash distributions of the Company, (2) any statements made in support thereof or
related thereto under the heading Our Cash Distribution Policy and Restrictions on Distributions
and How We Make Cash Distributions and (3) statements made with respect to the anticipated ratio
of taxable income to distributions, was made or will be made with a reasonable basis and in good
faith.
(vi) Neither the Company nor Operating LLC has sustained since the date of the latest audited
financial statements included in the Pricing Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree that would, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the current or future
financial position, partners capital or members equity (as the case may be), or results of
operations of the Company and Operating LLC, taken together as a whole (Material Adverse Effect),
in each case otherwise than as set forth or contemplated in the Pricing Prospectus; and, since the
respective dates as of which information is given in the Registration Statement and the Pricing
Prospectus, there has not been any change in the partners capital or members equity (as the case
may be) or long-term debt of the Company and Operating LLC, taken together as a whole, or any
material adverse change, or any development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position, partners capital or members equity
(as the case may be) or results of operations of the Company and
4
Operating LLC, taken together as a whole, otherwise than as set forth or contemplated in the
Pricing Prospectus;
(vii) The Company and Operating LLC have good and marketable title in fee simple to, or have
valid rights to lease or otherwise use, all material real property and good and marketable title to
all material personal property owned by them, in each case free and clear of all liens,
encumbrances, security interests, equities, charges or claims (Liens) except such Liens created
in connection with (1) the Second Amended and Restated Credit and Guaranty Agreement, dated as of
December 28, 2006, among Coffeyville Resources and the other parties thereto, as amended through
the date hereof, (2) the indenture, dated April 6, 2010, among Coffeyville Resources, Coffeyville
Finance Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee,
related to Coffeyville Resources 9.0% First Lien Senior Secured Notes due 2015, and (3) the
indenture, dated April 6, 2010, among Coffeyville Resources, Coffeyville Finance Inc., the
guarantors party thereto and Wells Fargo Bank, National Association, as trustee, related to
Coffeyville Resources 10.875% Second Lien Senior Secured Notes due 2017 (collectively, the Debt
Agreements), which Liens will be released on or prior to the First Time of Delivery, and such
other Liens as are described in the Pricing Prospectus (including Liens for the benefit of lenders
under the New Credit Facility) or such as would not, individually and in the aggregate, reasonably
be expected to have a Material Adverse Effect;
(viii) The Company has been duly formed and is validly existing in good standing as a limited
partnership under the Delaware Revised Uniform Limited Partnership Act (Delaware LP Act) with
full partnership power and authority to own or lease its properties, conduct its business as
described in the Registration Statement and the Pricing Prospectus, and enter into and perform its
obligations under this Agreement and each Transaction Document to which it is a party;
(ix) Managing GP has been duly formed and is validly existing in good standing as a limited
liability company under the Delaware Limited Liability Company Act (the Delaware LLC Act) with
full limited liability company power and authority to own or lease its properties, conduct its
business as described in the Registration Statement and the Pricing Prospectus, act as a general
partner of the Company, and enter into and perform its obligations under this Agreement, the
Joinder Agreement and each Transaction Document to which it is a party;
(x) Operating LLC has been duly formed and is validly existing in good standing as a limited
liability company under the Delaware LLC Act with full limited liability company power and
authority to own or lease its properties, conduct its business as described in the Registration
Statement and the Pricing Prospectus, and enter into and perform its obligations under this
Agreement and each Transaction Document to which it is a party;
5
(xi) Coffeyville Resources has been duly formed and is validly existing in good standing as a
limited liability company under the Delaware LLC Act with full limited liability company power and
authority to own or lease its properties, conduct its business as described in the Registration
Statement and the Pricing Prospectus, act as the sole member of Managing GP, and enter into and
perform its obligations under this Agreement and each Transaction Document to which it is a party;
(xii) Each of the Company and Operating LLC is duly registered or qualified as a foreign
limited liability company or limited partnership, as the case may be, for the transaction of
business under the laws of each jurisdiction in which the character of the business conducted by it
or the nature or location of the properties owned or leased by it makes such registration or
qualification necessary, except where the failure to be qualified in any jurisdiction would not,
individually and in the aggregate, reasonably be expected to have a Material Adverse Effect;
(xiii) At or before the First Time of Delivery (or immediately thereafter), Managing GP will
own the sole general partner interest in the Company and will be the managing general partner of
the Company. Such managing general partner interest has been duly authorized and validly issued in
accordance with the Partnership Agreement and such managing general partner interest is fully paid
(to the extent required under the Partnership Agreement). Managing GP owns such managing general
partner interest free and clear of all Liens (except Liens pursuant to the Debt Agreements or
contained in Section 4.6 of the Partnership Agreement);
(xiv) At the First Time of Delivery or any Option Time of Delivery (as defined in Section 4
hereof), as the case may be, the Firm LP Units or the Optional LP Units to be sold by the Company
and the limited partner interests represented thereby, will be duly authorized in accordance with
the Partnership Agreement and, when issued and delivered to the Underwriters against payment
therefor in accordance with the terms hereof, will be validly issued, fully paid (to the extent
required under the Partnership Agreement) and nonassessable (except as such nonassessability may be
affected by Sections 17-303, 17-607 and 17-804 of the Delaware LP Act or as otherwise described in
the Pricing Prospectus under the caption The Partnership AgreementLimited Liability) and
conform in all material respects to the description of the Common Units in the Prospectus. Assuming
no purchase by the Underwriters of any Optional LP Units, at the First Time of Delivery, after
giving effect to the Transactions, Coffeyville Resources will own [l] Common Units, Managing GP
will own the managing general partner interest of the Company and, other than such Common Units and
managing general partner interest, the Firm LP Units will be the only limited partner interests in
the Company issued and outstanding (other than any Common Units granted to officers and directors
of the Company as described in the Pricing Prospectus);
6
(xv) The Company owns 100% of the issued and outstanding member interests in Operating LLC;
such member interests have been duly authorized and validly issued in accordance with the limited
liability company agreement of Operating LLC (as the same may be amended or restated at or prior to
the applicable Time of Delivery (as defined in Section 4 hereof), the Operating LLC Agreement)
and are fully paid (to the extent required under the Operating LLC Agreement) and nonassessable
(except as such nonassessability may be affected by Sections 18-607 and 18-804 of the Delaware LLC
Act); and the Company owns such member interest free and clear of all Liens other than Liens
arising under or in connection with (1) the Debt Agreements, which Liens will be released on or
prior to the First Time of Delivery, and (2) the New Credit Facility;
(xvi) As of the date hereof, Coffeyville Acquisition III LLC (Coffeyville Acquisition) owns
100% of the issued and outstanding member interests in Managing GP and is the sole member of
Managing GP; such member interests have been duly authorized and validly issued in accordance with
the limited liability company agreement of Managing GP (as the same may be amended or restated at
or prior to the applicable Time of Delivery, the Managing GP LLC Agreement) and are fully paid
(to the extent required under the Managing GP LLC Agreement) and nonassessable (except as such
nonassessability may be affected by Sections 18-607 and 18-804 of the Delaware LLC Act); and at or
before the First Time of Delivery (or immediately thereafter), Coffeyville Resources will own such
member interests free and clear of all Liens other than those arising under or in connection with
the Debt Agreements;
(xvii) Other than its ownership of the managing general partner interest in the Company,
Managing GP does not own, directly or indirectly, any equity or long-term debt securities of any
corporation, partnership, limited liability company, joint venture, association or other entity.
Other than the Companys ownership of a 100% member interest in Operating LLC, neither the Company
nor Operating LLC owns, directly or indirectly, any equity or long-term debt securities of any
corporation, partnership, limited liability company, joint venture, association or other entity;
(xviii) Each of the CVR Parties has all requisite power and authority to execute and deliver
this Agreement and perform its respective obligations hereunder. The Company has all requisite
partnership power and authority to issue, sell and deliver the LP Units to be sold by it, in
accordance with and upon the terms and conditions set forth in this Agreement, the Partnership
Agreement, the Registration Statement, the Pricing Prospectus and the Prospectus. At the First
Time of Delivery (or, in the case of Managing GP, immediately thereafter) and any Option Time of
Delivery, all partnership and limited liability company action, as the case may be, required to be
taken by the CVR Parties or any of their members or partners for the authorization, issuance, sale
and delivery of the LP Units and the consummation of the transactions contemplated by this
Agreement (including the Transactions) shall have been validly taken. This
7
Agreement has been duly and validly authorized, executed and delivered by each of the CVR
Parties; and, concurrently with the First Time of Delivery, the Joinder Agreement will have been
duly authorized, executed and delivered by Managing GP.
(xix) The Partnership Agreement has been duly authorized, and, at or before the First Time of
Delivery, will have been duly executed and delivered by each of Managing GP and Coffeyville
Resources, and will be a valid and legally binding agreement of each such party, enforceable
against each such party in accordance with its terms; the Operating LLC Agreement has been duly
authorized, executed and delivered by the Company and is a valid and legally binding agreement of
the Company, enforceable against the Company in accordance with its terms; the Managing GP LLC
Agreement has been duly authorized, executed and delivered by Coffeyville Acquisition and is a
valid and legally binding agreement of Coffeyville Acquisition, enforceable against Coffeyville
Acquisition in accordance with its terms (the Partnership Agreement, the Operating LLC Agreement
and the Managing GP LLC Agreement are referred to herein collectively as the Operative
Agreements); provided, that, with respect to each Operative Agreement, the enforceability thereof
may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws relating to or affecting creditors rights generally and by general principles of
equity (regardless of whether such enforceability is considered in a proceeding in equity or at
law); and provided further, that the indemnity, contribution and exoneration provisions contained
in any of such Operative Agreements may be limited by applicable laws and public policy;
(xx) Except as described in the Prospectus or, in the case of transfer restrictions, as set
forth in the relevant Operative Agreements, there are no preemptive rights or other rights to
subscribe for or to purchase, nor any restriction upon the voting or transfer of, any partnership
or member interests in any of the CVR Parties. Except as described in the Prospectus, there are no
outstanding options or warrants to purchase any partnership or member interests in any of the CVR
Parties;
(xxi) The issue and sale of the LP Units as herein contemplated and the compliance by the CVR
Parties with this Agreement or the Joinder Agreement, as the case may be, and the consummation of
the transactions herein contemplated, including the Transactions, will not conflict with or result
in a breach or violation of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which any of
the CVR Parties is a party or by which any of the CVR Parties is bound or to which any of the
property or assets of any of the CVR Parties is subject; nor will such action result in any
violation of the provisions of the Operative Agreements of any of the CVR Parties or any statute or
any order, rule or regulation of any court or governmental agency or body having jurisdiction over
any of the CVR Parties or any of their properties, after giving effect to any
8
consents, approvals, authorizations, orders, registrations, qualifications, waivers and
amendments as have been obtained or made as of the date of this Agreement; nor does or will such
action result in the creation or imposition of any lien, charge or encumbrance upon any property or
assets of any of the CVR Parties (other than any pledge by Coffeyville Resources of its member
interests in Managing GP in accordance with the Debt Agreements); and no consent, approval,
authorization, order, registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the LP Units or the consummation by any of the
CVR Parties of the transactions contemplated by this Agreement or the Joinder Agreement, including
the Transactions, except (i) the registration under the Act and the Securities Exchange Act of
1934, as amended (the Exchange Act), of the LP Units, (ii) as described in the Pricing
Prospectus, (iii) such consents, approvals, authorizations, registrations or qualifications as may
be required under state securities or Blue Sky laws or the rules and regulations of the Financial
Industry Regulatory Authority (FINRA) in connection with the purchase and distribution of the LP
Units by the Underwriters; (iv) filing of any certificate of merger in connection with the merger
of CVR Special GP, LLC, a Delaware limited liability company, with and into Coffeyville Resources;
and (v) where the failure to obtain or make any such consent, approval, authorization, order,
registration, or qualification as would not reasonably be expected, individually and in the
aggregate, to have a Material Adverse Effect or would not materially impair the consummation of the
transactions herein contemplated;
(xxii) There are no contracts, agreements or understandings between any of the CVR Parties and
any person granting such person the right to require the Company to file a registration statement
under the Act with respect to any securities of the Company owned or to be owned by such person or
to require the Company to include such securities in the securities registered pursuant to the
Registration Statement or to have such securities otherwise registered by the Company under the
Act, except as described in the Registration Statement and the Pricing Prospectus;
(xxiii) Neither the Company nor Operating LLC is (a) in violation of its agreement of limited
partnership or limited liability company agreement, as the case may be, or (b) in default in the
performance or observance of any obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound, except with respect to clause
(b) where such default would not, individually and in the aggregate, reasonably be expected to have
a Material Adverse Effect;
(xxiv) The statements set forth in the Pricing Prospectus and Prospectus under the caption
Description of Our Common Units, insofar as they purport to constitute a summary of the terms of
the Common Units, as well as under the captions Certain Relationships and Related Party
Transactions, Conflicts of
9
Interest and Fiduciary Duties, The Partnership Agreement and Material U.S. Federal Tax
Consequences, insofar as they purport to describe the provisions of the laws and documents
referred to therein, are accurate and fair in all material respects;
(xxv) Other than as set forth in the Pricing Prospectus, there are no legal or governmental
proceedings pending to which the Company or Operating LLC is a party or of which any property of
the Company or Operating LLC is the subject which, if determined adversely to the Company or
Operating LLC, would individually or in the aggregate reasonably be expected to have a Material
Adverse Effect or a material adverse effect on the performance of this Agreement or any of the
Transaction Documents or the consummation of any of the transactions (including the Transactions)
contemplated hereby or thereby; and, to the knowledge of the CVR Parties, no such proceedings are
threatened by governmental authorities or by others;
(xxvi) No relationship, direct or indirect, exists between or among the Company on the one
hand, and the directors, managers, officers, members, partners, stockholders, customers or
suppliers of the Company or any CVR Party, on the other hand, that is required to be described in
the Registration Statement, the Pricing Prospectus or the Prospectus that is not so described.
There are no outstanding loans, advances (except normal advances for business expenses in the
ordinary course of business) or guarantees of indebtedness by the Company to or for the benefit of
any of the officers, directors or managers of the Company, Managing GP or Operating LLC or their
respective family members.
(xxvii) Neither the Company nor Operating LLC is and, after giving effect to the offering and
sale of the LP Units and the application of the proceeds thereof, neither of them will be an
investment company, as such term is defined in the Investment Company Act of 1940, as amended
(the Investment Company Act);
(xxviii) At the time of filing the Initial Registration Statement the Company was not and is
not an ineligible issuer, as defined under Rule 405 under the Act;
(xxix) KPMG LLP, who have certified certain financial statements of the Company, are
independent public accountants with respect to the Company as required by the Act and the rules and
regulations of the Commission thereunder and the rules and regulations of the Public Company
Accounting Oversight Board;
(xxx) The Company maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (A) transactions are executed in accordance with managements general or
specific authorization; (B) transactions are recorded as necessary to permit preparation of
financial statements in conformity with U.S. Generally Accepted Accounting Principles and to
maintain accountability for assets; (C) access to assets is permitted only in accordance
10
with managements general or specific authorization; and (D) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. None of the CVR Parties is aware of (A) any significant
deficiencies in the design or operation of the Companys internal controls that could adversely
affect the ability of the Company to record, process, summarize and report financial data in any
material respect, or any material weaknesses in internal controls, or (B) any fraud, whether or not
material, that involves management or other employees who have a significant role in the internal
controls of any of the Company.
(xxxi) Since the date of the latest audited financial statements included in the Pricing
Prospectus, there has been no change in the internal control over financial reporting of the
Company that has materially adversely affected, or is reasonably likely to materially adversely
affect, the internal control over financial reporting of the Company. The Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange
Act) that comply with the requirements of the Exchange Act; such disclosure controls and procedures
have been designed to ensure that material information relating to the Company is made known to the
principal executive officer and principal financial officer of Managing GP by others within those
entities; and such disclosure controls and procedures are effective;
(xxxii) Except as disclosed in the Pricing Prospectus, the Company and Operating LLC (A) are
in compliance with any and all applicable foreign, Federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (Environmental Laws), (B) have received all
permits, licenses or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (C) are in compliance with all terms and conditions of any
such permit, license or approval, except with respect to clauses (A), (B) and (C) above where such
noncompliance with Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits, licenses or approvals
would not, individually and in the aggregate, reasonably be expected to have a Material Adverse
Effect. Except as disclosed in the Pricing Prospectus, there are no costs or liabilities
associated with Environmental Laws (including any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential liabilities to third
parties) which would individually or in the aggregate reasonably be expected to have a Material
Adverse Effect;
(xxxiii) The Company and Operating LLC own, have applied for or possess, or can acquire on
reasonable terms, all material patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or
11
procedures), trademarks, service marks and trade names currently employed by them in
connection with the business now operated by them as described in the Pricing Prospectus, except
where the failure to own or have such legal right to use would not reasonably be expected to have a
Material Adverse Effect; and except as disclosed in the Pricing Prospectus, none of the CVR Parties
has received any notice of infringement of or conflict with asserted rights of others with respect
to any of the foregoing which would individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, reasonably be expected to have a Material Adverse Effect;
(xxxiv) No labor dispute with the employees of the Company or Operating LLC exists, or, to the
knowledge of any of the CVR Parties, is imminent, except for disputes that would not, individually
and in the aggregate, reasonably be expected to have a Material Adverse Effect;
(xxxv) The Company and Operating LLC are insured by insurers against such losses and risks and
in such amounts as are customary in the businesses in which they are engaged; and none of the CVR
Parties has any reason to believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not, individually and in the aggregate,
reasonably be expected to have a Material Adverse Effect, except as described in the Pricing
Prospectus;
(xxxvi) The Company and Operating LLC possess all material certificates, authorizations and
permits issued by the appropriate Federal, state or foreign regulatory authorities necessary to
conduct their respective businesses as described in the Pricing Prospectus, and none of the CVR
Parties has received any notice of proceedings relating to the revocation or modification of any
such certificate, authorization or permit which, if the subject of an unfavorable decision, ruling
or finding, would individually or in the aggregate reasonably be expected to have a Material
Adverse Effect;
(xxxvii) Except as would not reasonably be expected to have a Material Adverse Effect, the
Company and Operating LLC have filed all Federal, state, local and foreign tax returns which are
required to be filed through the date hereof, which returns are true and correct in all material
respects or has received timely extensions thereof, and have paid all taxes shown on such returns
and all assessments received by it to the extent that the same are material and have become due.
To the knowledge of the CVR Parties, there are no tax audits or investigations pending against the
Company or Operating LLC which would individually or in the aggregate, if adversely determined,
have a Material Adverse Effect; nor are there any proposed additional tax assessments against the
Company or Operating LLC which would individually or in the aggregate reasonably be expected to
have a Material Adverse Effect;
12
(xxxviii) Neither the Company nor Operating LLC nor any director, officer, or employee of
either of them or Managing GP, nor, to the knowledge of any of the CVR Parties, any agent,
affiliate or representative of the Company, Operating LLC or Managing GP, has taken or will take
any action in furtherance of an offer, payment, promise to pay, or authorization or approval of the
payment or giving of money, property, gifts or anything else of value, directly or indirectly, to
any government official (including any officer or employee of a government or government-owned or
controlled entity or of a public international organization, or any person acting in an official
capacity for or on behalf of any of the foregoing, or any political party or party official or
candidate for political office) to influence official action or secure an improper advantage; and
the Company and Operating LLC have conducted their businesses in compliance with applicable
anti-corruption laws and have instituted and maintain and will continue to maintain policies and
procedures designed to promote and achieve compliance with such laws and with the representation
and warranty contained herein.
(xxxix) The operations of the Company, Managing GP and Operating LLC are and have been
conducted at all times in material compliance with all applicable financial recordkeeping and
reporting requirements, including those of the Bank Secrecy Act, as amended by Title III of the
Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001 (USA PATRIOT Act), and the applicable anti-money laundering statutes of
jurisdictions where the Company, Managing GP and Operating LLC conduct business, the rules and
regulations thereunder and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any governmental agency (collectively, the Anti-Money Laundering
Laws), and no action, suit or proceeding by or before any court or governmental agency, authority
or body or any arbitrator involving of them with respect to the Anti-Money Laundering Laws is
pending or, to the best knowledge of any CVR Party, threatened.
(xl) (a) Neither the Company nor Operating LLC, nor any director, officer or employee of
either of them or Managing GP, nor, to the knowledge of any CVR Party, any agent, affiliate or
representative of the Company, Operating LLC or Managing GP, is an individual or entity (Person)
that is, or is owned or controlled by a Person that is:
(i) the subject of any sanctions administered or enforced by the U.S. Department of
Treasurys Office of Foreign Assets Control (OFAC) (collectively, Sanctions),
nor
(ii) located, organized or resident in a country or territory that is the subject
of Sanctions (including, without limitation, Burma/Myanmar, Cuba, Iran, North
Korea, Sudan and Syria).
(b) Each of the CVR Parties represents and covenants that it will not, directly or
indirectly, use the proceeds of the offering, or lend,
13
contribute or otherwise make available such proceeds to any subsidiary, joint venture
partner or other Person:
(i) to fund or facilitate any activities or business of or with any Person or in
any country or territory that, at the time of such funding or facilitation, is the
subject of Sanctions; or
(ii) in any other manner that will result in a violation of Sanctions by any Person
(including any Person participating in the offering, whether as underwriter,
advisor, investor or otherwise).
(c) Each of the CVR Parties represents that it has not knowingly engaged in, and is
not now knowingly engaged in, any dealings or transactions with any Person, or in any
country or territory, that at the time of the dealing or transaction is or was the subject
of Sanctions.
(xli) A registration statement with respect to the LP Units has been filed on Form 8-A
pursuant to Section 12 of the Exchange Act, which registration statement complies in all material
respects with the applicable requirements of the Exchange Act;
(xlii) The Registration Statement, the Prospectus and any Preliminary Prospectus comply, and
any amendments or supplements thereto will comply, in all material respects, with any applicable
laws or regulations of foreign jurisdictions in which the Prospectus or any Preliminary Prospectus,
as amended or supplemented, if applicable, are distributed in connection with the Directed Unit
Program.
(xliii) No consent, approval, authorization or order of, or qualification with, any
governmental body or agency, other than those obtained, is required in connection with the offering
of the Directed Units in any jurisdiction where the Directed Units are being offered.
(xliv) The Company has not offered, nor have any of the CVR Parties caused Morgan Stanley to
offer, Directed LP Units to any person with the specific intent to unlawfully influence (A) a
customer or supplier of any of the CVR Parties to alter the customers or suppliers level or type
of business with any of the CVR Parties, or (B) a trade journalist or publication to write or
publish favorable information about any of the CVR Parties or their respective products;
(xlv) The Company has not sold or issued any securities that would be integrated with the
offering of the LP Units contemplated by this Agreement pursuant to the Act, the rules and
regulations or interpretations thereof by the Commission;
(xlvi) The financial statements included in the Prospectus and the Pricing Prospectus present
fairly in all material respects the financial position of the Company and its consolidated
subsidiaries as of the dates shown and its
14
results of operations and cash flows for the periods shown, and such financial statements have
been prepared in conformity with generally accepted accounting principles in the United States
applied on a consistent basis. The pro forma financial statements (including the notes thereto)
included in the Prospectus and in the Pricing Prospectus (A) comply as to form in all material
respects with the applicable requirements of Regulation S-X promulgated under the Act, (B) have
been prepared in all material respects in accordance with the Commissions rules and guidelines
with respect to pro forma financial statements, and (C) have been properly computed on the bases
described therein; the assumptions used in preparing the pro forma financial statements and other
pro forma financial information included in the Prospectus and the Pricing Prospectus provide a
reasonable basis for presenting the significant effects directly attributable to the transactions
or events described therein, the related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma columns therein reflect the proper application of those adjustments
to the corresponding historical financial statement amounts;
(xlvii) Each of the Transaction Documents has been duly authorized and, at or before the First
Time of Delivery (or, in the case of Managing GP, immediately thereafter), will have been duly
executed and delivered by the parties thereto and will constitute a valid and binding agreement of
the parties thereto, enforceable against the parties to such agreements in accordance with their
respective terms, except as the enforcement thereof may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws relating to or affecting
creditors rights generally, or by general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law);
(xlviii) Each of the Company and Operating LLC has such consents, easements, rights-of-way,
permits or licenses from each person (collectively, rights-of-way) as are necessary to conduct
its business in the manner described, and subject to the limitations contained, in the Pricing
Prospectus; other than as set forth, and subject to the limitations contained, in the Pricing
Prospectus, each of the Company and Operating LLC has fulfilled and performed all its material
obligations with respect to such rights-of-way and no event has occurred that allows, or after
notice or lapse of time would allow, revocation or termination thereof or would result in any
impairment of the rights of the holder of any such rights-of-way; and, except as described in the
Pricing Prospectus, none of such rights-of-way contains any restriction that is materially
burdensome to the Company and Operating LLC , taken as a whole;
(xlix) Operating LLC is not currently prohibited, directly or indirectly, from paying any
dividends to the Company, from making any other distribution on its limited liability company
interests, from repaying to the Company any loans or advances from the Company, or from
transferring any of its property or assets to
15
the Company or any other subsidiary of the Company, except as described in or contemplated by
the Pricing Prospectus.
2. Subject to the terms and conditions herein set forth, (a) the Company agrees to issue and
sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly,
to purchase from the Company, at a purchase price per Common Unit of $[l], the number of Firm
LP Units set forth opposite the name of such Underwriter in Schedule I hereto and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase Optional LP Units
as provided below, the Company agrees to issue and sell to each of the Underwriters, and each of
the Underwriters agrees, severally and not jointly, to purchase from the Company, at the purchase
price per Common Unit set forth in clause (a) of this Section 2, that portion of the number of
Optional LP Units as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional units) determined by multiplying such number of Optional LP Units by a
fraction, the numerator of which is the maximum number of Optional LP Units which such Underwriter
is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and
the denominator of which is the maximum number of Optional LP Units that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters, severally and not jointly, the right to
purchase at their election up to [l] Optional LP Units, at the purchase price per Common Unit set
forth in the paragraph above, for the sole purpose of covering sales of LP Units in excess of the
number of Firm LP Units. The Representatives may elect to exercise this right on behalf of the
Underwriters in whole or from time to time in part. Any such election to purchase Optional LP
Units may be exercised only by written notice from you to the Company, given within a period of 30
calendar days after the date of this Agreement, setting forth the aggregate number of Optional LP
Units to be purchased and the date on which such Optional LP Units are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery or, unless you and the
Company otherwise agree in writing, earlier than two or later than ten business days after the date
of such notice.
3. Upon the authorization by you of the release of the Firm LP Units, the several Underwriters
propose to offer the Firm LP Units for sale upon the terms and conditions set forth in the
Prospectus.
4. (a) The LP Units to be purchased by each Underwriter hereunder, in definitive form, and in
such authorized denominations and registered in such names as the Representatives may request upon
at least forty-eight hours prior notice to the Company shall be delivered by or on behalf of the
Company to the Representatives, through the facilities of The Depository Trust Company (DTC), for
the account of such Underwriter, against payment by or on behalf of such Underwriter of the
purchase price therefor by wire transfer of Federal (same-day) funds to the account specified by
the Company to the Representatives at least
16
forty-eight hours in advance. The time and date of such delivery and payment shall be, with
respect to the Firm LP Units, 9:30 a.m., New York City time, on [l], 2011 or such
other time and date as the Representatives and the Company may agree upon in writing, and, with
respect to the Optional LP Units, 9:30 a.m., New York time, on the date specified by the
Representatives in the written notice given by the Representatives of the Underwriters election to
purchase such Optional LP Units, or such other time and date as the Representatives and the Company
may agree upon in writing. Such time and date for delivery of the Firm LP Units is herein called
the First Time of Delivery, such time and date for delivery of any Optional LP Units, if not the
First Time of Delivery, is herein called an Option Time of Delivery, and each such time and date
for delivery is herein called a Time of Delivery.
(b) The documents to be delivered at each Time of Delivery by or on behalf of the parties
hereto pursuant to Section 9 hereof, including the cross receipt for the LP Units and any
additional documents requested by the Underwriters pursuant to Section 9(i) hereof, will be
delivered at the offices of Fried, Frank, Harris, Shriver & Jacobson LLP, One New York Plaza, New
York, NY 10004 (the Closing Location), and the LP Units will be delivered electronically via the
facilities of DTC, all at such Time of Delivery. A meeting will be held at the Closing Location at
2:00 p.m., New York City time, on the New York Business Day next preceding such Time of Delivery,
at which meeting the final drafts of the documents to be delivered pursuant to the preceding
sentence will be available for review by the parties hereto. For the purposes of this Section 4,
New York Business Day shall mean each Monday, Tuesday, Wednesday, Thursday and Friday that is not
a day on which banking institutions in New York City are generally authorized or obligated by law
or executive order to close.
5. The Company agrees with each of the several Underwriters:
(a) To prepare the Prospectus in a form to which you shall not have reasonably objected on a
timely basis and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commissions close of business on the second business day following the execution and delivery of
this Agreement; to make no further amendment or any supplement to the Registration Statement or the
Prospectus prior to the last Time of Delivery which shall be reasonably disapproved by you promptly
after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the
time when any amendment to the Registration Statement has been filed or becomes effective or any
amendment or supplement to the Prospectus has been filed and to furnish you with copies thereof; to
file promptly all material required to be filed by the Company with the Commission pursuant to Rule
433(d) under the Act; to advise you, promptly after it receives notice thereof, of the issuance by
the Commission of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or other prospectus in respect of the LP Units, of the suspension of the
qualification of the LP Units for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by the Commission for
17
the amending or supplementing of the Registration Statement or the Prospectus or for
additional information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or other prospectus or suspending
any such qualification, to promptly use its reasonable best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you may reasonably request to qualify
the LP Units for offering and sale under the securities laws of such jurisdictions as you may
request and to comply with such laws so as to permit the continuance of sales and dealings therein
in such jurisdictions for as long as may be necessary to complete the distribution of the LP Units,
provided that in connection therewith the Company shall not be required to qualify as a foreign
partnership or to file a general consent to service of process or subject itself to taxation for
doing business in any jurisdiction;
(c) To furnish the Underwriters prior to 5:00 p.m., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to time, with written and
electronic copies of the Prospectus in New York City in such quantities as you may reasonably
request, and, if (i) the Underwriters notify the Company that or (ii) the Company otherwise has
knowledge that the delivery of a prospectus (or in lieu thereof, the notice referred to in Rule
173(a) under the Act) is required at any time prior to the expiration of nine months after the time
of issue of the Prospectus in connection with the offering or sale of the LP Units and if at such
time any event shall have occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus (or in lieu thereof, the notice referred to in Rule
173(a) under the Act) is delivered, not misleading, or, if for any other reason it shall be
necessary during such same period to amend or supplement the Prospectus in order to comply with the
Act, to notify you and upon your request to prepare and furnish without charge to each Underwriter
and to any dealer in securities as many written and electronic copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance, and in case any Underwriter is required to
deliver a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) in
connection with sales of any of the LP Units at any time nine months or more after the time of
issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and
deliver to such Underwriter as many written and electronic copies as you may request of an amended
or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as practicable, but in any
event not later than sixteen months after the effective date of the Registration Statement (as
defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries
(which need not be
18
audited) complying with Section 11(a) of the Act and the rules and regulations of the
Commission thereunder (including, at the option of the Company, Rule 158);
(e) During the period commencing on the date hereof and ending 180 days after the date hereof
(the Lock-Up Period), not to offer, sell, contract to sell, pledge, grant any option to purchase,
make any short sale or otherwise dispose, except as provided hereunder, of any securities of the
Company that are substantially similar to the LP Units, including but not limited to any options or
warrants to purchase Common Units or any securities that are convertible into or exchangeable for,
or that represent the right to receive, Common Units or any such substantially similar securities
(other than pursuant to employee and/or director equity plans existing on, or upon the conversion
or exchange of convertible or exchangeable securities outstanding as of the date of this Agreement
or as described in the Prospectus), without your prior written consent; provided, however, that if
(1) during the last 17 days of the initial Lock-Up Period, the Company releases earnings results or
announces material news or a material event or (2) prior to the expiration of the initial Lock-Up
Period, the Company announces that it will release earnings results during the 15-day period
following the last day of the initial Lock-Up Period, then in each case the Lock-Up Period will be
automatically extended until the expiration of the 18-day period beginning on the date of release
of the earnings results or the announcement of the material news or material event, as applicable,
unless the Representatives waive, in writing, such extension; the Company will provide the
Representatives and each unitholder subject to the Lock-Up Period pursuant to the lockup letters
described in Section 8(k) with prior notice of any such announcement that gives rise to an
extension of the Lock-up Period;
(f) Until the earlier of three years from the date hereof or the attainment by the Company of
Well-Known Seasoned Issuer status as defined under the Act, to furnish to its unitholders as soon
as practicable after the end of each fiscal year an annual report (including a balance sheet and
statements of income, partners capital and cash flows of the Company and its consolidated
subsidiaries certified by independent public accountants) and, as soon as practicable after the end
of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending
after the effective date of the Registration Statement), to make available to its unitholders
consolidated summary financial information of the Company and its subsidiaries for such quarter in
reasonable detail; provided, however, that the Company will be deemed to have satisfied the
requirements of this paragraph (f) if the Company files with or furnishes to the Commission the
reports, documents or information required by Section 13 or 15(d) of the Exchange Act;
(g) To use the net proceeds received by it from the sale of the LP Units pursuant to this
Agreement in the manner specified in the Pricing Prospectus under the caption Use of Proceeds;
19
(h) To file with the Commission such information on Form 10-Q or Form 10-K as may be required
by Rule 463 under the Act; and
(i) If the Company elects to rely upon Rule 462(b), the Company shall use its commercially
reasonable efforts to file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and the
Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the payment of such fee pursuant to
Rule 111 under the Act.
6. (a) The Company represents and agrees that, without the prior consent of the
Representatives, it has not made and will not make any offer relating to the LP Units that would
constitute a free writing prospectus as defined in Rule 405 under the Act; each Underwriter
represents and agrees that, without the prior consent of the Company and the Representatives, it
has not made and will not make any offer relating to the LP Units that would constitute a free
writing prospectus; the Company and the Representatives agree that any such free writing prospectus
the use of which has been consented to by the Company and the Representatives is listed on Schedule
IIB hereto;
(b) The Company has complied and will comply with the requirements of Rule 433 under the Act
applicable to any Issuer Free Writing Prospectus, including timely filing with the Commission or
retention where required and legending; and the Company represents that it has satisfied and agrees
that it will satisfy the conditions under Rule 433 under the Act to avoid a requirement to file
with the Commission any electronic road show; and
(c) The Company agrees that if at any time following issuance of an Issuer Free Writing
Prospectus any event occurred or occurs as a result of which such Issuer Free Writing Prospectus
would conflict with the information in the Registration Statement, the Pricing Prospectus or the
Prospectus or would include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the circumstances then
prevailing at the time of such issuance, not misleading, the Company will give prompt notice
thereof to the Representatives and, following such notice, if requested by the Representatives,
will prepare and furnish without charge to each Underwriter an Issuer Free Writing Prospectus or
other document that will correct such conflict, statement or omission; provided, however, that this
covenant shall not apply to any statements or omissions in an Issuer Free Writing Prospectus made
in reliance upon and in conformity with information furnished in writing to the Company by an
Underwriter through the Representatives expressly for use therein.
7. (a) The Company covenants and agrees with the several Underwriters to pay or cause to be
paid the following: (i) the fees, disbursements and expenses of the Companys counsel and
accountants in connection with the registration of the LP Units under the Act and all other
expenses in connection
20
with the preparation, printing, reproduction and filing of the Registration Statement, any
Preliminary Prospectus, any Issuer Free Writing Prospectus and the Prospectus and amendments and
supplements thereto and the mailing and delivering of copies thereof to the Underwriters and
dealers; (ii) all expenses in connection with the qualification of the LP Units for offering and
sale under state securities laws as provided in Section 5(b) hereof, including the reasonable fees
and disbursements of counsel for the Underwriters in connection with such qualification and in
connection with the blue sky memorandum; (iii) all fees and expenses in connection with listing the
LP Units on the Exchange; (iv) the filing fees incident to, and the reasonable fees and
disbursements of counsel for the Underwriters in connection with, any required review by FINRA of
the terms of the sale of the LP Units (the total amount of fees and disbursements of counsel for
the Underwriters under clauses (ii) and (iv) shall be capped at no more than $35,000); (v) the cost
of preparing unit certificates; (vi) the cost and charges of any transfer agent or registrar; and
(vii) all other costs and expenses incident to the performance of its obligations hereunder which
are not otherwise specifically provided for in this Section 7; provided, however, that the costs
associated with the chartering of an aircraft used by the Company and the Underwriters to attend
meetings with prospective purchasers of the LP Units will be divided equally between the Company on
the one hand and the Underwriters on the other hand, and each of the Company and the Underwriters
will pay for their own costs in connection with meetings with prospective purchasers. It is
understood, however, that the Company shall bear the cost of any other matters not directly
relating to the sale and purchase of the LP Units pursuant to this Agreement. It is understood,
however, that, except as provided in this Section 7, and Sections 9 and 14 hereof, the Underwriters
will pay all of their own costs and expenses, including the fees of their counsel, stock transfer
taxes on resale of any of the LP Units by them, and any advertising expenses connected with any
offers they may make.
(b) The Company covenants and agrees with the several Underwriters to pay or cause to be paid
the following: (i) all fees and disbursements of counsel incurred by the Underwriters in connection
with the Directed Unit Program; (ii) all costs and expenses incurred by the Underwriters in
connection with the printing (or reproduction) and delivery (including postage, air freight charges
and charges for counting and packaging) of copies of the Directed Unit Program material; and (iii)
all stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in
connection with the Directed Unit Program.
Furthermore, the Company agrees with the several Underwriters that it will comply in all
material respects with all applicable securities and other laws, rules and regulations in each
foreign jurisdiction in which the Directed Units are offered in connection with the Directed Unit
Program, provided that the Representatives give the Company advance notice a reasonable period of
time before making offers of which foreign jurisdictions are involved.
21
8. The obligations of the Underwriters hereunder, as to the LP Units to be delivered at each
Time of Delivery, shall be subject, in their discretion, to the condition that all representations
and warranties and other statements of the CVR Parties herein are, at and as of such Time of
Delivery, true and correct, the condition that the CVR Parties shall have performed all of their
respective obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b)
under the Act within the applicable time period prescribed for such filing by the rules and
regulations under the Act and in accordance with Section 5(a) hereof; all material required
to be filed by the Company pursuant to Rule 433(d) under the Act shall have been filed with
the Commission within the applicable time period prescribed for such filing by Rule 433; if
the Company has elected to rely upon Rule 462(b) under the Act, the Company shall have used
commercially reasonable efforts to cause the Rule 462(b) Registration Statement to have
become effective by 10:00 P.M., Washington, D.C. time, on the date of this Agreement; no
stop order suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; no stop order suspending or preventing the use of the
Prospectus or any Issuer Free Writing Prospectus shall have been initiated or threatened by
the Commission; and all requests for additional information on the part of the Commission
shall have been complied with to your reasonable satisfaction;
(b) Debevoise & Plimpton LLP, counsel for the Underwriters, shall have furnished to
you such written opinion or opinions, dated such Time of Delivery, in form and substance
satisfactory to you, and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such matters;
(c) Andrews Kurth LLP, counsel for the Underwriters, shall have furnished to you such
written opinion or opinions, dated such Time of Delivery, in form and substance
satisfactory to you, and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such matters;
(d) Fried, Frank, Harris, Shriver & Jacobson LLP, counsel for the Company, shall have
furnished to you their written opinion (a draft of the form of such opinion is attached as
Annex I(a) hereto), dated such Time of Delivery, in form and substance satisfactory to you;
(e) Vinson & Elkins L.L.P., counsel for the Company, shall have furnished to you their
written opinion (a draft of the form of such opinion is attached as Annex I(b) hereto),
dated such Time of Delivery, in form and substance satisfactory to you;
22
(f) On the date of the Prospectus and also at each Time of Delivery, KPMG LLP shall
have furnished to you a letter or letters, dated the respective dates of delivery thereof,
in form and substance satisfactory to you;
(g) (i) None of the CVR Parties shall have sustained since the date of the latest
audited financial statements included in the Pricing Prospectus any loss or interference
with its business from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or decree, in
each case otherwise than as set forth or contemplated in the Pricing Prospectus, and (ii)
since the respective dates as of which information is given in the Pricing Prospectus there
shall not have been any change in the partners capital or members equity (as the case may
be) or long-term debt of the CVR Parties, taken together as a whole, or any change, or any
development involving a prospective change, in or affecting the general affairs,
management, financial position, partners capital or members equity (as the case may be)
or results of operations of the CVR Parties, taken together as a whole, otherwise than as
set forth or contemplated in the Pricing Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is in your judgment so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery of the LP
Units being delivered at such Time of Delivery on the terms and in the manner contemplated
in the Prospectus;
(h) On or after the Applicable Time (i) no downgrading shall have occurred in the
rating accorded any debt securities or preferred stock of the Company or Operating LLC or
in the corporate rating of Company or Operating LLC by any nationally recognized
statistical rating organization, as that term is used in Rule 15c3-1(c)(2)(vi)(F) under
the Exchange Act, and (ii) no such organization shall have publicly announced that it has
under surveillance or review, with possible negative implications, its rating of any debt
securities or preferred stock of the Company or Operating LLC or the corporate rating of
the Company or Operating LLC;
(i) On or after the Applicable Time there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities generally on
the Exchange; (ii) a suspension or material limitation in trading in the securities of the
Company on the Exchange; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York State authorities or a material disruption in
commercial banking or securities settlement or clearance services in the United States;
(iv) the outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war; or (v) the occurrence of
any other calamity or crisis or any change in financial, political or economic conditions
in the United States or elsewhere, if the effect of any such event specified in clause (iv)
23
or (v) in your judgment makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the LP Units being delivered at such Time of Delivery on
the terms and in the manner contemplated in the Prospectus;
(j) The LP Units to be sold at such Time of Delivery shall have been duly listed,
subject to notice of issuance, on the Exchange;
(k) The Company shall have obtained and delivered to the Representatives on behalf of
the Underwriters executed copies of a Lock-up Agreement in a form heretofore furnished by
you from each director and executive officer of each of the Company and Managing GP and the
additional parties named in Schedule III hereto;
(l) The Company shall have complied with the provisions of Section 5(c) hereof with
respect to the furnishing of prospectuses on the second New York Business Day next
succeeding the date of this Agreement;
(m) The Company shall have furnished or caused to be furnished to you at such Time of
Delivery a certificate of the chief executive officer and chief financial officer of the
Company or Managing GP to the effect that the representations and warranties of the CVR
Parties herein are true and correct at and as of such Time of Delivery and that the CVR
Parties have complied with all of the agreements and satisfied all of the conditions on
their respective parts to be performed or satisfied hereunder on or prior to such Time of
Delivery;
(n) Each of the Transactions shall have been consummated in a manner consistent in all
material respects with their description in the Pricing Prospectus (or otherwise shall be
consummated immediately after the closing of the offering); and
(o) Concurrently with the First Time of Delivery, the Representatives shall have
received the Joinder Agreement duly executed and delivered by an authorized officer of
Managing GP.
9. (a) The CVR Parties, jointly and severally, (i) will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in the Registration Statement, any
Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement
thereto, any Issuer Free Writing Prospectus or any issuer information (in the case of either an
Issuer Free Writing Prospectus or such issuer information, taken together with the Pricing
Prospectus) filed or required to be filed pursuant to Rule 433(d) under the Act, or arise out of or
are
24
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not misleading, and
(ii) will reimburse each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or claim as such expenses
are incurred; provided, however, that the CVR Parties shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment
or supplement thereto, or any Issuer Free Writing Prospectus, in reliance upon and in conformity
with written information furnished to the Company by any Underwriter through the Representatives
for use therein.
(b) Each Underwriter will indemnify and hold harmless the CVR Parties against any losses,
claims, damages or liabilities to which the CVR Parties may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the
Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or arise
out of or are based upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus,
the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer
Free Writing Prospectus, in reliance upon and in conformity with written information furnished to
the Company by such Underwriter through the Representatives expressly for use therein; and will
reimburse the CVR Parties for any legal or other expenses reasonably incurred by the CVR Parties in
connection with investigating or defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice
of the commencement of any action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party (who shall not, except with the consent of
25
the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party under such subsection
for any legal expenses of other counsel or any other expenses, in each case subsequently incurred
by such indemnified party, in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment with respect to,
any pending or threatened action or claim in respect of which indemnification or contribution may
be sought hereunder (whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action or claim and (ii)
does not include a statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 9 is unavailable to or insufficient to
hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the CVR Parties on the
one hand and the Underwriters on the other from the offering of the LP Units. If, however, the
allocation provided by the immediately preceding sentence is not permitted by applicable law or if
the indemnified party failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative benefits but also the relative
fault of the CVR Parties on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or liabilities (or actions
in respect thereof), as well as any other relevant equitable considerations. The relative benefits
received by the CVR Parties on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before deducting expenses)
received by the CVR Parties bear to the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, 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 CVR Parties on the one hand or the Underwriters on the
other and the parties relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The CVR Parties and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this subsection (d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any
26
other method of allocation which does not take account of the equitable
considerations referred to above in this subsection (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount by which the total
price at which the LP Units underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise 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 10(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
The Underwriters obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint. No party shall be liable for contribution
under this subsection (d) except to the extent and under such circumstances as such party would
have been liable for indemnification under this Section 9 if such indemnification were available or
enforceable under applicable law.
(e) The obligations of the CVR Parties under this Section 9 shall be in addition to any
liability which the CVR Parties may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the meaning of the Act and
each broker-dealer affiliate of any Underwriter; and the obligations of the Underwriters under this
Section 9 shall be in addition to any liability which the respective Underwriters may otherwise
have and shall extend, upon the same terms and conditions, to the respective officers and directors
of the CVR Parties (including any person who, with his or her consent, is named in the Registration
Statement as about to become a director of the Company) and to each person, if any, who controls
the CVR Parties within the meaning of the Act.
10. (a) The CVR Parties, jointly and severally, agree to indemnify and hold harmless Morgan
Stanley, each person, if any, who controls Morgan Stanley within the meaning of either Section 15
of the Act or Section 20 of the Exchange Act and each affiliate of Morgan Stanley within the
meaning of Rule 405 of the Act (the Morgan Stanley Entities) from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such action or claim) (i)
caused by any untrue statement or alleged untrue statement of a material fact contained in any
material prepared by or with the consent of any of the CVR Parties for distribution to Participants
in connection with the Directed Unit Program or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the statements therein
not misleading; (ii) caused by the failure of any Participant to pay for and
27
accept delivery of Directed Units that the Participant agreed to purchase; or (iii)
related to, arising out of, or in connection with the Directed Unit Program, other than
losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially
determined to have resulted from the bad faith or gross negligence of the Morgan Stanley Entities.
(b) In case any proceeding (including any governmental investigation) shall be instituted
involving any Morgan Stanley Entity in respect of which indemnity may be sought pursuant to Section
10(a), the Morgan Stanley Entity seeking indemnity, shall promptly notify the Company in writing
and the Company, upon request of the Morgan Stanley Entity, shall retain counsel reasonably
satisfactory to the Morgan Stanley Entity to represent the Morgan Stanley Entity and any others the
Company may designate in such proceeding and shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any Morgan Stanley Entity shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of
such Morgan Stanley Entity unless (i) the Company shall have agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include
both the Morgan Stanley Entity and any of the CVR Parties and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing interests between them.
None of the CVR Parties, in respect of the legal expenses of the Morgan Stanley Entities in
connection with any proceeding or related proceedings in the same jurisdiction, shall be liable for
the fees and expenses of more than one separate firm (in addition to any local counsel) for all
Morgan Stanley Entities. Any such separate firm for the Morgan Stanley Entities shall be
designated in writing by Morgan Stanley. None of the CVR Parties shall 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, such CVR Party agrees to indemnify the Morgan
Stanley Entities from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time a Morgan Stanley Entity shall have requested
any CVR Party to reimburse it for fees and expenses of counsel as contemplated by the second and
third sentences of this paragraph, such CVR Party agrees that it 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 such CVR Party of the aforesaid request and (ii) such CVR Party shall
not have reimbursed the Morgan Stanley Entity in accordance with such request prior to the date of
such settlement. None of the CVR Parties shall effect, without the prior written consent of Morgan
Stanley, any settlement of any pending or threatened proceeding in respect of which any Morgan
Stanley Entity is or could have been a party and indemnity could have been sought hereunder by such
Morgan Stanley Entity, unless such settlement includes an unconditional release of the Morgan
Stanley Entities from all liability on claims that are the subject matter of such proceeding.
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(c) To the extent the indemnification provided for in Section 10(a) is unavailable to a Morgan
Stanley Entity or insufficient in respect of any losses, claims, damages or liabilities referred to
therein, then the CVR Parties, jointly and severally, in lieu of indemnifying the Morgan Stanley
Entity thereunder, shall contribute to the amount paid or payable by the Morgan Stanley Entity 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 CVR Parties on the one hand and the Morgan Stanley
Entities on the other hand from the offering of the Directed Units or (ii) if the allocation
provided by clause 10(c)(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause 10(c)(i) above but also
the relative fault of any of the CVR Parties on the one hand and of the Morgan Stanley Entities on
the other hand in connection with any statements or omissions that resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable considerations. The relative
benefits received by the CVR Parties on the one hand and the Morgan Stanley Entities on the other
hand in connection with the offering of the Directed Units shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Directed Units (before
deducting expenses) and the total underwriting discounts and commissions received by the Morgan
Stanley Entities for the Directed Units, bear to the aggregate public offering price of the
Directed Units. If the loss, claim, damage or liability is caused by an untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a material fact, the
relative fault of the CVR Parties on the one hand and the Morgan Stanley Entities on the other hand
shall be determined by reference to, among other things, whether the untrue or alleged untrue
statement or the omission or alleged omission relates to information supplied by any of the CVR
Parties or by the Morgan Stanley Entities and the parties relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(d) The CVR Parties and the Morgan Stanley Entities agree that it would not be just or
equitable if contribution pursuant to this Section 10 were determined by pro rata allocation (even
if the CVR Parties and the Morgan Stanley Entities were treated as one entity, respectively, for
such purpose) or by any other method of allocation that does not take account of the equitable
considerations referred to in Section 10(c). The amount paid or payable by the Morgan Stanley
Entities as a result of the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by the Morgan Stanley Entities in connection with
investigating or defending any such action or claim. Notwithstanding the provisions of this
Section 10, no Morgan Stanley Entity shall be required to contribute any amount in excess of the
amount by which the total price at which the Directed Units distributed to the public were offered
to the public exceeds the amount of any damages that such Morgan Stanley Entity has otherwise been
required to pay. The remedies provided for in this Section 10 are not exclusive and shall not
limit any rights or
29
remedies which may otherwise be available to any indemnified party at law or in equity.
(e) The indemnity and contribution provisions contained in this Section 10 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 any Morgan Stanley Entity or any of the CVR Parties,
their officers or directors or any person controlling such CVR Party and (iii) acceptance of and
payment for any of the Directed Units.
11. In making a claim for indemnification under Section 9 or 10 of this Agreement (other than
for any legal or other expenses reasonably incurred in connection with investigating or defending
any action or claim in accordance with clause (a)(ii) of Section 9 or the first sentence of Section
10 (Expense Reimbursement), as further provided below) or contribution under Section 9 or 10 of
this Agreement, by any of the CVR Parties, an indemnified party may proceed against either (1) all
of the CVR Parties jointly or (ii) the Company, Managing GP and Operating LLC jointly, but may not
proceed solely against Coffeyville Resources. Notwithstanding the provisions of Sections 9 and 10
of this Agreement, in making a claim for indemnification under Section 9 or 10 (other than for an
Expense Reimbursement), or contribution under Section 9 or 10, by any of the CVR Parties, as a
precondition to any indemnified party, including any Morgan Stanley Entity, obtaining
indemnification or contribution from Coffeyville Resources for any loss, claim, damage, liability
or expense under Section 9 or 10, such indemnified party shall first obtain a final judgment from a
trial court that such indemnified party is entitled to indemnity or contribution under this
Agreement with respect to such loss, claim, damage, liability or expense (the Indemnity Final
Judgment) from the Company, Managing GP, Operating LLC and Coffeyville Resources (or any of them)
and shall seek to satisfy such Indemnity Final Judgment in full from the Company, Managing GP and
Operating LLC by making a written demand upon the Company, Managing GP and Operating LLC for such
satisfaction. If such Indemnity Final Judgment shall remain unsatisfied in whole or in part 45
days following the date of receipt by the Company, Managing GP and Operating LLC of such demand,
any indemnified party shall have the right to take action to satisfy such Indemnity Final Judgment
by making demand directly on Coffeyville Resources (but only if and to the extent the Company,
Managing GP or Operating LLC have not already satisfied such Indemnity Final Judgment, whether by
settlement, release or otherwise). The indemnified parties may exercise this right to first seek
to obtain payment from the Company, Managing GP and Operating LLC and thereafter obtain payment
from Coffeyville Resources without regard to the pursuit by any party of its rights to the appeal
of such Indemnity Final Judgment. The indemnified parties shall, however, be relieved of their
obligation to first obtain an Indemnity Final Judgment, seek to obtain payment from the Company,
Managing GP and Operating LLC with respect to such Indemnity Final Judgment or, having sought
30
such payment, to wait such 45 days after failure by the Company, Managing GP and Operating LLC
to immediately satisfy any such Final Judgment if (i) the Company, Managing GP or Operating LLC
files a petition for relief under the United States Bankruptcy Code (the Bankruptcy Code), (ii)
an order for relief is entered against the Company, Managing GP or Operating LLC in an involuntary
case under the Bankruptcy Code and such order is not dismissed within 60 days after the filing
thereof, (iii) the Company, Managing GP or Operating LLC makes an assignment for the benefit of its
creditors or (iv) any court orders or approves the appointment of a receiver or custodian for the
Company, Managing GP or Operating LLC or a substantial portion of any of their assets and such
appointment is not discharged within 60 days after the effective date thereof. The foregoing
provisions of this paragraph are not intended to require any indemnified party to obtain an
Indemnity Final Judgment against the Company, Managing GP, Operating LLC or Coffeyville Resources
before obtaining any Expense Reimbursement. However, the indemnified parties shall first seek to
obtain Expense Reimbursement in full from the Company, Managing GP and Operating LLC by making a
written demand upon the Company, Managing GP and Operating LLC for such Expense Reimbursement. If
such expenses shall remain unreimbursed in whole or in part 45 days following the date of receipt
by the Company, Managing GP and Operating LLC of such demand, any indemnified party shall have the
right to receive Expense Reimbursement from Coffeyville Resources by making written demand directly
on Coffeyville Resources (but only if and to the extent the Company, Managing GP or Operating LLC
have not already satisfied the demand for such Expense Reimbursement, whether by settlement,
release or otherwise). The indemnified parties shall, however, be relieved of their obligation to
first seek to obtain such Expense Reimbursement in full from the Company, Managing GP and Operating
LLC or, having made written demand therefor, to wait such 45 days after failure by the Company,
Managing GP and Operating LLC to immediately reimburse such expenses if (i) the Company, Managing
GP or Operating LLC files a petition for relief under the Bankruptcy Code, (ii) an order for relief
is entered against the Company, Managing GP or Operating LLC in an involuntary case under the
Bankruptcy Code, (iii) the Company, Managing GP or Operating LLC makes an assignment for the
benefit of its creditors or (iv) any court orders or approves the appointment of a receiver or
custodian for the Company, Managing GP or Operating LLC or a substantial portion of any of their
assets.
12. (a) If any Underwriter shall default in its obligation to purchase the LP Units which it
has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you
or another party or other parties to purchase such LP Units on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not arrange for the purchase
of such LP Units, then the Company shall be entitled to a further period of thirty-six hours within
which to procure another party or other parties satisfactory to you to purchase such LP Units on
such terms. In the event that, within the respective prescribed periods, you notify the Company
that you have so arranged for the purchase of such LP
31
Units, or the Company notifies you that it has so arranged for the purchase of such LP Units,
you or the Company shall have the right to postpone such Time of Delivery for a period of not more
than seven days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments or supplements to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary. The term Underwriter as used in
this Agreement shall include any person substituted under this Section 12 with like effect as if
such person had originally been a party to this Agreement with respect to such LP Units.
(b) If, after giving effect to any arrangements for the purchase of the LP Units of a
defaulting Underwriter or Underwriters by you and the Company as provided in subsection (a) above,
the aggregate number of such LP Units which remains unpurchased does not exceed one-eleventh of the
aggregate number of all the LP Units to be purchased at such Time of Delivery, then the Company
shall have the right to require each non-defaulting Underwriter to purchase the number of LP Units
which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to
require each non-defaulting Underwriter to purchase its pro rata share (based on the number of LP
Units which such Underwriter agreed to purchase hereunder) of the LP Units of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the LP Units of a
defaulting Underwriter or Underwriters by you and the Company as provided in subsection (a) above,
the aggregate number of such LP Units which remains unpurchased exceeds one-eleventh of the
aggregate number of all the LP Units to be purchased at such Time of Delivery, or if the Company
shall not exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase LP Units of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to any Option Time of Delivery, the obligations of the Underwriters to purchase
and of the Company to sell the Optional LP Units) shall thereupon terminate, without liability on
the part of any non-defaulting Underwriter or the Company, except for the expenses to be borne by
the Company and the Underwriters as provided in Section 7 hereof and the indemnity and contribution
agreements in Section 9 hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
13. (a) The respective indemnities, agreements, representations, warranties and other
statements of the CVR Parties and the several Underwriters, as set forth in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results thereof) made by or on
behalf of any Underwriter or any controlling person of any Underwriter, or the CVR Parties, or any
officer or director or controlling person of any of the CVR Parties, and shall survive delivery of
and payment for the LP Units.
32
(b) In making a claim for breach by the CVR Parties of any agreement, representation or
warranty contained in this Agreement, any Underwriter may proceed against either (i) all of the CVR
Parties jointly or (ii) the Company, Managing GP and Operating LLC jointly, but may not proceed
solely against Coffeyville Resources. As a precondition to any Underwriter obtaining recovery of
any loss, claim, damage, liability or expense from Coffeyville Resources arising out of, or based
upon or resulting from such breach, such Underwriter shall first obtain a final judgment from a
trial court that such Underwriter is entitled to recovery under this Agreement with respect to such
loss, claim, damage, liability or expense (the Breach Final Judgment) from the Company, Managing
GP, Operating LLC and Coffeyville Resources (or any of them) and shall seek to satisfy such Breach
Final Judgment in full from the Company, Managing GP and Operating LLC by making a written demand
upon the Company, Managing GP and Operating LLC for such satisfaction. If such Breach Final
Judgment shall remain unsatisfied in whole or in part 45 days following the date of receipt by the
Company, Managing GP and Operating LLC of such demand, any Underwriter shall have the right to take
action to satisfy such Breach Final Judgment by making demand directly on Coffeyville Resources
(but only if and to the extent the Company, Managing GP or Operating LLC have not already satisfied
such Breach Final Judgment, whether by settlement, release or otherwise). The Underwriters may
exercise this right to first seek to obtain payment from the Company, Managing GP and Operating LLC
and thereafter obtain payment from Coffeyville Resources without regard to the pursuit by any party
of its rights to the appeal of such Breach Final Judgment. The Underwriters shall, however, be
relieved of their obligation to first obtain a Breach Final Judgment, seek to obtain payment from
the Company, Managing GP and Operating LLC with respect to such Breach Final Judgment or, having
sought such payment, to wait such 45 days after failure by the Company, Managing GP and Operating
LLC to immediately satisfy any such Breach Final Judgment if (i) the Company, Managing GP or
Operating LLC files a petition for relief under the Bankruptcy Code, (ii) an order for relief is
entered against the Company, Managing GP or Operating LLC in an involuntary case under the
Bankruptcy Code and such order is not dismissed within 60 days after the filing thereof, (iii) the
Company, Managing GP or Operating LLC makes an assignment for the benefit of its creditors or (iv)
any court orders or approves the appointment of a receiver or custodian for the Company, Managing
GP or Operating LLC or a substantial portion of any of their assets and such appointment is not
discharged within 60 days after the effective date thereof.
(c) Notwithstanding anything in this Agreement to the contrary, Coffeyville Resources
aggregate liability pursuant to the indemnity and contribution provisions of Sections 9 and 10
hereof and for any breach by the CVR Parties of any agreement, representation or warranty contained
in this
33
Agreement shall not exceed an amount equal to $[] plus (x) an amount equal to the
total of the Companys cash and cash equivalents on the Companys consolidated balance sheet as of
the day immediately preceding the First Time of Delivery that the Company distributes to
Coffeyville Resources, as certified in writing to the Representatives by the chief financial
officer of the Company as of the First Time of Delivery, and (y) an amount, if any, equal to the
purchase price paid by the Underwriters for Optional LP Units to the extent any of such proceeds
are distributed to Coffeyville Resources.
14. If this Agreement shall be terminated pursuant to Section 12 hereof, the CVR Parties shall
not then be under any liability to any Underwriter except as provided in Sections 7 and 9 hereof;
but, if for any other reason any LP Units are not delivered by or on behalf of the Company as
provided herein (other than due to the failure to satisfy any of the conditions provided in clauses
(i), (iii), (iv) or (v) of Section 8(i) hereof), the CVR Parties will cause the Company to
reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you,
including fees and disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the LP Units not so delivered, but the CVR
Parties shall not then be under any further liability to any Underwriter except as provided in
Sections 7 and 9 hereof.
15. In all dealings hereunder, you, as the Representatives, shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of any Underwriter made or given by all of the Underwriters jointly
or by the Representatives on behalf of the Underwriters.
16. All statements, requests, notices and agreements hereunder shall be in writing, and if to
the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the
Representatives to each of (i) Morgan Stanley & Co. Incorporated, Attention Global Capital Markets
Syndicate Desk, 1585 Broadway, New York, New York 10036; (ii) Barclays Capital Inc., 745 Seventh
Avenue, New York, New York 10019, Attention: Syndicate Registration (Facsimile: 646-834-8133); and
(iii) Goldman, Sachs & Co., 200 West Street, New York, New York 10282, Attention: Registration
Department (Facsimile: 212-902-9316), with a copy, in the case of any notice pursuant to Section 13
hereof, to the Director of Litigation, Office of the General Counsel, Barclays Capital Inc., 745
Seventh Avenue, New York, New York 10019; if to Morgan Stanley in connection with the Directed Unit
Program shall be delivered or sent by mail, telex or facsimile transmission to Morgan Stanley & Co.
Incorporated, Attention Global Capital Markets Syndicate Desk, 1585 Broadway, New York, New York
10036; and if to the Company shall be delivered or sent by mail, telex or facsimile
34
transmission to the address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to subsection 9(c)
hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at
its address set forth in its Underwriters Questionnaire, or telex constituting such Questionnaire,
which address will be supplied to the Company by you upon request; provided, however, that notices
under subsection 9(c) shall be in writing, and if to the Underwriters shall be delivered
or sent by mail, telex or facsimile transmission to you as the Representatives to each of (i)
Morgan Stanley & Co. Incorporated, Attention Global Capital Markets Syndicate Desk, 1585 Broadway,
New York, New York 10036; (ii) Barclays Capital Inc., 745 Seventh Avenue, New York, New York 10019,
Attention: Syndicate Registration (Facsimile: 646-834-8133); and (iii) Goldman, Sachs & Co., 200
West Street, New York, New York 10282, Attention: Registration Department (Facsimile:
212-902-9316). Any such statements, requests, notices or agreements shall take effect upon receipt
thereof.
17. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters
and the CVR Parties and, to the extent provided in Sections 9 and 13 hereof, the officers and
directors of the CVR Parties and each person who controls the CVR Parties or any Underwriter, and
their respective heirs, executors, administrators, successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the
LP Units from any Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
18. Time shall be of the essence of this Agreement. As used herein, the term business day
shall mean any day when the Commissions office in Washington, D.C. is open for business.
19. The CVR Parties acknowledge and agree that (i) the purchase and sale of the LP Units
pursuant to this Agreement is an arms-length commercial transaction between the CVR Parties, on
the one hand, and the several Underwriters, on the other; (ii) in connection therewith and with the
process leading to such transaction each Underwriter is acting solely as a principal and not the
agent or fiduciary of any of the CVR Parties; (iii) no Underwriter has assumed an advisory or
fiduciary responsibility in favor of any of the CVR Parties with respect to the offering
contemplated hereby or the process leading thereto (irrespective of whether such Underwriter has
advised or is currently advising any of the CVR Parties on other matters) or any other obligation
to any of the CVR Parties except the obligations expressly set forth in this Agreement; and (iv)
the CVR Parties have consulted their own legal and financial advisors to the extent it deemed
appropriate. The CVR Parties agree that they will not claim that the Underwriters, or any of them,
have rendered advisory services of any nature or respect, or owe a fiduciary or similar duty to any
of the CVR Parties in connection with such transaction or the process leading thereto.
35
20. This Agreement supersedes all prior agreements and understandings (whether written or
oral) between the CVR Parties and the Underwriters, or any of them, with respect to the subject
matter hereof.
21. This Agreement shall be governed by and construed in accordance with the laws of the State
of New York.
22. Each of the CVR Parties and each of the Underwriters hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Agreement or the transactions contemplated hereby,
including the Transactions.
23. This Agreement may be executed by any one or more of the parties hereto in any number of
counterparts, each of which shall be deemed to be an original, but all such counterparts shall
together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign and return to us two
counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters,
this letter and such acceptance hereof shall constitute a binding agreement among each of the
Underwriters and the CVR Parties. It is understood that your acceptance of this letter on behalf
of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company for examination upon request, but
without warranty on your part as to the authority of the signers thereof.
[Remainder of this page intentionally left blank]
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Very truly yours, |
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CVR Partners, LP |
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By:
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CVR GP, LLC, General Partner
By: Coffeyville Acquisition III LLC,
Sole Member |
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By:
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CVR Special GP, LLC, General
Partner
By: Coffeyville Resources, LLC,
Sole Member |
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Coffeyville Resources Nitrogen
Fertilizers, LLC |
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By: |
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Coffeyville Resources, LLC |
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Name: |
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Accepted as of the date hereof:
Morgan Stanley & Co. Incorporated
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By:
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Barclays Capital Inc. |
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Goldman, Sachs & Co. |
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(Goldman, Sachs & Co.) |
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On behalf of each of the Underwriters
SCHEDULE I
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Number of Optional |
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LP Units to be |
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Total Number of |
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Underwriter |
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Morgan Stanley & Co. Incorporated
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[l]
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Barclays Capital Inc.
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[l]
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Goldman, Sachs & Co.
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Total
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SCHEDULE IIA
Number of [Firm] LP Units: [l]
[Number of Optional LP Units: [l]]
Initial public offering price per Common Unit $[l]
l [Other, if any, TBD]
SCHEDULE IIB
Issuer Free Writing Prospectuses
Electronic road show as filed on Netroadshow.com (the Electronic Roadshow) on
[l], 2011.
l [Other, if any, TBD]
Schedule III
Persons and Entities Subject to Lock-Up Letters
Coffeyville Resources, LLC
CVR GP, LLC
John J. Lipinski
Designated trust of John J. Lipinski
Stanley A. Riemann
Edward Morgan
Edmund S. Gross
Kevan A. Vick
Christopher G. Swanberg
Donna R. Ecton
Scott Lebovitz
George E. Matelich
Frank M. Muller, Jr.
Stanley de J. Osborne
John K. Rowan
ANNEX I(a)
Form of Fried, Frank, Harris, Shriver & Jacobson LLP Opinion for the Company
ANNEX I(b)
Form of Vinson & Elkins L.L.P. Opinion for the Company
ANNEX II
FORM OF JOINDER AGREEMENT OF CVR GP, LLC
[l], 2011
Morgan Stanley & Co. Incorporated
Barclays Capital Inc.
Goldman, Sachs & Co.
As representatives of the several Underwriters
named in Schedule I to the Underwriting Agreement,
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement, dated [l], 2011 (the Underwriting
Agreement), initially among CVR Partners, LP, a Delaware limited partnership (the Company),
Coffeyville Resources Nitrogen Fertilizers, LLC, a Delaware limited liability company and a direct
wholly-owned subsidiary of the Company (Operating LLC), Coffeyville Resources, LLC, a Delaware
limited liability company (Coffeyville Resources), and the several underwriters named in Schedule
I thereto (the Underwriters), for whom Morgan Stanley & Co. Incorporated, Barclays Capital Inc.
and Goldman, Sachs & Co. are acting as representatives, concerning the purchase of the LP Units (as
defined in the Underwriting Agreement) from the Company by the Underwriters. Capitalized terms
used herein but not defined herein shall have the meanings assigned to such terms in the
Underwriting Agreement.
CVR GP, LLC, a Delaware limited liability company (Managing GP), agrees that this Agreement
is being executed and delivered in connection with the issue and sale of the LP Units pursuant to
the Underwriting Agreement and to induce the Underwriters to purchase the LP Units thereunder and
is being executed concurrently with the First Time of Delivery .
1. Managing GP hereby agrees to be bound by the terms, conditions, agreements,
representations, warranties and other provisions of the Underwriting Agreement with all attendant
rights, duties and obligations stated therein, with the same force and effect as if originally
party thereto, including as a CVR Party, and as if it executed the Underwriting Agreement on the
date thereof.
2. Managing GP represents and warrants to, and agrees with, each of the Underwriters that (a)
Managing GP has full partnership power and authority to execute,
deliver and perform this Agreement and to consummate the transactions contemplated hereby, and
this Agreement has been duly authorized, executed and delivered by Managing GP; and (b) the
representations, warranties and agreements of the CVR Parties set forth in the Underwriting
Agreement are true and correct on and as of the date hereof.
3. This Agreement shall be governed by and construed in accordance with the laws of the State
of New York.
4. This Agreement does not cancel, extinguish, limit or otherwise adversely affect any right
or obligation of the parties under the Underwriting Agreement. Managing GP acknowledges and agrees
that all of the provisions of the Underwriting Agreement shall remain in full force and effect.
[Remainder of page intentionally left blank.]
2
If the foregoing is in accordance with your understanding of our agreement, please indicate
your acceptance of this Agreement by signing in the space provided below, whereupon this Agreement
and the Underwriting Agreement will become binding agreements of Managing GP in accordance with
their respective terms.
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CVR GP, LLC By: Coffeyville Resources, LLC, Sole Member
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Signature Page to Joinder Agreement
exv3w1
Exhibit 3.1
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF LIMITED PARTNERSHIP
OF
CVR PARTNERS, LP
This Amended and Restated Certificate of Limited Partnership of CVR Partners, LP dated ______,
2011 has been duly executed and filed by the undersigned general partner pursuant to Section 17-201
of the Delaware Revised Uniform Limited Partnership Act the (Act) and is an amendment and
restatement of that certain Certificate of Limited Partnership dated June 12, 2007.
1. Name. The name of the limited partnership is CVR Partners, LP.
2. Registered Office. The address of the registered office required to be maintained
by Section 17-104 of the Act is:
1209 Orange Street,
Wilmington, Delaware 19801
The name and address of the registered agent for service of process required to be maintained by
Section 17-104 of the Act is:
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
3. General Partner. The name and business address of the sole general partner of the
Partnership is:
CVR GP, LLC
2277 Plaza Drive, Suite 500
Sugar Land, Texas 77479
EXECUTED, as of the date written first above.
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CVR GP, LLC
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Edmund S. Gross |
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Senior Vice President, General
Counsel and Secretary |
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exv3w4
Exhibit 3.4
FORM OF
THIRD AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
CVR GP, LLC
TABLE OF CONTENTS
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ARTICLE I |
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DEFINITIONS |
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Section 1.1 Definitions
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Section 1.2 Construction
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ARTICLE II |
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ORGANIZATION |
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Section 2.1 Formation
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Section 2.3 Registered Office; Registered Agent; Principal Office; Other Offices
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Section 2.4 Purpose and Business
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Section 2.5 Powers
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Section 2.6 Term
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Section 2.7 Title to Company Assets
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ARTICLE III |
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RIGHTS OF SOLE MEMBER |
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Section 3.1 Voting
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Section 3.2 Distribution
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ARTICLE IV |
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CAPITAL CONTRIBUTIONS; PRE EMPTIVE RIGHTS; |
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NATURE OF MEMBERSHIP INTEREST |
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Section 4.1 Initial Capital Contributions
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Section 4.2 Additional Capital Contributions
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Section 4.3 No Preemptive Rights
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Section 4.4 Fully Paid and Non-Assessable Nature of Membership Interests
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ARTICLE V |
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MANAGEMENT AND OPERATION OF BUSINESS |
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Section 5.1 Establishment of The Board
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Section 5.3 Term of Office
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Section 5.5 Voting
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Section 5.8 Certificate of Formation
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Section 5.10 Indemnification
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Section 5.11 Liability of Indemnitees
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Third Amended and Restated Limited Liability Company Agreement
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CVR GP, LLC
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Section 5.12 Reliance by Third Parties
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Section 5.13 Other Business of Members
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ARTICLE VI |
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Section 6.1 Officers
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Section 6.2 Compensation
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BOOKS, RECORDS, ACCOUNTING AND REPORTS |
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Section 7.1 Records and Accounting
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Section 7.2 Reports
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Section 7.3 Bank Accounts
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ARTICLE VIII |
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Section 8.2 Effect of Dissolution
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GENERAL PROVISIONS |
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Section 9.1 Addresses and Notices
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Section 9.2 Creditors
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Section 9.3 Applicable Law
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Section 9.4 Invalidity of Provisions
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Third Amended and Restated Limited Liability Company Agreement
of
CVR GP, LLC
ii
THIRD AMENDED AND RESTATED LIMITED LIABILTY COMPANY AGREEMENT
OF
CVR GP, LLC
THIS THIRD AMENDED AND RESTATED LIMITED LIABILTY COMPANY AGREEMENT of CVR GP, LLC (the
Company), dated as of [ ], 2011 is entered into by Coffeyville Resources, LLC, a
Delaware limited liability company (Coffeyville Resources), as sole member of the Company as of
the date hereof (in such capacity, the Sole Member).
RECITALS:
WHEREAS, Coffeyville Resources formed the Company as a limited liability company under the
Delaware Limited Liability Company Act by filing a Certificate of Formation with the Secretary of
State of the State of Delaware effective as of October 24, 2007.
WHEREAS, the Company was previously governed by that certain Limited Liability Company
Agreement (the Original LLC Agreement) dated as of August 22, 2007, as amended and restated by
the First Amended and Restated Limited Liability Company Agreement (First A&R LLC Agreement)
dated as of October 24, 2007 and as amended and restated by the Second Amended and Restated Limited
Liability Company Agreement (Second A&R LLC Agreement) dated as of June 6, 2008.
WHEREAS, Coffeyville Resources assigned, transferred, conveyed and delivered its 100%
membership interest in the Company to Coffeyville Acquisition III LLC (C/A III) in exchange for
$10.6 million.
WHEREAS, C/A III assigned, transferred, conveyed and delivered its 100% membership interest in
the Company to Coffeyville Resources in exchange for [$1,000] pursuant to an Amended and Restated
Contribution, Conveyance and Assumption Agreement dated [ ], 2011 (the Amended Contribution
Agreement).
WHEREAS, pursuant to the Amended Contribution Agreement, CVR Special GP, LLC (the Special
GP) contributed all of its Special GP Units representing general partner interests in the
Partnership to the Partnership in exchange for Common LP Units representing limited partner
interests in the Partnership and is thereby no longer a general partner of the Partnership.
WHEREAS, Coffeyville Resources now desires to amend and restate the Second A&R LLC Agreement
in its entirety by executing this Third Amended and Restated Limited Liability Company Agreement in
order to (a) remove references to the Special GP as general partner; (b) revise Appendix A
in light of the amendment and restatement of the Partnership Agreement; and (c) clarify that
Coffeyville Resources is the Sole Member of the Company.
NOW THEREFORE, in consideration of the covenants, conditions and agreements contained herein,
the Sole Member hereby enters into this Agreement:
1
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.
Act means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101, et seq., as
amended, supplemented or restated from time to time, and any successor to such statute.
Agreement means this Third Amended and Restated Limited Liability Company Agreement of CVR
GP, LLC, as it may be amended, supplemented or restated from time to time. The Agreement
constitutes a limited liability company agreement as such term is defined in the Act.
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.
Amended Contribution Agreement has the meaning assigned to such term in the recitals of this
Agreement.
Board has the meaning assigned to such term in Section 5.1.
C/A III has the meaning assigned to such term in the recitals of this Agreement.
Capital Contribution means any cash, cash equivalents or the value of Contributed Property
contributed to the Company.
Certificate of Formation means the Certificate of Formation of the Company filed with the
Secretary of State of the State of Delaware as referenced in Section 2.1, as such
Certificate of Formation may be amended, supplemented or restated from time to time.
Chairman has the meaning assigned to such term in Section 5.2(d).
Coffeyville Resources has the meaning assigned to such term in the introductory paragraph of
this Agreement.
Company means CVR GP, LLC, a Delaware limited liability company, and any successors thereto.
Company Group means the Company and any Subsidiary of the Company, treated as a single
consolidated entity.
2
Contributed Property means each property or other asset, in such form as may be permitted by
the Act, but excluding cash, contributed to the Company.
Directors has the meaning assigned to such term in Section 5.1.
Group Member means a member of the Company Group.
Indemnitee means (a) the Sole Member; (b) any Person who is or was a director, officer,
fiduciary or trustee of the Company, any Group Member, the Partnership; and (c) any Person who is
or was serving at the request of the Sole Member as a director, officer, fiduciary or trustee of
another Person, in each case, acting in such capacity, provided, that a Person shall not be an
Indemnitee by reason of providing, on a fee-for-services basis, trustee, fiduciary or custodial
services.
Independent Director has the meaning assigned to such term in Section 5.2.
Initial Public Offering means the initial offering and sale of common units representing
limited partner interests in the Partnership to the public.
Membership Interest means all of the Sole Members rights and interest in the Company in the
Sole Members capacity as the Sole Member, all as provided in the Certificate of Formation, this
Agreement and the Act, including, without limitation, the Sole Members interest in the capital,
income, gain, deductions, losses and credits of the Company.
Officer means the meaning given to such term in Section 6.1.
Partnership means CVR Partners, LP.
Partnership Agreement means the Agreement of Limited Partnership of CVR Partners, LP, as it
may be amended, supplemented or restated from time to time.
Partnership Interest means an interest in the Partnership, which shall include any general
partner interest and limited partner interests but shall exclude any options, rights, warrants and
appreciation rights relating to an equity interest in the Partnership.
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.
Sole Member has the meaning assigned to such term in the introductory paragraph of this
Agreement.
Special GP has the meaning assigned to such term in the recitals of this Agreement.
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
3
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 partner of such
partnership, but only if such Person, directly or by one or more Subsidiaries of such Person, or a
combination thereof, controls such partnership, directly or indirectly, at the date of
determination or (c) any other Person 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.
Section 1.2 Construction.
(a) Unless the context requires otherwise: (i) capitalized terms used herein but not
otherwise defined shall have the meanings assigned to such terms in the Partnership Agreement; (ii)
any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter
forms; (iii) references to Articles and Sections refer to Articles and Sections of this Agreement;
and (iv) the term include or includes means includes, without limitation, and including means
including, without limitation.
(b) A reference to any Person includes such Persons successors and permitted assigns.
ARTICLE II
ORGANIZATION
Section 2.1 Formation.
On June 12, 2007, Coffeyville Resources formed the Company as a limited liability company
pursuant to the provisions of the Act by virtue of the filing of the Certificate of Formation with
the Secretary of State of the State of Delaware.
Section 2.2 Name.
The name of the Company shall be CVR GP, LLC. The Companys business may be conducted under
any other name or names deemed necessary or appropriate by the Board in its discretion, including,
if consented to by the Board, the name of the Partnership. The words Limited Liability Company,
L.L.C. or LLC or similar words or letters shall be included in the Companys name where
necessary for the purpose of complying with the laws of any jurisdiction that so requires. The
Board in its discretion may change the name of the Company at any time and from time to time and
shall promptly notify the Sole Member of such change.
Section 2.3 Registered Office; Registered Agent; Principal Office; Other Offices.
Unless and until changed by the Board, the registered office of the Company in the State of
Delaware shall be located at 1209 Orange Street, Wilmington, Delaware 19801, and the registered
agent for service of process on the Company in the State of Delaware at such registered office
shall be The Corporation Trust Company. The principal office of the Company shall be located at
2277 Plaza Drive, Suite 500, Sugar Land, Texas 77479, or such other place as the Board may from
time to time designate. The Company may maintain offices at such other
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place or places within or outside the State of Delaware as the Board deems necessary or
appropriate.
Section 2.4 Purpose and Business.
The purpose and nature of the business to be conducted by the Company shall be to (a) serve as
the general partner of the Partnership and, in connection therewith, to exercise all rights
conferred upon the Company as the general partner of the Partnership in accordance with the
Partnership Agreement; (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 Company is permitted to engage in and, in connection therewith, to exercise all
of the rights and powers conferred upon the Company 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 Sole Member and that lawfully may be conducted by a limited
liability company organized pursuant to the Act and, in connection therewith, to exercise all of
the rights and powers conferred upon the Company pursuant to the agreements relating to such
business activity; (d) guarantee, mortgage, pledge or encumber any or all of its assets in
connection with any indebtedness of any Affiliate of the Company and (e) do anything necessary or
appropriate to the foregoing, including the making of capital contributions or loans to a Group
Member, the Partnership or any Subsidiary of the Partnership.
Section 2.5 Powers.
The Company 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
Company.
Section 2.6 Term.
The term of the Company commenced upon the filing of the Certificate of Formation in
accordance with the Act and shall continue in existence in perpetuity or until the dissolution of
the Company in accordance with the provisions of Article VIII. The existence of the
Company as a separate legal entity shall continue until the cancellation of the Certificate of
Formation as provided in the Act.
Section 2.7 Title to Company Assets.
Title to Company assets, whether real, personal or mixed and whether tangible or intangible,
shall be deemed to be owned by the Company as an entity, and the Sole Member shall not have any
ownership interest in such Company assets or any portion thereof.
ARTICLE III
RIGHTS OF SOLE MEMBER
Section 3.1 Voting.
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Unless otherwise granted to the Board by this Agreement, the Sole Member shall possess the
entire voting interest in all matters relating to the Company, including, without limitation,
matters relating to the amendment of this Agreement, any merger, consolidation or conversion of the
Company, sale of all or substantially all of the assets of the Company and the termination,
dissolution and liquidation of the Company.
Section 3.2 Distribution.
Distributions by the Company of cash or other property shall be made to the Sole Member at
such time as the Sole Member deems appropriate.
ARTICLE IV
CAPITAL CONTRIBUTIONS; PRE EMPTIVE RIGHTS;
NATURE OF MEMBERSHIP INTEREST
Section 4.1 Initial Capital Contributions.
On August 20, 2007, in connection with the formation of the Company, the Sole Member made a
contribution to the capital of the Company in the amount of $1,000 in exchange for all of the
Membership Interests.
Section 4.2 Additional Capital Contributions.
The Sole Member shall not be obligated to make additional Capital Contributions to the
Company.
Section 4.3 No Preemptive Rights.
No Person shall have preemptive, preferential or other similar rights with respect to (a)
additional Capital Contributions; (b) issuance or sale of any class or series of Membership
Interests, whether unissued, held in the treasury or hereafter created; (c) issuance of any
obligations, evidences of indebtedness or other securities of the Company convertible into or
exchangeable for, or carrying or accompanied by any rights to receive, purchase or subscribe to,
any such Membership Interests; (d) issuance of any right of subscription to or right to receive, or
any warrant or option for the purchase of, any such Membership Interests; or (e) issuance or sale
of any other securities that may be issued or sold by the Company.
Section 4.4 Fully Paid and Non-Assessable Nature of Membership Interests.
All Membership Interests issued pursuant to, and in accordance with, the requirements of this
Article IV shall be fully paid and non-assessable Membership Interests, except as such
non-assessability may be affected by Section 18-607 of the Act.
ARTICLE V
MANAGEMENT AND OPERATION OF BUSINESS
Section 5.1 Establishment of The Board.
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The number of directors (the Directors) constituting the Board shall be at least three and
not more than twelve, unless otherwise fixed from time to time pursuant to action by the Sole
Member. The Directors shall be elected or approved by the Sole Member. The Directors shall serve
as Directors of the Company for their term of office established pursuant to Section 5.3.
Section 5.2 The Board; Delegation of Authority and Duties.
(a) Sole Members and Board. Except as otherwise provided in this Agreement, the business and
affairs of the Company shall be managed under the direction of the Board, which shall possess all
rights and powers which are possessed by managers under the Act and otherwise by applicable law,
pursuant to Section 18-402 of the Act, subject to the provisions of this Agreement. Except as
otherwise provided for herein, the Sole Member hereby consents to the exercise by the Board of all
such powers and rights conferred on it by the Act or otherwise by applicable law with respect to
the management and control of the Company. To the fullest extent permitted by applicable law, each
Director shall have such rights and duties as are applicable to directors of a corporation
organized under the General Corporation Law of the State of Delaware.
(b) Delegation by the Board. The Board shall have the power and authority to delegate to one
or more other Persons the Boards rights and powers to manage and control the business and affairs
of the Company, including delegating such rights and powers of the Board to agents and employees of
the Company (including Officers). The Board may authorize any Person (including, without
limitation, the Sole Member, or any Director or Officer) to enter into any document on behalf of
the Company and perform the obligations of the Company thereunder. Notwithstanding the foregoing,
the Board shall not have the power and authority to delegate any rights or powers customarily
requiring the approval of the directors of a corporation, other than to a committee of the Board,
and no Officer or other Person shall be authorized or empowered to act on behalf of the Company in
any way beyond the customary rights and powers of an officer of a corporation.
(c) Committees.
(i) The Board may establish committees of the Board and may delegate any of its
responsibilities to such committees.
(ii) Upon the closing of the Initial Public Offering, the Board shall have an audit
committee comprised of at least one Director as of the closing date, at least two Directors
within 90 days of such closing date and at least three Directors within one year of such
closing date, all of whom shall be Independent Directors. Such audit committee shall
establish a written audit committee charter in accordance with the rules of the principal
national securities exchange on which a class of Limited Partner Interests of the
Partnership are listed or admitted to trading, as amended from time to time. Independent
Director shall mean Directors meeting independence standards required of directors who
serve on an audit committee of a board of directors established by the Securities
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Exchange Act of 1934 and the rules and regulations of the Securities and Exchange
Commission thereunder and by the national securities exchange on which any class of
Partnership Interests of the Partnership are listed or admitted to trading.
(d) Chairman of the Board. The Board may elect a chairman (the Chairman) of the Board. The
Chairman of the Board, if elected, shall be a member of the Board and shall preside at all meetings
of the Board and of the Partners of the Partnership. The Chairman of the Board shall not be an
Officer by virtue of being the Chairman of the Board but may otherwise be an Officer. The Chairman
of the Board may be removed either with or without cause at any time by the affirmative vote of a
majority of the Board. No removal or resignation as Chairman of the Board shall affect such
Chairmans status as a Director.
Section 5.3 Term of Office.
Once designated pursuant to Section 5.1, a Director shall continue in office until the
removal of such Director in accordance with the provisions of this Agreement or until the earlier
death or resignation of such Director. Any Director may resign at any time by giving written
notice of such Directors resignation to the Board. Any such resignation shall take effect at the
time the Board receives such notice or at any later effective time specified in such notice.
Unless otherwise specified in such notice, the acceptance by the Board of such Directors
resignation shall not be necessary to make such resignation effective. Notwithstanding anything
herein or under applicable law to the contrary, any Director may be removed at any time with or
without cause by the Sole Member.
Section 5.4 Meetings of the Board and Committees.
(a) Meetings. The Board (or any committee of the Board) shall meet at such time and at such
place as the Chairman of the Board (or the chairman of such committee) may designate. Written
notice of all regular meetings of the Board (or any committee of the Board) must be given to all
Directors (or all members of such committee) at least two days prior to the regular meeting of the
Board (or such committee). Special meetings of the Board (or any committee of the Board) shall be
held at the request of the Chairman or a majority of the Directors (or a majority of the members of
such committee) upon at least two days (if the meeting is to be held in person) or twenty-four
hours (if the meeting is to be held telephonically) oral or written notice to the Directors (or the
members of such committee) or upon such shorter notice as may be approved by the Directors (or the
members of such committee), which approval may be given before or after the relevant meeting which
the notice relates to. All notices and other communications to be given to Directors (or members
of a committee) shall be sufficiently given for all purposes hereunder if in writing and delivered
by hand, courier or overnight delivery service or three days after being mailed by certified or
registered mail, return receipt requested, with appropriate postage prepaid, or when received in
the form of a telegram or facsimile, and shall be directed to the address or facsimile number as
such Director (or member) shall designate by notice to the Company. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board (or committee) need
be specified in the notice of such meeting. Any Director (or member of such committee) may waive
the requirement of such notice as to such Director (or such member).
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(b) Conduct of Meetings. Any meeting of the Board (or any committee of the Board) may be held
in person or by telephone conference or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
(c) Quorum. Fifty percent or more of all Directors (or members of a committee of the Board),
present in person or participating in accordance with Section 5.4(b), shall constitute a
quorum for the transaction of business, but if at any meeting of the Board (or committee) there
shall be less than a quorum present, a majority of the Directors (or members of a committee)
present may adjourn the meeting without further notice. The Directors (or members of a committee)
present at a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough Directors (or members of a committee) to leave less than a
quorum; provided, however, that only the acts of the Directors (or members of a committee) meeting
the requirements of Section 5.5 shall be deemed to be acts of the Board (or such
committee).
(d) Procedures. To the extent not inconsistent with this Agreement or the Act, the procedures
and rights governing the Board and its committees shall be as provided to the board of directors
and its committees of a corporation under the General Corporation Law of the State of Delaware.
Section 5.5 Voting.
Except as otherwise provided in this Agreement, the effectiveness of any vote, consent or
other action of the Board (or any committee) in respect of any matter shall require either (i) the
presence of a quorum and the affirmative vote of at least a majority of the Directors (or members
of such committee) present or (ii) the unanimous written consent (in lieu of meeting) of the
Directors (or members of such committee) who are then in office. Any Director may vote in person
or by proxy (pursuant to a power of attorney) on any matter that is to be voted on by the Board at
a meeting thereof.
Section 5.6 Responsibility and Authority of the Board.
(a) General. Except as otherwise provided in this Agreement, the relative authority and
functions of the Board, on the one hand, and the Officers, on the other hand, shall be identical to
the relative authority and functions of the board of directors and officers, respectively, of a
corporation organized under the General Corporation Law of the State of Delaware. The Officers
shall be vested with such powers and duties as are set forth in Section 6.1 hereof and as
are specified by the Board from time to time. Accordingly, except as otherwise specifically
provided in this Agreement, the day-to-day activities of the Company shall be conducted on the
Companys behalf by the Officers who shall be agents of the Company. In addition to the powers and
authorities expressly conferred on the Board by this Agreement, the Board may exercise all such
powers of the Company and do all such acts and things as are not restricted by this Agreement, the
Partnership Agreement, the Act or applicable law.
(b) Member Consent Required for Extraordinary Matters. Notwithstanding anything herein to the
contrary, the Board will not take any action without approval of the Sole Member
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with respect to an extraordinary matter that would have, or would reasonably be expected to
have, a material effect, directly or indirectly, on the Sole Members interests in the Company.
The type of extraordinary matter referred to in the prior sentence which requires approval of the
Sole Member shall include, but not be limited to, the following: (i) commencement of any action
relating to bankruptcy, insolvency, reorganization or relief of debtors by the Company, the
Partnership or a material Subsidiary thereof; (ii) a merger, consolidation, recapitalization or
similar transaction involving the Company, the Partnership or a material Subsidiary thereof; (iii)
a sale, exchange or other transfer not in the ordinary course of business of a substantial portion
of the assets of the Partnership or a material Subsidiary of the Partnership, viewed on a
consolidated basis, in one or a series of related transactions; (iv) dissolution or liquidation of
the Company or the Partnership; and (v) a material amendment of the Partnership Agreement. An
extraordinary matter will be deemed approved by the Sole Member if the Board receives a written,
facsimile or electronic instruction evidencing such approval from the Sole Member or if a majority
of the Directors that do not qualify as Independent Directors because of their affiliation with the
Sole Member, approve such matter. To the fullest extent permitted by law, a Director, acting as
such, shall have no duty, responsibility or liability to the Sole Member with respect to any action
by the Board approved by the Sole Member.
(c) Member-Managed Decisions.
Notwithstanding anything herein to the contrary, the Sole Member shall have exclusive
authority over the internal business and affairs of the Company that do not relate to management
and control of the Partnership and its subsidiaries. For illustrative purposes, the internal
business and affairs of the Company where the Sole Member shall have exclusive authority include
(i) the amount and timing of distributions paid by the Company, (ii) the issuance or repurchase of
any equity interests in the Company, (iii) the prosecution, settlement or management of any claim
made directly against the Company, (iv) the decision to sell, convey, transfer or pledge any asset
of the Company, (v) the decision to amend, modify or waive any rights relating to the assets of the
Company and (vi) the decision to enter into any agreement to incur an obligation of the Company
other than an agreement entered into for and on behalf of the Partnership for which the Company is
liable exclusively by virtue of the Companys capacity as general partner of the Partnership or of
any of its Affiliates.
In addition, notwithstanding anything herein to the contrary, the Sole Member shall have
exclusive authority to cause the Company to exercise the rights of the Company as general partner
of the Partnership (or those exercisable after the Company ceases to be the general partner of the
Partnership) where (a) the Company makes a determination or takes or declines to take any other
action in its individual capacity under the Partnership Agreement or (b) where the Partnership
Agreement permits the Company to make a determination or take or decline to take any other action
in its sole discretion. For illustrative purposes, a list of provisions where the Company would be
acting in its individual capacity or is permitted to act in its sole discretion is contained in
Appendix A hereto.
Section 5.7 Devotion of Time.
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The Directors shall not be obligated and shall not be expected to devote all of their time or
business efforts to the affairs of the Company (except, to the extent appropriate, in their
capacity as employees of the Company).
Section 5.8 Certificate of Formation.
Coffeyville Resources caused the Certificate of Formation to be filed with the Secretary of
State of the State of Delaware as required by the Act and certain other certificates or documents
it determined in its discretion to be necessary or appropriate for the qualification and operation
of the Company in certain other states. The Board shall use all reasonable efforts to cause to be
filed such additional certificates or documents as may be determined by the Board to be necessary
or appropriate for the formation, continuation, qualification and operation of a limited liability
company in the State of Delaware or any other state in which the Company may elect to do business
or own property. To the extent that such action is determined by the Board to be necessary or
appropriate, the Board shall cause the Officers file amendments to and restatements of the
Certificate of Formation and do all things to maintain the Company as a limited liability company
under the laws of the State of Delaware or of any other state in which the Company may elect to do
business or own property.
Section 5.9 Benefit Plans.
The Board may propose and adopt on behalf of the Company employee benefit plans, employee
programs and employee practices, or cause the Company to issue Partnership Interests, in connection
with or pursuant to any employee benefit plan, employee program or employee practice maintained or
sponsored by any Group Member or any Affiliate thereof, in each case for the benefit of employees
of the Company, any Group Member or any Affiliate thereof, or any of them, in respect of services
performed, directly or indirectly, for the benefit of any Group Member.
Section 5.10 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 Company 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 threatened, pending or completed claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative, and whether formal or
informal and including appeals, 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 and acting (or
refraining to act) in such capacity on behalf of or for the benefit of the Company; provided, that
the Indemnitee shall not be indemnified and held harmless if there has been a final and
non-appealable judgment entered by a court of competent jurisdiction determining that, in respect
of the matter for which the Indemnitee is seeking indemnification pursuant to this Section
5.10, the Indemnitee acted in bad faith or engaged in fraud, willful misconduct or, in the case
of a criminal matter, acted with knowledge that the Indemnitees conduct was unlawful. Any
indemnification pursuant to this Section 5.10 shall be made only out of the assets of the
Company, it being agreed that the Sole Member shall not be personally liable for such
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indemnification and shall have no obligation to contribute or loan any monies or property to
the Company to enable it to effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including legal fees and expenses)
incurred by an Indemnitee who is indemnified pursuant to Section 5.10(a) in appearing at,
participating in or defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by the Company prior to a final and non-appealable judgment entered by a court of
competent jurisdiction determining that, in respect of the matter for which the Indemnitee is
seeking indemnification pursuant to this Section 5.10, that the Indemnitee is not entitled
to be indemnified upon receipt by the Company of any undertaking by or on behalf of the Indemnitee
to repay such amount if it shall be ultimately determined that the Indemnitee is not entitled to be
indemnified as authorized by this Section 5.10.
(c) The indemnification provided by this Section 5.10 shall be in addition to any
other rights to which an Indemnitee may be entitled under any agreement, as a matter of law, in
equity or otherwise, both as to actions in the Indemnitees capacity as an Indemnitee and as to
actions in any other capacity, and shall continue as to an Indemnitee who has ceased to serve in
such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators
of the Indemnitee.
(d) The Company may purchase and maintain (or reimburse the Sole Member or its Affiliates for
the cost of) insurance, on behalf of the Directors, the Officers, the Sole Member, its Affiliates,
the Indemnitees and such other Persons as the Sole Member shall determine, against any liability
that may be asserted against, or expense that may be incurred by, such Person in connection with
the Companys activities or such Persons activities on behalf of the Company, regardless of
whether the Company would have the power to indemnify such Person against such liability under the
provisions of this Agreement.
(e) For purposes of this Section 5.10, the Company 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 Company 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 5.10(a); and action taken or omitted by an Indemnitee with respect to any
employee benefit plan in the performance of its duties for a purpose reasonably believed by it to
be in the best interest of the participants and beneficiaries of the plan shall be deemed to be for
a purpose that is in the best interests of the Company.
(f) In no event may an Indemnitee subject the Sole Member 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 5.10 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.
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(h) The provisions of this Section 5.10 are for the benefit of the Indemnitees and
their heirs, successors, assigns, executors 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 5.10 shall in any manner
terminate, reduce or impair the right of any past, present or future Indemnitee to be indemnified
by the Company, nor the obligations of the Company to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 5.10 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 5.11 Liability of Indemnitees.
(a) Notwithstanding anything to the contrary set forth in this Agreement or the Partnership
Agreement, no Indemnitee shall be liable for monetary damages to the Company, the Sole Member or
any other Persons who have acquired interests in the Company, for losses sustained or liabilities
incurred as a result of any act or omission of an Indemnitee unless there has been a final and
non-appealable judgment entered by a court of competent jurisdiction determining that, in respect
of the matter in question, the Indemnitee acted in bad faith or engaged in fraud, willful
misconduct or, in the case of a criminal matter, acted with knowledge that the Indemnitees conduct
was criminal.
(b) To the extent that, at law or in equity, an Indemnitee has duties (including fiduciary
duties) and liabilities relating thereto to the Partnership or to the Partners, the General Partner
and any other Indemnitee acting in connection with the Partnerships business or affairs shall not
be liable to the Partnership or to any Partner for its good faith reliance on the provisions of
this Agreement..
(c) Any amendment, modification or repeal of this Section 5.11 shall be prospective
only and shall not in any way affect the limitations on the liability of the Indemnitees under this
Section 5.11 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 5.12 Reliance by Third Parties.
Notwithstanding anything to the contrary in this Agreement, any Person dealing with the
Company shall be entitled to assume that any Officer authorized by the Board to act for and on
behalf of and in the name of the Company has full power and authority to encumber, sell or
otherwise use in any manner any and all assets of the Company and to enter into any authorized
contracts on behalf of the Company, and such Person shall be entitled to deal with any such Officer
as if it were the Companys sole party in interest, both legally and beneficially. The Sole Member
hereby waives any and all defenses or other remedies that may be available against such Person to
contest, negate or disaffirm any action of any such Officer in connection with any such dealing.
In no event shall any Person dealing with any such Officer or its representatives be obligated to
ascertain that the terms of the Agreement have been complied with or to inquire into
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the necessity or expedience of any act or action of any such Officer or its representatives.
Each and every certificate, document or other instrument executed on behalf of the Company by any
Officer authorized by the Board 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 and in the name of the Company 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 Company.
Section 5.13 Other Business of Members.
(a) Existing Business Ventures. Subject to any applicable provisions of the Omnibus
Agreement, the Sole Member, each Director and their respective affiliates may engage in or possess
an interest in other business ventures of any nature or description, independently or with others,
similar or dissimilar to the business of the Company or the Partnership, and the Company, the
Partnership, the Directors and the Sole Member shall have no rights by virtue of this Agreement in
and to such independent ventures or the income or profits derived therefrom, and the pursuit of any
such venture, even if competitive with the business of the Company or the Partnership, shall not be
deemed wrongful or improper.
(b) Business Opportunities. Subject to any applicable provisions of the Omnibus Agreement,
none of the Sole Member, any Director or any of their respective affiliates shall be obligated to
present any particular investment opportunity to the Company or the Partnership even if such
opportunity is of a character that the Company, the Partnership or any of their respective
subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if
granted the opportunity to do so, and the Sole Member, each Director or any of their respective
affiliates shall have the right to take for such persons own account (individually or as a partner
or fiduciary) or to recommend to others any such particular investment opportunity.
ARTICLE VI
OFFICERS
Section 6.1 Officers.
(a) Generally. The Board shall appoint agents of the Company, referred to as Officers of
the Company as described in this Section 6.1, who shall be responsible for the day-to-day
business affairs of the Company, subject to the overall direction and control of the Board. Unless
provided otherwise by the Board, the Officers shall have the titles, power, authority and duties
described below in this Section 6.1.
(b) Titles and Number. The Officers shall be one or more Presidents, any and all Vice
Presidents, the Secretary and any and all Assistant Secretaries and any Treasurer and any and all
Assistant Treasurers and any other Officers appointed pursuant to this Section 6.1. There
shall be appointed from time to time, in accordance with this Section 6.1, such Vice
Presidents, Secretaries, Assistant Secretaries, Treasurers and Assistant Treasurers as the Board
may desire. Any Person may hold two or more offices.
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(i) President/Chief Executive Officer. The Board shall elect one or more individuals
to serve as President. In general, each President, subject to the direction and supervision
of the Board, shall be the chief executive officer of the Company and shall have general and
active management and control of the affairs and business and general supervision of the
Company, and the Partnership and its subsidiaries, and its officers, agents and employees,
and shall perform all duties incident to the office of chief executive officer of the
Company and such other duties as may be prescribed from time to time by the Board. Each
President shall have the nonexclusive authority to sign on behalf of the Company any deeds,
mortgages, leases, bonds, notes, certificates, contracts or other instruments, except in
cases where the execution thereof shall be expressly delegated by the Board or by this
Agreement to some other Officer or agent of the Company or shall be required by law to be
otherwise executed. In the absence of the Chairman, or the Vice Chairman, if there is one,
or in the event of the Chairmans inability or refusal to act, a President shall perform the
duties of the Chairman, and each President, when so acting, shall have all of the powers of
the Chairman.
(ii) Vice Presidents. The Board, in its discretion, may elect one or more Vice
Presidents. If a President does not have the role of chief financial officer of the
Company, to have responsibility to oversee the financial operations of the Company, and the
Partnership and its subsidiaries, the Board shall elect one or more individuals to serve as
Vice Presidents and chief financial officers. In the absence of any President or in the
event of a Presidents inability or refusal to act, the Vice President (or in the event
there be more than one Vice President, the Vice Presidents in the order designated, or in
the absence of any designation, then in the order of their election) shall perform the
duties of a President, and the Vice President, when so acting, shall have all of the powers
and be subject to all the restrictions upon a President. Each Vice President shall perform
such other duties as from time to time may be assigned by a President or the Board.
(iii) Secretary and Assistant Secretaries. The Board, in its discretion, may elect a
Secretary and one or more Assistant Secretaries. The Secretary shall record or cause to be
recorded in books provided for that purpose the minutes of the meetings or actions of the
Board, of the Sole Member and of the Partners of the Partnership, shall see that all notices
are duly given in accordance with the provisions of this Agreement and as required by law,
shall be custodian of all records (other than financial), shall see that the books, reports,
statements, certificates and all other documents and records required by law are properly
kept and filed, and, in general, shall perform all duties incident to the office of
Secretary and such other duties as may, from time to time, be assigned to him by this
Agreement, the Board or a President. The Assistant Secretaries shall exercise the powers of
the Secretary during that Officers absence or inability or refusal to act.
(iv) Treasurer and Assistant Treasurers. The Board, in its discretion, may elect a
Treasurer and one or more Assistant Treasurers. The Treasurer shall keep or cause to be
kept the books of account of the Company and shall render statements of the financial
affairs of the Company in such form and as often as required by this Agreement, the Board or
a President. The Treasurer, subject to the order of the Board, shall have the custody of
all funds and securities of the Company. The Treasurer shall perform all other duties
commonly incident to his office and shall perform such other duties and have such
15
other powers as this Agreement, the Board or a President, shall designate from time to
time. The Assistant Treasurers shall exercise the power of the Treasurer during that
Officers absence or inability or refusal to act. Each of the Assistant Treasurers shall
possess the same power as the Treasurer to sign all certificates, contracts, obligations and
other instruments of the Company. If no Treasurer or Assistant Treasurer is appointed and
serving or in the absence of the appointed Treasurer and Assistant Treasurer, a President or
such other Officer as the Board shall select, shall have the powers and duties conferred
upon the Treasurer.
(c) Other Officers and Agents. The Board may appoint such other Officers and agents as may
from time to time appear to be necessary or advisable in the conduct of the affairs of the Company,
who shall hold their offices for such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the Board.
(d) Appointment and Term of Office. The Officers shall be appointed by the Board at such time
and for such terms as the Board shall determine. Any Officer may be removed, with or without
cause, only by the Board. Vacancies in any office may be filled only by the Board.
(e) Powers of Attorney. The Board may grant powers of attorney or other authority as
appropriate to establish and evidence the authority of the Officers and other Persons.
(f) Officers Delegation of Authority. Unless otherwise provided by resolution of the Board,
no Officer shall have the power or authority to delegate to any Person such Officers rights and
powers as an Officer to manage the business and affairs of the Company.
Section 6.2 Compensation.
The Officers shall receive such compensation for their services as may be designated by the
Board of Directors or any committee thereof established for the purpose of setting compensation.
ARTICLE VII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 7.1 Records and Accounting.
The Board shall keep or cause to be kept at the principal office of the Company appropriate
books and records with respect to the Companys business. The books of account of the Company
shall be (i) maintained on the basis of a fiscal year that is the calendar year and (ii) maintained
on an accrual basis in accordance with U.S. GAAP, consistently applied.
Section 7.2 Reports.
With respect to each calendar year, the Board shall prepare, or cause to be prepared, and
deliver, or cause to be delivered, to the Sole Member:
(a) Within 120 days after the end of such calendar year, a profit and loss statement and a
statement of cash flows for such year and a balance sheet as of the end of such year.
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(b) Such federal, state and local income tax returns and such other accounting, tax
information and schedules as shall be necessary for the preparation by the Sole Member on or before
June 15 following the end of each calendar year of its income tax return with respect to such year.
Section 7.3 Bank Accounts.
Funds of the Company shall be deposited in such banks or other depositories as shall be
designated from time to time by the Board. All withdrawals from any such depository shall be made
only as authorized by the Board and shall be made only by check, wire transfer, debit memorandum or
other written instruction.
ARTICLE VIII
DISSOLUTION AND LIQUIDATION
Section 8.1 Dissolution.
(a) The Company shall be of perpetual duration; however, the Company shall dissolve, and its
affairs shall be wound up, upon:
(i) an election to dissolve the Company by the Sole Member;
(ii) the entry of a decree of judicial dissolution of the Company pursuant to the
provisions of the Act; or
(iii) a merger or consolidation under the Act where the Company is not the surviving
entity in such merger or consolidation.
(b) No other event shall cause a dissolution of the Company.
Section 8.2 Effect of Dissolution.
Except as otherwise provided in this Agreement, upon the dissolution of the Company, the Sole
Member shall take such actions as may be required pursuant to the Act and shall proceed to wind up,
liquidate and terminate the business and affairs of the Company. In connection with such winding
up, the Sole Member shall have the authority to liquidate and reduce to cash (to the extent
necessary or appropriate) the assets of the Company as promptly as is consistent with obtaining
fair value therefor, to apply and distribute the proceeds of such liquidation and any remaining
assets in accordance with the provisions of Section 8.3(c), and to do any and all acts and
things authorized by, and in accordance with, the Act and other applicable laws for the purpose of
winding up and liquidation.
Section 8.3 Application of Proceeds.
Upon dissolution and liquidation of the Company, the assets of the Company shall be applied
and distributed in the following order of priority:
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(a) First, to the payment of debts and liabilities of the Company (including to the Sole
Member to the extent permitted by applicable law) and the expenses of liquidation;
(b) Second, to the setting up of such reserves as the Person required or authorized by law to
wind up the Companys affairs may reasonably deem necessary or appropriate for any disputed,
contingent or unforeseen liabilities or obligations of the Company, provided that any such reserves
shall be paid over by such Person to an escrow agent appointed by the Sole Member, to be held by
such agent or its successor for such period as such Person shall deem advisable for the purpose of
applying such reserves to the payment of such liabilities or obligations and, at the expiration of
such period, the balance of such reserves, if any, shall be distributed as hereinafter provided;
and
(c) Thereafter, the remainder to the Sole Member.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Addresses and Notices.
Any notice, demand, request, report or proxy materials required or permitted to be given or
made to the Sole Member under this Agreement shall be in writing and shall be deemed given or made
when delivered in person or when sent by first class United States mail or by other means of
written communication to the Sole Member at the address described below. Any notice to the Company
shall be deemed given if received by a President at the principal office of the Company designated
pursuant to Section 2.3. The Company may rely and shall be protected in relying on any
notice or other document from the Sole Member or other Person if believed by it to be genuine.
If to the Sole Member:
Coffeyville Resources, LLC
10 East Cambridge Circle, Suite #250
Kansas City, Kansas 66103
Attention: General Counsel
Telecopier: (913) 981-0000
Section 9.2 Creditors.
None of the provisions of this Agreement shall be for the benefit of, or shall be enforceable
by, any creditor of the Company.
Section 9.3 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 9.4 Invalidity of Provisions.
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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 9.5 Third Party Beneficiaries.
The Sole Member agrees that any Indemnitee shall be entitled to assert rights and remedies
hereunder as a third-party beneficiary hereto with respect to those provisions of this Agreement
affording a right, benefit or privilege to such Indemnitee.
[The Remainder Of This Page Is Intentionally Blank]
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IN WITNESS WHEREOF, the Member has executed this Agreement as of the date first written above.
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COFFEYVILLE RESOURCES, LLC |
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[Third Amended and Restated LLC Agreement - CVR GP, LLC]
Appendix A
The following are provisions of the Partnership Agreement where the Company is permitted to
act in its sole discretion or would be acting in its individual capacity:
(a) Section 2.4 (Purpose and Business), with respect to decisions to propose
or approve the conduct by the Partnership of any business;
(b) Sections 4.6(a) and (b) (Transfer of the General Partner
Interest), solely with respect to the decision by the Company to transfer its general
partner interest in the Partnership;
(c) Section 5.5 (Preemptive Right);
(d) Section 7.5(f) (relating to the right of the Company and its Affiliates to
purchase Units or other Partnership Securities and exercise rights related thereto)
(e) Section 7.6(a) (Loans from the General Partner; Loans or Contributions
from the Partnership or Group Members), solely with respect to the decision by the Company
to lend funds to a Group Member (as defined in the Partnership Agreement), subject to the
provisions of Section 7.9 of the Partnership Agreement;
(f) Section 7.7 (Indemnification), solely with respect to any decision by the
Company to exercise its rights as an Indemnitee;
(g) Section 7.12 (Registration Rights of the General Partner and its
Affiliates), solely with respect to any decision to exercise registration rights of the
Company;
(h) Section 11.1 (Withdrawal of the General Partner), solely with respect to
the decision by the Company to withdraw as General Partner of the Partnership and to giving
notices required thereunder;
(i) Section 11.3(a) and (b) (Interest of Departing General Partner and
Successor General Partner); and
(j) Section 15.1 (Right to Acquire Limited Partner Interests).
Appendix A
Third Amended and Restated Limited Liability Company Agreement
of
CVR GP, LLC
exv5w1
Exhibit 5.1
March 16, 2011
CVR Partners, LP
2277 Plaza Drive, Suite 500
Sugar Land, Texas 77479
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RE: |
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Registration Statement on Form S-1, File No. 333-171270 (the Registration
Statement) |
Ladies and Gentlemen:
We have acted as counsel for CVR Partners, LP, a Delaware limited partnership (the
Partnership), in connection with the underwritten initial public offering (the Offering) by the
Partnership of common units representing limited partner interests in the Partnership (the Common
Units), including Common Units which may be offered and sold upon the exercise of the
over-allotment option granted to the underwriters by the Partnership. The Common Units are to be
offered to the public pursuant to an underwriting agreement to be entered into among the
Partnership and the other parties named therein and Morgan Stanley & Co. Incorporated and Barclays
Capital Inc., as representatives of the several underwriters named therein (the Underwriting
Agreement). With your permission, all assumptions and statements of reliance herein have been
made without any independent investigation or verification on our part except to the extent
otherwise expressly stated, and we express no opinion with respect to the subject matter or
accuracy of such assumptions or items relied upon.
In connection with this opinion, we have (i) investigated such questions of law, (ii) examined
the originals or certified, conformed or reproduction copies, of such agreements, instruments,
documents and records of the Partnership, such certificates of public officials and such other
documents and (iii) received such information from officers and representatives of the Partnership
and others as we have deemed necessary or appropriate for the purposes of this opinion.
In all such examinations, we have assumed the legal capacity of all natural persons, the
genuineness of all signatures, the authenticity of original and certified documents and the
conformity to original or certified documents of all copies submitted to us as conformed or
reproduction copies. As to various questions of fact relevant to the opinion expressed herein, we
have relied upon, and assume the accuracy of, representations and warranties contained in the
Underwriting Agreement (other than representations and warranties made by the Partnership) and
certificates and oral or written statements and other information of or from public officials and
assume compliance on the part of all parties to the Underwriting Agreement (other than the
Partnership) with the covenants and agreements contained therein.
Based upon the foregoing and subject to the limitations, qualifications and assumptions set
forth herein, we are of the opinion that the Common Units registered pursuant to the Registration
Statement to be sold by the Partnership (when issued, delivered and paid for in accordance with the
terms of the Underwriting Agreement) will be duly authorized, validly issued, fully paid and
non-assessable.
We note that a limited partner is subject to an obligation to repay any funds wrongfully
distributed to it.
The opinion expressed herein is limited to the Delaware Revised Uniform Limited Partnership
Act as currently in effect, together with applicable provisions of the Constitution of Delaware and
relevant decisional law, and no opinion is expressed with respect to any other laws or any effect
that such other laws may have on the opinion expressed herein. The opinion expressed herein is
limited to the matters stated herein, and no opinion is implied or may be inferred beyond the
matters expressly stated herein. The opinion expressed herein is given as of the date of
effectiveness of the Registration Statement, and we undertake no obligation to supplement this
letter if any applicable laws change after that date or if we become aware of any facts that might
change the opinion expressed herein or for any other reason.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement
and to the reference to this firm under the caption Legal Matters in the prospectus that is
included in the Registration Statement. In giving this consent, we do not hereby admit that we are
in the category of persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended.
Very truly yours,
/s/ Fried, Frank, Harris, Shriver & Jacobson LLP
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP
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exv10w5
Exhibit 10.5
AMENDED AND RESTATED CROSS EASEMENT AGREEMENT
THIS AMENDED AND RESTATED CROSS EASEMENT AGREEMENT (this Agreement) is made as of the
day of , 2011, by and between Coffeyville Resources Nitrogen Fertilizers, LLC, a Delaware
limited liability company (the Fertilizer Company), and Coffeyville Resources Refining &
Marketing, LLC, a Delaware limited liability company (the Refinery Company).
RECITALS
1. Fertilizer Company is the owner of certain real property located in Montgomery County,
Kansas, as legally described on the attached Exhibit A (the Fertilizer Parcel), and
Refinery Company is the owner of certain real property located in Montgomery County, Kansas, as
legally described on the attached Exhibit B (the Refinery Parcel). The Refinery Parcel
and the Fertilizer Parcel are herein collectively referred to as the Parcels, and each, as a
Parcel).
2. The Parties have reconfigured the boundaries of their respective Parcels to divide and
separate the operations of Refinery Companys oil refinery facilities from the operations of
Fertilizer Companys adjacent nitrogen fertilizer plant operations. In connection therewith, the
Parties have entered into the following agreements, as such agreements may be amended, restated,
modified or replaced from time to time (collectively, Service Agreements): (i) Feedstock and
Shared Services Agreement (the Feedstock Agreement); (ii) Coke Supply Agreement (the Coke Supply
Agreement); (iii) Raw Water and Facilities Sharing Agreement (the Raw Water Agreement); and (iv)
Environmental Agreement (the Environmental Agreement).
3. The Refinery Parcel and the Fertilizer Parcel are the subject of a Cross Easement Agreement
(the Original Agreement) dated as of October 25, 2007 (the Effective Date), in which Fertilizer
Company and Refinery Company granted to each other certain non-exclusive easements and rights of
use upon, over and across the Fertilizer Parcel and the Refinery Parcel, respectively, for, but not
limited to, the following purposes: (i) the use of pipelines, transmission lines, equipment,
drainage facilities, other Plant facilities and improvements and the maintenance thereof; (ii)
pedestrian and vehicular access; and (iii) all other purposes as necessary for the use, operation
and maintenance of the business and operations currently conducted on the Parcels and as necessary
to carry out the purposes and intent of the Service Agreements.
4. The parties desire to amend, supersede and restate the Original Agreement in its entirety
by this Agreement to reflect the foregoing, all as hereinafter set forth.
In consideration of the foregoing and the mutual covenants and agreements herein set forth,
and for other good and valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged, the Parties agree as follows:
ARTICLE 1. INCORPORATION OF RECITALS; DEFINITIONS
1.1 As of the date hereof, the Original Agreement is hereby amended, superseded and restated
in its entirety by the terms of this Agreement.
1.2 The terms of each of the foregoing Recitals are incorporated herein by this reference.
1.3 All terms not defined in this Agreement but which are defined in the Service Agreements
are used herein as so defined in Service Agreements; provided, however those terms that are
expressly stated herein as being defined in one of the Service Agreements are used herein as
defined in such Service Agreement. The following terms shall have the meanings set forth below, for
purposes of this Agreement and all Exhibits hereto:
Access Areas is defined in Section 2.1(A).
Access Easement (Fertilizer Parcel) is defined in Section 2.1(B).
Access Easements (Refinery Parcel) is defined in Section 2.1(C).
Additional Easements is defined in Section 2.3(J).
Aerial means that aerial photograph attached hereto as Exhibit C, which consists of
15 sheets.
Agreement means this Cross Easement Agreement and the exhibits hereto, all as the same may
be subsequently amended, modified or supplemented from time to time as herein provided.
Coke Conveyor Belt Easement is defined in Section 2.3(C).
Coke Conveyor Belt Easement Area is legally described in Exhibit G.
Coke Haul Road is defined in Section 2.3(C) and is legally described in Exhibit
P.
Coke Supply Agreement is defined in Recital 2.
Connection Purposes is defined in Section 3.2.
Constructing Party is defined in Section 2.2(E)(1).
Construction Buffer Zone Easement Area is defined in Section 2.3(I) and is legally
described in Exhibit R-1.
Dispute is defined in Section 5.1.
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Easement Areas is defined in Section 4.1.
Easements is defined in Section 4.1.
East Tank Farm Area (Refinery Parcel) is defined in Section 2.3(F) and is legally
described on Exhibit K.
East Tank Farm Easements is defined in Section 2.3(F).
East Tank Farm Roadway Area (Fertilizer Parcel) is defined in Section 2.3(F) and is
legally described on Exhibit J.
Environmental Agreement is defined in Recital 2.
Feedstock Agreement is defined in Recital 2.
Fertilizer Company is defined in the preamble.
Fertilizer Company Clarifier Tract is defined in Section 2.3(A) and legally
described on Exhibit N.
Fertilizer Parcel is defined in Recital 1 and is legally described on Exhibit A.
Fertilizer Plant means the nitrogen fertilizer complex located on the Fertilizer Parcel
owned and operated by Fertilizer Company, consisting of the Gasification Unit, the UAN Plant, the
Ammonia Synthesis Loop, the Utility Facilities, storage and loading facilities, the Fertilizer
Plant Water Clarifier and river access, the Grounds and related connecting pipes and improvements,
which fertilizer manufacturing complex is connected to and associated with the BOC Facility and the
Offsite Sulfur Recovery Unit, including any additions or other modifications made thereto from time
to time and (without limitation) any fertilizer plant improvements, facilities and components on
the Fertilizer Parcel as are shown on the Aerial.
Fertilizer Water Pipeline Easement Area is defined in Section 2.3(A) and is legally
described on Exhibit O.
Indemnitee is defined in Section 6.1.
Indemnitor is defined in Section 6.1.
Insuring Party is defined in Section 4.12(B).
Interconnect Points is defined in Section 3.1.
Interconnect Points Drawing is defined in Section 3.1 and attached as Exhibit
E.
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Interconnect Points Easement is defined in Section 3.2.
Losses is defined in Section 6.1.
Mortgage is defined in Section 4.13(B).
Non-Performing Party is defined in Section 4.6.
Original Agreement is defined in Recital 3.
Parcels is defined in Recital 1.
Party and Parties mean the parties to this Agreement.
Performing Party is defined in Section 4.7.
Pipe Rack Easement is defined in Section 2.3(B).
Pipe Rack Easement Area is defined in Section 2.3(B) and is legally described on
Exhibit F.
Railroad Trackage Easement Area (Fertilizer Parcel) is defined in Section 2.3(G)(1)
and is legally described on Exhibit L.
Railroad Trackage Easement Area (Refinery Parcel) is defined in Section 2.3(G)(2)
and is legally described on Exhibit M.
Railroad Trackage Easement (Fertilizer Parcel) is defined in Section 2.3(G)(1).
Railroad Trackage Easement (Refinery Parcel) is defined in Section 2.3(G)(2).
Raw Water Agreement is defined in Recital 2.
Refinery means the petroleum refinery at Coffeyville, Kansas located on the Refinery Parcel
and owned and operated by Refinery Company, including any additions or other modifications made
thereto from time to time and (without limitation) any refinery plant improvements, components and
facilities on the Refinery Parcel as are shown on the Aerial.
Refinery Company is defined in the preamble.
Refinery Parcel is defined in Recital 1 and is legally described on Exhibit B.
Refinery Shared Parking Area is defined in Section 2.3(H) and is legally described
on Exhibit Q.
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Service Agreements is defined in Recital 2.
Shared Pipeline Easement is defined in Section 2.2(B).
Shared Pipeline Easement Area is defined in Section 2.2(B) and is legally described
on Exhibit D.
S/L Lease is defined in Section 4.13(B).
Sunflower Street Pipeline Crossing Easement Area (Fertilizer Parcel) is defined in
Section 2.3(E)(1) and is legally described on Exhibit H.
Sunflower Street Pipeline Crossing Easement Area (Refinery Parcel) is defined in Section
2.3(E)(2) and is legally described on Exhibit I.
Sunflower Street Pipeline Crossing Easement (Fertilizer Parcel) is defined in Section
2.3(E)(1).
Sunflower Street Pipeline Crossing Easement (Refinery Parcel) is defined in Section
2.3(E)(2).
Temporary Construction / Maintenance Easements is defined in Section 2.2(E).
TKI Pipelines Easement is defined in Section 2.3(D).
Trackage Storage Area is shown on the Aerial.
Unavoidable Delay is defined in Section 4.6.
Water Rights Easement is defined in Section 2.3(A).
Work is defined in Section 2.2(E)(1).
ARTICLE 2. GRANTS OF EASEMENTS
The Parties hereby grant to each other the following easements and rights of use, subject to
the other provisions of this Agreement:
2.1 Access Easements.
(A) The term Access Areas as used in this Agreement shall mean the following portions of the
Fertilizer Parcel and the Refinery Parcel, respectively, as the same may be located from time to
time:
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(1) All vehicular roadways, driveways and pathways on the Parcels, however surfaced,
and all interior vehicular roadways across parking lot areas (except those portions thereof
which may from time to time constitute a duly dedicated public roadway); and
(2) All sidewalks, walkways and other pathways providing pedestrian access to and
across the Parcels.
(B) Fertilizer Company hereby grants to Refinery Company, for use by its agents, employees,
contractors, licensees and lessees, as an appurtenance to the Refinery Parcel, for a term of fifty
(50) years from the Effective Date hereof, a non-exclusive easement and right of use in the Access
Areas located from time to time on the Fertilizer Parcel for pedestrian and vehicular access,
ingress and egress, all in common with Fertilizer Company, as may be reasonably required for
access, ingress and egress for the Refinerys operations (the Access Easement (Fertilizer
Parcel)).
(C) Reciprocally, Refinery Company hereby grants to Fertilizer Company, for use by its agents,
employees, contractors, licensees and lessees, as an appurtenance to the Fertilizer Parcel: (i) a
perpetual, non-exclusive easement and right of use in the existing Access Areas on the Refinery
Parcel for the purpose of pedestrian and vehicular ingress and egress to and from the Verdigris
River, Fertilizer Company Clarifier Tract, the Water Facilities which are for the use of
Fertilizer Company (as provided for and defined in the Raw Water Agreement) and the Fertilizer
Water Pipeline Easement Area; and (ii) for a term of fifty (50) years from the Effective Date
hereof, a non-exclusive easement and right of use in the other Access Areas located from time to
time on the Refinery Parcel for pedestrian and vehicular access, ingress and egress, all in common
with Refinery Company, as may be reasonably required for access, ingress and egress for the
Fertilizer Plant operations (collectively, the Access Easements (Refinery Parcel)).
(D) The Parties agree that while neither Party, as grantor of the foregoing access easements,
respectively, has any right or obligation to retain the existing Access Areas in their present
configurations or locations (and may relocate, change or modify the Access Areas on its Parcel from
time to time), each grantor Party shall provide at all times routes of vehicular and pedestrian
access, ingress and egress across such Partys respective Parcel to reasonably facilitate the other
Partys operations on its Parcel and exercise of its rights under this Agreement.
2.2 Shared Pipeline Easement.
(A) The Parties acknowledge that Fertilizer Company requires access to and rights of use in
certain improvements and structures located on the Refinery Parcel (including, without limitation,
pipelines, transmission lines and other conduits and equipment, to operate its Fertilizer Plant).
(B) Accordingly, in order to carry out the intent and provisions of each of the Service
Agreements, Refinery Company hereby grants to Fertilizer Company, for use by its agents,
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employees,
contractors, licensees and lessees, as an appurtenance to the Fertilizer Parcel, a non-exclusive
easement and right of use in, to, over, under and across the Shared Pipeline Easement
Area, which land is legally described on Exhibit D attached hereto and is depicted on the
Aerial, as required and necessary for implementation of the Service Agreements, which easement and
right of use shall include, without limitation, the right to: (i) maintain, repair, inspect and
replace all existing pipelines, transmission lines, equipment, and drainage facilities of
Fertilizer Company now located in the Shared Pipeline Easement Area that are used in the operation
of the Fertilizer Plant; and (ii) utilize each of the Interconnect Points therein (as defined in
Section 3.1 below) (such easement and right of use being called the Shared Pipeline
Easement).
(E) Temporary Construction / Maintenance Easements.
(1) In connection with exercise of the foregoing Access Easements, the Shared Pipeline
Easement and the Easements granted hereinafter in Section 2.3, each Party (a Constructing
Party) is hereby granted by the other Party a temporary construction and maintenance easement as
needed from time to time to use necessary portions of the other Partys Parcel, as the servient
estate under such Easement, in connection with:
(a) All construction activities as permitted under the applicable Easement;
(b) Inspecting, maintaining, repairing and replacing the Constructing Partys
pipelines, transmission lines, conduits, equipment and other improvements; and
(c) The transportation and hauling of heavy vehicles, loads and equipment over
any road within an Access Area of the other Party, in which case the Constructing
Party may temporarily cap (with gravel, asphalt or other suitable, protective
material) such road in order to prevent or mitigate damage thereby caused to such
road. Notwithstanding anything to the contrary contained in this Agreement, any
damage to any such road of a Party caused by such transportation and hauling by the
Constructing Party shall be promptly repaired by the Constructing Party at its sole
cost and expense.
The foregoing easements are collectively referred to herein as the Temporary Construction/
Maintenance Easements. Any and all activities described in Sections 2.2(E)(1)(a) and
(b) are collectively referred to in this Section 2.2(E)(1) as Work.
(2) Within a reasonable time before it begins any Work, the Constructing Party shall
provide reasonable prior notice (except in an emergency situation, in which case no prior
notice is required, but instead the Constructing Party shall submit subsequent notice) to
the other Party outlining those portions of the other Partys Parcel in which the Temporary
Construction/Maintenance Easement is needed, identifying the Work to be undertaken, and the
estimated duration of such Work.
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(3) When the Constructing Party ceases using the other Partys Parcel for such Work, it
must promptly restore such area to the condition in which it existed before the commencement
of the Work within a reasonable period of time. This restoration Work shall include
clearing the area of all loose dirt, debris, equipment and construction materials and the
repair or replacement of equipment areas, equipment connections, utility services, paving,
and landscaping and repairs and replacements to such other items as may be required to
reasonably restore.
(4) The Constructing Party must also restore any portions of the other Partys
Parcel that may be damaged by its Work promptly upon the occurrence of such damage without
delay.
(5) All Work shall be performed by the Constructing Party in a manner so as to avoid
material interference with Fertilizer Plant and Refinery operations within such Easement
Areas and on surrounding areas. At the completion of Work, a given Temporary Construction/
Maintenance Easement shall automatically be deemed terminated.
2.3 |
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Easements for Specific Operations. |
In addition to the foregoing Access Easements, Shared Pipeline Easement and Temporary
Construction/Maintenance Easement grants, the Parties hereby grant the following additional
easements for the specific operations designated therein:
(A) Water Rights Easement. In order to provide for the real property rights and
interests necessary to effectuate the provisions of the Raw Water Agreement and to provide for the
transportation of water from the Water Facilities (as defined in the Raw Water Agreement) into the
Fertilizer Companys Fertilizer Plant facilities located on the Fertilizer Parcel, Refinery Company
hereby grants to Fertilizer Company, for use by its agents, employees, contractors, licensees and
lessees, as an appurtenance to the Fertilizer Parcel:
(i) A perpetual, non-exclusive easement in and right of use of: (a) the Refinerys Water
Intake Structure, River Water Pumps, other Water Facilities and equipment related thereto (all as
defined and described in the Raw Water Agreement) to the extent provided in the Raw Water
Agreement; and (b) any existing water supply pipeline of Refinery Company (and related equipment)
which carries raw water from the River Water Pumps (y) into pipelines of Fertilizer Company located
on the Refinery Parcel that run to the tract of land owned by Fertilizer Company on which its
clarifier is located, which tract of land is described on Exhibit N (Fertilizer Company
Clarifier Tract) or (z) directly to the Fertilizer Company Clarifier Tract. Refinery Company
hereby reserves the right to alter, relocate, expand or replace all of its herein described water
supply equipment from time to time, so long as it continues to supply sufficient, uninterrupted
water and pipeline service to Fertilizer Company pursuant to the terms of the Raw Water Agreement
and as provided in clauses (a) and (b) above. The Parties acknowledge that such water supply
equipment described in clause (a) presently provides the single source of water to both the
Refinery and the Fertilizer Plant.
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(ii) A perpetual, non-exclusive easement in and right of use of such portions of the Refinery
Parcel on which the Fertilizer Companys existing separate water supply pipelines are located that
carry water from the Y Intersection (as defined in the Raw Water Agreement) to the Fertilizer
Company Clarifier Tract and from the Fertilizer Company Clarifier Tract southerly across the
Refinery Parcel onto the Fertilizer Parcel and into the Fertilizer Plant located thereon. The
general location of the area of the Refinery Parcel in which such pipelines are located is shown on
the Aerial and a general legal description of the area is attached hereto as Exhibit O
(Fertilizer Water Pipeline Easement Area). Such easement includes a non-exclusive easement and
right in favor of Fertilizer Company to operate, maintain, alter, relocate, repair and replace such
water supply pipelines within the Fertilizer Water Pipeline Easement Area in a manner that does not
materially interfere with the operation or use of the Refinery or any part thereof.
(iii) During the term of the Raw Water Agreement, the right of use, privilege and interest for
Fertilizer Company, at any future time upon prior notice to, and reasonable coordination with
Refinery Company so as to not materially impair any operations on the Refinery Parcel, to construct
separate water facilities, as contemplated by the Raw Water Agreement, which separate water
facilities may include, without limitation, a separate intake valve, water plant structure and
associated water pumping equipment within the separate Raw Water pumping area generally depicted
on the Aerial. Upon Fertilizer Companys relocation of its existing water facilities and/or its
construction of separate water facilities pursuant to the rights granted in this paragraph, the
areas in which such separate water facilities are located (and any areas to connect such separate
water facilities to the Verdigris River and to Refinery Companys then-existing Water Intake
Structure, River Water Pumps and Water Facilities as may then be reasonably necessary for the
operation, alteration, maintenance, repair and replacement of Fertilizer Companys separate water
facilities), shall be automatically deemed additional Easement Areas pursuant to the terms of this
Agreement and the easement granted in Section 2.3(A)(i)(a) shall terminate to the extent no
longer required due to construction of such separate water facilities.
The foregoing easements and rights of use are collectively referred to herein as the Water
Rights Easement.
(iv) Raw Water Agreement. The Raw Water Agreement contains various other rights,
options, interests and obligations of the Parties in the event either Party elects to terminate the
sharing of Water Facilities and Water Rights, all as more particularly set forth in the Raw Water
Agreement.
(B) Pipe Rack Easement. Refinery Company hereby grants to Fertilizer Company, for use
by its agents, employees, contractors, licensees and lessees, as an appurtenance to the Fertilizer
Parcel, a perpetual, non-exclusive easement and right of use to operate and otherwise utilize for
Fertilizer Plant operations, in common with Refinery Company, all existing pipe rack installations
of Refinery Company (as such pipe rack installations may be altered, relocated, expanded or
replaced from time to time by Refinery Company, at its sole cost, so long as
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comparable uninterrupted pipe rack service is provided to Fertilizer Company) located on that
portion of the Refinery Parcel (the Pipe Rack Easement Area legally described on Exhibit
F attached hereto and generally depicted on the Aerial (the Pipe Rack Easement).
(C) Coke Conveyor Belt Easement; Coke Haul Road Easement. Refinery Company hereby
grants to Fertilizer Company, for use by its agents, employees, contractors, licensees and lessees,
as an appurtenance to the Fertilizer Parcel, perpetual, non-exclusive easements and rights of use
in: (i) the Coke Conveyor Belt Easement Area, legally described on Exhibit G attached
hereto and generally depicted on the Aerial, for the construction, operation, repair, maintenance
and replacement of a conveyor belt system for the transportation of coke and coke related materials
to and from the Fertilizer Plant (the Coke Conveyor Belt Easement); and (ii) the Coke Haul Road
Easement Area, legally described on Exhibit P attached hereto and generally depicted on
the Aerial, for the transportation of coke and coke related materials to and from the Fertilizer
Plant over the existing roadways located thereon.
(D) TKI Pipelines Easement. In addition to the Shared Pipeline Easement granted to
Fertilizer Company in Section 2.2(B) above, Refinery Company hereby grants to Fertilizer
Company, for use by its agents, employees, contractors, licensees and lessees, as an appurtenance
to the Fertilizer Parcel, a perpetual, non-exclusive easement and right of use to operate and
otherwise utilize the existing TKI-dedicated pipelines and related pipeline equipment (as such
pipelines and pipeline equipment may in the future be altered, relocated, expanded or replaced by
Refinery Company, at its sole cost, so long as comparable uninterrupted TKI pipeline service is
provided to Fertilizer Company) which traverse the Refinery Parcel and leads into the TKI sulphur
plant, which plant is generally depicted on the Aerial (the TKI Pipelines Easement).
(E) Sunflower Street Pipeline Crossing Easements.
(1) Fertilizer Company hereby grants to Refinery Company, for use by its agents, employees,
contractors, licensees and lessees, as an appurtenance to the Refinery Parcel, a perpetual,
non-exclusive easement in and right of use to operate and otherwise utilize for Refinery
operations, in common with Fertilizer Company, all existing pipeline crossing and pipe rack
equipment (both above and below-ground equipment, as such pipeline crossing and pipe rack equipment
may be altered, relocated, expanded or replaced from time to time by Fertilizer Company at its sole
cost, so long as comparable uninterrupted pipeline crossing service is provided to Refinery
Company) located on: (i) that portion of the Fertilizer Parcel (the Sunflower Street Pipeline
Crossing Easement Area (Fertilizer Parcel)) legally described on Exhibit H attached hereto
and generally depicted on the Aerial; and (ii) the portion of the public street right-of-way for
Sunflower Street over which the subject pipeline crossings traverse but only to the extent
Fertilizer Company has the legal right to grant such easement and right (collectively, the
Sunflower Street Pipeline Crossing Easement (Fertilizer Parcel)).
(2) Reciprocally, Refinery Company hereby grants to Fertilizer Company, for use by its agents,
employees, contractors, licensees and lessees, as an appurtenance to the Fertilizer Parcel, a
perpetual, non-exclusive easement and right of use to operate and otherwise utilize for
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Fertilizer Plant operations, in common with Refinery Company, all existing pipeline crossing
and pipe rack equipment (both above and below-ground equipment, as such pipeline crossing and pipe
rack equipment may be altered, relocated, expanded or replaced from time to time by Refinery
Company at its sole cost, so long as comparable, uninterrupted pipeline crossing service is
provided to Fertilizer Company) located on: (i) that portion of the Refinery Parcel (the Sunflower
Street Pipeline Crossing Easement Area (Refinery Parcel)) legally described on Exhibit I
attached hereto and generally depicted on the Aerial; and (ii) the portion, if any, of the public
street right-of-way for Sunflower Street over which the subject pipeline crossings traverse but
only to the extent the Refinery Company has the legal right to grant such easement and right
(collectively, the Sunflower Street Pipeline Crossing Easement (Refinery Parcel)).
(F) East Tank Farm Easements. Fertilizer Company hereby grants to Refinery Company,
for use by its agents, employees, contractors, licensees and lessees, as an appurtenance to the
Refinery Parcel, the following two easements:
(i) A perpetual, non-exclusive access, ingress and egress easement and right of use to
traverse the roadway located on that portion of the Fertilizer Parcel (the East Tank Farm Roadway
Area (Fertilizer Parcel)) legally described on Exhibit J attached hereto and generally
depicted on the Aerial, for such pedestrian and vehicular access, ingress and egress as may be
reasonably required for access, ingress and egress to that portion of the Refinery Parcel known as
the East Tank Farm Area (Refinery Parcel) and legally described on Exhibit K attached
hereto and generally depicted on the Aerial.
(ii) A perpetual, non-exclusive easement and right of use to maintain the existing underground
pipelines and related equipment owned by Refinery Company and located underneath the East Tank Farm
Roadway (Fertilizer Parcel) (as such pipelines and equipment may be altered, relocated, expanded or
replaced from time to time by Refinery Company, at its sole cost and expense, but not so as to
materially interfere with the use of the roadway on the East Tank Farm Roadway Area (Fertilizer
Parcel)).
The foregoing easements are collectively referred to herein as the East Tank Farm Easements.
(G) Railroad Trackage Easements.
(1) In order to provide for the real property rights and interests necessary to effectuate the
provisions of the Feedstock Agreement with regard to railroad track sharing, Fertilizer Company
hereby grants to Refinery Company, for use by its agents, employees, contractors, licensees and
lessees, as an appurtenance to the Refinery Parcel, a perpetual, non-exclusive easement in and
right of use to access, operate (with the term, operate being deemed to include the right to
temporarily store railroad cars in accordance with commercially reasonable practices) and otherwise
utilize for the receipt of feedstocks to, and delivery out of products, from the Refinerys
operations, in common with Fertilizer Company, all existing railroad tracks and trackage equipment
(as such railroad tracks and trackage equipment may be altered, relocated, expanded or replaced
from time to time by Fertilizer Company, at its sole cost and expense, so
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long as comparable uninterrupted railroad trackage service is provided to Refinery Company) on that
portion of the Fertilizer Parcel (the Railroad Trackage Easement Area (Fertilizer Parcel))
legally described on Exhibit L attached hereto and generally depicted on the Aerial (the
Railroad Trackage Easement (Fertilizer Parcel)). The Parties acknowledge that the Main Trackage
(as defined in the Feedstock Agreement) within the subject Easement Area and in the Easement Area
set forth in Section 2(G)(2) below is presently owned by Union Pacific Railroad Company and
is operated by South Kansas & Oklahoma Railroad, Inc.
(2) Reciprocally, in order to provide for the real property rights and interests necessary to
effectuate the provisions of the Feedstock Agreement with regard to railroad track sharing,
Refinery Company hereby grants to Fertilizer Company, for use by its agents, employees,
contractors, licensees and lessees, as an appurtenance to the Fertilizer Parcel, a perpetual,
non-exclusive easement in and right of use to access, operate (which operations shall be deemed to
include the right to temporarily store railroad cars in accordance with commercially reasonable
operating practices) and otherwise utilize for the receipt of feedstocks to, and delivery out of
products from the Fertilizer Plants operations, in common with Refinery Company, all existing
railroad tracks and trackage equipment (as such railroad tracks and trackage equipment may be
altered, relocated, expanded or replaced from time to time by Refinery Company, at its sole cost
and expense, so long as comparable uninterrupted railroad trackage service is provided to
Fertilizer Company) on that portion of the Refinery Parcel (the Railroad Trackage Easement Area
(Refinery Parcel) legally described on Exhibit M attached hereto and generally depicted on
the Aerial (the Railroad Trackage Easement (Refinery Parcel)); provided, however, and
notwithstanding the foregoing provisions of this Section 2.3(G)(2), Refinery Company hereby
grants Fertilizer Company an additional perpetual, non-exclusive easement and right (the Trackage
Storage Easement) to use for railroad car storage in connection with Fertilizer Plants operations
seventy five percent (75%) of the trackage constructed in 2006 within the Trackage Storage Area,
and the Parties hereby agree to reasonably cooperate with each other so as to be able to access and
move their respective railroad cars and equipment stored on the Trackage Storage Area.
(H) Parking Easement. Refinery Company hereby grants to Fertilizer Company, for use by
its employees, agents, contractors, licensees and lessees, as an appurtenance to the Fertilizer
Parcel, for a term of fifty (50) years from the Effective Date hereof, a non-exclusive easement and
right of use of the parking areas on the Refinery Shared Parking Area shown on the Aerial and
legally described on Exhibit Q hereto for the parking of vehicles of Fertilizer Company and
its employees, agents, employees, contractors, licensees and lessees, all in common with Refinery
Company; provided, however, Refinery Company hereby agrees that no less than fifty (50) parking
spaces on the Refinery Shared Parking Areas shall be exclusively available to Fertilizer Company at
all times (the easement granted under this Section 2.3(H) is called the Parking
Easement).
(I) Construction Buffer Zone Easements. Currently, Refinery Company is using a
designated portion of the buffer zone area owned by Fertilizer Company (the Construction Buffer
Zone Easement Area), which area is legally described on Exhibit R, for construction
staging in connection with the construction of certain improvements on the Refinery
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Parcel (the Construction Buffer Zone Easement). It is agreed and understood that Fertilizer
Company shall have the right to at any time terminate such use by Refinery Company upon giving no
less that thirty (30) days prior written notice, and if such notice is so given, Refinery Company
shall remove all of its equipment and other property within the Construction Buffer Zone Easement
Area it is so using and shall restore such portion to the same condition as existed prior to
Refinery Companys entry for staging purposes. Should either Party in the future grant to the
other Party the right to stage construction on its respective buffer zone area, then unless
otherwise expressly agreed between the Parties in writing to the contrary, such right shall
likewise be terminable by the granting party upon thirty (30) days prior notice and the removal and
restoration covenants set forth above in this Section 2.3(I) shall apply.
(J) Additional Easements. In order for the Parties to provide any and all other real
property easement interests and rights of use necessary to fully effectuate the purpose and intent
of the Service Agreements and without limiting the foregoing grants of Easements and the Easements
granted below in Article 3 for the Interconnect Points, each of the Parties hereby grants
to the other Party, to the extent an easement therefor is not otherwise granted herein,
non-exclusive easements over and across the granting Partys Parcel for such purposes as may be
reasonably necessary to carry out the purposes and intents of the Service Agreements (the
Additional Easements).
ARTICLE 3. INTERCONNECT POINTS AND EASEMENTS
3.1 Interconnect Points; Definition. There currently exist numerous pipelines,
facilities and other production equipment which serve both the Fertilizer Plant and the Refinery or
which provide for distribution of feedstocks between the Fertilizer Plant and Refinery and other
uses and operations covered under the Services Agreements and which involve portions of both the
Fertilizer Parcel and the Refinery Parcel. As used herein, the term Interconnect Points shall
mean those designated points of demarcation of ownership and control for certain operations,
equipment and facilities between the Fertilizer Plant and the Refinery located within the Shared
Pipeline Easement Area, which points are depicted on the Interconnect Points Drawing attached
hereto as Exhibit E. Fertilizer Company is hereby deemed to own such of its operations,
equipment and facilities which are located at points beginning at the common boundary of the
Fertilizer Parcel and the Shared Pipeline Easement Area and which extend to and connect with the
Interconnect Points located on the Refinery Parcel.
3.2 Rights to Connect at Interconnect Points. As generally provided for in the Shared
Pipeline Easement granted in Section 2.2 of this Agreement, and in order to effectuate the
provisions of the Service Agreements, particularly the provisions of the Feedstock Agreement, each
of Fertilizer Company and Refinery Company is hereby granted a non-exclusive easement in and right
of use to connect, at the Interconnect Points, to the operations, equipment and facilities of the
other Party, with the attendant rights to access, inspect, maintain, repair and replace such
operations, equipment and facilities (collectively, the Connection Purposes) (such easement and
rights herein called the Interconnect Points Easement). The Interconnect Points Easement shall
be deemed to cover all Interconnect Points, some of which are located on Parcel boundary lines and
some of which are located within the interiors of the Parcels.
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Furthermore, the Interconnect Easement includes an easement and right for any and all existing
incidental encroachments of facilities, equipment and other improvements onto the other Partys
Parcel and the right to access reasonably necessary portions of the other Partys Parcel
immediately adjacent to Interconnect Points for Connection Purposes, subject to the terms of the
Temporary Construction/Maintenance Easement granted in Section 2.2(E) of this Agreement.
3.3 Future Interconnect Points. The Parties acknowledge that there may be a need for
additional Interconnect Points in the future as may be mutually agreed upon between the Parties,
and the Parties hereby agree that the provisions of Sections 3.1 and 3.2 shall
apply with respect to such future Interconnect Points.
ARTICLE 4. EASEMENT PROVISIONS GENERAL
4.1 Collective Definition Easements. The foregoing easements granted in
Articles 2 and 3 hereof are collectively referred to herein as the Easements, and
each as an Easement, within the various areas set forth herein in which the Easements are
located, which are collectively referred to herein as the Easement Areas, and each as an
Easement Area.
4.2 Duration of Easements.
(A) The duration of those Easements granted herein which are specified as being perpetual
shall be perpetual (even though some of the Easements so specified as perpetual are also herein
specifically stated as being for the purpose of carrying out one or more of the Service
Agreements).
(B) Those Easements herein specifically stated as being granted to carry out the purposes and
intent of one or more referenced Service Agreements (and not specifically stated to be perpetual or
as being of a specific limited duration) shall be in effect concurrently with the term of such
Service Agreement(s) and shall expire when the last of the Service Agreements to which such
Easement pertains is no longer in effect pursuant to its terms.
(C) The duration of those Easements granted herein with a specified expiration date shall
expire as of the date specified.
(D) All other Easements herein granted which do not fall within the provisions of Sections
4.2(A), (B) or (C) shall expire on the 50th anniversary of the Effective Date.
(E) Upon the expiration of an Easement, neither Party shall have any further liability under
such Easement except as shall have arisen or accrued prior to such termination. Furthermore, an
individual Easement granted herein shall be deemed terminated if such Easement is abandoned by a
Party pursuant to applicable law. In the event that an Easement so expires or is deemed terminated
as provided in this Section 4.2, upon the request of either Party, the Parties agree to
execute a memorandum giving notice of such expiration or termination and to record such memorandum
in the county real estate records.
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4.3 Reserved Rights; Modification of Easement Areas. Each Party, as grantor, hereto
reserves for itself the right from time to time to remove, relocate, expand, substitute and use, at
its sole cost and expense, any building, improvement, structure, equipment, road, pipeline, curb
cut, utility or other facility currently or hereafter existing on its Parcel within an applicable
Easement Area; provided, however, that in no event shall the exercise of any of foregoing rights by
a Party deprive or materially adversely affect or interfere with the use by the other Party hereto
of the Easements herein granted to such other Party or the exercise of such other Partys rights
thereunder.
4.4 Service Agreements; Provision of Services. The Parties intend that this Agreement
and the Easements granted herein do not cover the specifics of the provision of the services (e.g.,
feedstock, coke, water, etc.) attendant to the purposes of the Easements. Instead, the Parties
agreements regarding the services themselves are detailed in the Service Agreements. Nothing in
this Agreement shall be deemed to in any way modify, impair or otherwise limit the specific
provisions or stated purposes of the Service Agreements.
4.5 Maintenance General. With regard to those facilities, improvements and
equipment of any kind, including pipelines, pipe racks and conduits, owned by a Party on its Parcel
which are necessary to carry out the purposes of one or more Service Agreements or the Easements
granted herein, Fertilizer Company and Refinery Company each agrees to maintain in good order and
condition (with the term maintain, as used in this paragraph, hereby deemed inclusive of repairs
and replacements, as necessary) at its sole cost and expense, those facilities, improvements and
equipment located on its Parcel and owned by it. Each Party shall also maintain its facilities,
equipment and other improvements up to the Interconnect Points therefor which are located from time
to time on the other Partys Parcel. Notwithstanding the foregoing, neither Party has the
obligation at any time to maintain facilities owned by the other Party, whether such facilities,
equipment and other improvements are located on the other Partys Parcel or on a Partys own
Parcel.
4.6 Unavoidable Delay. Neither Party shall be deemed to be in default in the
performance of any obligation created under or pursuant to this Agreement, other than an obligation
requiring the execution of documents or the payment of money, if and so long as non-performance of
such obligation shall be directly caused by fire or other casualty, national emergency,
governmental or municipal law or restrictions, enemy action, civil commotion, strikes, lockouts,
inability to obtain labor or materials, war or national defense preemptions, acts of God, energy
shortages, or similar causes beyond the reasonable control of such Party (each, an Unavoidable
Delay), and the time limit for such performance shall be extended for a period equal to the period
of such Unavoidable Delay; provided, however, that the Party unable to perform (the Non-Performing
Party) shall notify the other Party in writing, of the existence and nature of any Unavoidable
Delay, within ten (10) days after such other Party has notified the Non-Performing Party pursuant
to the Agreement of its failure to perform. Thereafter, the Non-Performing Party shall, from time
to time upon written request of the other Party, keep the other Party fully informed, in writing,
of all further developments concerning the Unavoidable Delay and its non-performance.
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4.7 Right of Self-Help. If a Non-Performing Party shall default in its performance of
an obligation under this Agreement, the other Party, (the Performing Party), in addition to all
other remedies such Performing Party may have at law or in equity, after fifteen (15) days prior
written notice to Non-Performing Party and to any First Mortgage holder of whose interest
Performing Party has actual knowledge (or in the event of an emergency, after giving such notice as
is practical under the circumstances), may (but shall not be obligated to) perform Non-Performing
Partys obligation, in which case Non-Performing Party shall promptly reimburse Performing Party
upon demand for: (a) all reasonable expenses, including, but not limited to, attorneys fees,
incurred by Performing Party to so perform the cure and to prepare on the outstanding amount
thereof; and (b) interest thereon from the date of expenditure thereof (until the date) at a rate
equal to the lesser of: (i) two percent (2%) per annum over the then-current prime commercial rate
of interest as published by the Wall Street Journal (or if no longer published, a comparable rate
of a nationally recognized publication designated by Performing Party); or (ii) the highest rate
permitted by applicable law to be paid by Non-Performing Party.
4.8 Safety Measures. Each Party hereto in the exercise of any of the Easement rights
and interests granted to it hereunder shall take all safety and precautionary measures necessary to
protect the other Party hereto and its Parcel and the improvements thereon from any injury or
damage caused by the exercise of such rights and interests.
4.9 Compliance with Laws. In all Work required of a Party or otherwise allowed under
this Agreement, and in connection with all entries by one Party onto the other Partys Parcel
permitted hereunder, each Partys Work, entries and related actions of any kind shall comply with
all applicable requirements, administrative and judicial orders, laws, statutes, ordinances, rules
and regulations of all federal, state, county, municipal and local departments, commissions,
boards, bureaus, agencies and offices thereof having or claiming jurisdiction.
4.10 Plant Security; Rules and Restrictions. Each Party hereto may, from time to time
and with advance notice to and reasonable coordination with the other Party, impose reasonable
rules and restrictions with regard to use of the various Easements within its Parcel which are
herein granted to the other Party, specifically including, without limitation, reasonable security
measures and restrictions which may be instituted from time to time by a Party within its Parcel;
provided, however, that no rule or regulation imposed pursuant to this Section 4.10 shall
materially interfere with a Partys ability as a grantee to effectively utilize an Easement granted
in this Agreement.
4.11 Temporary Closure of Easement Areas. Each Party shall have the right from time
to time and with advance notice to and reasonable coordination with the other Party (except in the
event of an emergency, in which case advance notice need not be given) to temporarily close off
and/or erect barriers across the Easement Areas located on its Parcel, as deemed reasonably
necessary by the Party owning the servient Parcel under a given Easement, for the following
purposes: (i) blocking off access to an area in order to avoid the possibility of dedicating the
same for public use or creating prescriptive rights therein; and (ii) attending to security issues
which threaten the industrial operations within an Easement Area. During the period of any such
temporary closure, the Party taking the closing action shall use commercially
16
reasonable efforts to provide to the other Party such continuous alternate access and usage
rights as are provided in the applicable Easement.
4.12 Insurance.
(A) Minimum Insurance. During the term of the Feedstock Agreement, Refinery Company
and Fertilizer Company shall each carry the minimum insurance described below.
(1) Workers compensation with no less than the minimum limits as required by applicable law.
(2) Employers liability insurance with not less than the following minimum limits:
(i) Bodily injury by accident - $1,000,000 each accident;
(ii) Bodily injury by disease - $1,000,000 each employee; and
(iii) Bodily injury by disease - $1,000,000 policy limit.
(3) Commercial general liability insurance on ISO form CG 00 01 10 93 or an equivalent form
covering liability from premises, operations, independent contractor, property damage, bodily
injury, personal injury, products, completed operations and liability assumed under an insured
contract, all on an occurrence basis, with limits of liability of not less than $1,000,000 combined
single limits.
(4) Automobile liability insurance, on each and every unit of automobile equipment, whether
owned, non-owned, hired, operated, or used by Refinery Company or Fertilizer Company or their
employees, agents, contractors and/or their subcontractors covering injury, including death, and
property damage, in an amount of not less than $1,000,000 per accident.
(5) Umbrella or excess liability insurance in the amount of $10,000,000 covering the risks and
in excess of the limits set forth in Section 4.12(A)(2), (3) and (4) above.
(B) Additional Insurance Requirements. Refinery Company and Fertilizer Company shall
each abide by the following additional insurance requirements with respect to all insurance
policies required by Section 4.2(A), as follows:
(1) All insurance policies purchased and maintained in compliance with Section
4.12(A)(3), (4) and (5) above by a Party (the Insuring Party), as well as any
other excess and/or umbrella insurance policies maintained by the Insuring Party, shall name the
other Party and their collective directors, officers, partners, members, managers, general
partners, agents, and employees as additional insureds, with respect to any claims related to
losses caused by the Insuring Partys business activities or premises. Those policies referred to
in Section 4.12(A)(3) shall be endorsed to provide that the coverage provided by the
Insuring Partys insurance carriers shall always be primary coverage and non-contributing with
respect to any insurance carried by the other Party with respect to any claims related to liability
or losses caused by the Insuring Partys business activities or premises.
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(2) The policies referred to in Section 4.12(A) above shall be endorsed to provide
that underwriters and insurance companies of each of Refinery Company and Fertilizer Company shall
not have any right of subrogation against the other Party or any of such other Partys directors,
officers, members, managers, general partners, agents, employees, contractors, subcontractors, or
insurers.
(3) The policies referred to in Section 4.12(A) shall be endorsed to also provide that
30 days prior written notice shall be given to the other Party in the event of cancellation,
non-payment of premium, or material change in the policies.
(4) Each of Refinery Company and Fertilizer Company shall furnish the other, prior to the
commencement of any operations under this Agreement, with a certificate or certificates, properly
executed by its insurance carrier(s), showing all the insurance described in Section
4.12(A) to be in full force and effect.
(5) The Refinery Company and Fertilizer Company shall each be responsible for its own property
and business interruption insurance.
(6) Notwithstanding the foregoing, the Parties acknowledge and agree that the insurance
required by this Agreement may be purchased and maintained jointly by the Parties or their
affiliates. If such insurance is purchased and maintained jointly and each Party is a named
insured thereunder, then the requirements of Section 4.12(B)(1) (5) will be deemed waived by the
Parties.
4.13 Title Matters; Mortgage Subordination; and Subsequent Grants.
(A) Except as provided in paragraph (B) of this Section 4.13, the Easements and rights
granted hereunder are made subject to any and all prior existing easements, grants, leases,
licenses, agreements, encumbrances, defects and other matters and states of fact affecting the
Parcels, or any part thereof, as of the Effective Date whether or not of record and the rights of
others with respect thereto. Each Party, as grantee under the each of various Easements, agrees to
abide by the terms of all matters of public record and of which it otherwise has notice binding
upon the other Party, as the owner of the servient Parcel pursuant to such Easement(s).
(B) The lien of any existing mortgage or deed of trust (a Mortgage) on the Parcels has been
subordinated to this Agreement pursuant to the Consent of Mortgage Holder pages attached hereto.
The liens of any future Mortgages and the interest of any entity holding the position of lessor on
what is commonly referred to as a sale-leaseback, synthetic lease, or lease-leaseback
transaction (S/L Lease) are also hereby automatically subordinated to this Agreement.
(C) Amendments and other modifications to this Agreement shall be considered an extension of
the rights granted herein and shall remain superior to any future mortgage, deed of trust or other
encumbrance placed upon the property or appearing in title prior to such amendment or modification.
Each of Fertilizer Company and Refinery Company, in its role as
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grantor, as applicable, agrees to promptly execute such instruments as may be required to confirm
such priority.
(D) Each Party hereto shall have the continuing right to grant easements and other rights and
interests in and to, and permit uses of the Parcel owned by it in favor of and by such other
parties as each Party may deem appropriate; provided, however, that any such easements,
rights, interests and uses shall be subject to the terms of this Agreement and the terms of the
Easements granted herein and shall not materially interfere with the grantee Partys rights and
usage of the Easements granted herein.
4.14 Easement Appurtenant to Land under Common Ownership. The Easements granted in
this Agreement are appurtenant to the dominant estate Parcels as indicated herein and are also
appurtenant to any land that may hereafter come into common ownership with the dominant estate
Parcel thereunder which is contiguous thereto. Any areas physically separated from such dominant
estate Parcel but having access thereto by means of a public right-of-way or a private easement
(including the Easements granted herein) is deemed to be contiguous to such Parcel.
4.15 Cooperation. Each of the Parties acknowledges and agrees that upon reasonable
request of the other, at the cost and expense of the requesting Party, each Party shall promptly
and duly execute and deliver such reasonable documents and take such further reasonable action to
acknowledge, confirm and effect the intent of, and actions described in, this Agreement and the
Easements herein.
4.16 Restoration. If by reason of fire or other casualty, the improvements, pipelines,
equipment or other facilities on a Partys Parcel which serve or benefit the operations on the
Parcel of the other Party as set forth in this Agreement or in any of the Service Agreements shall
be damaged or destroyed and such Party shall not be obligated by this Agreement to repair or
restore such damaged or destroyed improvements, pipeline, equipment or other facilities, then the
other Party shall have the right to go on such Partys Parcel and repair and restore the same at
such other Partys sole cost and expense, but the work undertaken in doing so shall be deemed
Work and be subject to the provisions of Section 2.2(E)(2), (3), (4) and
(5).
ARTICLE 5. DISPUTES
5.1 Resolution of Disputes. The Parties shall in good faith attempt to resolve
promptly and amicably any dispute between the Parties arising out of or relating to this Agreement
(each a Dispute) pursuant to this Article 5. The Parties shall first submit the Dispute
to a designated Fertilizer Company representative and Refinery Company representative, who shall
then meet within fifteen (15) days to resolve the Dispute. If the Dispute has not been resolved
within forty-five (45) days after the submission of the Dispute to such representatives, the
Dispute shall be submitted to a mutually agreed non-binding mediation. The costs and expenses of
the mediator shall be borne equally by the Parties, and the Parties shall pay their own respective
attorneys fees and other costs. If the Dispute is not resolved by mediation within ninety (90)
days after the Dispute is first submitted to the Refinery Company representative and
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the Fertilizer Company representative as provided above, then the Parties may exercise all
available remedies and file all actions and proceedings in connection therewith.
5.2 Multi-Party Disputes. The Parties acknowledge that they or their respective
affiliates contemplate entering or have entered into various additional agreements with third
parties that relate to the subject matter of this Agreement and that, as a consequence, Disputes
may arise hereunder that involve such third parties. Accordingly, the Parties agree, with the
consent of such third parties, that any such Dispute, to the extent feasible, shall be resolved by
and among all the interested parties consistent with the provisions of this Article 5.
ARTICLE 6. INDEMNIFICATION
6.1 Indemnification Obligations. To the extent not otherwise provided for in the
Service Agreements, each of the Parties (each, an Indemnitor) shall indemnify, defend and hold
the other Party and its respective officers, directors, members, managers and employees (each, an
Indemnitee) harmless from and against all liabilities, obligations, claims, losses, damages,
penalties, deficiencies, causes of action, costs and expenses, including, without limitation,
attorneys fees and expenses (collectively, Losses) imposed upon, incurred by or asserted against
the person seeking indemnification that are caused by, are attributable to, result from or arise
out of the breach of this Agreement by the Indemnitor or the negligence or willful misconduct of
the Indemnitor, or of any officers, directors, members, managers, employees, agents, contractors
and/or subcontractors acting for or on behalf of the Indemnitor. Any indemnification obligation
pursuant to this Article 6 with respect to any particular Losses shall be reduced by all
amounts actually recovered by the Indemnitee from third parties, or from applicable insurance
coverage, with respect to such Losses. Upon making any payment to any Indemnitee, the Indemnitor
shall be subrogated to all rights of the Indemnitee against any third party in respect of the
Losses to which such payment relates, and such Indemnitee shall execute upon request all
instruments reasonably necessary to evidence and perfect such subrogation rights. If the
Indemnitee receives any amounts from any third party or under applicable insurance coverage
subsequent to an indemnification payment by the Indemnitor, then such Indemnitee shall promptly
reimburse the Indemnitor for any payment made or expense incurred by such Indemnitor in connection
with providing such indemnification payment up to the amount received by the Indemnitee, net of any
expenses incurred by such Indemnitee in collecting such amount.
6.2 Indemnification Procedures.
(A) Promptly after receipt by an Indemnitee of notice of the commencement of any action that
may result in a claim for indemnification pursuant to this Article 6, the Indemnitee shall
notify the Indemnitor in writing within thirty (30) days thereafter; provided, however, that any
omission to so notify the Indemnitor will not relieve it of any liability for indemnification
hereunder as to the particular item for which indemnification may then be sought (except to the
extent that the failure to give notice shall have been materially prejudicial to the Indemnitor)
nor from any other liability that it may have to any Indemnitee. The Indemnitor shall have the
right to assume sole and exclusive control of the defense of any claim for indemnification pursuant
to this Article 6, including the choice and direction of any legal counsel.
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(B) An Indemnitee shall have the right to engage separate legal counsel in any action as to
which indemnification may be sought under any provision of this Agreement and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the expense of such
Indemnitee unless: (i) the Indemnitor has agreed in writing to pay such fees and expenses; (ii) the
Indemnitor has failed to assume the defense thereof and engage legal counsel within a reasonable
period of time after being given the notice required above; or (iii) the Indemnitee shall have been
advised by its legal counsel that representation of such Indemnitee and other parties by the same
legal counsel would be inappropriate under applicable standards of professional conduct (whether or
not such representation by the same legal counsel has been proposed) due to actual or potential
conflicts of interests between them. It is understood, however, that to the extent more than one
Indemnitee is entitled to engage separate legal counsel at the Indemnitors expense pursuant to
clause (iii) above, the Indemnitor shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of only one separate
firm of attorneys at any time for all such Indemnitees having the same or substantially similar
claims against the Indemnitor, unless but only to the extent the Indemnitees have actual or
potential conflicting interests with each other.
(C) The Indemnitor shall not be liable for any settlement of any action effected without its
written consent, but if settled with such written consent, or if there is a final judgment against
the Indemnitee in any such action, the Indemnitor agrees to indemnify and hold harmless the
Indemnitee to the extent provided above from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.
6.3 Survival. The provisions of this Article 6 shall survive the termination
of this Agreement.
6.4 Service Agreements Indemnification. Notwithstanding anything to the contrary set
forth above in Section 6.1, (i) the intent of the Parties with regard to indemnification
matters under this Agreement is that they are not duplicative of the indemnification obligations
set forth in the Service Agreements; and (ii) to the extent an indemnity matter is otherwise
covered by a Service Agreement, the Service Agreement indemnification obligation shall govern and
control, and this Article 6 shall have no force or effect with respect to that particular
indemnity matter. The indemnification obligations hereunder shall not under any circumstance be
deemed to create overlapping or duplicative indemnification obligations for the Parties.
ARTICLE 7. FINANCING REQUIREMENTS
If, in connection with either Party obtaining financing for its respective Parcel, a banking,
insurance or other recognized institutional lender shall request any modification(s) to this
Agreement as a condition to such financing, the Parties covenant and agree to make such
modifications to this Agreement as reasonably requested by such financing party (including the
creation of such instrument (in recordable form to the extent required)) provided that such
modification(s) do not increase the obligations or reduce the rights of the Parties or adversely
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(other than in a de minimis respect) affect the Easement interests, rights and privileges
granted herein, the Parties rights under the Service Agreements, or either Partys right to
otherwise improve, construct, use, operate and maintain its respective Parcel and the improvements,
equipment and facilities thereon.
ARTICLE 8. NO LIENS OR ENCUMBRANCES
Each of the Parties, in its role as a grantee, hereby covenants that it shall not, as a result
of any act or omission of, directly or indirectly, create, incur, assume or suffer to exist any
liens on or with respect to its respective Easement interests and rights of use in the Fertilizer
Parcel or the Refinery Parcel, respectively, if such lien shall have or may gain superiority over
this Agreement. Each Party shall promptly notify the other Party of the imposition of any such
liens not permitted above of which it is aware and shall promptly, at its own expense, take such
action as may be necessary to immediately fully discharge or release any such lien of record by
payment, bond or otherwise (but this shall not preclude a contest of such lien so long as the same
shall be removed of record).
ARTICLE 9. SUCCESSORS AND ASSIGNS; TRANSFER OF INTERESTS
This Agreement shall extend to and be binding upon the Parties hereto, their successors,
grantees and assigns. Any party who shall succeed to the fee simple ownership interest in a Parcel
shall, at the time of such transfer, be automatically deemed to have assumed all obligations of the
transferring Party under this Agreement with regard to such Parcel, and the transferring Party
shall be released from all obligations of such Party under this Agreement which arise after the
date of such transfer; provided, however, that a transferring Party shall retain liability for all
obligations under this Agreement which arose prior to the transfer date.
ARTICLE 10. NOTICES
All notices, requests, correspondence, information, consents and other communications to
either of the Parties required or permitted under this Agreement shall be in writing and shall be
given by personal service or by facsimile, overnight courier service, or certified mail with
postage prepaid, return receipt requested, properly addressed to such Party and shall be effective
upon receipt. For purposes hereof, the proper address of the Parties will be the address stated
beneath the corresponding Partys name below, or at the most recent address given to the other
Party hereto by notice in accordance with this Article 10:
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If to Refinery Company, to:
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With a copy to: |
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Coffeyville Resources Refining
& Marketing, LLC
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Edmund S. Gross
Senior Vice President and General
Counsel |
400 N. Linden St., P.O. Box 1566
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CVR Energy, Inc. |
Coffeyville, Kansas 67337
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10 E. Cambridge Circle, Ste. 250 |
Attention: Executive Vice President,
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Kansas City, Kansas 66103 |
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Operations
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Facsimile: (913) 982-5651 |
Facsimile: (620) 251-1456 |
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If to Fertilizer Company, to:
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With a copy to: |
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Coffeyville Resources Nitrogen
Fertilizers, LLC
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Edmund S. Gross
Senior Vice President and
General Counsel |
701 E. Martin St., P.O. Box 5000
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CVR Energy, Inc. |
Coffeyville, Kansas 67337
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10 E. Cambridge Circle, Ste. 250 |
Attention: Executive Vice President and
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Kansas City, Kansas 66103 |
Fertilizer General Manager
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Facsimile: (913) 982-5651 |
Facsimile: (620) 252-4357 |
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or such other addresses as either Party designates by registered or certified mail addressed to the
other Party.
ARTICLE 11. GOVERNING LAW AND VENUE
THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
KANSAS WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SAID STATE. THE PARTIES AGREE THAT ANY
ACTION BROUGHT IN CONNECTION WITH THIS AGREEMENT MAY BE MAINTAINED IN ANY COURT OF COMPETENT
JURISDICTION LOCATED IN THE STATE OF KANSAS, AND EACH PARTY AGREES TO SUBMIT PERSONALLY TO THE
JURISDICTION OF ANY SUCH COURT AND HEREBY WAIVES THE DEFENSES OF FORUM NON-CONVENIENS OR IMPROPER
VENUE WITH RESPECT TO ANY ACTION BROUGHT IN ANY SUCH COURT IN CONNECTION WITH THIS AGREEMENT.
ARTICLE 12. MISCELLANEOUS
12.1 Running of Benefits and Burdens. All provisions of this Agreement, including the
benefits and burdens set forth herein with respect to the Fertilizer Parcel and the Refinery
Parcel, respectively, shall run with the land.
12.2 No Prescriptive Rights or Adverse Possession. Each Party agrees that its past,
present, or future use of its respective Easement interests and rights of usage granted herein
shall not be deemed to permit the creation or further the existence of prescriptive easement rights
or the procurement of title by adverse possession with respect to all or any portion of either
Partys Parcel.
12.3 Costs of Performance. It is the general intent and agreement of the Parties
that, except as otherwise expressly provided in this Agreement, Fertilizer Company shall pay the
costs of performing its obligations and exercising its rights hereunder, and Refinery Company shall
pay the costs of performing its obligations and exercising its rights hereunder.
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12.4 Headings. The headings used in this Agreement are for convenience only and shall
not constitute a part of this Agreement.
12.5 No Joint Venture. The Parties acknowledge and agree that neither Party, by
reason of this Agreement, shall be an agent, employee or representative of the other with respect
to any matters relating to this Agreement, unless specifically provided to the contrary in writing
by the other Party. This Agreement shall not be deemed to create a partnership or joint venture of
any kind between Refinery Company and Fertilizer Company.
12.6 Attorneys Fees. If suit is brought to enforce this Agreement, the prevailing
Party in such action shall be, unless precluded by law, entitled to recover its litigation expenses
from the other Party, including its reasonable attorneys fees and costs.
12.7 Amendments. This Agreement may not be amended, modified or waived except by a
writing signed by all Parties to this Agreement that specifically references this Agreement and
specifically provides for an amendment, modification or waiver of this Agreement.
12.8 Construction and Severability. Every covenant, term and provision of this
Agreement shall be construed simply according to its fair meaning and in accordance with industry
standards and not strictly for or against either Party. Every provision of this Agreement is
intended to be severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or legality of the
remainder of this Agreement.
12.9 No Waiver. The waiver by either Party of any breach of any term, covenant or
condition contained in this Agreement shall not be deemed to be a waiver of such term, covenant or
condition or of any subsequent breach of the same or of any other term, covenant or condition
contained in this Agreement. No term, covenant or condition of this Agreement will be deemed to
have been waived unless such waiver is in writing.
12.10 Third-Party Beneficiaries. Except as expressly provided herein, none of the
provisions of this Agreement are intended for the benefit of any person except the Parties and
their respective successors and assigns.
12.11 Entire Agreement. This Agreement, including all Exhibits hereto, together with
the Service Agreements, constitutes the entire, integrated agreement between the Parties regarding
the subject matter hereof and supersedes any and all prior and contemporaneous agreements
(including the Original Agreement), representations and understandings of the Parties, whether
written or oral.
12.12 Counterparts. This Agreement may be signed in multiple counterparts, each of
which shall be deemed an original and all of which when taken together shall constitute one
instrument.
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12.13 Exhibits. Attached hereto and forming a part of this Agreement by this
reference are the following Exhibits:
EXHIBIT A Legal Description of the Fertilizer Parcel
EXHIBIT B Legal Description of the Refinery Parcel
EXHIBIT C Aerial
EXHIBIT D Legal Description of Shared Pipeline Easement Area
EXHIBIT E Interconnect Points Drawing
EXHIBIT F Legal Description of Area for Pipe Rack Easement Area
EXHIBIT G Legal Description of Coke Conveyor Belt Easement Area
EXHIBIT H Legal Description of Sunflower Street Pipeline Crossing Easement Area
(Fertilizer Parcel)
EXHIBIT I Legal Description of Sunflower Street Pipeline Crossing Easement Area
(Refinery Parcel)
EXHIBIT J Legal Description of East Tank Farm Roadway Area (Fertilizer Parcel)
EXHIBIT K Legal Description of East Tank Farm Area (Refinery Parcel)
EXHIBIT L Legal Description of Railroad Trackage Easement Area (Fertilizer Parcel)
EXHIBIT M Legal Description of Railroad Trackage Easement Area (Refinery Parcel)
EXHIBIT N Legal Description of Fertilizer Company Clarifier Tract
EXHIBIT O Fertilizer Water Pipeline Easement Area
EXHIBIT P Legal Description of Coke Haul Road
EXHIBIT Q Legal Description of Refinery Shared Parking Area
EXHIBIT R Legal Description of Construction Buffer Zone Easement Area
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Signature Page
to
Cross Easement Agreement
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first set
forth above.
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COFFEYVILLE RESOURCES |
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REFINING & MARKETING, LLC, |
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a Delaware limited liability company |
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By: |
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Name:
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Robert W. Haugen
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Title:
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Executive Vice President,
Operations |
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STATE OF
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COUNTY OF
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On this day of , 2011, before me, a Notary Public in and for said County and State, personally
appeared Robert W. Haugen, Executive Vice President, Operations of Coffeyville Resources Refining &
Marketing, LLC, a Delaware limited liability company, known to me to be the person who executed the
foregoing instrument in behalf of said limited liability company and acknowledged to me that he/she
executed the same for the purposes therein stated.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my seal the day and year last
above written.
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Notary Public |
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(Notarial Seal)
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Printed name:
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My Commission Expires:
Signature Page
to
Cross Easement Agreement
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COFFEYVILLE RESOURCES NITROGEN |
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FERTILIZERS, LLC, |
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a Delaware limited liability company |
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By: |
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Name:
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Kevan A. Vick
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Title:
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Executive Vice President and
Fertilizer General Manager |
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STATE OF
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COUNTY OF
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On this day of , 2011, before me, a Notary Public in and for said County and State, personally
appeared Kevan A. Vick, Executive Vice President and Fertilizer General Manager of Coffeyville
Resources Nitrogen Fertilizers, LLC, a Delaware limited liability company, known to me to be the
person who executed the foregoing instrument in behalf of said limited liability company and
acknowledged to me that he/she executed the same for the purposes therein stated.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my seal the day and year last
above written.
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Notary Public |
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Printed name:
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My Commission Expires:
Consent of Mortgage Holder
Fertilizer Parcel
The undersigned, being the holder of that certain mortgage, , dated
and recorded on in Book at Page , which
mortgage covers the property described on Exhibit A, hereby consents to the foregoing
Agreement and subordinates the lien of its mortgage to the terms and provisions herein.
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STATE OF
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COUNTY OF
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On this day of , 2011, before me, a Notary Public in and for said County and State, personally
appeared , of ,
known to me to be the person who executed the foregoing instrument in behalf of said
and acknowledged to me that he/she executed the same for the purposes
therein stated.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my seal the day and year last
above written.
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Notary Public |
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Printed name:
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My Commission Expires:
Consent of Mortgage Holder
Refinery Parcel
The undersigned, being the holder of that certain mortgage, ,
dated and recorded on
in
Book at Page , which mortgage covers the property described on Exhibit B,
hereby consents to the foregoing Agreement and subordinates the lien of its mortgage to the terms
and provisions herein.
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STATE OF
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COUNTY OF
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On this day of , 2011, before me, a Notary Public in and for said County and State, personally
appeared , of
,
known to me to be the person who executed the foregoing instrument in behalf of
said
and acknowledged to me that he/she executed the same for the purposes
therein stated.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my seal the day and year last
above written.
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Printed name:
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My Commission Expires:
EXHIBIT A
Legal Description of the Fertilizer Parcel
NEW NITROGEN UNIT (PARCELS 2, 3, 4, 7, 8, 8A & 9)
A PART OF COFFEYVILLE HEIGHTS ADDITION TO THE CITY OF COFFEYVILLE, PART OF MONTGOMERYS ADDITION TO
THE CITY OF COFFEYVILLE, PART OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY, AND PART OF THE
NE/4 OF SECTION 36, TOWNSHIP 34 SOUTH, RANGE 16 EAST, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS
FOLLOWS: COMMENCING AT THE NORTHEAST CORNER OF SAID NE/4; THENCE ON AN ASSUMED BEARING OF
S00°0000E ALONG THE EAST LINE OF SAID NE/4 A DISTANCE OF 200.17 FEET TO THE NORTHERLY LINE OF THE
FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY; THENCE S59°3009W ALONG SAID NORTHERLY LINE A DISTANCE
OF 1007.15 FEET TO THE TRUE POINT OF BEGINNING; THENCE S00°0000E A DISTANCE OF 304.05 FEET;
THENCE S88°1441E A DISTANCE OF 158.79 FEET; THENCE S00°0000E A DISTANCE OF 6.77 FEET; THENCE
N90°0000E A DISTANCE OF 25.00 FEET; THENCE N00°0000W A DISTANCE OF 6.00 FEET; THENCE
S88°1440E A DISTANCE OF 245.71 FEET; THENCE S12°1553E A DISTANCE OF 11.77 FEET; THENCE
S82°3225E A DISTANCE OF 43.08 FEET; THENCE S00°0000E A DISTANCE OF 33.41 FEET; THENCE
S90°0000W A DISTANCE OF 14.72 FEET; THENCE S86°4402W A DISTANCE OF 368.60 FEET; THENCE
S00°0000E A DISTANCE OF 25.00 FEET; THENCE N90°0000E A DISTANCE OF 20.00 FEET; THENCE
S00°3137E A DISTANCE OF 197.51 FEET; THENCE N90°0000E A DISTANCE OF 165.00 FEET; THENCE
S00°0000E A DISTANCE OF 24.03 FEET; THENCE N90°0000E A DISTANCE OF 249.97 FEET; THENCE
N00°0000W A DISTANCE OF 18.64 FEET; THENCE N90°0000E A DISTANCE OF 51.39 FEET; THENCE
S00°0000E A DISTANCE OF 15.00 FEET; THENCE N90°0000E A DISTANCE OF 56.01 FEET; THENCE
S00°0000E A DISTANCE OF 169.40 FEET; THENCE N89°0000W A DISTANCE OF 636.08 FEET; THENCE
S00°0000E A DISTANCE OF 377.30 FEET TO THE CENTERLINE OF MARTIN STREET; THENCE N89°1403W ALONG
SAID CENTERLINE A DISTANCE OF 60.59 FEET; THENCE CONTINUING ALONG SAID CENTERLINE, N89°2221W A
DISTANCE OF 608.53 FEET; THENCE CONTINUING ALONG SAID CENTERLINE, N89°2908W A DISTANCE OF 40.11
FEET TO THE CENTERLINE OF PINE STREET; THENCE S00°0014W ALONG THE CENTERLINE OF SAID PINE STREET
A DISTANCE OF 35.18 FEET; THENCE N89°3326W A DISTANCE OF 40.15 FEET TO THE NE CORNER OF BLOCK 6
OF SAID MONTGOMERYS ADDITION; THENCE N89°1309W ALONG THE NORTH LINE OF SAID BLOCK 6 A DISTANCE
OF 399.88 FEET TO THE NW CORNER OF SAID BLOCK 6; THENCE N89°0543W A DISTANCE OF 79.80 FEET TO THE
NE CORNER OF BLOCK 5 OF SAID MONTGOMERYS ADDITION; THENCE N00°0824E A DISTANCE OF 69.57 FEET TO
THE SE CORNER OF BLOCK 10 OF SAID MONTGOMERYS ADDITION; THENCE N00°0000W A DISTANCE OF 277.85
FEET TO THE SOUTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY; THENCE N15°0043W A
DISTANCE OF 104.03 FEET TO THE NORTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY;
THENCE N30°2951W A DISTANCE OF 20.00
A-1
FEET; THENCE N59°3009E A DISTANCE OF 465.00 FEET; THENCE S30°2951E A DISTANCE OF 20.00 FEET TO
SAID NORTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY; THENCE N59°3009E ALONG
SAID NORTHERLY LINE A DISTANCE OF 32.23 FEET; THENCE S00°0128E A DISTANCE OF 276.43 FEET; THENCE
N90°0000E A DISTANCE OF 365.00 FEET; THENCE N00°0000W A DISTANCE OF 491.48 FEET TO SAID
NORTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY; THENCE N59°3009E ALONG SAID
NORTHERLY LINE A DISTANCE OF 536.40 FEET TO THE POINT OF BEGINNING.
AND
LOADING DOCK
A PART OF COFFEYVILLE HEIGHTS ADDITION TO THE CITY OF COFFEYVILLE AND A PART OF THE NE/4 OF SECTION
36, T34S, R16E, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS: COMMENCING AT THE NE CORNER OF
THE NE/4 OF SAID SECTION 36; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG THE EAST LINE OF
SAID NE/4 A DISTANCE OF 316.23 FEET TO THE SOUTHERLY RIGHT-OF-WAY LINE OF THE UNION PACIFIC
RAILROAD; THENCE S59°3009W ALONG SAID SOUTHERLY RIGHT-OF-WAY LINE A DISTANCE OF 34.82 FEET TO THE
WEST RIGHT-OF-WAY LINE OF SUNFLOWER STREET; THENCE S00°0000E ALONG SAID WEST RIGHT-OF-WAY LINE A
DISTANCE OF 1148.43 FEET; THENCE CONTINUING ALONG SAID WEST RIGHT-OF-WAY LINE, S00°0512E A
DISTANCE OF 60.63 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING ALONG SAID WEST
RIGHT-OF-WAY LINE, S00°0512E A DISTANCE OF 12.01 FEET TO THE NE CORNER OF BLOCK 12 OF SAID
COFFEYVILLE HEIGHTS ADDITION; THENCE CONTINUING ALONG SAID WEST RIGHT-OF-WAY LINE AND THE EAST LINE
OF SAID BLOCK 12, S00°0048W A DISTANCE OF 267.47 FEET; THENCE LEAVING SAID WEST RIGHT-OF-WAY LINE
AND THE EAST LINE OF SAID BLOCK 12, N38°2127W A DISTANCE OF 131.96 FEET; THENCE N00°0000W A
DISTANCE OF 176.00 FEET; THENCE N90°0000E A DISTANCE OF 81.94 FEET TO THE POINT OF BEGINNING.
AND
CLARIFIER TRACT
A PART OF THE SE/4 OF SECTION 25, T34S, R16E, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS:
COMMENCING AT THE SE CORNER OF SAID SE/4; THENCE ON AN ASSUMED BEARING OF N00°2255E ALONG THE
EAST LINE OF SAID SE/4 A DISTANCE OF 1285.62 FEET; THENCE S90°0000W A DISTANCE OF 1774.69 FEET TO
THE TRUE POINT OF BEGINNING; THENCE N76°2509W A DISTANCE OF 25.41 FEET TO THE EASTERLY
RIGHT-OF-WAY LINE OF THE A.T.&S.F. RAILROAD; THENCE N13°3451E ALONG SAID EASTERLY RIGHT-OF-
A-2
WAY
LINE A DISTANCE OF 298.51 FEET; THENCE LEAVING SAID EASTERLY RIGHT-OF-WAY LINE, S67°0000E A
DISTANCE OF 101.78 FEET; THENCE S18°0036W A DISTANCE OF 62.14 FEET; THENCE S11°0608E A DISTANCE
OF 70.97 FEET; THENCE SOUTHWESTERLY ON A NON-TANGENT CURVE TO THE LEFT HAVING A RADIUS OF 450.00
FEET AND A CENTRAL ANGLE OF 23°4114 A DISTANCE OF 186.04 FEET TO THE POINT OF BEGINNING.
AND
NEW FERTILIZER STORAGE AREA (PARCELS 6 & 10)
A PART OF THE NW/4 OF SECTION 31, T34S, R17E, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS:
COMMENCING AT THE NW CORNER OF SAID NW/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG THE
WEST LINE OF SAID NW/4 A DISTANCE OF 1013.07 FEET TO THE SW CORNER OF THE NORTH 75 ACRES OF LOTS 2
AND 3 OF SAID SECTION 31; THENCE S86°2415E ALONG THE SOUTH LINE OF SAID NORTH 75 ACRES OF LOTS 2
AND 3 A DISTANCE OF 30.06 FEET TO THE EAST RIGHT-OF-WAY LINE OF SUNFLOWER STREET AND THE TRUE POINT
OF BEGINNING; THENCE CONTINUING ALONG THE SOUTH LINE OF SAID NORTH 75 ACRES OF LOTS 2 AND 3,
S86°2415E A DISTANCE OF 3049.00 FEET MORE OR LESS TO THE CENTERLINE OF THE VERDIGRIS RIVER;
THENCE ALONG THE APPROXIMATE CENTERLINE OF SAID VERDIGRIS RIVER THE FOLLOWING COURSES: S15°1305W
A DISTANCE OF 90.34 FEET; THENCE S03°0348W A DISTANCE OF 488.35 FEET; THENCE LEAVING SAID
CENTERLINE OF THE VERDIGRIS RIVER S89°4400W A DISTANCE OF 2993.22 FEET MORE OR LESS TO THE EAST
RIGHT-OF-WAY LINE OF SUNFLOWER STREET; THENCE N00°0000W A DISTANCE OF 779.98 FEET TO THE POINT OF
BEGINNING.
A-3
EXHIBIT B
Legal Description of the Refinery Parcel
TRACT EAST OF SUNFLOWER STREET
ALL OF LOTS 2, 3, 4 AND 5, SECTION 31, T34S, R17E, MONTGOMERY COUNTY, KANSAS, LYING WEST OF THE
CENTERLINE OF THE VERDIGRIS RIVER, EXCEPT THE FOLLOWING DESCRIBED TRACTS: THE NORTH 75 ACRES OF
SAID LOTS 2 AND 3; AND EXCEPT A TRACT COMMENCING AT THE SOUTHWEST CORNER OF LOT 4, THENCE NORTH
400 FEET, THENCE EAST 425 FEET, THENCE SOUTH APPROXIMATELY 420 FEET (426.46 MEASURED) TO THE SOUTH
BOUNDARY OF SAID LOT 4, THENCE WEST (425.82 MEASURED) TO THE PLACE OF BEGINNING: AND EXCEPT A
TRACT DESCRIBED AS FOLLOWS IN A GENERAL WARRANTY DEED DATED JULY 1, 1976, FROM GEORGE W. MULLER AND
FERRIS M. MULLER, HUSBAND AND WIFE, TO CRA, INC., RECORDED IN BOOK 353 OF DEEDS, PAGE 19:
COMMENCING AT A POINT 538 FEET SOUTH OF THE NORTHWEST CORNER OF LOT 4, SECTION 31, TOWNSHIP 34
SOUTH, RANGE 17 EAST IN THE PRESENT WEST FENCE LINE OF SAID LOT 4, THENCE SOUTH 75 FEET ALONG SAID
FENCE, THENCE EAST 20 FEET, THENCE NORTH 75 FEET, THENCE WEST 20 FEET TO THE POINT OF BEGINNING;
AND EXCEPT A TRACT DESCRIBED AS FOLLOWS IN SAID LAST-MENTIONED GENERAL WARRANTY DEED: COMMENCING
IN CENTER OF VERDIGRIS RIVER 21 RODS NORTH OF SOUTH LINE OF SAID LOT 5, THENCE WEST AND
SOUTHWESTERLY ALONG LEFT BANK OF RAVINE 33 FEET FROM CENTER OF RAVINE TO SOUTH LINE OF LOT 5,
THENCE EAST ALONG SOUTH LINE OF LOT 5 TO CENTER OF VERDIGRIS RIVER, UP RIVER TO BEGINNING.
AND EXCEPT:
FERTILIZER STORAGE
A PART OF THE NW/4 OF SECTION 31, T34S, R17E, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS:
COMMENCING AT THE NW CORNER OF SAID NW/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG THE
WEST LINE OF SAID NW/4 A DISTANCE OF 1013.07 FEET TO THE SW CORNER OF THE NORTH 75 ACRES OF LOTS 2
AND 3 OF SAID SECTION 31; THENCE S86°2415E ALONG THE SOUTH LINE OF SAID NORTH 75 ACRES OF LOTS 2
AND 3 A DISTANCE OF 30.06 FEET TO THE EAST RIGHT-OF-WAY LINE OF SUNFLOWER STREET AND THE TRUE POINT
OF BEGINNING; THENCE CONTINUING ALONG THE SOUTH LINE OF SAID NORTH 75 ACRES OF LOTS 2 AND 3,
S86°2415E A DISTANCE OF 3049.00 FEET MORE OR LESS TO THE CENTERLINE OF THE VERDIGRIS RIVER;
THENCE ALONG THE APPROXIMATE CENTERLINE OF SAID VERDIGRIS RIVER THE FOLLOWING COURSES: S15°1305W
A DISTANCE OF 90.34 FEET; THENCE S03°0348W A DISTANCE OF 488.35 FEET; THENCE LEAVING SAID
CENTERLINE OF THE VERDIGRIS RIVER S89°4400W A DISTANCE OF 2993.22 FEET MORE OR LESS TO
B-1
THE EAST RIGHT-OF-WAY LINE OF SUNFLOWER STREET; THENCE N00°0000W A DISTANCE OF 779.98 FEET TO THE
POINT OF BEGINNING.
TRACT NORTH OF FORMER UNION PACIFIC RAILROAD
ALL THAT PART OF THE SE/4 OF SECTION 25, TOWNSHIP 34, RANGE 16 EAST OF THE 6TH P.M., LYING WEST OF
THE WESTERLY RIGHT-OF-WAY LINE AND NORTH OF THE NORTHERLY RIGHT-OF-WAY LINE OF THE ATCHISON, TOPEKA
AND SANTA FE RAILROAD, EXCEPT 3 ACRES IN THE NORTHWEST CORNER AS EXCEPTED FROM A GENERAL WARRANTY
DEED DATED AUGUST 23, 1951, FROM R.L. EDWARDS AND MILDRED EDWARDS, HUSBAND AND WIFE, TO THE
COOPERATIVE REFINERY ASSOCIATION, RECORDED IN BOOK 245 OF DEEDS, PAGE 586, IN THE REGISTER OF DEEDS
OFFICE OF MONTGOMERY COUNTY, KANSAS.
AND
ALL THAT PART OF THE E/2 OF SECTION 25 AND ALL THAT PART OF THE NE/4 OF SECTION 36 LYING EAST OF
THE EASTERLY RIGHT-OF-WAY LINE OF THE ATCHISON, TOPEKA AND SANTE FE RAILROAD AND NORTH OF THE
NORTHERLY RIGHT-OF-WAY LINE OF THE FORMER MISSOURI-KANSAS-TEXAS RAILROAD (NOW UNION PACIFIC
RAILROAD), ALL IN TOWNSHIP 34, RANGE 16, MONTGOMERY COUNTY, KANSAS.
AND EXCEPT:
A PART OF THE NE/4 OF SECTION 36, TOWNSHIP 34 SOUTH, RANGE 16 EAST, MONTGOMERY COUNTY, KANSAS,
DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHEAST CORNER OF SAID NE/4; THENCE ON AN ASSUMED
BEARING OF S00°0000E ALONG THE EAST LINE OF SAID NE/4 A DISTANCE OF 563.00 FEET; THENCE
N90°0000W A DISTANCE OF 1992.00 FEET TO THE TRUE POINT OF BEGINNING; THENCE N84°1400W A
DISTANCE OF 100.00 FEET; THENCE N05°4600E A DISTANCE OF 50.00 FEET; THENCE S84°1400E A DISTANCE
OF 100.00 FEET; THENCE S05°4600W A DISTANCE OF 50.00 FEET TO THE POINT OF BEGINNING.
AND EXCEPT THAT PART DESCRIBED AS FOLLOWS:
CLARIFIER TRACT
A PART OF THE SE/4 OF SECTION 25, T34S, R16E, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS:
COMMENCING AT THE SE CORNER OF SAID SE/4; THENCE ON AN ASSUMED BEARING OF N00°2255E ALONG THE
EAST LINE OF SAID SE/4 A DISTANCE OF 1285.62 FEET; THENCE S90°0000W A DISTANCE OF 1774.69 FEET TO
THE TRUE POINT OF BEGINNING; THENCE N76°2509W A
B-2
DISTANCE OF 25.41 FEET TO THE EASTERLY RIGHT-OF-WAY LINE OF THE A.T.&S.F. RAILROAD; THENCE
N13°3451E ALONG SAID EASTERLY RIGHT-OF-WAY LINE A DISTANCE OF 298.51 FEET; THENCE LEAVING SAID
EASTERLY RIGHT-OF-WAY LINE, S67°0000E A DISTANCE OF 101.78 FEET; THENCE S18°0036W A DISTANCE OF
62.14 FEET; THENCE S11°0608E A DISTANCE OF 70.97 FEET; THENCE SOUTHWESTERLY ON A NON-TANGENT
CURVE TO THE LEFT HAVING A RADIUS OF 450.00 FEET AND A CENTRAL ANGLE OF 23°4114 A DISTANCE OF
186.04 FEET TO THE POINT OF BEGINNING.
TRACT SOUTH OF FORMER UNION PACIFIC RAILROAD AND NORTH OF MARTIN STREET
A PART OF COFFEYVILLE HEIGHTS ADDITION TO THE CITY OF COFFEYVILLE, PART OF MONTGOMERYS ADDITION TO
THE CITY OF COFFEYVILLE, AND PART OF THE NE/4 OF SECTION 36, T34S, R16E, MONTGOMERY COUNTY, KANSAS,
DESCRIBED AS FOLLOWS: COMMENCING AT THE NE CORNER OF THE NE/4 OF SAID SECTION 36; THENCE ON AN
ASSUMED BEARING OF S00°0000E ALONG THE EAST LINE OF SAID NE/4 A DISTANCE OF 316.23 FEET TO THE
SOUTHERLY RIGHT-OF-WAY LINE OF THE UNION PACIFIC RAILROAD; THENCE S59°3009W ALONG SAID SOUTHERLY
RIGHT-OF-WAY LINE A DISTANCE OF 34.82 FEET TO THE WEST RIGHT-OF-WAY LINE OF SUNFLOWER STREET AND
THE TRUE POINT OF BEGINNING; THENCE ALONG SAID WEST RIGHT-OF-WAY LINE OF SUNFLOWER STREET THE
FOLLOWING BEARINGS AND DISTANCES: THENCE S00°0000E A DISTANCE OF 1148.43 FEET; THENCE
S00°0512E A DISTANCE OF 72.64 FEET; THENCE S00°0048E A DISTANCE OF 300.00 FEET TO THE NORTH
RIGHT-OF-WAY LINE OF MARTIN STREET; THENCE N89°1100W ALONG SAID NORTH RIGHT-OF-WAY LINE A
DISTANCE OF 439.35 FEET TO THE WEST RIGHT-OF-WAY LINE OF ASH STREET; THENCE S02°0658E ALONG SAID
WEST RIGHT-OF-WAY LINE A DISTANCE OF 35.21 FEET TO THE CENTER OF MARTIN STREET; THENCE ALONG THE
CENTER OF SAID MARTIN STREET THE FOLLOWING BEARINGS AND DISTANCES: THENCE N89°1334W A DISTANCE
OF 399.88 FEET; THENCE N89°1403W A DISTANCE OF 60.59 FEET; THENCE N89°2221W A DISTANCE OF
608.53 FEET; THENCE N89°2908W A DISTANCE OF 40.11 FEET TO THE CENTERLINE OF PINE STREET; THENCE
S00°0014W ALONG THE CENTERLINE OF SAID PINE STREET A DISTANCE OF 35.18 FEET; THENCE N89°3326W A
DISTANCE OF 40.15 FEET TO THE NE CORNER OF BLOCK 6 OF SAID MONTGOMERYS ADDITION; THENCE
N89°1309W ALONG THE NORTH LINE OF SAID BLOCK 6 A DISTANCE OF 399.88 FEET TO THE NW CORNER OF SAID
BLOCK 6; THENCE N89°0543W A DISTANCE OF 79.80 FEET TO THE NE CORNER OF BLOCK 5 OF SAID
MONTGOMERYS ADDITION; THENCE N00°0824E A DISTANCE OF 34.78 FEET TO THE CENTERLINE OF SAID MARTIN
STREET; THENCE N89°1315W ALONG SAID CENTERLINE A DISTANCE OF 200.14 FEET TO THE SOUTHERLY
EXTENSION OF THE EAST LINE OF LOT 2, BLOCK 10, OF SAID MONTGOMERYS ADDITION; THENCE LEAVING THE
CENTERLINE OF SAID MARTIN STREET, N00°2234E ALONG THE EXTENSION OF AND THE EAST LINE OF SAID LOT
2 A DISTANCE OF
B-3
163.74
FEET TO THE SOUTHERLY RIGHT-OF-WAY LINE OF SAID UNION PACIFIC RAILROAD; THENCE NORTHEASTERLY ALONG
SAID SOUTHERLY RIGHT-OF-WAY LINE ON A CURVE TO THE RIGHT HAVING A RADIUS OF 1500.00 FEET AND A
CENTRAL ANGLE OF 10°3027, A DISTANCE OF 275.09 FEET TO THE POINT OF TANGENCY OF SAID CURVE;
THENCE CONTINUING ALONG SAID SOUTHERLY RIGHT-OF-WAY LINE, N59°3009E A DISTANCE OF 2370.80 FEET TO
THE POINT OF BEGINNING.
AND
ALL THAT PART OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY LYING WEST OF THE WEST RIGHT-OF-WAY
LINE OF SUNFLOWER STREET AND LYING EAST OF THE EASTERLY RIGHT-OF-WAY LINE OF THE A.T.&S.F. RAILROAD
IN THE NE/4 OF SECTION 36, TOWNSHIP 34 SOUTH, RANGE 16 EAST OF THE 6TH P.M., MONTGOMERY COUNTY,
KANSAS, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHEAST CORNER OF SAID
NE/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG THE EAST LINE OF SAID NE/4 A DISTANCE OF
200.17 FEET TO THE NORTHERLY RIGHT-OF-WAY LINE OF THE FORMER UNION PACIFIC RAILROAD; THENCE
S59°3009W ALONG SAID NORTHERLY RIGHT-OF-WAY LINE A DISTANCE OF 34.82 FEET TO THE WEST
RIGHT-OF-WAY LINE OF SUNFLOWER STREET AND THE TRUE POINT OF BEGINNING; THENCE CONTINUING
S59°3009W ALONG SAID NORTHERLY RIGHT-OF-WAY LINE A DISTANCE OF 2429.70 FEET; THENCE SOUTHWESTERLY
ON A CURVE TO THE LEFT HAVING A RADIUS OF 1600.00 FEET, A CHORD WHICH BEARS S49°4327W, A CHORD
DISTANCE OF 543.47 FEET AND AN ARC LENGTH OF 546.12 FEET TO THE EASTERLY RIGHT-OF-WAY LINE OF THE
A.T.&S.F. RAILROAD; THENCE S13°3451W ALONG SAID EASTERLY RIGHT-OF-WAY LINE A DISTANCE OF 269.10
FEET TO THE SOUTHERLY RIGHT-OF-WAY LINE OF THE FORMER UNION PACIFIC RAILROAD; THENCE ON A
NON-TANGENT CURVE TO THE RIGHT HAVING A RADIUS OF 1500.00 FEET, A CHORD WHICH BEARS N45°0558E, A
CHORD DISTANCE OF 746.22 FEET AND AN ARC LENGTH OF 754.14 FEET; THENCE CONTINUING ALONG SAID
SOUTHERLY RIGHT-OF-WAY LINE N59°3009E A DISTANCE OF 2370.80 FEET TO THE WEST RIGHT-OF-WAY LINE OF
SUNFLOWER STREET; THENCE N00°0000E ALONG SAID WEST RIGHT-OF-WAY LINE A DISTANCE OF 116.06 FEET TO
THE POINT OF BEGINNING.
LESS AND EXCEPT THE FOLLOWING TRACTS OF LAND:
LOADING DOCK
A PART OF COFFEYVILLE HEIGHTS ADDITION TO THE CITY OF COFFEYVILLE AND A PART OF THE NE/4 OF SECTION
36, T34S, R16E, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS: COMMENCING AT THE NE CORNER OF
THE NE/4 OF SAID SECTION 36; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG THE EAST LINE OF
SAID NE/4 A DISTANCE OF 316.23 FEET TO THE
B-4
SOUTHERLY RIGHT-OF-WAY LINE OF THE UNION PACIFIC RAILROAD; THENCE S59°3009W ALONG SAID SOUTHERLY
RIGHT-OF-WAY LINE A DISTANCE OF 34.82 FEET TO THE WEST RIGHT-OF-WAY LINE OF SUNFLOWER STREET;
THENCE S00°0000E ALONG SAID WEST RIGHT-OF-WAY LINE A DISTANCE OF 1148.43 FEET; THENCE CONTINUING
ALONG SAID WEST RIGHT-OF-WAY LINE, S00°0512E A DISTANCE OF 60.63 FEET TO THE TRUE POINT OF
BEGINNING; THENCE CONTINUING ALONG SAID WEST RIGHT-OF-WAY LINE, S00°0512E A DISTANCE OF 12.01
FEET TO THE NE CORNER OF BLOCK 12 OF SAID COFFEYVILLE HEIGHTS ADDITION; THENCE CONTINUING ALONG
SAID WEST RIGHT-OF-WAY LINE AND THE EAST LINE OF SAID BLOCK 12, S00°0048W A DISTANCE OF 267.47
FEET; THENCE LEAVING SAID WEST RIGHT-OF-WAY LINE AND THE EAST LINE OF SAID BLOCK 12, N38°2127W A
DISTANCE OF 131.96 FEET; THENCE N00°0000W A DISTANCE OF 176.00 FEET; THENCE N90°0000E A
DISTANCE OF 81.94 FEET TO THE POINT OF BEGINNING.
NEW NITROGEN UNIT
A PART OF COFFEYVILLE HEIGHTS ADDITION TO THE CITY OF COFFEYVILLE, PART OF MONTGOMERYS ADDITION TO
THE CITY OF COFFEYVILLE, PART OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY, AND PART OF THE
NE/4 OF SECTION 36, TOWNSHIP 34 SOUTH, RANGE 16 EAST, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS
FOLLOWS: COMMENCING AT THE NORTHEAST CORNER OF SAID NE/4; THENCE ON AN ASSUMED BEARING OF
S00°0000E ALONG THE EAST LINE OF SAID NE/4 A DISTANCE OF 200.17 FEET TO THE NORTHERLY LINE OF THE
FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY; THENCE S59°3009W ALONG SAID NORTHERLY LINE A DISTANCE
OF 1007.15 FEET TO THE TRUE POINT OF BEGINNING; THENCE S00°0000E A DISTANCE OF 304.05 FEET;
THENCE S88°1441E A DISTANCE OF 158.79 FEET; THENCE S00°0000E A DISTANCE OF 6.77 FEET; THENCE
N90°0000E A DISTANCE OF 25.00 FEET; THENCE N00°0000W A DISTANCE OF 6.00 FEET; THENCE
S88°1440E A DISTANCE OF 245.71 FEET; THENCE S12°1553E A DISTANCE OF 11.77 FEET; THENCE
S82°3225E A DISTANCE OF 43.08 FEET; THENCE S00°0000E A DISTANCE OF 33.41 FEET; THENCE
S90°0000W A DISTANCE OF 14.72 FEET; THENCE S86°4402W A DISTANCE OF 368.60 FEET; THENCE
S00°0000E A DISTANCE OF 25.00 FEET; THENCE N90°0000E A DISTANCE OF 20.00 FEET; THENCE
S00°3137E A DISTANCE OF 197.51 FEET; THENCE N90°0000E A DISTANCE OF 165.00 FEET; THENCE
S00°0000E A DISTANCE OF 24.03 FEET; THENCE N90°0000E A DISTANCE OF 249.97 FEET; THENCE
N00°0000W A DISTANCE OF 18.64 FEET; THENCE N90°0000E A DISTANCE OF 51.39 FEET; THENCE
S00°0000E A DISTANCE OF 15.00 FEET; THENCE N90°0000E A DISTANCE OF 56.01 FEET; THENCE
S00°0000E A DISTANCE OF 169.40 FEET; THENCE N89°0000W A DISTANCE OF 636.08 FEET; THENCE
S00°0000E A DISTANCE OF 377.30 FEET TO THE CENTERLINE OF MARTIN STREET; THENCE N89°1403W ALONG
SAID CENTERLINE A DISTANCE OF 60.59 FEET; THENCE CONTINUING ALONG SAID CENTERLINE, N89°2221W A
DISTANCE OF 608.53 FEET; THENCE CONTINUING ALONG SAID CENTERLINE, N89°2908W A DISTANCE OF 40.11
FEET
B-5
TO THE
CENTERLINE OF PINE STREET; THENCE S00°0014W ALONG THE CENTERLINE OF SAID PINE STREET A DISTANCE
OF 35.18 FEET; THENCE N89°3326W A DISTANCE OF 40.15 FEET TO THE NE CORNER OF BLOCK 6 OF SAID
MONTGOMERYS ADDITION; THENCE N89°1309W ALONG THE NORTH LINE OF SAID BLOCK 6 A DISTANCE OF 399.88
FEET TO THE NW CORNER OF SAID BLOCK 6; THENCE N89°0543W A DISTANCE OF 79.80 FEET TO THE NE CORNER
OF BLOCK 5 OF SAID MONTGOMERYS ADDITION; THENCE N00°0824E A DISTANCE OF 69.57 FEET TO THE SE
CORNER OF BLOCK 10 OF SAID MONTGOMERYS ADDITION; THENCE N00°0000W A DISTANCE OF 277.85 FEET TO
THE SOUTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY; THENCE N15°0043W A DISTANCE
OF 104.03 FEET TO THE NORTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY; THENCE
N30°2951W A DISTANCE OF 20.00 FEET; THENCE N59°3009E A DISTANCE OF 465.00 FEET; THENCE
S30°2951E A DISTANCE OF 20.00 FEET TO SAID NORTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD
RIGHT-OF-WAY; THENCE N59°3009E ALONG SAID NORTHERLY LINE A DISTANCE OF 32.23 FEET; THENCE
S00°0128E A DISTANCE OF 276.43 FEET; THENCE N90°0000E A DISTANCE OF 365.00 FEET; THENCE
N00°0000W A DISTANCE OF 491.48 FEET TO SAID NORTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD
RIGHT-OF-WAY; THENCE N59°3009E ALONG SAID NORTHERLY LINE A DISTANCE OF 536.40 FEET TO THE POINT
OF BEGINNING.
B-6
EXHIBIT C
Aerial
[See attached.]
C-1
EXHIBIT D
Legal Description of Shared Pipeline Easement Area
A PART OF THE NE/4 OF SECTION 36, TOWNSHIP 34 SOUTH, RANGE 16 EAST, MONTGOMERY COUNTY, KANSAS,
DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHEAST CORNER OF SAID NE/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG
THE EAST LINE OF SAID NE/4 A DISTANCE OF 200.17 FEET TO THE NORTHERLY LINE OF THE FORMER UNION
PACIFIC RAILROAD RIGHT-OF-WAY; THENCE S59°3009W ALONG SAID NORTHERLY LINE A DISTANCE OF 1494.58
FEET TO THE TRUE POINT OF BEGINNING; THENCE N00°0000W A DISTANCE OF 82.60 FEET; THENCE
S90°0000W A DISTANCE OF 51.00 FEET; THENCE S00°0000E A DISTANCE OF 20.50 FEET; THENCE
N90°0000E A DISTANCE OF 20.00 FEET; THENCE S00°0000E A DISTANCE OF 80.36 FEET TO THE NORTHERLY
LINE OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY; THENCE N59°3009E ALONG SAID NORTH LINE A
DISTANCE OF 35.98 FEET TO THE POINT OF BEGINNING.
D-1
EXHIBIT E
Interconnect Points Drawing
E-1
EXHIBIT F
Legal Description of Area for Pipe Rack Easement Area
A PART OF COFFEYVILLE HEIGHTS ADDITION TO THE CITY OF COFFEYVILLE AND A PART OF THE NE/4 OF SECTION
36, TOWNSHIP 34 SOUTH, RANGE 16 EAST, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS: COMMENCING
AT THE NORTHEAST CORNER OF SAID NE/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG THE EAST
LINE OF NE/4 A DISTANCE OF 1364.58 FEET; THENCE S90°0000W A DISTANCE OF 30.00 FEET TO THE WEST
RIGHT-OF-WAY LINE OF SUNFLOWER STREET AND THE TRUE POINT OF BEGINNING; THENCE S00°0000E ALONG
SAID WEST RIGHT-OF-WAY LINE A DISTANCE OF 117.75 FEET; THENCE CONTINUING ALONG SAID WEST
RIGHT-OF-WAY LINE S00°0512E A DISTANCE OF 60.63 FEET; THENCE S90°0000W A DISTANCE OF 438.45
FEET; THENCE N00°0000W A DISTANCE OF 34.79 FEET; THENCE S89°0000E A DISTANCE OF 236.57 FEET;
THENCE N00°0000W A DISTANCE OF 87.72 FEET; THENCE N90°0000E A DISTANCE OF 171.82 FEET; THENCE
N00°0000W A DISTANCE OF 60.00 FEET; THENCE N90°0000E A DISTANCE OF 30.00 FEET TO THE POINT OF
BEGINNING.
F-1
EXHIBIT G
Legal Description of Coke Conveyor Belt Easement Area
A PART OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY AND PART OF THE NE/4 OF SECTION 36,
TOWNSHIP 34 SOUTH, RANGE 16 EAST, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS: COMMENCING AT
THE NORTHEAST CORNER OF SAID NE/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG THE EAST LINE
OF SAID NE/4 A DISTANCE OF 200.17 FEET TO THE NORTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD
RIGHT-OF-WAY; THENCE S59°3009W ALONG SAID NORTHERLY LINE A DISTANCE OF 1543.55 FEET; THENCE
S00°0000E A DISTANCE OF 195.69 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING S00°0000E
A DISTANCE OF 31.57 FEET; THENCE S71°5139W A DISTANCE OF 384.15 FEET; THENCE N00°0128W A
DISTANCE OF 31.56 FEET; THENCE N71°5139E A DISTANCE OF 384.17 FEET TO THE POINT OF BEGINNING.
AND
A PART OF THE NE/4 OF SECTION 36, TOWNSHIP 34 SOUTH, RANGE 16 EAST, MONTGOMERY COUNTY, KANSAS,
DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHEAST CORNER OF SAID NE/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG
THE EAST LINE OF SAID NE/4 A DISTANCE OF 200.17 FEET TO THE NORTHERLY LINE OF THE FORMER UNION
PACIFIC RAILROAD RIGHT-OF-WAY; THENCE S59°3009W ALONG SAID NORTHERLY LINE A DISTANCE OF 1543.55
FEET; THENCE S00°0000E A DISTANCE OF 310.27 FEET TO THE TRUE POINT OF BEGINNING; THENCE
CONTINUING S00°0000E A DISTANCE OF 72.41 FEET; THENCE S24°2825W A DISTANCE OF 119.53 FEET;
THENCE S90°0000W A DISTANCE OF 32.96 FEET; THENCE N24°2825E A DISTANCE OF 199.10 FEET TO THE
POINT OF BEGINNING.
G-1
EXHIBIT H
Legal Description of Sunflower Street Pipeline Crossing Easement Area (Fertilizer Parcel)
A PART OF THE NW/4 OF SECTION 31, T34S, R17E, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHWEST CORNER OF SAID NW/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG
THE WEST LINE OF SAID NW/4 A DISTANCE OF 1364.58 FEET TO THE TRUE POINT OF BEGINNING; THENCE
N90°0000E A DISTANCE OF 30.00 FEET TO THE EAST RIGHT-OF-WAY LINE OF SUNFLOWER STREET; THENCE
S00°0000E ALONG SAID EAST RIGHT-OF-WAY LINE A DISTANCE OF 178.38 FEET; THENCE S90°0000W A
DISTANCE OF 30.00 FEET TO THE WEST LINE OF SAID NW/4; THENCE N00°0000W ALONG SAID WEST LINE A
DISTANCE OF 178.38 FEET TO THE POINT OF BEGINNING.
H - 1
EXHIBIT I
Legal Description of Sunflower Street Pipeline Crossing Easement Area (Refinery Parcel)
A PART OF COFFEYVILLE HEIGHTS ADDITION TO THE CITY OF COFFEYVILLE AND A PART OF THE NE/4 OF SECTION
36, TOWNSHIP 34 SOUTH, RANGE 16 EAST, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS: COMMENCING
AT THE NORTHEAST CORNER OF SAID NE/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG THE EAST
LINE OF NE/4 A DISTANCE OF 1364.58 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING
S00°0000E ALONG SAID EAST LINE A DISTANCE OF 178.38 FEET; THENCE S90°0000W A DISTANCE OF 29.91
FEET TO THE WEST RIGHT-OF-WAY LINE OF SUNFLOWER STREET; THENCE N00°0512W ALONG SAID WEST
RIGHT-OF-WAY LINE A DISTANCE OF 60.63 FEET; THENCE CONTINUING ALONG SAID WEST RIGHT-OF-WAY LINE
N00°0000W A DISTANCE OF 117.75 FEET; THENCE N90°0000E A DISTANCE OF 30.00 FEET TO THE POINT OF
BEGINNING.
I - 1
EXHIBIT J
Legal Description of East Tank Farm Roadway Area (Fertilizer Parcel)
A PART OF THE NW/4 OF SECTION 31, T34S, R17E, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHWEST CORNER OF SAID NW/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG
THE WEST LINE OF SAID NW/4 A DISTANCE OF 1767.00 FEET; THENCE N90°0000E A DISTANCE OF 30.00 FEET
TO THE EAST RIGHT-OF-WAY LINE OF SUNFLOWER STREET AND THE TRUE POINT OF BEGINNING; THENCE
N90°0000E A DISTANCE OF 1120.00 FEET; THENCE N88°3526E A DISTANCE OF 914.89 FEET; THENCE
S00°0000E A DISTANCE OF 25.00 FEET; THENCE S89°4400W A DISTANCE OF 2035.00 FEET TO SAID EAST
RIGHT-OF-WAY LINE OF SUNFLOWER STREET; THENCE N00°0000E ALONG SAID EAST RIGHT-OF-WAY LINE A
DISTANCE OF 27.93 FEET TO THE POINT OF BEGINNING.
J - 1
EXHIBIT K
Legal Description of East Tank Farm Area (Refinery Parcel)
A PART OF THE NW/4 OF SECTION 31, T34S, R17E, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHWEST CORNER OF SAID NW/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG
THE WEST LINE OF SAID NW/4 A DISTANCE OF 1364.58 FEET; THENCE N90°0000E A DISTANCE OF 30.00 FEET
TO THE EAST RIGHT-OF-WAY LINE OF SUNFLOWER STREET AND THE TRUE POINT OF BEGINNING; THENCE
CONTINUING N90°0000E A DISTANCE OF 75.00 FEET; THENCE S00°0000E A DISTANCE OF 430.00 FEET;
THENCE S89°4400W A DISTANCE OF 75.00 FEET TO THE EAST RIGHT-OF-WAY LINE OF SUNFLOWER STREET;
THENCE N00°0000W ALONG SAID EAST RIGHT-OF-WAY LINE A DISTANCE OF 430.35 FEET TO THE POINT OF
BEGINNING.
K - 1
EXHIBIT L
Legal Description of Railroad Trackage Easement Area (Fertilizer Parcel)
PARCEL 8
A PART OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY IN THE NE/4 OF SECTION 36, TOWNSHIP 34
SOUTH, RANGE 16 EAST, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHEAST
CORNER OF SAID NE/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG THE EAST LINE OF SAID NE/4
A DISTANCE OF 200.17 FEET TO THE NORTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY;
THENCE S59°3009W ALONG SAID NORTHERLY LINE A DISTANCE OF 1967.29 FEET TO THE TRUE POINT OF
BEGINNING; THENCE S00°0128E A DISTANCE OF 116.03 FEET TO THE SOUTHERLY LINE OF THE FORMER UNION
PACIFIC RAILROAD RIGHT-OF-WAY; THENCE S59°3009W ALONG SAID SOUTHERLY LINE A DISTANCE OF 438.39
FEET; THENCE SOUTHWESTERLY ON A CURVE TO THE LEFT HAVING A RADIUS OF 1500.00 FEET, A CHORD WHICH
BEARS S58°5819W, A CHORD DISTANCE OF 27.78 FEET AND AN ARC LENGTH OF 27.78 FEET; THENCE
N15°0043W A DISTANCE OF 104.03 FEET TO SAID NORTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD
RIGHT-OF-WAY; THENCE N59°3009E ALONG SAID NORTHERLY LINE A DISTANCE OF 497.23 FEET TO THE POINT
OF BEGINNING.
AND
PARCEL 9
A PART OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY IN THE NE/4 OF SECTION 36, TOWNSHIP 34
SOUTH, RANGE 16 EAST, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHEAST
CORNER OF SAID NE/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG THE EAST LINE OF SAID NE/4
A DISTANCE OF 200.17 FEET TO THE NORTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY;
THENCE S59°3009W ALONG SAID NORTHERLY LINE A DISTANCE OF 1007.15 FEET TO THE TRUE POINT OF
BEGINNING; THENCE S00°0000E A DISTANCE OF 116.06 FEET TO THE SOUTHERLY LINE OF THE FORMER UNION
PACIFIC RAILROAD RIGHT-OF-WAY; THENCE S59°3009W ALONG SAID SOUTHERLY LINE A DISTANCE OF 536.40
FEET; THENCE N00°0000W A DISTANCE OF 116.06 FEET TO SAID NORTHERLY LINE OF THE FORMER UNION
PACIFIC RAILROAD RIGHT-OF-WAY; THENCE N59°3009E ALONG SAID NORTHERLY LINE A DISTANCE OF 536.40
FEET TO THE POINT OF BEGINNING.
L - 1
EXHIBIT M
Legal Description of Railroad Trackage Easement Area (Refinery Parcel)
A PART OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY IN THE NE/4 OF SECTION 36, TOWNSHIP 34
SOUTH, RANGE 16 EAST, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHEAST
CORNER OF SAID NE/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG THE EAST LINE OF SAID NE/4 A
DISTANCE OF 200.17 FEET TO THE NORTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY;
THENCE S59°3009W ALONG SAID NORTHERLY LINE A DISTANCE OF 2464.52 FEET TO THE TRUE POINT OF
BEGINNING; THENCE S15°0043E A DISTANCE OF 104.03 FEET TO THE SOUTHERLY LINE OF THE FORMER UNION
PACIFIC RAILROAD RIGHT-OF-WAY; THENCE ALONG SAID SOUTHERLY LINE ON A NON-TANGENT CURVE TO THE LEFT
HAVING A RADIUS OF 1500.00 FEET, A CHORD WHICH BEARS S44°3408W,
A CHORD DISTANCE OF 719.29 FEET AND AN ARC LENGTH OF 726.36 FEET TO THE EASTERLY LINE OF THE
A.T.&S.F. RAILROAD RIGHT-OF-WAY; THENCE N13°3451E ALONG SAID EASTERLY LINE A DISTANCE OF 269.10
FEET TO SAID NORTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY; THENCE ON A
NON-TANGENT CURVE TO THE RIGHT HAVING A RADIUS OF 1600.00 FEET, A CHORD WHICH BEARS N49°4327E, A
CHORD DISTANCE OF 543.47 FEET AND AN ARC LENGTH OF 546.12 FEET TO THE POINT OF BEGINNING.
AND
A PART OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY IN THE NE/4 OF SECTION 36, TOWNSHIP 34
SOUTH, RANGE 16 EAST, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHEAST
CORNER OF SAID NE/4; THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG THE EAST LINE OF SAID NE/4 A
DISTANCE OF 200.17 FEET TO THE NORTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY;
THENCE S59°3009W ALONG SAID NORTHERLY LINE A DISTANCE OF 1543.55 FEET TO THE TRUE POINT OF
BEGINNING; THENCE S00°0000E A DISTANCE OF 116.06 FEET TO THE SOUTHERLY LINE OF THE FORMER UNION
PACIFIC RAILROAD RIGHT-OF-WAY; THENCE S59°3009W ALONG SAID SOUTHERLY LINE A DISTANCE OF 423.68
FEET; THENCE N00°0128W A DISTANCE OF 116.03 FEET TO SAID NORTHERLY LINE OF THE FORMER UNION
PACIFIC RAILROAD RIGHT-OF-WAY; THENCE N59°3009E ALONG SAID NORTHERLY LINE A DISTANCE OF 423.74
FEET TO THE POINT OF BEGINNING.
M - 1
EXHIBIT N
Legal Description of Fertilizer Company Clarifier Tract
A PART OF THE SE/4 OF SECTION 25, T34S, R16E, MONTGOMERY COUNTY, KANSAS, DESCRIBED AS FOLLOWS:
COMMENCING AT THE SE CORNER OF SAID SE/4; THENCE ON AN ASSUMED BEARING OF N00°2255E ALONG THE
EAST LINE OF SAID SE/4 A DISTANCE OF 1285.62 FEET; THENCE S90°0000W A DISTANCE OF 1774.69 FEET TO
THE TRUE POINT OF BEGINNING; THENCE N76°2509W A DISTANCE OF 25.41 FEET TO THE EASTERLY
RIGHT-OF-WAY LINE OF THE A.T.&S.F. RAILROAD; THENCE N13°3451E ALONG SAID EASTERLY RIGHT-OF-WAY
LINE A DISTANCE OF 298.51 FEET; THENCE LEAVING SAID EASTERLY RIGHT-OF-WAY LINE, S67°0000E A
DISTANCE OF 101.78 FEET; THENCE S18°0036W A DISTANCE OF 62.14 FEET; THENCE S11°0608E A DISTANCE
OF 70.97 FEET; THENCE SOUTHWESTERLY ON A NON-TANGENT CURVE TO THE LEFT HAVING A RADIUS OF 450.00
FEET AND A CENTRAL ANGLE OF 23°4114 A DISTANCE OF 186.04 FEET TO THE POINT OF BEGINNING.
N - 1
EXHIBIT O
Legal Description of Fertilizer Water Pipeline Easement Area
A 15.00 FEET WIDE WATERLINE EASEMENT IN PART OF THE SE/4 OF SECTION 25 AND PART OF THE NE/4 OF
SECTION 36, ALL IN TOWNSHIP 34 SOUTH, RANGE 16 EAST, MONTGOMERY COUNTY, KANSAS, THE CENTERLINE OF
SAID EASEMENT DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHEAST CORNER OF SAID NE/4 OF SECTION 36;
THENCE ON AN ASSUMED BEARING OF S00°0000E ALONG THE EAST LINE OF SAID NE/4 OF SECTION 36 A
DISTANCE OF 200.17 FEET TO THE NORTHERLY LINE OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY;
THENCE S59°3009W ALONG SAID NORTHERLY LINE A DISTANCE OF 1511.96 FEET TO THE TRUE POINT OF
BEGINNING OF SAID CENTERLINE; THENCE N00°0000W A DISTANCE OF 89.44 FEET; THENCE S90°0000W A
DISTANCE OF 26.00 FEET; THENCE N01°4352E A DISTANCE OF 156.82 FEET; THENCE N22°4107E A DISTANCE
OF 103.61 FEET; THENCE N00°4608E A DISTANCE OF 155.84 FEET; THENCE N89°5042W A DISTANCE OF
60.12 FEET; THENCE N00°2350E A DISTANCE OF 104.00 FEET; THENCE S89°2605E A DISTANCE OF 262.50
FEET; THENCE N00°3355E A DISTANCE OF 111.00 FEET; THENCE N89°2605W A DISTANCE OF 56.50 FEET;
THENCE N00°3355E A DISTANCE OF 359.35 FEET; THENCE S89°2605E A DISTANCE OF 23.01 FEET; THENCE
N06°4259E A DISTANCE OF 207.51 FEET; THENCE S84°3054E A DISTANCE OF 8.00 FEET; THENCE
N06°3318E A DISTANCE OF 280.54 FEET; THENCE S83°4905E A DISTANCE OF 14.50 FEET; THENCE
N05°5452E A DISTANCE OF 341.96 FEET; THENCE N82°5838W A DISTANCE OF 16.55 FEET; THENCE
N06°2935E A DISTANCE OF 402.81 FEET; THENCE N84°5842W A DISTANCE OF 229.39 FEET; THENCE
N65°0703W A DISTANCE OF 177.14 FEET; THENCE N69°3743W A DISTANCE OF 70.47 FEET; THENCE
S78°3408W A DISTANCE OF 39.02 FEET; THENCE N55°4437W A DISTANCE OF 72.09 FEET; THENCE
S78°5348W A DISTANCE OF 125.30 FEET TO THE TERMINUS OF SAID CENTERLINE.
AND
A 15.00 FEET WIDE WATERLINE EASEMENT IN PART OF THE SE/4 OF SECTION 25, TOWNSHIP 34 SOUTH, RANGE 16
EAST, MONTGOMERY COUNTY, KANSAS, THE CENTERLINE OF SAID EASEMENT DESCRIBED AS FOLLOWS: COMMENCING
AT THE SOUTHEAST CORNER OF SAID SE/4; THENCE ON AN ASSUMED BEARING OF N00°2255E ALONG THE EAST
LINE OF SAID SE/4 A DISTANCE OF 1285.62 FEET; THENCE S90°0000W A DISTANCE OF 1774.69 FEET; THENCE
NORTHEASTERLY ON A NON-TANGENT CURVE TO THE RIGHT HAVING A RADIUS OF 450.00 FEET, A CHORD WHICH
BEARS N46°1751E, A CHORD DISTANCE OF 184.72 FEET AND AN ARC LENGTH OF 186.04 FEET; THENCE
N11°0608W A DISTANCE OF 70.97 FEET; THENCE N18°0036E A DISTANCE OF 62.14 FEET; THENCE
N67°0000W A DISTANCE OF 7.82 FEET TO THE TRUE POINT OF BEGINNING OF SAID
O - 1
CENTERLINE; THENCE
N01°3306E A DISTANCE OF 199.38 FEET TO THE TERMINUS OF SAID CENTERLINE.
O-2
EXHIBIT P
Legal Description of Coke Haul Road
A PART OF THE NE/4 OF SECTION 36, TOWNSHIP 34 SOUTH, RANGE 16 EAST, MONTGOMERY COUNTY, KANSAS,
DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTHEAST CORNER OF SAID NE/4; THENCE ON AN ASSUMED
BEARING OF S00°0000E ALONG THE EAST LINE OF SAID NE/4 A DISTANCE OF 200.17 FEET TO THE NORTHERLY
LINE OF THE FORMER UNION PACIFIC RAILROAD RIGHT-OF-WAY; THENCE S59°3009W ALONG SAID NORTHERLY
LINE A DISTANCE OF 1999.52 FEET; THENCE N30°2951W A DISTANCE OF 20.00 FEET TO THE TRUE POINT OF
BEGINNING; THENCE S59°3009W A DISTANCE OF 167.41 FEET; THENCE N13°5253E A DISTANCE OF 162.82
FEET; THENCE S84°3301E A DISTANCE OF 36.48 FEET; THENCE N05°2659E A DISTANCE OF 135.92 FEET;
THENCE S84°3301E A DISTANCE OF 25.00 FEET; THENCE S05°2659W A DISTANCE OF 135.92 FEET; THENCE
S84°3301E A DISTANCE OF 35.47 FEET; THENCE S07°3948E A DISTANCE OF 64.30 FEET TO THE POINT OF
BEGINNING.
P - 1
EXHIBIT Q
Legal Description of Refinery Shared Parking Area
All of Block 14, COFFEYVILLE HEIGHTS ADDITION to the City of Coffeyville, Montgomery County,
Kansas.
Q - 1
EXHIBIT R
Legal Description of Construction Buffer Zone Easement Area
LOTS 1 THROUGH 8 INCLUSIVE, BLOCK 1, MONTGOMERYS ADDITION TO THE CITY OF COFFEYVILLE, MONTGOMERY
COUNTY, KANSAS AND THE VACATED ALLEY LYING SOUTH OF LOTS 1 THROUGH 4 AND NORTH OF LOTS 5 THROUGH 8,
BLOCK 1, MONTGOMERYS ADDITION TO THE CITY OF COFFEYVILLE, MONTGOMERY COUNTY, KANSAS, ESTABLISHED
BY VACATION ORDINANCE FILED IN BOOK 466, PAGE 61.
AND
LOTS 1, 2, 3, 14, 15 AND 16, BLOCK 2, MONTGOMERYS ADDITION TO THE CITY OF COFFEYVILLE, MONTGOMERY
COUNTY, KANSAS AND THE EAST 120 FEET OF THE VACATED ALLEY IN BLOCK 2, ESTABLISHED BY VACATION
ORDINANCE FILED IN BOOK 466, PAGE 61.
AND
LOTS 6, 7 AND 8, BLOCK 7, MONTGOMERYS ADDITION TO THE CITY OF COFFEYVILLE, MONTGOMERY COUNTY,
KANSAS.
AND
LOTS 9, 10, 11, 12, 13, 14, 15 AND 16, BLOCK 15, COFFEYVILLE HEIGHTS ADDITION TO THE CITY OF
COFFEYVILLE, MONTGOMERY COUNTY, KANSAS.
AND
LOTS 1 THROUGH 16 INCLUSIVE, BLOCK 16, COFFEYVILLE HEIGHTS ADDITION TO THE CITY OF COFFEYVILLE,
MONTGOMERY COUNTY, KANSAS, AND THE WEST 212 FEET OF THE VACATED ALLEY THEREIN, ESTABLISHED BY
VACATION ORDINANCE FILED IN BOOK 466, PAGE 61.
R - 1
exv10w7
Exhibit 10.7
AMENDED AND RESTATED
FEEDSTOCK AND SHARED SERVICES AGREEMENT
THIS AMENDED AND RESTATED FEEDSTOCK AND SHARED SERVICES AGREEMENT is entered into and
effective as of the ___ day of ________, 2011, by and between Coffeyville Resources Refining &
Marketing, LLC, a Delaware limited liability company (Refinery Company), and Coffeyville
Resources Nitrogen Fertilizers, LLC, a Delaware limited liability company (Fertilizer Company).
RECITALS
Refinery Company owns and operates the petroleum refinery located at Coffeyville, Kansas,
which refinery is shown on Exhibit A hereto (including any additions or other modifications
made thereto from time to time, the Refinery).
Fertilizer Company owns and operates the nitrogen fertilizer complex located adjacent to the
Refinery consisting of the Gasification Unit, the UAN Plant, the Ammonia Synthesis Loop, the
Utility Facilities, storage and loading facilities, the Fertilizer Plant Water Clarifier and river
access, the Grounds and related connecting pipes and improvements, which fertilizer manufacturing
complex is connected to and associated with the Linde Facility and the Offsite Sulfur Recovery
Unit, all of which are shown on Exhibit A hereto (including any additions or other
modifications made thereto from time to time, and which are collectively referred to herein as the
Fertilizer Plant).
Refinery Company requires access to certain property and structures located on the Fertilizer
Plant site to conduct its business, and Fertilizer Company requires access to certain structures
and property located on the Refinery site to conduct its business.
Fertilizer Company and Refinery Company entered into the Feedstock and Shared Services
Agreement dated as of October 25, 2007, as amended July 24, 2009 (as amended, the Original
Agreement), pursuant to which the parties agreed to provide each other with certain Feedstocks and
Services for use in their respective production processes and certain other related matters. The
Parties desire to amend and restate the terms of the Original Agreement upon the terms and subject
to the conditions set forth in this Agreement.
In consideration of the premises and the mutual agreements, representations and warranties
herein set forth, and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
The following terms shall have the meanings set forth below, unless the context otherwise
dictates, both for purposes of this Agreement and all Exhibits hereto:
Agreement means this Amended and Restated Feedstock and Shared Services Agreement and the
Exhibits hereto, all as the same may be amended, modified or supplemented from time to time.
Ammonia Price means the price for anhydrous ammonia determined for a particular month as
follows: The price per short ton of anhydrous ammonia shall be the average of (i) the average of
the price range published in each weekly issue of Green Markets under the heading of Ammonia
for Southern Plains averaged over such weekly issues published in the applicable calendar month,
and (ii) the average of the price range published in each weekly issue of Fertilizer Week America
under the heading of Ammonia for FOB Southern Plains averaged over such weekly issues published
in the applicable calendar month. In the event that either of the aforesaid publications ceases to
be published, then the price per short ton of anhydrous ammonia shall be determined by reference to
the publication that does not cease publication, using the average price range as provided for
above. In the event that both of the aforesaid publications cease to be published, then the price
per short ton of anhydrous ammonia shall be determined by reference to such generally accepted
industry publication as Fertilizer Company may designate with the consent of the Refinery Company,
which consent shall not be unreasonably withheld or delayed.
Ammonia Synthesis Loop means that ammonia synthesis loop within the Fertilizer Plant shown
on Exhibit A hereto, including any additions or other modifications made thereto from time
to time.
Coke has the meaning given such term in the Coke Supply Agreement.
Coke Supply Agreement means the Coke Supply Agreement between
the Parties dated as of October 25, 2007, as amended, restated, modified or replaced from time to time.
cscf means one hundred scf.
Dispute has the meaning given such term in Article 5.
Easement Agreement
means that Cross-Easement Agreement between the Parties dated as of October 25, 2007, as amended, restated, modified or replaced from time to time, under
which the Fertilizer Company and the Refinery Company grant each other certain rights to enter upon
and use the real property of the other Party for the purposes described therein.
Effective Date means the date first above written.
Feedstock means the materials and streams described in Exhibit B, all within the
tolerances and to the specifications therein contained, that are provided by or on behalf of
Refinery Company to Fertilizer Company, or by or on behalf of Fertilizer Company to Refinery
Company, as the case may be and as otherwise may be agreed by the Parties.
Feedstock Delivery Points means the points at which the Feedstock is transferred from
Fertilizer Company to Refinery Company, or from Refinery Company to Fertilizer Company, as the case
may be and as shown on Plot Plan A and Drawing D11-0913B constituting a part of Exhibit A.
2
Fertilizer Plant has the meaning given such term in the Recitals.
Fertilizer Company has the meaning given such term in the introductory paragraph.
Fertilizer Company Representative means the plant manager of the Fertilizer Plant or such
other person as is designated in writing by Fertilizer Company.
Fertilizer Plant Water Clarifier means the Fertilizer Companys water clarifier and
associated equipment as shown on Plot Plan A constituting a part of Exhibit A.
Fire Water means the water and related systems to provide water for use in fire emergencies
and the like, as such Fire Water is described in Exhibit B, all within the tolerances and
in compliance with the specifications therein.
Force Majeure means war (whether declared or undeclared); fire, flood, lightning,
earthquake, storm, tornado, or any other act of God; strikes, lockouts or other labor difficulties;
unplanned plant outages; civil disturbances, riot, sabotage, terrorist act, accident, any official
order or directive, including with respect to condemnation, or industry-wide requirement by any
governmental authority or instrumentality thereof, which, in the reasonable judgment of the Party
affected, interferes with such Partys performance under this Agreement; any inability to secure
necessary materials and/or services to perform under this Agreement, including, but not limited to,
inability to secure materials and/or services by reason of allocations promulgated by governmental
agencies; or any other contingency beyond the reasonable control of the affected Party, which
interferes with such Partys performance under this Agreement.
Gasification Unit means that gasification unit shown on Plot Plan A constituting a part of
Exhibit A hereto, including any additions or other modifications made thereto from time to
time.
Grounds means the realty on which the Fertilizer Plant is situated, which Grounds are shown
on Plot Plan A constituting a part of Exhibit A.
High Pressure Steam means steam described in Exhibit B under the heading High
Pressure Steam, all within the tolerances and in compliance with the specifications therein
contained.
Hydrogen means hydrogen in its gaseous form, as described in Exhibit B hereto, all
within the tolerances and in compliance with the specifications therein contained.
3
Instrument Air means air produced by mechanical compression as described in Exhibit
B, all within the tolerances and in compliance with the specifications therein contained.
Laws means all applicable laws, regulations, permits, orders and decrees, including, without
limitation, laws, regulations, permits, orders and decrees respecting health, safety and the
environment.
Lease Agreement
means the Lease Agreement between the
Parties dated as of October 25, 2007, as amended, restated, modified or replaced from time to time, relating to the lease of certain Refinery Company premises to Fertilizer Company.
Linde means Linde, Inc., a Delaware corporation.
Linde Agreement means that certain Amended and Restated On-Site Project Supply Agreement
between Fertilizer Company and Linde (as successor in interest to The BOC Group, Inc.), dated as of
June 1, 2005, as amended.
Linde Facility means the plant for the production of certain products and argon, including
metering and related facilities, together with an inter-connected liquid nitrogen product storage
vessel and vaporization equipment, as shown on Exhibit A hereto, all connected to the
pipelines owned by Linde, including any additions or other modifications made thereto from time to
time.
mlbs means one thousand pounds.
MMBtu means one million British thermal units.
mmscf means one million scf.
mscf means one thousand scf.
Nitrogen means nitrogen in its gaseous form, as described in Exhibit B hereto, all
within the tolerances and in compliance with the specifications therein contained.
Offsite Sulfur Recovery Unit means that sulfur processing facility owned and operated by TKI
pursuant to the TKI Phase II Agreement, which Offsite Sulfur Recovery Unit is shown on Plot Plan A
constituting a part of Exhibit A hereto, including any additions or other modifications
made thereto from time to time.
Owner means Fertilizer Company or Refinery Company, as the context requires.
Oxygen means oxygen in its gaseous form, as described in Exhibit B hereto, all
within the tolerances and in compliance with the specifications therein contained.
Party and Parties means the parties to this Agreement.
Person means and includes natural persons, corporations, limited partners, general
partnerships, limited liability companies, limited liability partnerships, joint stock companies,
4
joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities.
PPM means parts per million.
Prime Rate means the prime interest rate as published from time to time in The Wall Street
Journal as the base lending rate on corporate loans posted by at least seventy-five percent (75%)
of the thirty (30) largest United States banks.
psi means pounds per square inch.
psig means pounds per square inch gauge.
Raw Water and Facilities Sharing Agreement means the Raw Water and Facilities Sharing
Agreement between the Parties dated as of October 25, 2007, as amended, restated, modified or replaced from time to time.
Refinery has the meaning given such term in the Recitals hereto.
Refinery Company has the meaning given such term in the introductory paragraph.
Refinery Water Clarifier means the Refinery Companys water clarifier and associated
equipment.
Refinery Company Representative means the plant manager of the Refinery Company or such
other person as is designated in writing by Refinery Company.
scf means standard cubic feet at 60°F and at atmospheric pressure equal to 29.92 inches of
mercury absolute, measured by standard sharp edge orifice plate and differential pressure
transmitters located at the Fertilizer Plant. The measured flow shall be pressure and temperature
compensated and totalized by the Fertilizer Plants Honeywell process control computer (TDC 3000)
or any replacement computer. All transmitter signals and computer calculations are available to
the Refinery through the existing communications bus for verification. Calibration of the
transmitters shall be done at least annually and may be done more frequently at Refinery Companys
request.
Security Contract means any agreement for security services to which Refinery Company is a
party pursuant to which security services are provided on the Refinery premises and environs and on
the Fertilizer Plant premises and environs.
Services means the services described as such on Exhibit B.
Sour Water means the process stream described on Exhibit B that meets the tolerances
and specifications therein contained.
ST means short tons.
STPD means short tons per day.
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Tail Gas means tail gas described in Exhibit B under the heading Tail Gas, all
within the tolerances and in compliance with the specifications therein contained.
TKI means Tessenderlo Kerley, Inc.
TKI General Plant and Labor Costs means (i) the costs incurred and appropriately billed to
Refinery Company pursuant to the TKI Phase I Agreement and (ii) the costs incurred and
appropriately billed to Fertilizer Company pursuant to the TKI Phase II Agreement.
TKI Phase I Agreement means the Amended and Restated Phase I Sulfur Processing Agreement,
dated June 28, 2009, between Refinery Company and TKI, as amended from time to time.
TKI Phase I Unit means the sulfur processing facility owned and operated by TKI pursuant to
the TKI Phase I Agreement.
TKI Phase II Agreement means the Amended and Restated Phase II Sulfur Processing Agreement,
dated June 28, 2009, between Fertilizer Company and TKI, , as amended from time to time.
Transfer means the sale, exchange, gift or other assignment of rights or interests, whether
by specific assignment, merger, consolidation, entity conversion or other disposition, but not
including any bona fide pledge or assignment for collateral purpose in connection with any
financing.
UAN Plant means the urea ammonium nitrate plant shown on Exhibit A hereto, including
any additions or other modifications made thereto from time to time.
UAN Price means the price for 32% urea ammonium nitrate determined for a particular month as
follows: The price per short ton of 32% urea ammonium nitrate shall be the average of (i) the
average of the price range published in each weekly issue of Green Markets under the heading of
UAN for Mid Cornbelt averaged over such weekly issues published in the applicable calendar
month and then multiplied by thirty-two (32), and (ii) the average of the price range published in
each weekly issue of Fertilizer Week America under the heading of UAN for FOB Midwest
averaged over such weekly issues published in the applicable calendar month. In the event that
either of the aforesaid publications ceases to be published, then the price per short ton of 32%
urea ammonium nitrate shall be determined by reference to the publication that does not cease
publication, using the average price range as provided for above. In the event that both of the
aforesaid publications cease to be published, then the price per short ton of 32% urea ammonium
nitrate shall be determined by reference to such generally accepted industry publication as
Fertilizer Company may designate with the consent of the Refinery Company, which consent shall not
be unreasonably withheld or delayed.
Utility Facilities mean the utility facilities shown on Exhibit A hereto, including
any additions or other modifications made thereto from time to time.
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ARTICLE 2
FEEDSTOCK AND SHARED SERVICES
Section 2.1 Steam.
2.1.1 Refinery Steam Obligations
(a) Start-up Steam. Refinery Company shall, upon reasonable request by the Fertilizer
Company, make available to Fertilizer Company High Pressure Steam at a cost to Fertilizer Company
as designated on Exhibit B hereto, at sufficient pressure and in sufficient amounts, to
allow Fertilizer Company to commence and recommence operation of the Fertilizer Plant from time to
time at Fertilizer Companys request. The parties anticipate that commencement and/or
recommencement of Fertilizer Plant operations will require approximately 75,000 pounds per hour of
High Pressure Steam. For purposes of this Subsection 2.1.1(a), such High Pressure Steam shall be
referred to as Start-Up Steam. Refinery Company shall use commercially reasonable efforts to
make available Start-Up Steam when requested by Fertilizer Company; provided that Refinery Company
shall not be obligated to make available Start-Up Steam hereunder if doing so would have a material
adverse effect on Refinery operations. Fertilizer Company shall provide reasonable notice to
Refinery Company of the approximate time and date of each of its requirements for Start-Up Steam.
(b) Linde Steam. Refinery Company shall make commercially reasonable efforts as its
operations permit, at a cost to Fertilizer Company as set forth in Exhibit B, to make
available High Pressure Steam produced at the Refinery to the Fertilizer Company, solely for use at
the Linde Facility. Fertilizer Company shall provide reasonable notice to Refinery Company of the
approximate time and date of each of its requirements for High Pressure Steam under this subsection
2.1.1(b); provided that Refinery Company shall not be obligated to make available High Pressure
Steam hereunder if doing so would have a material adverse effect on Refinery operations.
2.1.2 Fertilizer Plant Steam Obligations
Fertilizer Company shall make available at a cost to Refinery Company as set forth in
Exhibit B, solely for use at the Refinery, any High Pressure Steam produced by the
Fertilizer Plant that is not required for the operation of the Fertilizer Plant, following
reasonable notice from Refinery Company requesting such steam.
2.1.3 Mutual Steam Obligations
(a) Low Pressure Steam. Refinery Company and Fertilizer Company may supply each other
any steam (other than High Pressure Steam) produced by either of their respective operations, which
is not required by such operation and is required for the other Partys operation, at no cost;
provided, however, there shall be no obligation by either Party to supply any such steam and the
Party requiring such steam shall give reasonable notice to the other Party of any request.
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(b) Steam Condensate. Refinery Company shall retain all steam condensate for steam
delivered to Refinery Company hereunder and Fertilizer Company shall retain all steam condensate
for all steam delivered to Fertilizer Company hereunder.
Section 2.2 Nitrogen. Fertilizer Company shall make available to Refinery Company,
solely for use at the Refinery, any Nitrogen produced by the Linde Facility and available to
Fertilizer Company that is not required, as determined in a commercially reasonable manner by the
Fertilizer Company based on its then current or anticipated operational requirements, for the
operation of the Fertilizer Plant, following reasonable notice from Refinery Company requesting
such Nitrogen, at a cost to Refinery Company as designated on Exhibit B hereto.
Section 2.3 Instrument Air.
(a) Fertilizer Company shall make available for purchase by Refinery Company, for use solely
at the Refinery, Instrument Air at a flow rate of not less than 3mscf/minute to the extent produced
by the Linde Facility and available to Fertilizer Company and not
required, as determined in a commercially reasonable manner by the
Fertilizer Company based on its then current or anticipated
operational requirements, for the operation of the Fertilizer Plant, at a cost to Refinery Company as
designated on Exhibit B hereto and following reasonable request and notice from Refinery
Company.
(b) Refinery Company shall make available for purchase by Fertilizer Company for use solely at
the Fertilizer Plant, Instrument Air to the extent that Instrument Air is not available from the
Linde Facility and is available from Refinery Company and not
required, as determined in a commercially reasonable manner by the
Refinery Company based on its then current or anticipated operational
requirements, for the operation of the Refinery, at a flow rate of not less than 3 mscf/minute
and at a cost to Fertilizer Company as designated on Exhibit B and following reasonable
request and notice from the Fertilizer Company.
(c) Either Fertilizer Company or Refinery Company may terminate its obligation to make
Instrument Air available for purchase by the other party hereunder upon not less than twelve (12)
months prior written notice to the other party.
Section 2.4 Oxygen Supply to Refinery. Fertilizer Company shall provide to Refinery
Company, solely for use at the Refinery, any Oxygen produced by the Linde Facility and made
available to Fertilizer Company, as determined in a commercially reasonable manner by the
Fertilizer Company not to exceed 29.8 STPD, based on its then current or anticipated operational
requirements for the operation of the Fertilizer Plant, which Oxygen is not required for the
operation of the Fertilizer Plant, following reasonable notice from Refinery Company requesting
such Oxygen, at a cost to Refinery Company as designated on Exhibit B hereto.
Section 2.5 Coke Supply to Fertilizer Plant. The terms and conditions governing
Refinery Companys sales of Coke to Fertilizer Company shall be set forth in the Coke Supply
Agreement.
Section 2.6 Sulfur; TKI Agreements.
(a) TKI Phase II Agreement. Refinery Company shall provide to TKI the utilities
described in Section 2.6 of the TKI Phase II Agreement. Fertilizer Company shall reimburse
Refinery Company for such utilities provided. Without limiting the foregoing, Fertilizer Company
shall reimburse Refinery Company for electricity used by the Offsite Sulfur Recovery Unit as
determined by the estimated electrical load of the Offsite Sulfur Recovery Unit, which
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estimated electrical load is 1,051 kilowatts. The number of kilowatts provided for in the
immediately preceding sentence will be multiplied by the average rate per kilowatt hour that the
Refinery Company pays for electricity times the hours the Offsite Sulfur Recovery Unit is in
operation in the calendar month for which such electricity reimbursement is being calculated.
Refinery Company shall send a monthly invoice for such electricity cost as calculated in this
Subsection along with Fertilizer Companys allocated share (as such allocation is reasonably agreed
to by the Parties) of such other utilities provided by Refinery Company to TKI as required by the
TKI Phase II Agreement. Fertilizer Company shall pay each such invoice within 15 days after
receipt. Refinery Company shall receive, at no cost to either Owner, all return utility streams
consisting primarily of low pressure steam (but excluding sulfur from the Offsite Sulfur Recovery
Unit) and steam condensate under the TKI Phase II Agreement. Fertilizer Company shall not amend or
terminate the TKI Phase II Agreement without the prior written consent of Refinery Company, which
consent shall not be unreasonably withheld or delayed. Refinery Company shall not amend or
terminate the TKI Phase I Agreement without the prior written consent of Fertilizer Company, which
consent shall not be unreasonably withheld or delayed.
(b) Cost Sharing. The TKI General Plant and Labor Costs shall be shared equally by
the Parties; provided, however, that in those instances where a particular cost can be reasonably
determined to be associated with a particular Party, such Party shall bear such cost.
(c) Sulfur to Block. If at any time the pricing mechanisms for sulfur contained in
Section 8.1 of the TKI Phase II Agreement do not accurately reflect then current sulfur
market conditions, resulting in Fertilizer Company retaining sulfur in lieu of selling such excess
sulfur to TKI, then Refinery Company agrees to remove and take title to such sulfur in exchange for
a fee payable by Fertilizer Company to Refinery Company of $11.50 per long ton, with such fee
representing the costs incurred by Refinery Company to transport and store sulfur to block. The
foregoing fee may be adjusted from time to time by mutual agreement of the parties to take into
account charges assessed by third parties for loading sulfur into equipment owned or controlled by
Refinery Company, or other potential increases or decreases in charges.
Section 2.7 Water.
(a) Raw Water. The allocation of raw water rights and obligations between the
Fertilizer Company and the Refinery Company is provided in the Raw Water and Facilities Sharing
Agreement.
(b) Sour Water. Refinery Company shall receive and process, at no cost to Fertilizer
Company, all of the Sour Water produced at the Fertilizer Plant which does not exceed the volume
parameters set forth on Exhibit B hereto.
(c) Refinery Supply of Fire Water. Refinery Company shall, at no cost or expense to
Fertilizer Company, use reasonable efforts to keep and maintain its Fire Water systems, tanks,
water inventory and equipment in such condition, repair and state of readiness so as to allow
uninterrupted service to Fertilizer Company for use at the Fertilizer Plant and shall grant
Fertilizer Company access to the Fire Water system for use of such system in conjunction with the
Fire Water system of the Fertilizer Plant, for use in connection with Fertilizer Companys street
sweeper and for use in washing down the Fertilizer Plant coke pad. The Refinerys Fire
9
Water system and the points of access by Fertilizer Company to the Fire Water system are shown
on Plot Plan A which constitutes part of Exhibit A hereto. Notwithstanding the foregoing,
Fertilizer Company acknowledges and agrees that Refinery Company shall not be liable for any
damages incurred resulting from its failure or inability to provide Fire Water hereunder. If the
Refinery Company should cease operations of the Refinery (including the Refinery Fire Water
system), Refinery Company shall provide advance notice of such cessation of operations to
Fertilizer Company and Fertilizer Company may, upon notice to Refinery Company, operate such
Refinery Fire Water System, at the cost and expense of the Fertilizer Company and for the benefit
of the Fertilizer Company for a period of up to two years.
Section 2.8 Security. Fertilizer Company agrees to pay its pro rata share (determined
as provided in Exhibit B) of security services provided under the Security Contract upon
receipt of an invoice from Refinery Company for such pro rata share, as provided in Exhibit
B. Refinery Company and Fertilizer Company shall also cooperate in developing and
administering a mutual security plan. Refinery Company may, upon six (6) months prior written
notice to Fertilizer Company, require Fertilizer Company to enter into a separate agreement for
security services and adopt and administer a security plan covering solely its premises.
Fertilizer Company may, upon six (6) months prior written notice to Refinery Company, terminate
taking security services from Refinery Company, whereupon at the end of such six (6) month period,
Fertilizer Company may cease paying Refinery Company for such security services and will adopt and
administer its own security plan. Fertilizer Company acknowledges and agrees that Refinery Company
shall not be liable to Fertilizer Company for any damages, losses or other liability arising,
directly or indirectly, out of the services performed by any service provider engaged by Refinery
Company to perform security services, or arising, directly or indirectly, out of any mutual
security plan.
Section 2.9 Hydrogen Supply.
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(a) During the term of this Agreement:
(i) Fertilizer Company agrees to provide to Refinery Company, upon reasonable request,
up to 30 mmscfd of Hydrogen (the Initial Requirement) during any ten (10) consecutive day
period (an Initial Requirement Period), provided that:
(A) Fertilizer Company will not be obligated to provide any Hydrogen to
Refinery Company unless such Hydrogen is not required, as determined
in a commercially reasonable manner by the Fertilizer Company based
on its then current or anticipated operational requirements, for the
operation of the Fertilizer Plant and the board of directors of the general partner of CVR
Partners, LP (the sole member of Fertilizer Company), determines in its sole
discretion that such sale of Hydrogen would not adversely affect the classification of CVR Partners, LP as a partnership for federal income tax purposes;
(B) If Fertilizer Company provides any Initial Requirement to Refinery Company
during an Initial Requirement Period, then Fertilizer Company shall have no
obligation to provide any further Initial Requirement to Refinery Company for a
period (the Replenishment Period) of thirty (30) days following the last day of
the most recent Initial Requirement Period during which any Initial Requirement was
provided; and
(C) Refinery
Company shall pay to Fertilizer Company the
applicable price set forth on Exhibit B.
(ii) To the extent
that Fertilizer Company has for any Initial Requirement Period
provided to Refinery Company all of the Initial Requirement that Fertilizer is required to
provide pursuant to Section 2.9(a)(i), then, in addition to such Initial Requirement,
Fertilizer Company agrees to provide, upon reasonable request, to Refinery Company during
such Initial Requirement Period and related Replenishment Period up to an additional 30
mmscfd of Hydrogen (the Additional Requirement), provided that:
(A) Fertilizer Company will not be obligated to provide any Hydrogen to
Refinery Company unless such Hydrogen is not required, as determined
in a commercially reasonable manner by the Fertilizer Company based
on its then current or anticipated operational requirements, for the
operation of the Fertilizer Plant and the board of directors of the general partner of CVR
Partners, LP (the sole member of Fertilizer Company), determines in its sole
discretion that such sale of Hydrogen would not adversely affect the classification of CVR Partners, LP as a
partnership for federal income tax purposes; and
(B) Refinery Company
compensates Fertilizer Company at the Additional Requirement Price as
provided in Exhibit B.
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(b) To
the extent available to Refinery Company and not required, as
determined in a commercially reasonable manner by the Refinery
Company based on its then current or anticipated operational
requirements, for the operation of the Refinery, Refinery Company agrees to provide Fertilizer Company with
Hydrogen at the price set forth on Exhibit B.
(c) Notwithstanding the provisions
of subsections (a) (b) above, sales of Hydrogen by
Fertilizer Company to Refinery Company and by Refinery Company to Fertilizer Company will be netted
against each other on a monthly basis. To the extent a party sells more Hydrogen to the other
party than purchased from such party in any given month, then such party will be paid for such
Hydrogen pursuant to the prices set forth on Exhibit B.
(d) Notwithstanding
the provisions of subsections (a) (c) above, Refinery Company and
Fertilizer Company may purchase Hydrogen from the other party upon such terms and conditions as the
parties mutually agree upon in writing from time to time with respect to any single purchase, any
series of purchases, or otherwise.
Section 2.10 Natural Gas. Refinery Company is a party to a Sales and Transportation
Service Agreement dated August 27, 1992 with United Cities Gas Company (now Atmos Energy), and the
City of Coffeyville (Gas Contract) pursuant to which natural gas is transported to the Refinery
and the Fertilizer Plant. Refinery Company will nominate and purchase natural gas transportation
and natural gas supplies for the Fertilizer Company and Fertilizer Company agrees to coordinate
with Refinery Company with respect to such nominations and to provide Refinery Company timely
information regarding Fertilizer Companys requirements for natural gas transportation and natural
gas supplies. Refinery Company shall provide Fertilizer Company with an invoice for natural gas
supply and transportation services received by Fertilizer Company promptly following Refinery
Companys receipt of invoices from Atmos Energy (or Refinery Companys then-current natural gas
transportation provider(s)), any relevant interstate natural gas pipeline and the then current
natural gas supplier(s).
At the request of either Fertilizer Company or Refinery Company, the Parties agree to use
their commercially reasonable efforts to (i) add Fertilizer Company as a party to the Gas Contract
or to reach some other mutually acceptable accommodation with Atmos (including, but not limited to
separate natural gas transportation agreements) whereby both Refinery Company and Fertilizer
Company would each be able to receive, on an individual basis, natural gas transportation service
from Atmos on similar terms and conditions as are currently set forth in the Gas Contract; and (ii)
separate natural gas purchasing so that the Refinery Company and Fertilizer Company would each
purchase for their own account the natural gas supplies to be delivered to the Refinery and
Fertilizer Plant respectively.
Section 2.11 Railroad Tracks. Refinery Company and Fertilizer Company currently share
rail services on railroad tracks that traverse the Refinery premises in part and the Fertilizer
Plant premises in part, some of which railroad tracks are owned by Union Pacific and operated by
South Kansas & Oklahoma Railroad, Inc., or their successors (Main Tracks), some of which railroad
tracks are owned and operated by Refinery Company (Refinery Tracks), and some of which railroad
tracks are owned and operated by Fertilizer Company (Fertilizer
12
Tracks). The Parties agree to coordinate and cooperate to ensure that each Party has access
to the Main Tracks, the Refinery Tracks, and the Fertilizer Tracks for the receipt of Feedstocks
and delivery out of products, and to pay a mutually agreed prorated share of the costs and expense
of maintaining such railroad tracks based upon an approximation of actual use. Each Party shall
use its best commercially reasonable efforts to move railroad cars from the Main Tracks to the
Refinery Tracks or the Fertilizer Tracks as soon as possible following arrival of such railroad
cars. Each Party shall utilize such Partys own railroad sidings for the loading and unloading of
any products or other items by such Party. Railroad track sharing between the Parties shall also
be subject to and in accordance with the railroad trackage easements provided for in the Easement
Agreement.
Section 2.12 South Administration Building, Laboratory Building, and Oil Storage Building
Use and Occupancy. The Refinery Company will allow the Fertilizer Company to occupy a portion
of the buildings known on the date hereof as the South Administration Building, the Laboratory
Building, and the Oil Storage Building for, without limitation, purposes of office space,
maintenance space, storage and laboratory space therein, as more specifically provided in the Lease
Agreement.
Section 2.13 Tank Capacity. To the extent available, Refinery Company and Fertilizer
Company agree to provide the other party with finished product tank capacity from time to time.
The terms under which such tank capacity will be provided, including the fee, term and tank
designation will be mutually agreed upon by the parties.
Section 2.14 Tail Gas. Fertilizer Company will make available to Refinery Company,
solely for use at the Refinery, Tail Gas at a cost to Refinery Company as designated on Exhibit
B hereto.
ARTICLE 3
TERM
Section 3.1 Term. This Agreement shall be for an initial term of twenty (20) years.
The term of this Agreement shall be automatically extended following the initial term for
additional successive five (5) year renewal periods, unless either party gives notice to the other
party, not less than three (3) years prior to the date that any such renewal period would commence,
that such party does not desire to extend and renew the term of this Agreement, in which event this
Agreement shall terminate upon the expiration of the term in which the notice of nonrenewal is
given.
Section 3.2 Termination. Notwithstanding Section 3.1, this Agreement may be
terminated by mutual agreement of the Parties. This Agreement may also be terminated as follows:
(a) This Agreement may be terminated by one Party (the Terminating Party) upon notice to the
other Party (the Breaching Party), following the occurrence of an Event of Breach with respect to
the Breaching Party. For purposes hereof, an Event of Breach shall occur when both of the
following exist: (i) a breach of this Agreement by the Breaching Party
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has not been cured by such Breaching Party within thirty (30) days after receipt of written
notice thereof from the Terminating Party or, in the case of a breach that is not reasonably
feasible to effect a cure within said 30-day period, within ninety (90) days after such receipt
provided that the Breaching Party diligently prosecutes the cure of such breach; and (ii) the
breach materially and adversely affects the ability of the Terminating Party to operate its
Refinery or its Fertilizer Plant, as the case may be.
(b) This Agreement may be terminated by the Refinery Company effective as of the permanent
termination of substantially all of the operations at the Refinery (with no intent by Refinery
Company or its successor to recommence operations at the Refinery); provided, however, that notice
of such permanent termination of operations shall be provided by the Refinery Company to Fertilizer
Company at least twelve (12) months prior to such permanent termination.
(c) This Agreement may be terminated by the Fertilizer Company effective as of the permanent
termination of substantially all of the fertilizer production operations at the Fertilizer Plant
(with no intent by Fertilizer Company or its successor to recommence operations at the Fertilizer
Plant); provided, however, that notice of such permanent termination of operations shall be
provided by the Fertilizer Company to Refinery Company at least twelve (12) months prior to such
permanent termination.
(d) This Agreement may be terminated by one Party upon notice to the other Party following (i)
the appointment of a receiver for such other Party or any part of its property, (ii) a general
assignment by such other Party for the benefit of creditors of such other Party, or (iii) the
commencement of a proceeding under any bankruptcy, insolvency, reorganization, arrangement or other
law relating to the relief of debtors by or against such other Party; provided, however, that if
any such appointment or proceeding is initiated without the consent or application of such other
Party, such appointment or proceeding shall not constitute a termination event under this Agreement
until the same shall have remained in effect for sixty (60) days.
Section 3.3 Effects of Expiration or Termination. Refinery Company and Fertilizer
Company agree that upon and after expiration or termination of this Agreement:
(a) Each Party will remain obligated to make any payment due to the other Party hereunder for
any Feedstock or Service delivered to or purchased by such Party prior to termination.
(b) Liabilities of any Party arising from any act, breach or occurrence prior to termination
will remain with such Party.
(c) The
Parties rights and obligations under Sections 10.1 and 10.6 and ARTICLES 5, 6, 7, 8, 9, 11, 12
and 15 and the second paragraph of Section 2.10 will survive the expiration or termination of this Agreement.
14
ARTICLE 4
PAYMENT
Section 4.1 Payment. Any amount payable hereunder shall be represented by an invoice
therefor provided by the Party to receive said payment to the other Party. All such invoices shall
be submitted weekly (or on such other periodic basis as the Parties may agree to in writing from
time to time with respect to any particular Feedstock or Service) and set forth sufficient detail
to reflect the determination of the amount payable hereunder. Unless otherwise indicated, all such
invoices will be due net fifteen (15) days. The Parties shall make payment in full of the amount
due under each invoice in strict compliance with the payment terms as set forth in this Agreement
without any deduction for any discount or credits, contra or setoffs of any kind or amount
whatsoever unless expressly authorized in writing by each Party prior to the payment date relating
to such invoice(s), and except that each Party shall be entitled to offset, against any amount
payable by such Party to the other Party for Feedstocks or Services hereunder or for Coke under the
Coke Supply Agreement, any amounts payable from such other Party for Feedstocks or Services
hereunder.
Section 4.2 Delinquencies. To the extent any amount payable under this Agreement is
not paid when due, then in addition to the amount payable and in addition to all other available
rights and remedies, the applicable Party also shall be obligated to pay interest on such amount
payable from and after the due date for such payment until such payment is made at a rate of
interest per annum equal to three percent (3%) above the Prime Rate (the Late Payment Rate).
ARTICLE 5
DISPUTES
Section 5.1 Resolution of Disputes. The Parties shall in good faith attempt to
resolve promptly and amicably any dispute between the Parties arising out of or relating to this
Agreement (each a Dispute) pursuant to this Article 5. The Parties shall first submit the
Dispute to the Fertilizer Company Representative and the Refinery Company Representative, who shall
then meet within fifteen (15) days to resolve the Dispute. If the Dispute has not been resolved
within forty-five (45) days after the submission of the Dispute to the Fertilizer Company
Representative and the Refinery Company Representative, the Dispute shall be submitted to a
mutually agreed non-binding mediation. The costs and expenses of the mediator shall be borne
equally by the Parties, and the Parties shall pay their own respective attorneys fees and other
costs. If the Dispute is not resolved by mediation within ninety (90) days after the Dispute is
first submitted to the Refinery Company Representative and the Fertilizer Company Representative as
provided above, then the Parties may exercise all available remedies.
Section 5.2 Multi-Party Disputes. The Parties acknowledge that they or their
respective affiliates contemplate entering or have entered into various additional agreements with
third parties that relate to the subject matter of this Agreement and that, as a consequence,
Disputes may arise hereunder that involve such third parties (each a Multi-Party Dispute).
Accordingly, the Parties agree, with the consent of such third parties, that any such Multi-Party
15
Dispute, to the extent feasible, shall be resolved by and among all the interested parties
consistent with the provisions of this Article 5.
ARTICLE 6
INDEMNIFICATION
Section 6.1 Indemnification Obligations. Each of the Parties (each, an Indemnitor")
shall indemnify, defend and hold the other Party and its respective officers, directors, members,
managers and employees (each, an Indemnitee") harmless from and against all liabilities,
obligations, claims, losses, damages, penalties, deficiencies, causes of action, costs and
expenses, including, without limitation, attorneys fees and expenses (collectively, Losses")
imposed upon, incurred by or asserted against the person seeking indemnification that are caused
by, are attributable to, result from or arise out of the breach of this Agreement by the Indemnitor
or the negligence or willful misconduct of the Indemnitor, or of any officers, directors, members,
managers, employees, agents, contractors and/or subcontractors acting for or on behalf of the
Indemnitor. Any indemnification obligation pursuant to this Article 6 with respect to any
particular Losses shall be reduced by all amounts actually recovered by the Indemnitee from third
parties, or from applicable insurance coverage, with respect to such Losses. Upon making any
payment to any Indemnitee, the Indemnitor shall be subrogated to all rights of the Indemnitee
against any third party in respect of the Losses to which such payment relates, and such Indemnitee
shall execute upon request all instruments reasonably necessary to evidence and perfect such
subrogation rights. If the Indemnitee receives any amounts from any third party or under
applicable insurance coverage subsequent to an indemnification payment by the Indemnitor, then such
Indemnitee shall promptly reimburse the Indemnitor for any payment made or expense incurred by such
Indemnitor in connection with providing such indemnification payment up to the amount received by
the Indemnitee, net of any expenses incurred by such Indemnitee in collecting such amount.
Section 6.2 Indemnification Procedures.
(a) Promptly after receipt by an Indemnitee of notice of the commencement of any action that
may result in a claim for indemnification pursuant to this Article 6, the Indemnitee shall notify
the Indemnitor in writing within 30 days thereafter; provided, however, that any omission to so
notify the Indemnitor will not relieve it of any liability for indemnification hereunder as to the
particular item for which indemnification may then be sought (except to the extent that the failure
to give notice shall have been materially prejudicial to the Indemnitor) nor from any other
liability that it may have to any Indemnitee. The Indemnitor shall have the right to assume sole
and exclusive control of the defense of any claim for indemnification pursuant to this Article 6,
including the choice and direction of any legal counsel.
(b) An Indemnitee shall have the right to engage separate legal counsel in any action as to
which indemnification may be sought under any provision of this Agreement and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the expense of such
Indemnitee unless (i) the Indemnitor has agreed in writing to pay such fees and expenses, (ii) the
Indemnitor has failed to assume the defense thereof and engage legal counsel within a reasonable
period of time after being given the notice required above, or (iii) the
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Indemnitee shall have been advised by its legal counsel that representation of such Indemnitee
and other parties by the same legal counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same legal counsel has been
proposed) due to actual or potential conflicts of interests between them. It is understood,
however, that to the extent more than one Indemnitee is entitled to engage separate legal counsel
at the Indemnitors expense pursuant to clause (iii) above, the Indemnitor shall, in connection
with any one such action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of only one separate firm of attorneys at any time for all such
Indemnitees having the same or substantially similar claims against the Indemnitor, unless but only
to the extent the Indemnitees have actual or potential conflicting interests with each other.
(c) The Indemnitor shall not be liable for any settlement of any action effected without its
written consent, but if settled with such written consent, or if there is a final judgment against
the Indemnitee in any such action, the Indemnitor agrees to indemnify and hold harmless the
Indemnitee to the extent provided above from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.
ARTICLE 7
ASSIGNMENT
This Agreement shall extend to and be binding upon the Parties hereto, their successors and
permitted assigns. Either Party may assign its rights and obligations hereunder solely (i) to an
affiliate under common control with the assigning Party, provided that any such assignment shall
require the prior written consent of the other Party hereto (such consent not to be unreasonably
withheld or delayed), and provided that the applicable assignee agrees, in a written instrument
delivered to (and reasonably acceptable to) such other Party, to be fully bound hereby, or (ii) to
a Partys lenders for collateral security purposes, provided that in the case of any such
assignment each Party agrees (x) to cooperate with the lenders in connection with the execution and
delivery of a customary form of lender consent to assignment of contract rights and (y) any delay
or other inability of a Party to timely perform hereunder due to a restriction imposed under the
applicable credit agreement or any collateral document in connection therewith shall not constitute
a breach hereunder. In addition, each Party agrees that it will assign its rights and obligations
hereunder to a transferee acquiring all or substantially all of the equity in or assets of the
assigning Party related to the Refinery or Fertilizer Plant (as applicable), which transferee must
be approved in writing by the non-assigning Party (such approval not to be unreasonably withheld or
delayed) and must agree in writing (with the non-assigning Party) to be fully bound hereby.
ARTICLE 8
GOVERNING LAW AND VENUE
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
KANSAS WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SAID STATE. THE PARTIES AGREE THAT
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ANY ACTION BROUGHT IN CONNECTION WITH THIS AGREEMENT MAY BE MAINTAINED IN ANY COURT OF
COMPETENT JURISDICTION LOCATED IN THE STATE OF KANSAS, AND EACH PARTY AGREES TO SUBMIT PERSONALLY
TO THE JURISDICTION OF ANY SUCH COURT AND HEREBY WAIVES THE DEFENSES OF FORUM NON-CONVENIENS OR
IMPROPER VENUE WITH RESPECT TO ANY ACTION BROUGHT IN ANY SUCH COURT IN CONNECTION WITH THIS
AGREEMENT.
ARTICLE 9
LIMITATION OF LIABILITY
In no event, whether based on contract, indemnity, warranty, tort (including negligence),
strict liability or otherwise, shall either Party, its employees, suppliers or subcontractors, be
liable for loss of profits or revenue or special, incidental, exemplary, punitive or consequential
damages; provided, however, that the foregoing limitation shall not preclude recourse to any
insurance coverage maintained by the Parties pursuant to the requirements of this Agreement or
otherwise.
ARTICLE 10
OPERATION OF FERTILIZER PLANT AND REFINERY
Section 10.1 Cooperation. Refinery Company and Fertilizer Company shall cause their
respective personnel located at the Refinery and the Fertilizer Plant to fully cooperate with, and
comply with the reasonable requests of, the other Party and its employees, agents and contractors
to support such other Partys operations in a safe and efficient manner; provided, however, that
nothing in this Section 10.1 shall require the expenditure of any monies other than may otherwise
be required elsewhere in this Agreement. In addition, the Parties agree to (i) meet promptly
following the request by either Party to develop a long term plan for the bifurcation of those
properties and services that one Party or the other deems appropriate to bifurcate and (ii)
cooperate fully with each other to implement such plan in an expeditious and cost effective manner.
The costs of implementing any such program, such as costs and expense of negotiating with contract
counterparties and legal fees, shall be borne equally unless otherwise agreed.
Section 10.2 Fertilizer Plant Operations. Subject to the express obligations of the
Parties under this Agreement, no provision of this Agreement is intended as, or shall be construed
to be, any agreement on the part of Fertilizer Company to operate the Fertilizer Plant in any
particular manner or to continue operations at the Fertilizer Plant, all in its sole discretion;
provided, however, that prior notice of any permanent termination of operations shall be provided
by Fertilizer Company to the Refinery Company pursuant to Section 3.2(c).
Section 10.3 Refinery Operations. Subject to the express obligations of the Parties
under this Agreement, no provision of this Agreement is intended as, or shall be construed to be,
any agreement on the part of Refinery Company to operate the Refinery in any particular manner or
to continue operations at the Refinery, all in its sole discretion; provided, however, that prior
notice of any permanent termination of operations shall be provided by Refinery Company to the
Fertilizer Company pursuant to Section 3.2(b).
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Section 10.4 Suspension of Services.
(a) Temporary Suspension of Feedstock or Services for Repairs/Maintenance. The
provision of one or more of the Feedstocks or Services by the Parties may be temporarily suspended
for such periods of time as are necessary to carry out scheduled or unscheduled maintenance or
necessary repairs or improvements to the Refinery or the Fertilizer Plant, as the case may be
(each, a Temporary Service Suspension). In connection with any such Temporary Service
Suspension, Refinery Company or Fertilizer Company (as applicable) may elect to reduce, interrupt,
allocate, alter or change the Feedstock or Services that it is required to provide hereunder,
provided that, except in the case of emergencies, the applicable Party shall deliver not less than
thirty (30) days prior written notice to the other Party of any planned Temporary Service
Suspension, including relevant details relating to the proposed reduction, interruption,
allocation, alteration or change in the Feedstock or Services as a result of the Temporary Service
Suspension. Upon the occurrence and during the continuation of Temporary Service Suspension, the
parties shall cooperate to attempt to arrange for Feedstock or Services to be furnished to the
other Party in an alternate manner or by a third party acceptable to affected Party, to minimize or
reduce the effect of such Temporary Service Suspension on the applicable Partys operations.
(b) Emergency Repairs. The Parties shall provide notice to the other as soon as
reasonably possible (and in any event within twenty-four (24) hours) in the event of any emergency
repair or unplanned required maintenance that is affecting or will affect provision of the
Services. Each Party shall use commercially reasonable efforts to complete any such emergency
repairs in a timely manner and to resume the provision of such Service as soon as practicable.
Section 10.5 Priority Supply. Refinery Company and Fertilizer Company shall each have
priority over third parties with respect to any Feedstocks and Services to be made available to
such Party (the Receiving Party) by the other Party (the Supplying Party) under this Agreement,
provided that, to the extent that purchase of any particular Feedstock or Service by a Receiving
Party is discretionary on the part of the Receiving Party and the Receiving Party has not purchased
from the Supplying Party the quantity of the Feedstock or Service that is presently available from
the Supplying Party, then the Supplying Party may offer and sell such available Feedstock or
Service to a third party so long as the Supplying Party first gives to the Receiving Party written
notice of such prospective offer and sale and the option to purchase such Feedstock or Service on
the terms provided in this Agreement with respect to such available Feedstock or Service, provided
that the Receiving Party exercises such option by written notice to the Supplying Party within five
(5) days following the date Supplying Party gives its written notice to Receiving Party with
respect to the available Feedstock or Service.
Section 10.6 Audit and Inspection Rights. Refinery Company and Fertilizer Company
shall each (Requesting Party) have the right, upon reasonable written notice to the other Party
(Other Party), to audit, examine and inspect, at reasonable times and locations, all
documentation, records, equipment, facilities, and other items owned or under the control of the
Other Party that are reasonably related to the Feedstocks and Services provided for under this
Agreement, solely for the purpose of confirming the measurement or pricing of, or tolerances or
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specifications of, any Feedstocks or Services, confirming compliance and performance by the
Other Party, or exercising any rights of the Requesting Party, under this Agreement.
Section 10.7 Upgrade Costs. In the event that either Refinery Company or Fertilizer
Company (Requiring Company) requires that any capital or other upgrades be made by the other
Party (Upgrading Party) to any of the Upgrading Partys equipment or other facilities in
connection with the provision of any Feedstock or Services under this Agreement, the Upgrading
Party shall cooperate in implementing any such upgrades, provided that: (a) such upgrade does not
adversely affect in a material respect the Upgrading Partys facilities or operations, and (b) the
Requiring Party pays (on terms and conditions acceptable to the Upgrading Party) any and all costs
of implementing such upgrade, and any increase in ongoing costs to the Upgrading Party (including
without limitation the costs of insurance, licenses, maintenance, permits, repairs, replacements,
and taxes).
Section 10.8 Successor Third Party Agreements. In the event that any of the Linde
Agreement, TKI Phase I Agreement, TKI Phase II Agreement, Gas Contract, or any other agreement with
or between any third parties that relates to any Feedstock or Services referred to in this
Agreement, terminates prior to the termination of this Agreement, the parties shall in good faith
cooperate to replace any such agreements with successor agreements with commercially similar terms,
in which case reference herein to the terminated third party agreement shall be deemed a reference
to the applicable successor agreement. In the event that such a successor agreement is not entered
into or is entered into on terms that are not commercially similar, then the parties will negotiate
in good faith to determine the terms and conditions, if any, that are commercially practicable for
the applicable Feedstock or Services to be furnished by one party to the other.
ARTICLE 11
NOTICES
Any notice, request, correspondence, information, consent or other communication to any of the
Parties required or permitted under this Agreement shall be in writing (including telex, telecopy,
or facsimile), shall be given by personal service or by telex, telecopy, facsimile, overnight
courier service, or certified mail with postage prepaid, return receipt requested, and properly
addressed to such Party and shall be effective upon receipt. For purposes hereof the proper
address of the Parties shall be the address stated beneath the corresponding Partys name below, or
at the most recent address given to the other Parties hereto by notice in accordance with this
Article:
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If to Refinery Company, to:
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With a copy to: |
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Coffeyville Resources
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Edmund S. Gross, |
Refining & Marketing, LLC |
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Senior Vice President and General Counsel |
400 N. Linden St., P.O. Box 1566
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CVR Energy, Inc. |
Coffeyville, Kansas 67337
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10 E. Cambridge Circle, Ste. 250 |
Attention: Executive Vice President,
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Kansas City, Kansas 66103 |
Refining
Operations
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Facsimile: (913) 982-5651 |
Facsimile: (620) 251-1456 |
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If to Fertilizer Company, to:
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With a copy to: |
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Coffeyville Resources
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Edmund S. Gross, |
Nitrogen Fertilizers, LLC
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Senior Vice President and General Counsel |
701 E. Martin St., P.O. Box 5000
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CVR Energy, Inc. |
Coffeyville, Kansas 67337
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10 E. Cambridge Circle, Ste. 250 |
Attention: Executive Vice President and
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Kansas City, Kansas 66103 |
Fertilizer General Manager
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Facsimile: (913) 982-5651 |
Facsimile: (620) 252-4357 |
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or such other address(es) as either Party designates by registered or certified mail addressed to
the other Party.
ARTICLE 12
EXHIBITS
All of the Exhibits attached hereto are incorporated herein and made a part of this Agreement
by reference thereto.
ARTICLE 13
FORCE MAJEURE
Neither Party shall be liable to the other for failure of or delay in performance hereunder
(except for the payment of amounts due for Feedstocks or Services hereunder) to the extent that the
failure or delay is due to Force Majeure. Performance under this Agreement shall be suspended
(except for the payment of amounts due for Feedstocks or Services hereunder) during the period of
Force Majeure to the extent made necessary by the Force Majeure. No failure of or delay in
performance pursuant to this Article 13 shall operate to extend the term of this Agreement.
Performance under this Agreement shall resume to the extent made possible by the end or
amelioration of the Force Majeure event.
Upon the occurrence of any event of Force Majeure, the Party claiming Force Majeure shall
notify the other Party promptly in writing of such event and, to the extent possible, inform the
other Party of the expected duration of the Force Majeure event and the performance to be affected
by the event of Force Majeure under this Agreement. Each Party shall designate a person with the
power to represent such Party with respect to the event of Force Majeure. The Party claiming Force
Majeure shall use commercially reasonable efforts, in cooperation with the other Party and such
Partys designee, to diligently and expeditiously end or ameliorate the Force Majeure event. In
this regard, the Parties shall confer and cooperate with one another in determining the most
cost-effective and appropriate action to be taken. If the Parties are unable to agree upon such
determination, the matter shall be determined by dispute resolution in accordance with Article 5.
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ARTICLE 14
INSURANCE
Section 14.1 Minimum Insurance. During the term of this Agreement, Refinery Company
and Fertilizer Company shall each carry the minimum insurance described below.
(a) Workers compensation with no less than the minimum limits as required by applicable law.
(b) Employers liability insurance with not less than the following minimum limits:
(i) Bodily injury by accident $1,000,000 each accident;
(ii) Bodily injury by disease $1,000,000 each employee; and
(iii) Bodily injury by disease $1,000,000 policy limit.
(c) Commercial general liability insurance on ISO form CG 00 01 10 93 or an equivalent form
covering liability from premises, operations, independent contractor, property damage, bodily
injury, personal injury, products, completed operations and liability assumed under an insured
contract, all on an occurrence basis, with limits of liability of not less than $1,000,000 combined
single limits.
(d) Automobile liability insurance, on each and every unit of automobile equipment, whether
owned, non-owned, hired, operated, or used by Refinery Company or Fertilizer Company or their
employees, agents, contractors and/or their subcontractors covering injury, including death, and
property damage, in an amount of not less than $1,000,000 per accident.
(e) Umbrella or excess liability insurance in the amount of $10,000,000 covering the risks and in excess
of the limits set for in subsections 14(b), (c) and (d) above.
Section 14.2 Additional Insurance Requirements. Refinery Company and Fertilizer
Company shall each abide by the following additional insurance requirements with respect to all
insurance policies required by Section 14.1, as follows:
(a) All insurance policies purchased and maintained in compliance with subsection 14.1(c), (d)
and (e) above by one party (the Insuring Party), as well as any other excess and/or umbrella
insurance policies maintained by the Insuring Party, shall name the other party and their
collective directors, officers, partners, members, managers, general partners, agents, and
employees as additional insureds, with respect to any claims related to losses caused by the
Insuring Partys business activities or premises. Those policies referred to in subsection 14.1(c)
shall be endorsed to provide that the coverage provided by the Insuring Partys insurance carriers
shall always be primary coverage and non-contributing with respect to any insurance carried by the
other Party with respect to any claims related to liability or losses caused by the Insuring
Partys business activities or premises.
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(b) Those policies referred to in Section 14.1, and in subsection 14.2(e), shall be endorsed
to provide that underwriters and insurance companies of each of Refinery Company and Fertilizer
Company shall not have any right of subrogation against the other Party or any of such other
Partys directors, officers, members, managers, general partners, agents, employees, contractors,
subcontractors, or insurers.
(c) Those policies referred to in subsection 14.1 shall be endorsed to provide that 30 days
prior written notice shall be given to the other Party in the event of cancellation, no-payment of
premium, or material change in the policies.
(d) Each of Refinery Company and Fertilizer Company shall furnish the other, prior to the
commencement of any operations under this Agreement, with a certificate or certificates, properly
executed by its insurance carrier(s), showing all the insurance described in subsection 14.1 to be
in full force and effect.
(e) The Refinery Company and Fertilizer Company shall each be responsible for its own property
and business interruption insurance.
(f) Notwithstanding
the foregoing, the Parties acknowledge and agree that the insurance
required by this Agreement may be purchased and maintained jointly by
the Parties or their affiliates. If such insurance is purchased and
maintained jointly and each Party is a named insured thereunder, then
the
requirements of Section 14.2(a)-(e) will
be deemed waived by the Parties.
ARTICLE 15
MISCELLANEOUS
Section 15.1 Confidentiality.
(a) During the course of the Parties performance hereunder, the Parties acknowledge and agree
that each of them may receive or have access to confidential information of the other Party
(Confidential Information). Confidential Information of a Party (First Party) shall include
any and all information relating to its business, including, but not limited to, inventions,
concepts, designs, processes, specifications, schematics, equipment, reaction mechanisms,
processing techniques, formulations, chemical compositions, technical information, drawings,
diagrams, software (including source code), hardware, control systems, research, test results,
plant layout, feasibility studies, procedures or standards, know-how, manuals, patent information,
the identity of or information concerning current and prospective customers, suppliers,
consultants, licensors, licensees, contractors, subcontractors and/or other agents, financial and
sales information, current or planned commercial activities, business strategies, records,
marketing plans, or other information relating to its business activities or operations and those
of its affiliates, customers, suppliers, consultants, licensors, contractors, subcontractors,
agents and/or any others to whom such First Party owes a duty of confidentiality, which (i) is
identified in writing as Confidential, Restricted, Proprietary Information or other similar
marking, or (ii) is known by the other Party (the Second Party) to be considered confidential or
proprietary, or (iii) should be known or understood to be confidential or proprietary by an
individual exercising reasonable commercial judgment in the circumstances.
(b) Confidential Information of a First Party does not include information to the extent such
information: (i) is or becomes generally available to and/or known by the public through no fault
of the Second Party, or (ii) is or becomes generally available to the Second Party on a
non-confidential basis from a source other than the First Party or its representatives,
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provided that such source was not known to the Second Party to be bound by a confidentiality
agreement with the First Party, or (iii) was previously known to the Second Party or its affiliates
as evidenced by written records, or (iv) is or was independently developed, as evidenced by written
records, by or on behalf of the Second Party or its affiliates by individuals who did not directly
or indirectly receive relevant Confidential Information of the First Party. Specific disclosures
shall not be deemed to be within the foregoing exceptions merely because they are embraced by more
general information within the exceptions. In addition, any combination of features disclosed
shall not be deemed to be within the foregoing exceptions merely because individual features may be
within the exceptions.
(c) The Parties agree that: (i) as between the Parties, a First Partys Confidential
Information shall remain the exclusive property of such First Party, and (ii) the Second Party
shall use the First Partys Confidential Information solely for purposes of performing such Second
Partys obligations under this Agreement (the Purpose), and for no other reason, and (iii) the
Second Party shall limit its disclosure of the First Partys Confidential Information to those of
its affiliates, employees, agents and other third parties with a need-to-know such information
for the Purpose and shall not disclose the Confidential Information (in whole or in part) to any
other party, and (iv) the Second Party shall ensure that any affiliates, employees, agents or other
third parties to whom the First Partys Confidential Information is disclosed are obligated in
writing to abide by confidentiality and non-use restrictions at least as stringent as those set
forth in this Agreement, and (v) the Second Party shall protect the Confidential Information of the
First Party to the same extent the Second Party protects its own like trade secrets and
confidential information, but in no event less than commercially reasonable care.
(d) In the event a Second Party receives a request or is required by deposition,
interrogatory, request for documents, subpoena, civil investigative demand or similar process or
legal requirement to disclose all or any part of the First Partys Confidential Information, the
Second Party agrees to (i) immediately notify the First Party in writing of the existence, terms
and circumstances surrounding such a request or requirement, and (ii) assist the First Party in
seeking a protective order or other appropriate remedy satisfactory to the First Party (at the
expense of the First Party). In the event that such protective order or other remedy is not
obtained (or the First Party waives compliance with the provisions hereof), (x) the Second Party
may disclose that portion of the First Partys Confidential Information which it is legally
required to disclose, and (y) the Second Party shall exercise reasonable efforts to obtain
assurance that confidential treatment will be accorded the Confidential Information to be
disclosed, and (z) the Second Party shall give written notice to First Party of the information to
be so disclosed as far in advance of its disclosure as practicable. In addition, a Second Party
may disclose all or any part of the First Partys Confidential Information to the Second Partys
funding sources and their representatives, provided that Second Party shall exercise reasonable
efforts to obtain assurance that confidential treatment will be accorded the Confidential
Information to be disclosed, and the Second Party shall give written notice to First Party of the
information to be so disclosed as far in advance of its disclosure as practicable.
(e) The parties agree that any violation of this Section 15.1 by a Second Party or any
affiliates, employees, agents or other third parties to whom the Confidential Information of First
Party is disclosed may be enforced by the First Party by obtaining injunctive or specific relief
from a court of competent jurisdiction. Such relief shall be cumulative and not exclusive of any
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other remedies available to the First Party at law or in equity, including, but not limited
to, damages and reasonable attorneys fees.
Section 15.2 Headings. The headings used in this Agreement are for convenience only
and shall not constitute a part of this Agreement.
Section 15.3 Independent Contractors. The Parties acknowledge and agree that neither
Party, by reason of this Agreement, shall be an agent, employee or representative of the other with
respect to any matters relating to this Agreement, unless specifically provided to the contrary in
writing by the other Party. This Agreement shall not be deemed to create a partnership or joint
venture of any kind between Refinery Company and Fertilizer Company.
Section 15.4 Ancillary Documentation, Amendments and Waiver. The Parties may, from
time to time, use purchase orders, acknowledgments or other instruments to order, acknowledge or
specify delivery times, suspensions, quantities or other similar specific matters concerning the
Feedstocks or relating to performance hereunder, but the same are intended for convenience and
record purposes only and any provisions which may be contained therein are not intended to (nor
shall they serve to) add to or otherwise amend or modify any provision of this Agreement, even if
signed or accepted on behalf of either Party with or without qualification. This Agreement may not
be amended, modified or waived except by a writing signed by all parties to this Agreement that
specifically references this Agreement and specifically provides for an amendment, modification or
waiver of this Agreement. No waiver of or failure or omission to enforce any provision of this
Agreement or any claim or right arising hereunder shall be deemed to be a waiver of any other
provision of this Agreement or any other claim or right arising hereunder.
Section 15.5 Construction and Severability. Every covenant, term and provision of this
Agreement shall be construed simply according to its fair meaning and in accordance with industry
standards and not strictly for or against either Party. Every provision of this Agreement is
intended to be severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or legality of the
remainder of this Agreement.
Section 15.6 Waiver. The waiver by either Party of any breach of any term, covenant
or condition contained in this Agreement shall not be deemed to be a waiver of such term, covenant
or condition or of any subsequent breach of the same or of any other term, covenant or condition
contained in this Agreement. No term, covenant or condition of this Agreement will be deemed to
have been waived unless such waiver is in writing.
Section 15.7 No Third Party Beneficiaries. The Parties each acknowledge and agree
that there are no third party beneficiaries having rights under or with respect to this Agreement,
including without limitation, under the Linde Agreement, TKI I Phase I Agreement, TKI Phase II
Agreement, or Gas Contract.
Section 15.8 Entire Agreement. This Agreement, including all Exhibits hereto,
constitutes the entire, integrated agreement between the Parties regarding the subject matter
hereof and supersedes any and all prior and contemporaneous agreements (including the Original
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Agreement), representations and understandings of the Parties, whether written or oral,
regarding the subject matter hereof.
[signature page follows]
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Signature Page
to
Feedstock and Shared Services Agreement
The Parties have executed and delivered this Agreement as of the date first above set forth.
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COFFEYVILLE RESOURCES
REFINING & MARKETING, LLC |
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COFFEYVILLE RESOURCES
NITROGEN FERTILIZERS, LLC |
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By:
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By: |
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Name:
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Robert W. Haugen
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Name:
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Kevan A. Vick |
Title:
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Executive Vice President,
Refining Operations
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Title:
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Executive Vice President and
Fertilizer General Manager |
EXHIBIT A
FACILITIES DESCRIPTION
The Fertilizer Plant is shown on Plot Plan A attached hereto.
The Gasification Unit is shown on Plot Plan A attached hereto.
The Ammonia Synthesis Loop is shown on Plot Plan A attached hereto.
The UAN Plant is shown on Plot Plan A attached hereto.
The Linde Facility is shown on Plot Plan A attached hereto.
The Administrative and Warehouse Building is shown on Plot Plan A attached hereto.
The Feedstock Delivery Points are shown on Plot Plan A and Drawing D11-0913B attached
hereto. The coke Feedstock Delivery Point is the south side of the Refinerys coke pit.
The Utility Facilities are shown on Plot Plan A attached hereto.
The Grounds are shown on Plot Plan A attached hereto.
The Offsite Sulfur Recovery Unit is shown on Plot Plan A attached hereto.
The Refinery is shown on Plot Plan A attached hereto.
A-1
EXHIBIT B
ANALYSIS, SPECIFICATIONS AND PRICING FOR FEEDSTOCK AND SERVICES
FEEDSTOCKS:
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Hydrogen |
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- Gaseous |
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- Purity
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not less than 99.9 mol.% |
- Flow
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21 mmscf/day maximum |
- Pressure
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450 psig ± 30 psi |
- Carbon Monoxide
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less than 50 ppm |
- Carbon Dioxide
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less than 10 ppm |
- Price for sales from
Fertilizer Company to
Refinery Company
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The Hydrogen price shall be $0.46 per 100scf
based on an Ammonia Price of $300.00 per
short ton. The Hydrogen price per 100scf
shall adjust as of the first day of each
calendar month up or down in the same
percentage as the Ammonia Price for the
immediately preceding calendar month adjusts
up or down from $300.00 per short ton.
Until the Hydrogen Reduction Date, the
Hydrogen price shall be discounted to
seventy percent (70%) of the Hydrogen price
otherwise calculated pursuant to the
foregoing provisions. |
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- Additional Requirement Price
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The Hydrogen price for any Additional
Requirement shall be $0.55 per 100scf based
on a UAN Price of $150.00 per short ton.
The Hydrogen price per 100scf of any
Additional Requirement shall adjust as of
the first day of each calendar month up or
down in the same percentage as the UAN Price
for the immediately preceding month adjusts
up or down from $150.00 per short ton. |
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- Price for sales from
Refinery Company to
Fertilizer Company
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The Hydrogen price shall be 62% multiplied
by the Fuel Price, where the Fuel Price is
the price of natural gas measured at a per
mmbtu rate based on the price for natural
gas actually paid by Refinery Company and
Fertilizer Company for the month preceding
the sale. |
B-1
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- Flow measurement
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All Hydrogen flows shall be measured by a
standard sharp edge orifice plate and
differential pressure transmitter located at
the Fertilizer Plant. The measured flow
shall be pressure and temperature
compensated and totalized by the Fertilizer
Plants Honeywell process control computer
(TDC 3000) or any replacement computer. All
transmitter signals and computer
calculations are available to the Refinery
through the existing communications bus for
verification. Calibration of the
transmitter shall be done at least annually
and may be done more frequently at Refinery
Companys request. |
|
|
|
Nitrogen |
|
|
|
|
|
- Gaseous |
|
|
- Purity
|
|
99.99 mol. % (minimum) (5 ppm oxygen maximum) |
- Pressure
|
|
180 psig (+ 10 psig) |
- Flow
|
|
20,000 scfh (normal); 40,000 scfh (maximum) |
- Temperature
|
|
Ambient |
- Price
|
|
$0.25 per cscf based on a total electric
energy cost of $0.035 per KWH; provided,
however, that this price will increase or
decrease in the same percentage as the
Fertilizer Companys electric bill from the
City of Coffeyville (or from such other
electric utility provider as the Fertilizer
Company may have from time to time in the
future) increases or decreases on a per/KWH
basis and each such price adjustment shall
apply to any gaseous nitrogen sold by
Fertilizer Company after the date of such
adjustment to the date of the next
adjustment. |
|
|
|
- Flow measurement
|
|
All Nitrogen flows shall be measured by a
standard sharp edge orifice plate and
differential pressure transmitter located at
the Fertilizer Plant. The measured flow
shall be pressure and temperature
compensated and totalized by the Fertilizer
Plants Honeywell process control computer
(TDC 3000) or any replacement computer. All
transmitter signals and computer
calculations are available to the Refinery
through the existing communications bus for
verification. Calibration of the
transmitter shall be done at least annually
and may be done more frequently at Refinery
Companys request. |
|
|
|
Oxygen |
|
|
|
|
|
-Gaseous |
|
|
-Purity
|
|
99.6 mol. % (minimum) |
-Pressure
|
|
65 psig (± 5 psig) |
-Flow
|
|
29.8 STPD (maximum) |
-Temperature
|
|
Ambient |
B-2
|
|
|
- Price
|
|
$0 per short ton for daily tons up to 10 STPD
$70 per short ton for daily tons from 10
STPD to 29.8 STPD
Such prices per
short ton are based
on a total electric
cost of $0.035 per
KWH; provided,
however, that these
prices per short
ton will increase
or decrease in the
same percentage as
the Fertilizer
Companys electric
bill from the City
of Coffeyville (or
from such other
electric utility
provider as the
Fertilizer Company
may have from time
to time in the
future) increases
or decreases on a
per/KWH basis and
each such price
adjustment shall
apply to any
gaseous Oxygen sold
by Fertilizer
Company after the
date of such
adjustment to the
date of the next
adjustment. |
|
|
|
- Flow measurement
|
|
All Oxygen flows shall be measured by a
standard sharp edge orifice plate and
differential pressure transmitter located at
the Fertilizer Plant. The measured flow
shall be pressure and temperature
compensated and totalized by the Fertilizer
Plants Honeywell process control computer
(TDC 3000) or any replacement computer. All
transmitter signals and computer
calculations are available to the Refinery
through the existing communications bus for
verification. Calibration of the
transmitter shall be done at least annually
and may be done more frequently at Refinery
Companys request. |
|
|
|
Sour water |
|
|
|
|
|
- Composition
|
|
.80% ammonia (maximum) |
|
|
0.05 mol. % H2S (maximum) |
-Pressure
|
|
90 psig (maximum) |
|
|
35 psig (minimum) |
-Temperature
|
|
125°F (normal) |
-Flow
|
|
20 gpm (maximum) |
|
|
12 gpm (normal) |
-Price
|
|
zero dollars ($0) |
|
|
|
High Pressure Steam |
|
|
|
|
|
- Pressure
|
|
600 psig ± 10 psi (normal) |
- Flow (Gasifier Startup)
|
|
As available, up to 75,000 pounds per hour
(to Fertilizer Company) |
(normal)
|
|
As available, 50,000 + 20,000 pounds per
hour (to Refinery Company) |
-Price
|
|
The price is dependent upon the natural gas
price (symbolized by NGP in the formulae
below) and steam flow in the formulae
below is determined by the Fertilizer
Plants process control computer: |
B-3
|
|
|
To Fertilizer Company:
|
|
Price = (1.22)(NGP)(steam flow)/1000 |
To Refinery Company:
|
|
Price = (1.10)(NGP)(steam flow)/1000 |
For purposes of determining the price of High Pressure Steam
hereunder, NGP means the price of natural gas measured at a per mmbtu
rate based on the price for natural gas actually paid by Refinery
Company for the month preceding the sale. Notwithstanding anything to the contrary set forth
herein, Refinery Company shall have no obligation to pay for High
Pressure Steam during periods when Refinery Company is flaring fuel
gas.
|
|
|
- Flow measurement
|
|
All High Pressure Steam flows shall be
measured by a standard sharp edge orifice
plate and differential pressure transmitter
located at the Fertilizer Plant. The
measured flow shall be totalized by the
Fertilizer Plants Honeywell process control
computer (TDC 3000) or any replacement
computer. All transmitter signals and
computer calculations are available to the
Refinery through the existing communications
bus for verification. Calibration of the
transmitter shall be done at least annually
and may be done more frequently at Refinery
Companys request. |
|
|
|
Low Pressure Steam |
|
|
|
|
|
-Flow
|
|
Variable |
-Pressure
|
|
Approximately 120-170 psi |
-Price
|
|
zero dollars ($0) |
|
|
|
Tail Gas |
|
|
|
|
|
- Gaseous |
|
|
B-4
|
|
|
- Flow measurement
|
|
All Tail Gas flows will be measured by a
standard sharp edge orifice plate or annubar
and differential pressure transmitter
located at the Fertilizer Plant. The
measured flow shall be pressure and
temperature compensated and totalized by the
Fertilizer Plants Honeywell process control
computer (TDC 3000) or any replacement
computer. All transmitter signals and
computer calculations are available to the
Refinery through the existing communications
bus for verification. Calibration of the
transmitter shall be done at least annually
and may be done more frequently at Refinery
Companys request. |
|
|
|
- Btu Content
|
|
The Btu Content of the Tail Gas will be
computed on a monthly basis using the
average of the weekly samples of the Tail
Gas stream analyzed for the previous month.
The Refinery Company and the Fertilizer
Plant will mutually agree on the Btu Content
for the first month of operation following
the Commencement Date. |
|
|
|
- Fuel Price
|
|
The Fuel Price is the price of natural gas
measured at a per mmbtu rate based on the
price for natural gas actually paid by
Refinery Company for the month preceding the
sale. |
|
|
|
- Capital Cost
|
|
The Capital Cost is the aggregate capital
expenditures incurred by Refinery Company to
procure, construct and install the piping,
pipe supports, control valve station, flow
meter and associated instrumentation needed
to connect the PSA at the Fertilizer Plant
to the #1 Boiler at the Refinery, for
purposes of the delivery of Tail Gas. |
|
|
|
- Capital Recovery Fee
|
|
The Capital Recovery Fee is the monthly
amount needed for Refinery Company to
recover the Capital Cost using straight-line
depreciation over a three-year period at an
interest rate of 12% per annum. |
|
|
|
- Return Fee
|
|
The monthly amount needed to net to the
Refinery Company a 15% per annum return on
their investment of the Capital Cost. |
|
|
|
- Commencement Date
|
|
The Commencement Date will be the date
upon which the delivery of Tail Gas to the
Refinery begins. |
B-5
|
|
|
- Price
|
|
Upon the Commencement Date, the price for
the Tail Gas for the first three years will
be computed by taking the Btu Content of the
monthly flow of the Tail Gas multiplied by
the Fuel Price, minus the Capital Recovery
Fee (i.e., Btu Content of monthly flow x
Fuel Price Capital Recovery Fee).
Following the initial three-year period and
continuing for one year thereafter, the
price for the Tail Gas will be computed by
taking the Btu Content of the monthly flow
of the Tail Gas multiplied by the Fuel
Price, minus the Return Fee (i.e., Btu
Content of monthly flow x Fuel Price
Return Fee). Following the initial
four-year period, the price for Tail Gas
will be computed by taking the Btu Content
of the monthly flow of the Tail Gas
multiplied by the Fuel Price.
Refinery Company will pay Fertilizer Company
on a monthly basis for all Tail Gas
purchased. |
|
|
|
SERVICES: |
|
|
|
|
|
Firewater |
|
|
|
|
|
- Pressure
|
|
185 psig (maximum) |
|
|
100 psig (minimum) |
- Temperature
|
|
70°F (normal) |
- Flow
|
|
2,000 gpm (maximum) |
|
|
0 gpm (normal) |
-Price
|
|
zero dollars ($0) |
|
|
|
Instrument Air |
|
|
|
|
|
- Purity
|
|
-40°F dew point (normal operating) |
- Pressure
|
|
125 psig + 10 psi (normal operating) |
- Flow
|
|
4000 scfm maximum (normal operating) |
- Temperature
|
|
ambient |
- Price |
|
|
|
|
|
To the Refinery Company:
|
|
$18,000 per month (prorated on a per diem
basis to reflect the number of days,
including partial days, in the applicable
month that Instrument Air is provided) based
on $.035 total laid in cost per KWH;
provided, that this price will increase or
decrease in the same percentage as the
Fertilizer Companys total laid in cost for
electricity from the City of Coffeyville (or
from such other electric utility provider as
the Fertilizer Company may have from time to
time in the future) increases or decreases
on a per/KWH basis and each such price
adjustment shall apply to any Instrument Air
sold by |
B-6
|
|
|
|
|
Fertilizer Company after the date of
such adjustment until the date of the next
adjustment; provided, however, that such
cost shall be reduced on a pro-rata basis
for each day that such Instrument Air is not
available from the Linde Facility. |
|
|
|
To the Fertilizer Company:
|
|
$18,000 per month (prorated on a per diem
basis to reflect the number of days,
including partial days, in the applicable
month that Instrument Air is provided) based
on $.039 total laid in cost per KWH;
provided, that this price will increase or
decrease in the same percentage as the
Refinery Companys total cost for
electricity from Kansas Gas and Electric
Company (or from such other electric utility
provider as the Refinery Company may have
from time to time in the future) increases
or decreases on a per/KWH basis and each
such price adjustment shall apply to any
Instrument Air sold by Refinery Company
after the date of such adjustment until the
date of the next adjustment. |
|
|
|
- Flow measurement
|
|
All Instrument Air flows shall be measured
by a standard sharp edge orifice plate and
differential pressure transmitter located at
the Fertilizer Plant. The measured flow
shall be totalized by the Fertilizer Plants
Honeywell process control computer (TDC
3000) or any replacement computer. All
transmitter signals and computer
calculations are available to the Refinery
through the existing communications bus for
verification. Calibration of the
transmitter shall be done at least annually
and may be done more frequently at Refinery
Companys request. |
Security
Fertilizer Company shall pay Refinery Company a pro rata share of Refinery Companys direct costs
of providing security services for the entire Fertilizer Plant/Refinery complex, which pro rata
share shall be mutually agreed upon by the Parties based upon a commercially reasonable allocation
of such costs in relation to the security services as provided to the Fertilizer Plant and the
Refinery.
B-7
exv10w9
Exhibit 10.9
AMENDED AND RESTATED SERVICES AGREEMENT
This Amended and Restated Services Agreement (this Agreement) is entered into as of the ___
day of _________, 2011, by and among CVR Partners, LP, a Delaware limited partnership (MLP), CVR
GP, LLC, a Delaware limited liability company (GP), and CVR Energy, Inc., a Delaware corporation
(CVR, and collectively with MLP and GP, the Parties and each, a Party).
RECITALS
MLP is the owner, directly or indirectly, of Coffeyville Resources Nitrogen Fertilizers LLC, a
Delaware limited liability company (Fertilizer). CVR is the owner, directly or indirectly, of
Coffeyville Resources Refining & Marketing, LLC, a Delaware limited liability company (Refinery).
GP, in its capacity as the general partner of MLP, desires to engage CVR, on its own behalf and
for the benefit of Fertilizer and MLP, to provide certain services necessary to operate the
business conducted by Fertilizer, MLP and GP (the Services Recipients), and CVR is willing to
undertake such engagement, subject to the terms and conditions of this Agreement.
MLP, GP, CVR and CVR Special GP, LLC, a Delaware limited liability company (Special GP),
entered into a Services Agreement dated as of October 25, 2007, as amended effective January 1,
2010 (as amended, the Original Agreement), pursuant to which CVR agreed to provide certain
services to the Services Recipients. Special GP has been merged into
Coffeyville Resources, LLC, a Delaware limited liability company, and is no longer
party to the Original Agreement. The Parties desire to amend and restate the terms of the Original
Agreement upon the terms and subject to the conditions set forth in this Agreement.
MLP, GP (for itself and in its capacity as the general partner of MLP), and CVR agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01 Terms. The following defined terms will have the meanings given below:
Administrative Personnel means individuals who are employed by CVR or any of its Affiliates
and assist in providing, as part of the Services, any of the administrative services referred to in
Exhibit 1 hereto.
Affiliate shall mean 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, such specified Person. For purposes of this definition, control when used with
respect to any Person means the power to direct the management and policies of such Person,
directly or indirectly, through the ownership of voting securities, by contract or otherwise
(provided that, solely for purposes of this Agreement, the Services Recipients shall not be deemed
Affiliates of CVR).
Bankrupt with respect to any Person shall mean such Person shall generally be unable to pay
its debts as such debts become due, or shall so admit in writing or shall make a general assignment
for the benefit of creditors; or any proceeding shall be instituted by or against such Person
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking
the entry of an order for relief or the appointment of a receiver, trustee, or other similar
official for it or for any substantial part of its property and, in the case of any such proceeding
instituted against it (but not instituted by it), shall remain undismissed or unstayed for a period
of 30 days; or such Person shall take any action to authorize any of the actions set forth above.
CVR Representative means such person as is designated in writing by CVR to serve in such
capacity.
Default Rate shall mean an interest rate (which shall in no event be higher than the rate
permitted by applicable law) equal to 300 basis points over LIBOR.
Fertilizer has the meaning set forth in the Recitals hereinabove.
Fertilizer Payroll Percentage means, for any applicable period, the percentage represented
by a fraction, the numerator of which is the total payroll amount of Fertilizer for such period,
and the denominator of which is the total payroll amount of Fertilizer plus the total payroll
amount of Refinery for such period, as such payroll amounts are calculated on a consistent basis
for purposes of determining the Fertilizer Payroll Percentage.
Governmental Approval shall mean any material consent, authorization, certificate, permit,
right of way grant or approval of any Governmental Authority that is necessary for the
construction, ownership and operation of the assets used in the business of the Services Recipients
in accordance with applicable Laws.
Governmental Authority shall mean any court or tribunal in any jurisdiction or any federal,
state, tribal, municipal or local government or other governmental body, agency, authority,
department, commission, board, bureau, instrumentality, arbitrator or arbitral body or any
quasi-governmental or private body lawfully exercising any regulatory or taxing authority.
GP/MLP Representative means such person as is designated in writing by GP to serve in such
capacity.
Initial Offering means the initial public offering of common units representing limited
partner interests in MLP.
Laws shall mean any applicable statute, environmental law, common law, rule, regulation,
judgment, order, ordinance, writ, injunction or decree issued or promulgated by any Governmental
Authority.
Party and Parties means the parties to this Agreement.
2
Person means an individual, corporation, partnership, joint venture, trust, limited
liability company, unincorporated organization or other entity.
Personnel
Costs means all compensation costs incurred by an employer in connection with the employment by
such employer of applicable personnel, including all payroll and benefits but excluding any
Share-Based Compensation.
Refinery has the meaning set forth in the Recitals hereinabove.
Seconded Personnel means individuals, other than Administrative Personnel, who are employed
by CVR or any of its Affiliates and provided on a full-time basis to the Services Recipients in
connection with provision of the Services.
Services shall consist of those services performed for the Services Recipients as described
on Exhibit 1 hereto.
Services Recipients has the meaning set forth in the Recitals hereinabove.
Share-Based Compensation means any compensation accruing or payable under any incentive or
other compensation plan or program of an employer based upon changes in the equity value of such
employer or any of its Affiliates.
Shared Personnel means individuals, other than Administrative Personnel, who are employed by
CVR or any of its Affiliates and provided on a part-time basis to the Services Recipients in
connection with provision of the Services.
ARTICLE II
RETENTION OF CVR; SCOPE OF SERVICES
Section 2.01 Retention of CVR. GP, on its own behalf and for the benefit of the
Services Recipients, hereby engages CVR to perform the Services and CVR hereby accepts such
engagement and agrees to perform the Services and to provide all Administrative Personnel, Seconded
Personnel, and Shared Personnel necessary to perform the Services.
Section 2.02 Scope of Services. The Services shall be provided in accordance with (i)
applicable material Governmental Approvals and Laws, (ii) applicable industry standards and (iii) quality standards that, taken as a whole, are not materially less favorable to the Services Recipients compared to those provided to the Services Recipients as of the date of this Agreement.
Section 2.03 Exclusion of Services. At any time, GP or CVR may temporarily or
permanently exclude any particular service from the scope of the Services upon 180 days notice.
Section 2.04 Performance of Services by Affiliates or Other Persons. The Parties
hereby agree that in discharging its obligations hereunder, CVR may engage any of its Affiliates or
other Persons to perform the Services (or any part of the Services) on its behalf and that the
performance of the Services (or any part of the Services) by any such Affiliate or Person shall be
treated as if CVR performed such Services itself. No such delegation by CVR to Affiliates or other
Persons shall relieve CVR of its obligations hereunder.
3
ARTICLE III
PAYMENT AMOUNT
Section 3.01 Payment Amount. GP shall pay or cause MLP or Fertilizer to pay, to CVR
(or its Affiliates as CVR may direct) the amount of any direct or indirect expenses incurred by CVR
or its Affiliates in connection with the provision of Services by CVR or its Affiliates (the
Payment Amount), in accordance with the following:
(a) Seconded Personnel. The Payment Amount will include all Personnel Costs of
Seconded Personnel, to the extent attributable to the periods during which such Seconded
Personnel are provided to the Services Recipients.
(b) Shared Personnel and Administrative Personnel. The Payment Amount will
include a prorata share of all Personnel Costs of Shared Personnel and Administrative
Personnel (including government and public relations), as determined by CVR on a
commercially reasonable basis, based on the percent of total working time that such
respective personnel are engaged in performing any of the Services.
(c) Administrative Costs. The Payment Amount will include following:
(i) Payroll. A prorata share of all Personnel Costs of Administrative
Personnel engaged in performing payroll services as part of the
Services, as determined by CVR on a commercially reasonable basis, based on
the Fertilizer Payroll Percentage;
(ii) Office Costs. A prorata share of all office costs (including,
without limitation, all costs relating to office leases, equipment leases, supplies,
property taxes and utilities) for all locations of Administrative
Personnel, as determined by CVR on a commercially reasonable basis, based
on the Fertilizer Payroll Percentage;
(iii) Insurance. Insurance premiums will be direct charged to the
applicable insured, provided, however, the Payment Amount will
include all insurance premiums for adequate directors
and officers (or equivalent) insurance for any Seconded Personnel or Shared
Personnel, with liability coverage of no less than $15 million;
(iv) Outside Services. Services provided by outside vendors (including
audit services, legal services, government and public relation services, and other
services) will first be direct charged where applicable, a prorata share of
charges for all services that are provided by outside vendors and not
direct charged, as determined by CVR on a commercially reasonable
basis, based upon the following percentages of such
charges: audit services 25%; legal services 20%; and all other services
Fertilizer Payroll Percentage;
(v) Other SGA Costs. A prorata share of all other sales, general and
administrative costs relating to the Services Recipients, based on the Fertilizer
Payroll Percentage, as determined by CVR on a commercially reasonable
basis; and
4
(vi) Depreciation and Amortization. A prorata share of depreciation
and amortization relating to all locations of Administrative Personnel, based on the
Fertilizer Payroll Percentage, as determined by CVR on a commercially
reasonable basis, following
recognition of such depreciation or amortization as an expense on the books and
records of CVR or its Affiliates.
(d)
Other Costs. Bank charges, interest expense and any other costs as reasonably incurred by CVR or its
Affiliates in the provision of Services will be direct charged as
applicable. For the avoidance of doubt, any of the foregoing costs
and expenses described in Section 3.01 that are direct charged
to any Party will not be included in the Payment Amount.
Section 3.02 Payment of Payment Amount. CVR shall submit monthly invoices to GP for
the Services, which invoices shall be due and payable net 15 days. GP shall pay or cause MLP or
Fertilizer to pay, to CVR in immediately available funds, the full Payment Amount due under
Section 3.01. Past due amounts shall bear interest at the Default Rate. Allocation
percentages referred to in this Article III will be calculated and determined for calendar year or
calendar quarter periods, as CVR may determine, based upon CVRs annual audited financials, or
quarterly unaudited financials, for the immediately preceding calendar year or calendar quarter, as
applicable.
Section 3.03 Disputed Charges. GP MAY, WITHIN 90 DAYS AFTER RECEIPT OF A CHARGE FROM
CVR, TAKE WRITTEN EXCEPTION TO SUCH CHARGE, ON THE GROUND THAT THE SAME WAS NOT A REASONABLE COST
INCURRED BY CVR OR ITS AFFILIATES IN CONNECTION WITH THE SERVICES. GP SHALL NEVERTHELESS PAY OR
CAUSE MLP OR FERTILIZER TO PAY IN FULL WHEN DUE THE FULL PAYMENT AMOUNT OWED TO CVR. SUCH PAYMENT
SHALL NOT BE DEEMED A WAIVER OF THE RIGHT OF THE SERVICES RECIPIENT TO RECOUP ANY CONTESTED PORTION
OF ANY AMOUNT SO PAID. HOWEVER, IF THE AMOUNT AS TO WHICH SUCH WRITTEN EXCEPTION IS TAKEN, OR ANY
PART THEREOF, IS ULTIMATELY DETERMINED NOT TO BE A REASONABLE COST INCURRED BY CVR OR ITS
AFFILIATES IN CONNECTION WITH ITS PROVIDING THE SERVICES HEREUNDER, SUCH AMOUNT OR PORTION THEREOF
(AS THE CASE MAY BE) SHALL BE REFUNDED BY CVR TO THE SERVICES RECIPIENTS TOGETHER WITH INTEREST
THEREON AT THE DEFAULT RATE DURING THE PERIOD FROM THE DATE OF PAYMENT BY THE SERVICES RECIPIENTS
TO THE DATE OF REFUND BY CVR.
Section 3.04 CVRs Employees. The Services Recipients shall not be obligated to pay
directly to Seconded Personnel or Shared Personnel any compensation, salaries, wages, bonuses,
benefits, social security taxes, workers compensation insurance, retirement and insurance
benefits, training or other expenses; provided, however, that if CVR fails to pay any employee
within 30 days of the date such employees payment is due:
(a) The Services Recipients may (i) pay such employee directly, (ii) employ such
employee directly, or (iii) notify CVR that this Agreement is terminated and employ such
employees directly; and
5
(b) CVR shall reimburse GP, MLP or Fertilizer, as the case may be, for the amount GP,
MLP or Fertilizer, as applicable, paid to CVR with respect to employee services for which
CVR did not pay any such employee.
ARTICLE IV
BOOKS, RECORDS AND REPORTING
Section 4.01 Books and Records. CVR and its Affiliates and the Services Recipients
shall each maintain accurate books and records regarding the performance of the Services and
calculation of the Payment Amount, and shall maintain such books and records for the period
required by applicable accounting practices or law, or five (5) years, whichever is longer.
Section 4.02 Audits. CVR and its Affiliates and the Services Recipients shall have
the right, upon reasonable notice, and at all reasonable times during usual business hours, to
audit, examine and make copies of the books and records referred to in Section 4.01. Such
right may be exercised through any agent or employee of the Person exercising such right if
designated in writing by such Person or by an independent public accountant, engineer, attorney or
other agent so designated. Each Person exercising such right shall bear all costs and expenses
incurred by it in any inspection, examination or audit. Each Party shall review and respond in a
timely manner to any claims or inquiries made by the other Party regarding matters revealed by any
such inspection, examination or audit.
Section 4.03 Reports. CVR shall prepare and deliver to GP any reports provided for in
this Agreement and such other reports as GP may reasonably request from time to time regarding the
performance of the Services.
ARTICLE V
INTELLECTUAL PROPERTY
Section 5.01 Ownership by CVR and License to MLP. Any (i) inventions, whether
patentable or not, developed or invented, or (ii) copyrightable material (and the intangible rights
of copyright therein) developed, by CVR, its Affiliates or its or their employees in connection
with the performance of the Services shall be the property of CVR; provided, however, that CVR hereby grants, and agrees to cause its Affiliates to grant, to MLP
an irrevocable, royalty-free, non-exclusive and non-transferable (without the prior written consent of CVR) right and license
to use such inventions or material; and further provided, however, that MLP shall only be granted
such a right and license to the extent such grant does not conflict with, or result in a breach,
default, or violation of a right or license to use such inventions or material granted to CVR by
any Person other than an Affiliate of CVR. Notwithstanding the foregoing, CVR will and will cause its Affiliates to, use all
commercially reasonable efforts to grant such right and license to MLP.
Section 5.02 License to CVR and its Affiliates. MLP hereby grants, and will cause its
Affiliates to grant, to CVR and its Affiliates an irrevocable, royalty-free, non-exclusive and
non-transferable right and license to use, during the term of this Agreement, any intellectual
property provided by MLP or its Affiliates to CVR or its Affiliates, but only to the extent such
use is necessary for the performance of the Services. CVR agrees that CVR and its Affiliates will
utilize such intellectual property solely in connection with the performance of the Services.
6
ARTICLE VI
TERMINATION
Section 6.01 Termination By GP.
(a) Upon the occurrence of any of the following events, GP may terminate this Agreement
by giving written notice of such termination to CVR:
|
(i) |
|
CVR becomes Bankrupt; or |
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Any termination under this Section 6.01(a) shall become effective immediately upon delivery
of the notice first described in this Section 6.01(a), or such later time (not to exceed
the first anniversary of the delivery of such notice) as may be specified by GP.
(b) In addition to its rights under Section 6.01(b), after
the first year anniversary of the completion of the Initial Offering, GP may terminate this
Agreement at any time by giving notice of such termination to CVR. Any termination under
this Section 6.01(b) shall become effective 180 days after delivery of such notice,
or such later time (not to exceed the first anniversary of the delivery of such notice) as
may be specified by GP.
Section 6.02 Termination By CVR. After the first year anniversary of the completion of the
Initial Offering and continuing thereafter, CVR may terminate this Agreement at any time by giving
notice of such termination to GP. Any termination under this Section 6.02 shall become
effective 180 days after delivery of such notice, or such later time (not to exceed the first
anniversary of the delivery of such notice) as may be specified by CVR.
Section 6.03 Effect of Termination. If this Agreement is terminated in accordance
with Section 6.01 or Section 6.02, all rights and obligations under this Agreement
shall cease except for (a) obligations that expressly survive termination of this Agreement; (b)
liabilities and obligations that have accrued prior to such termination, including the obligation
to pay any amounts that have become due and payable prior to such termination, and (c) the
obligation to pay any portion of any Payment Amount that has accrued prior to such termination,
even if such portion has not become due and payable at that time.
Section 6.04 Transition of Services. During the period of 180 days following the delivery of
any notice of termination delivered in accordance with Section 6.01(b) or 6.02, in addition to the Services, CVR will, and will cause its Affiliates to, provide to MLP such additional services as may
be reasonably requested by the GP to assist the Services Recipients in effecting a transition of the responsibility for providing the Services.
Section 6.05 Survival. The provisions of this Article VI and Sections 3.03, 4.01, 4.02, 5.01, 8.01,
8.02, 8.03 and Articles IX and X will survive and continue in full force and effect notwithstanding the termination of this Agreement.
ARTICLE VII
ADDITIONAL REPRESENTATIONS AND WARRANTIES
Section 7.01 Representations and Warranties of CVR. CVR hereby represents, warrants
and covenants to the other Parties that as of the date hereof:
(a) CVR is duly organized, validly existing, and in good standing under the laws of the
State of Delaware; CVR is duly qualified and in good standing in the States required in
order to perform the Services except where failure to be so qualified or in
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good standing could not reasonably be expected to have a material adverse impact on GP
or MLP; and CVR has full power and authority to execute and deliver this Agreement and to
perform its obligations hereunder
(b) CVR has duly executed and delivered this Agreement, and this Agreement constitutes
the legal, valid and binding obligation of each such Person, enforceable against it in
accordance with its terms (except as may be limited by bankruptcy, insolvency or similar
laws of general application and by the effect of general principles of equity, regardless of
whether considered at law or in equity); and
(c) The authorization, execution, delivery, and performance of this Agreement by CVR
does not and will not (i) conflict with, or result in a breach, default or violation of, (A)
the amended and restated certificate of incorporation of CVR, (B) any contract or agreement
to which such Person is a party or is otherwise subject, or (C) any law, order, judgment,
decree, writ, injunction or arbitral award to which such Person is subject; or (ii) require
any consent, approval or authorization from, filing or registration with, or notice to, any
governmental authority or other Person, unless such requirement has already been satisfied,
except, in the case of clauses (i)(B) and (i)(C), for such conflicts, breaches, defaults or
violations that would not have a material adverse effect on CVR or on its ability to perform
its obligations hereunder, and except, in the case of clause (ii), for such consents,
approvals, authorizations, filings, registrations or notices, the failure of which to obtain
or make would not have a material adverse effect on CVR or on their ability to perform their
obligations hereunder.
Section 7.02 Representations and Warranties of GP and MLP. Each of GP and MLP hereby
represents, warrants and covenants to the other Parties that as of the date hereof:
(a) Each of GP and MLP is duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its formation; each of GP and MLP has full power and
authority to execute and deliver this Agreement and to perform its obligations hereunder;
(b) Each of GP and MLP has duly executed and delivered this Agreement, and this
Agreement constitutes the legal, valid and binding obligation of each such Person
enforceable against it in accordance with its terms (except as may be limited by bankruptcy,
insolvency or similar laws of general application and by the effect of general principles of
equity, regardless of whether considered at law or in equity); and
(c) The authorization, execution, delivery, and performance of this Agreement by each
of GP and MLP does not and will not (i) conflict with, or result in a breach, default or
violation of, (A) the limited liability company agreement of GP or the partnership agreement
of MLP, (B) any contract or agreement to which such Person is a party or is otherwise
subject, or (C) any law, order, judgment, decree, writ, injunction or arbitral award to
which such Person is subject; or (ii) require any consent, approval or authorization from,
filing or registration with, or notice to, any governmental authority or other Person,
unless such requirement has already been satisfied, except, in the case of clause (i)(B) and
(i)(C), for such conflicts, breaches, defaults or violations that would not
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have a material adverse effect on GP or MLP or on their ability to perform their
obligations hereunder, and except, in the case of clause (ii), for such consents, approvals,
authorizations, filings, registrations or notices, the failure of which to obtain or make
would not have a material adverse effect on GP or MLP or on their ability to perform their
respective obligations hereunder.
ARTICLE VIII
ADDITIONAL REQUIREMENTS
Section 8.01 Indemnity. The Services Recipients shall indemnify, reimburse, defend
and hold harmless CVR and its Affiliates and their respective successors and permitted assigns,
together with their respective employees, officers, members, managers, directors, agents and
representatives (collectively the Indemnified Parties), from and against all losses
(including lost profits), costs, damages, injuries, taxes, penalties, interests, expenses,
obligations, claims and liabilities (joint or severable) of any kind or nature whatsoever
(collectively Losses) that are incurred by such Indemnified Parties in connection with,
relating to or arising out of (i) the breach of any term or condition of this Agreement, or (ii)
the performance of any Services hereunder; provided, however, that the Services Recipients shall
not be obligated to indemnify, reimburse, defend or hold harmless any Indemnified Party for any
Losses Incurred, by such Indemnified Party in connection with, relating to or arising out of:
(a) a breach by such Indemnified Party of this Agreement;
(b) the gross negligence, willful misconduct, bad faith or reckless disregard of such
Indemnified Party in the performance of any Services hereunder; or
(c) fraudulent or dishonest acts of such Indemnified Party with respect to the Services
Recipients.
The rights of any Indemnified Party referred to above shall be in addition to any rights that such
Indemnified Party shall otherwise have at law or in equity. Without the prior written consent of
the Services Recipients, no Indemnified Party shall settle, compromise or consent to the entry of
any judgment in, or otherwise seek to terminate any, claim, action, proceeding or investigation in
respect of which indemnification could be sought hereunder unless (a) such Indemnified Party
indemnifies the Services Recipients from any liabilities arising out of such claim, action,
proceeding or investigation, (b) such settlement, compromise or consent includes an unconditional
release of the Services Recipients and Indemnified Party from all liability arising out of such
claim, action, proceeding or investigation and (c) the parties involved agree that the terms of
such settlement, compromise or consent shall remain confidential. In the event that
indemnification is provided for under any other agreements between CVR or any of its Affiliates and
any of the Services Recipients or any of their Affiliates, and such indemnification is for any
particular Losses, then such indemnification (and any limitations thereon) as provided in such
other agreement shall apply as to such particular Losses and shall supersede and be in lieu of any
indemnification that would otherwise apply to such particular Losses under this Agreement.
Section 8.02 Limitation of Duties and Liability. The relationship of CVR to the
Services Recipients pursuant to this Agreement is as an independent contractor and nothing in
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this Agreement shall be construed to impose on CVR, or on any of its Affiliates, or on any of
their respective successors and permitted assigns, or on their respective employees, officers,
members, managers, directors, agents and representatives, an express or implied fiduciary duty.
CVR and its Affiliates and their respective successors and permitted assigns, together with their
respective employees, officers, members, managers, directors, agents and representatives, shall not
be liable for, and the Services Recipients shall not take, or permit to be taken, any action
against any of such Persons to hold such Persons liable for, (a) any error of judgment or mistake
of law or for any liability or loss suffered by the Services Recipients in connection with the
performance of any Services under this Agreement, except for a liability or loss resulting from
gross negligence, willful misconduct, bad faith or reckless disregard in the performance of the
Services, or (b) any fraudulent or dishonest acts with respect to the Services Recipients. In no
event, whether based on contract, indemnity, warranty, tort (including negligence), strict
liability or otherwise, shall CVR or its Affiliates, their respective successors and permitted
assigns, or their respective employees, officers, members, managers, directors, agents and
representatives, be liable for loss of profits or revenue or special, incidental, exemplary,
punitive or consequential damages.
Section 8.03 Reliance. CVR and its Affiliates and their respective successors and
permitted assigns, together with their respective employees, officers, members, managers,
directors, agents and representatives, may take and may act and rely upon:
(a) the opinion or advice of legal counsel, which may be in-house counsel to the
Services Recipients or to CVR or its Affiliates, any U.S.-based law firm, or other legal
counsel reasonably acceptable to the Boards of Directors of the Services Recipients, in
relation to the interpretation of this Agreement or any other document (whether statutory or
otherwise) or generally in connection with the Services Recipients;
(b) advice, opinions, statements or information from bankers, accountants, auditors,
valuation consultants and other consulted Persons who are in each case believed by the
relying Person in good faith to be expert in relation to the matters upon which they are
consulted; or
(c) any other document provided in connection with the Services Recipients upon which
it is reasonable for the applicable Person to rely.
A Person shall not be liable for anything done, suffered or omitted by it in good faith in reliance
upon such opinion, advice, statement, information or document.
Section 8.04 Services to Others. While CVR is providing the Services under this
Agreement, CVR shall also be permitted to provide services, including services similar to the
Services covered hereby, to others, including Affiliates of CVR.
Section 8.05 Transactions With Affiliates. CVR may recommend to the Services
Recipients, and may engage in, transactions with any of CVRs Affiliates; provided, that any such
transactions shall be subject to the authorization and approval of the Services Recipients Boards
of Directors, as applicable.
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Section 8.06 Sharing of Information. CVR, and its Affiliates and other agents or
representatives, shall be permitted to share Services Recipients information with its Affiliates
and other Persons as reasonably necessary to perform the Services, subject to appropriate and
reasonable confidentiality arrangements.
Section 8.07 Disclosure of Remuneration. CVR shall disclose the amount of
remuneration of the Chief Financial Officer and any other officer or employee shared with or
seconded to the Services Recipients, including the Chief Executive Officer, to the Boards of
Directors of the Services Recipients to the extent required for the Services Recipients to comply
with the requirements of applicable law, including applicable Federal securities laws.
Section 8.08 Additional Seconded Personnel or Shared Personnel. CVR and the Services
Recipients Boards of Directors may agree from time to time that CVR shall provide additional
Seconded Personnel or Shared Personnel, upon such terms as CVR and the Services Recipients Board
of Directors may mutually agree. Any such individuals shall have such titles and fulfill such
functions as CVR and the Services Recipients may mutually agree but subject to compliance with the
agreement of limited partnership of MLP.
Section 8.09 Plant Personnel. Personnel performing the actual day-to-day business and
operations of Fertilizer at the plant level will be employed by Fertilizer and Fertilizer will bear
all Personnel Costs or other costs relating to such personnel.
Section 8.10 Election. The Services Recipients shall cause the election of any
Seconded Personnel or Shared Personnel to the extent required by the organizational documents of
the Services Recipients. The Services Recipients Board of Directors, after due consultation with
CVR, may at any time request that CVR replace any Seconded Personnel and CVR shall, as promptly as
practicable, replace any individual with respect to whom such Board of Directors shall have made
its request, subject to the requirements for the election of officers under the organizational
documents of the Services Recipients but subject to compliance with the agreement of limited
partnership of MLP.
ARTICLE IX
DISPUTES
Section 9.01 Resolution of Disputes. The Parties shall in good faith attempt to
resolve promptly and amicably any dispute between the Parties arising out of or relating to this
Agreement (each a Dispute) pursuant to this Article IX. The Parties shall first submit
the Dispute to the CVR Representative and the GP/MLP Representative, who shall then meet within
fifteen (15) days to resolve the Dispute. If the Dispute has not been resolved within forty-five
(45) days after the submission of the Dispute to the CVR Representative and the GP/MLP
Representative, the Dispute shall be submitted to a mutually agreed non-binding mediation. The
costs and expenses of the mediator shall be borne equally by the Parties, and the Parties shall pay
their own respective attorneys fees and other costs. If the Dispute is not resolved by mediation
within ninety (90) days after the Dispute is first submitted to the CVR Representative and the
GP/MLP Representative as provided above, then the Parties may exercise all available remedies.
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Section 9.02 Multi-Party Disputes. The Parties acknowledge that they or their
respective affiliates contemplate entering or have entered into various additional agreements with
third parties that relate to the subject matter of this Agreement and that, as a consequence,
Disputes may arise hereunder that involve such third parties (each a Multi-Party
Dispute). Accordingly, the Parties agree, with the consent of such third parties, that any
such Multi-Party Dispute, to the extent feasible, shall be resolved by and among all the interested
parties consistent with the provisions of this Article IX.
ARTICLE X
MISCELLANEOUS
Section 10.01 Notices. Except as expressly set forth to the contrary in this
Agreement, all notices, requests or consents provided for or permitted to be given under this
Agreement must be in writing and must be delivered to the recipient in person, by courier or mail
or by facsimile, telegram, telex, cablegram or similar transmission; and a notice, request or
consent given under this Agreement is effective on receipt by the Party to receive it; provided,
however, that a facsimile or other electronic transmission that is transmitted after the normal
business hours of the recipient shall be deemed effective on the next business day. All notices,
requests and consents to be sent to MLP must be sent to GP. All notices, requests and consents
(including copies thereof) to be sent to GP must be sent to or made at the address given below for
GP.
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If to GP or MLP, to:
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With a copy to: |
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Kevan A. Vick
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Edmund S. Gross, |
Executive Vice President and
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Senior Vice President and General Counsel |
Fertilizer General Manager
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CVR Energy, Inc. |
10 E. Cambridge Circle, Ste. 250
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10 E. Cambridge Circle, Ste. 250 |
Kansas City, Kansas 66103
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Kansas City, Kansas 66103 |
Facsimile: (913) 982-5662
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Facsimile: (913) 982-5651 |
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If to CVR, to:
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With a copy to: |
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John J. Lipinski
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Edmund S. Gross, |
President and CEO
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Senior Vice President and General Counsel |
2277 Plaza Drive
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CVR Energy, Inc. |
Suite 500
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10 E. Cambridge Circle, Ste. 250 |
Sugar Land, Texas 77479
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Kansas City, Kansas 66103 |
Facsimile: (281) 207-3505
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Facsimile: (913) 982-5651 |
Section 10.02 Effect of Waiver or Consent. Except as otherwise provided in this
Agreement, a waiver or consent, express or implied, to or of any breach or default by any Party in
the performance by that Party of its obligations under this Agreement is not a consent or waiver to
or of any other breach or default in the performance by that Party of the same or any other
obligations of that Party under this Agreement. Except as otherwise provided in this Agreement,
failure on the part of a Party to complain of any act of another Party or to declare another Party
in default under this Agreement, irrespective of how long that failure continues,
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does not constitute a waiver by that Party of its rights with respect to that default until
the applicable statute-of-limitations period has run.
Section 10.03 Headings; References; Interpretation. All Article and Section headings
in this Agreement are for convenience only and will not be deemed to control or affect the meaning
or construction of any of the provisions hereof. The words hereof, herein and hereunder and
words of similar import, when used in this Agreement, will refer to this Agreement as a whole, and
not to any particular provision of this Agreement. All references herein to Articles and Sections
will, unless the context requires a different construction, be deemed to be references to the
Articles and Sections of this Agreement, respectively. All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter gender, will include all other
genders, and the singular will include the plural and vice versa. The terms include, includes,
including or words of like import will be deemed to be followed by the words without
limitation.
Section 10.04 Successors and Assigns. This Agreement will be binding upon and inure
to the benefit of the Parties and their respective successors and assigns.
Section 10.05 No Third Party Rights. The provisions of this Agreement are intended to
bind the parties signatory hereto as to each other and are not intended to and do not create rights
in any other person or confer upon any other person any benefits, rights or remedies, and no person
is or is intended to be a third party beneficiary of any of the provisions of this Agreement.
Section 10.06 Counterparts. This Agreement may be executed in any number of
counterparts, all of which together will constitute one agreement binding on the Parties.
Section 10.07 Governing Law. THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF KANSAS.
Section 10.08 Submission to Jurisdiction; Waiver of Jury Trial. Subject to the
provisions of Article IX, each of the Parties hereby irrevocably acknowledges and consents
that any legal action or proceeding brought with respect to any of the obligations arising under or
relating to this Agreement may be brought in the courts of the State of Kansas, or in the United
States District Court for the District of Kansas and each of the Parties hereby irrevocably submits
to and accepts with regard to any such action or proceeding, for itself and in respect of its
property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts.
Each Party hereby further irrevocably waives any claim that any such courts lack jurisdiction over
such Party, and agrees not to plead or claim, in any legal action or proceeding with respect to
this Agreement or the transactions contemplated hereby brought in any of the aforesaid courts, that
any such court lacks jurisdiction over such Party. Each Party irrevocably consents to the service
of process in any such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party, at its address for notices set forth in this
Agreement, such service to become effective ten (10) days after such mailing. Each Party hereby
irrevocably waives any objection to such service of process and further irrevocably waives and
agrees not to plead or claim in any action or proceeding commenced hereunder or under any other
documents contemplated hereby that service of process was in any way invalid or
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ineffective. The foregoing shall not limit the rights of any Party to serve process in any
other manner permitted by applicable law. The foregoing consents to jurisdiction shall not
constitute general consents to service of process in the State of Kansas for any purpose except as
provided above and shall not be deemed to confer rights on any Person other than the respective
Parties. Each of the Parties hereby waives any right it may have under the laws of any
jurisdiction to commence by publication any legal action or proceeding with respect this Agreement.
To the fullest extent permitted by applicable law, each of the Parties hereby irrevocably waives
the objection which it may now or hereafter have to the laying of the venue of any suit, action or
proceeding arising out of or relating to this Agreement in any of the courts referred to in this
Section 10.08 and hereby further irrevocably waives and agrees not to plead or claim that any such
court is not a convenient forum for any such suit, action or proceeding. The Parties agree that
any judgment obtained by any Party or its successors or assigns in any action, suit or proceeding
referred to above may, in the discretion of such Party (or its successors or assigns), be enforced
in any jurisdiction, to the extent permitted by applicable law. The Parties agree that the remedy
at law for any breach of this Agreement may be inadequate and that should any dispute arise
concerning any matter hereunder, this Agreement shall be enforceable in a court of equity by an
injunction or a decree of specific performance. Such remedies shall, however, be cumulative and
nonexclusive, and shall be in addition to any other remedies which the Parties may have. Each Party
hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial
by jury in respect of any litigation as between the Parties directly or indirectly arising out of,
under or in connection with this Agreement or the transactions contemplated hereby or disputes
relating hereto. Each Party (i) certifies that no representative, agent or attorney of any other
Party has represented, expressly or otherwise, that such other Party would not, in the event of
litigation, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other
Parties have been induced to enter into this Agreement by, among other things, the mutual waivers
and certifications in this Section 10.08.
Section 10.09 Remedies to Prevailing Party. If any action at law or equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys fees, costs, and necessary disbursements in addition to any other
relief to which such party may be entitled.
Section 10.10 Severability. If any provision of this Agreement or the application
thereof to any Person or any circumstance is held invalid or unenforceable to any extent, the
remainder of this Agreement and the application of such provision to other Persons or circumstances
shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
Section 10.11 Amendment or Modification. This Agreement may be amended or modified
from time to time only by the written agreement of all the Parties.
Section 10.12 Integration. This Agreement and the exhibit referenced herein supersede
all previous understandings or agreements (including the Original Agreement) among the Parties,
whether oral or written, with respect to its subject matter. This Agreement and such exhibit
contain the entire understanding of the Parties with respect to its subject matter. In the case of
any actual conflict or inconsistency between the terms of this Agreement and the agreement of
limited partnership of MLP, the terms of the agreement of limited partnership of MLP shall control.
No understanding, representation, promise or agreement, whether oral or written, is
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intended to be or will be included in or form part of this Agreement unless it is contained in
a written amendment hereto executed by the Parties after the date of this Agreement.
Section 10.13 Further Assurances. In connection with this Agreement and the
transactions contemplated hereby, each Party shall execute and deliver any additional documents and
instruments and perform any additional acts that may be reasonably necessary or appropriate to
effectuate and perform the provisions of this Agreement and those transactions.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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This Agreement has been duly executed by the Parties as of the date first written above.
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CVR PARTNERS, LP |
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By:
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CVR GP, LLC |
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its General Partner |
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Name: |
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Title: |
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CVR GP, LLC |
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By: |
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Name: |
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CVR ENERGY, INC. |
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Services Agreement
Signature Page
Exhibit 1
The Services shall include the following:
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services in capacities equivalent to the capacities of corporate executive officers,
except that the persons serving in such capacities shall serve in such capacities as
Shared Personnel on a shared, part-time basis only, unless and to the extent otherwise
agreed by CVR; |
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safety and environmental advice; |
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administrative and professional services, including legal, accounting, human
resources, insurance, tax, credit, finance, government affairs, and regulatory affairs; |
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manage the Services Recipients day-to-day business and operations, including
managing its liquidity and capital resources and compliance with applicable law; |
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establishing and maintaining books and records of the Services Recipients in
accordance with customary practice and GAAP; |
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recommend to the Services Recipients Board of Directors (x) capital raising
activities, including the issuance of debt or equity securities of the Services
Recipients, the entry into credit facilities or other credit arrangements, structured
financings or other capital market transactions, (y) changes or other modifications in
the capital structure of the Services Recipients, including repurchases; |
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recommend to the Services Recipients Board of Directors the engagement of or, if
approval is not otherwise required hereunder, engage agents, consultants or other third
party service providers to the Services Recipients, including accountants, lawyers or
experts, in each case, as may be necessary by the Services Recipients from time to
time; |
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manage the Services Recipients property and assets in the ordinary course of
business; |
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manage or oversee litigation, administrative or regulatory proceedings,
investigations or any other reviews of the Services Recipients business or operations
that may arise in the ordinary course of business or otherwise, subject to the approval
of the Services Recipients Board of Directors to the extent necessary in connection
with the settlement, compromise, consent to the entry of an order or judgment or other
agreement resolving any of the foregoing; |
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establish and maintain appropriate insurance policies with respect to the Services
Recipients business and operations; |
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recommend to the Services Recipients Board of Directors the payment of dividends or
other distributions on the equity interests of the Services Recipients; |
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attend to the timely calculation and payment of taxes payable, and the filing of all
taxes return due, by the Services Recipients; and |
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manage or provide advice or recommendations for other projects of the Services
Recipients, as may be agreed to between GP and CVR from time to time. |
exv10w10
Exhibit 10.10
AMENDED AND RESTATED OMNIBUS AGREEMENT
among
CVR ENERGY, INC.
CVR GP, LLC
and
CVR PARTNERS, LP
AMENDED AND RESTATED OMNIBUS AGREEMENT
THIS AMENDED AND RESTATED OMNIBUS AGREEMENT (this Agreement) is entered into as of
, 2011, and effective as of the Closing Date (as defined herein), and is by and among
CVR Energy, Inc., a Delaware corporation (CVR), CVR GP, LLC, a Delaware limited liability company
(the General Partner), and CVR Partners, LP, a Delaware limited partnership (the Partnership).
The above-named entities are sometimes referred to in this Agreement each as a Party and
collectively as the Parties.
R E C I T A L S:
The Parties desire by their execution of this Agreement to evidence their agreement, as more
fully set forth in Article II, with respect to those business opportunities that the CVR Entities
(as defined herein) will not engage in during the term of this Agreement unless the Partnership
Entities have declined to engage in any such business opportunities for their own account.
The Parties desire by their execution of this Agreement to evidence their agreement, as more
fully set forth in Article II, with respect to those business opportunities that the Partnership
Entities (as defined herein) will not engage in during the term of this Agreement unless the CVR
Entities have declined to engage in any such business opportunities for their own account.
The Parties and CVR Special GP, LLC, a Delaware limited liability company (Special General
Partner) entered into the Omnibus Agreement dated as of October 24, 2007 (the Original
Agreement), pursuant to which the CVR Entities and the Partnership Entities agreed to the
covenants described above. Special General Partner has been merged into Coffeyville Resources, LLC, a Delaware limited liability company, and is no
longer party to the Original Agreement. The Parties desire to amend and restate the terms of the
Original Agreement upon the terms and subject to the conditions set forth in this Agreement.
In consideration of the premises and the covenants, conditions, and agreements contained
herein, and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
Capitalized terms used herein but not defined shall have the meanings given them in the
Partnership Agreement. As used in this Agreement, the following terms shall have the respective
meanings set forth below:
Acquiring Party is defined in Section 2.5(a).
Affiliate is defined in the Partnership Agreement.
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Break-up Costs means the aggregate amount of any and all additional taxes and other
similar costs to (a) the CVR Entities that would be required to transfer Fertilizer Assets
acquired by the CVR Entities as part of a larger transaction to a Partnership Group Member
pursuant to Section 2.2(b) or (b) the Partnership Group that would be required to transfer
Refinery Assets acquired by the Partnership Group as part of a larger transaction to a CVR
Entity pursuant to Section 2.4(a).
Closing Date is defined in the Partnership Agreement.
Code means Internal Revenue Code of 1986, as amended.
Contribution Agreement means that certain Amended and Restated Contribution, Conveyance
and Assumption Agreement, dated as of _______ ___, 2011, among the General Partner, the
Partnership, Special General Partner, Coffeyville Resources and Coffeyville Acquisition III LLC, together with the additional conveyance documents and
instruments contemplated or referenced thereunder.
control means the possession, directly or indirectly, 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.
CVR is defined in the introduction to this Agreement.
CVR Entities means CVR and any Person controlled, directly or indirectly, by CVR other
than the Partnership Entities.
CVR Entity means any of the CVR Entities.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Fertilizer Restricted Businesses is defined in Section 2.1.
Fertilizer Asset any asset or group of related assets used in any Fertilizer Restricted
Business.
Limited Partner is defined in the Partnership Agreement.
General Partner is defined in the introduction to this Agreement.
Offer Period is defined in Section 2.5(e).
Offered Assets is defined in Section 2.5(a).
Offeree is defined in Section 2.5(a).
Other Business Opportunity means a business opportunity with respect to any assets other
than Fertilizer Assets.
Other Business Opportunity Information is defined in Section 2.6.
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Partnership Agreement means the Second Amended and Restated Agreement of Limited
Partnership of CVR Partners, LP, dated as of ___________, 2011, as such agreement is in
effect on the Closing Date, to which reference is hereby made for all purposes of this
Agreement. No amendment or modification to the Partnership Agreement subsequent to the
Closing Date shall be given effect for the purposes of this Agreement unless consented to in
writing by each of the Parties to this Agreement.
Partnership Entities means the General Partner and each member of the Partnership Group.
Partnership Entity means any of the Partnership Entities.
Partnership Group means the Partnership and its Subsidiaries treated as a single entity.
Partnership Group Member means any member of the Partnership Group.
Party and Parties are defined in the introduction to this Agreement.
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.
Refinery Restricted Businesses is defined in Section 2.3.
Refinery Asset means any asset or group of related assets used in any Refinery Restricted
Business.
Restricted Business means, as applicable, the Refinery Restricted Business or the
Fertilizer Restricted Business.
Retained Assets means any assets and investments owned or operated by any of the CVR
Entities as of the Closing Date that were not conveyed, contributed or otherwise transferred
to the Partnership Group prior to or on the Closing Date pursuant to the Contribution
Agreement or otherwise.
Special General Partner is defined in the introduction to this Agreement.
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
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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.
transfer including the correlative terms transferring or transferred means any
direct or indirect transfer, assignment, sale, gift, pledge, hypothecation or other
encumbrance, or any other disposition (whether voluntary, involuntary or by operation of
law) of any assets, properties or rights.
ARTICLE II
BUSINESS OPPORTUNITIES
Section 2.1 Fertilizer Restricted Businesses
For so long as any CVR Entity continues to own at least 50% of the Outstanding Units of the
Partnership, and except as permitted by Section 2.2, each of the CVR Entities shall be prohibited
from engaging in, whether by acquisition, construction, investment in debt or equity securities of
any Person or otherwise, any business having assets engaged in the following businesses (the
Fertilizer Restricted Businesses): the production, transportation or distribution, on a wholesale
basis, of fertilizer in the contiguous United States.
Section 2.2 Fertilizer Permitted Exceptions
Notwithstanding any provision of Section 2.1 to the contrary, the CVR Entities may engage in
the following activities under the following circumstances:
(a) the ownership and/or operation of any of the Retained Assets (including replacements and
natural extensions of the Retained Assets);
(b) engaging in any Fertilizer Restricted Business acquired by a CVR Entity as part of a
business or package of assets after the Closing Date if the fair market value of the Fertilizer
Assets represents less than a majority of the fair market value of the total assets or business
acquired (fair market value as determined in good faith by the board of directors of CVR); provided
the Partnership Group will be offered the opportunity to acquire such Fertilizer Assets in
accordance with Section 2.5;
(c) engaging in any Fertilizer Restricted Business subject to the offer to the Partnership
Group set forth in Section 2.5 pending the General Partners determination whether to cause any
Partnership Group Member to accept such offer and pending the closing of any offers any Partnership
Group Member accepts;
(d) engaging in any Fertilizer Restricted Business with respect to which the General Partner
has advised CVR that the General Partners board of directors has elected not to cause a
Partnership Group Member to acquire (or seek to acquire); and
(e) the purchase and ownership of up to 9.9% of any class of securities of any publicly-traded
entity engaged in any Fertilizer Restricted Business.
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Section 2.3 Refinery Restricted Businesses
For so long as any CVR Entity continues to own at least 50% of the Outstanding Units of the
Partnership and except as permitted by Section 2.4, each of the Partnership Entities shall be
prohibited from, whether by acquisition, construction, investment in debt or equity securities of
any Person or otherwise, engaging in the following businesses (the Refinery Restricted
Businesses):
(a) the ownership or operation within the United States of any refinery with processing
capacity greater than 20,000 barrels per day whose primary business is producing transportation
fuels; or
(b) the ownership or operation outside the United States of any refinery.
Section 2.4 Refinery Permitted Exceptions
Notwithstanding any provision of Section 2.3 to the contrary, the Partnership Entities may
engage in the following activities under the following circumstances:
(a) engaging in any Refinery Restricted Business acquired by a Partnership Entity as part of a
business or package of assets after the Closing Date if the fair market value of the Refinery
Assets represents less than a majority of the fair market value of the total assets or business
acquired (fair market value as determined in good faith by the board of directors of the General
Partner); provided the CVR Entities will be offered the opportunity to acquire such Refinery
Assets in accordance with Section 2.5;
(b) engaging in any Refinery Restricted Business subject to the offer to the CVR Entities set
forth in Section 2.5 pending CVRs determination whether to cause any CVR Entity to accept such
offer and pending the closing of any offers any Partnership Entity accepts;
(c) engaging in any Refinery Restricted Business with respect to which CVR has advised the
General Partner that CVRs board of directors has elected not to cause a CVR Entity to acquire (or
seek to acquire); and
(d) the purchase and ownership of up to 9.9% of any class of securities of any publicly-traded
entity engaged in any Refinery Restricted Business.
Section 2.5 Procedures.
(a) In the event that (i) a CVR Entity acquires Fertilizer Assets described in Section 2.2(b),
or (ii) a Partnership Group Member acquires any Refinery Assets described in Section 2.4(a), then
as soon as reasonably practicable, but in any event within 365 days of the closing of the
acquisition, such acquiring Party (the Acquiring Party) shall notify (A) the General Partner, in
the case of an acquisition by a CVR Entity or (B) CVR, in the case of an acquisition by a
Partnership Group Member, in writing of such acquisition and offer such party to be notified (each
an Offeree) the opportunity for the Offeree (or, in the case of the General Partner, any
Partnership Group Member and, in the case of CVR, any other CVR Entity) to purchase such Fertilizer
Assets or Refinery Assets, as applicable (the Offered Assets).
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(b) The purchase price for any Offered Assets shall be the Offered Assets fair market value
(plus any Break-up Costs).
(c) The Offer shall set forth the Acquiring Partys proposed terms relating to the purchase of
the Offered Assets by the Offeree (or, in the case of the General Partner, any Partnership Group
Member and, in the case of CVR, any other CVR Entity), including any liabilities to be assumed by
the Offeree as part of the Offer.
(d) As soon as practicable after the Offer is made, the Acquiring Party will deliver to the
Offeree all information prepared by or on behalf of or in the possession of such Acquiring Party
relating to the Offered Assets and reasonably requested by the Offeree. As soon as practicable,
but in any event, within 90 days after receipt of such notification, the Offeree shall notify the
Acquiring Party in writing that either
(i) the Offeree has elected not to purchase (or not to cause any of its permitted
Affiliates to purchase) the Offered Assets, in which event the Acquiring Party and its
Affiliates shall, subject to the other terms of this Agreement, be forever free to continue
to own or operate such Offered Assets; or
(ii) the Offeree has elected to purchase (or to cause any of its permitted Affiliates
to purchase) the Offered Assets, in which event the procedures set forth in Section 2.5(e)
shall be followed.
(e) In the event of a proposed purchase pursuant to Section 2.5(d)(ii):
(i) After the receipt of the Offer by the Offeree, the Acquiring Party and the Offeree
shall negotiate in good faith to agree upon the fair market value (and any Break-up Costs)
of the Offered Assets that are subject to the Offer and the other terms of the Offer on
which the Offered Assets will be sold to the Offeree. If the Acquiring Party and the
Offeree agree on the fair market value of the Offered Assets that are subject to the Offer
and the other terms of the Offer during the 30-day period after receipt by the Acquiring
Party of the Offerees election to purchase (or to cause any permitted Affiliate of the
Offeree to purchase) the Offered Assets (the Offer Period), the Offeree shall purchase (or
cause any of its permitted Affiliates to purchase) the Offered Assets on such terms as soon
as commercially practicable after such agreement has been reached.
(ii) If the Acquiring Party and the Offeree are unable to agree on the fair market
value (and any Break-up Costs) of the Offered Assets that are subject to the Offer or on any
other terms of the Offer during the Offer Period, the Acquiring Party and the Offeree will
engage an independent investment banking firm or other appraisal firm to determine the fair
market value (and any Break-up Costs) of the Offered Assets and/or the other terms on which
the Acquiring Party and the Offeree are unable to agree. In determining the fair market
value of the Offered Assets and other terms on which the Offered Assets are to be sold, the
investment banking firm or other appraisal firm will have access to the proposed sale and
purchase values and terms for the Offer submitted by the Acquiring Party and the Offeree,
respectively, and to all information prepared by or on behalf of the Acquiring Party
relating to the Offered Assets and reasonably
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requested by such investment banking firm or other appraisal firm and shall be
permitted to consider the purchase price paid by the Acquiring Party for the Offered Assets.
Such investment banking firm or other appraisal firm will determine the fair market value
(and any Break-up Costs) of the Offered Assets and/or the other terms on which the Acquiring
Party and the Offeree are unable to agree within 60 days of its engagement and furnish the
Acquiring Party and the Offeree its determination. The fees and expenses of the investment
banking firm will be divided equally between the Acquiring Party and the Offeree. Upon
receipt of such determination, the Offeree will have the option, but not the obligation, to
purchase the Offered Assets for the fair market value (and any Break-up Costs) and on the
other terms determined by the investment banking firm or other appraisal firm, as soon as
commercially practicable after determinations have been made. The Offeree will provide
written notice of its decision to the Acquiring Party within 30 days after the investment
banking firm or other appraisal firm has submitted its determination and if the Offerree.
Failure to provide such notice within such 30-day period shall be deemed to constitute a
decision not to purchase the Offered Assets. If the Offeree decides to purchase the Offered
Assets the Offeree shall purchase (or cause any of its permitted Affiliates to purchase) the
Offered Asset as soon as commercially practicable after it has provided such notice.
Section 2.6 Other Business Opportunities.
For so long as any CVR Entity continues to own at least 50% of the General Partner Interest, if any Partnership Entity
is presented with an opportunity to pursue, purchase or invest in any Other Business Opportunity,
such Partnership Entity shall give prompt written notice to CVR, of the Other Business Opportunity.
Such notice shall set forth all information available to any Partnership Entity including, but not
limited to, the identity of the Other Business Opportunity and its seller, the proposed price, all
written information about the Other Business Opportunity provided to any Partnership Entity by and
on behalf of the seller as well as any information or analyses compiled by any Partnership Entity
from other sources (such information referred to collectively herein as Other Business Opportunity
Information). The Partnership Entities shall continue to provide to CVR, promptly any and all
Other Business Opportunity Information subsequently received. The Parties shall maintain the
confidentiality of all such Other Business Opportunity Information, subject to compliance with
applicable law. As soon as practicable but in any event within thirty (30) days after receipt of
such initial notification and information, CVR shall notify the General Partner that either (a) CVR
has elected to cause a CVR Entity to pursue the opportunity to acquire or invest in the Other
Business Opportunity or (b) CVR has elected not to cause a CVR Entity to pursue the opportunity to
acquire or invest in the Other Business Opportunity. If, at any time, CVR or the designated CVR
Entity abandons such opportunity (as evidenced in writing by CVR following the request of the
General Partner), any Partnership Entity may pursue such opportunity without time limit. In no
event shall any provision of this Agreement require CVR to approve any expansion of the purpose of
CVR, other than in its sole discretion.
Section 2.7 Scope of Prohibition.
If any CVR Entity or Partnership Entity engages in a Restricted Business pursuant to any of
the exceptions described in Section 2.2 or Section 2.4, as applicable, such CVR Entity or
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Partnership Entity may not subsequently expand that portion of their business except (i) pursuant
to the exceptions contained in such Sections Section 2.2 or Section 2.4 or (ii) to maintain or
improve their facilities comprising the Restricted Business or to expand their facilities with
additional facilities or assets that are physically connected, in a material manner, with the
existing facilities comprising the Restricted Business. Except as otherwise provided in this
Agreement and the Partnership Agreement, each CVR Entity and Each Partnership Entity shall be free
to engage in any business activity whatsoever, including those that may be in direct competition
with the CVR Entities or the Partnership Group
Section 2.8 Enforcement
Each Party agrees and acknowledges that the other Parties do not have an adequate remedy at
law for the breach by any Party of its covenants and agreements set forth in this Article II, and
that any breach by any Party of its covenants and agreements set forth in this Article II would
result in irreparable injury to the other Parties. Each Party further agrees and acknowledges that
any other Party may, in addition to the other remedies which may be available to such other Party,
file a suit in equity to enjoin the breaching Party from such breach, and consent to the issuance
of injunctive relief relating to this Agreement. No Person, directly or indirectly controlled
thereby shall be liable for the failure of any other Person, directly or indirectly, controlled
thereby to comply with this Article II.
ARTICLE III
MISCELLANEOUS
Section 3.1 Choice of Law; Submission to Jurisdiction
This Agreement shall be subject to and governed by the laws of the State of New York. THE
PARTIES AGREE THAT ANY ACTION BROUGHT IN CONNECTION WITH THIS AGREEMENT MAY BE MAINTAINED IN ANY
COURT OF COMPETENT JURISDICTION LOCATED IN THE STATE OF KANSAS, AND EACH PARTY AGREES TO SUBMIT
PERSONALLY TO THE JURISDICTION OF ANY SUCH COURT AND HEREBY WAIVES THE DEFENSES OF FORUM
NON-CONVENIENS OR IMPROPER VENUE WITH RESPECT TO ANY ACTION BROUGHT IN ANY SUCH COURT IN CONNECTION
WITH THIS AGREEMENT.
Section 3.2 Notice
All notices or other communications required or permitted under, or otherwise in connection
with, this Agreement must be in writing and must be given by depositing same in the U.S. mail,
addressed to the Person to be notified, postpaid and registered or certified with return receipt
requested or by transmitting by national overnight courier or by delivering such notice in person
or by facsimile to such Party. Notice given by mail, national overnight courier or personal
delivery shall be effective upon actual receipt. Notice given by facsimile shall be effective upon
confirmation of receipt when transmitted by facsimile if transmitted during the recipients normal
business hours or at the beginning of the recipients next business day after receipt if not
transmitted during the recipients normal business hours. All notices to be sent to a Party
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pursuant to this Agreement shall be sent to or made at the address set forth below or at such other
address as such Party may stipulate to all other Parties in the manner provided in this Section
3.2.
if to the CVR Entities:
CVR Energy, Inc.
10 E. Cambridge Circle, Ste. 250
Kansas City, Kansas 66103
Attention: Edmund S. Gross
Facsimile No.: 913-982-5651
if to the Partnership Entities
CVR GP, LLC
10 E. Cambridge Circle, Ste. 250
Kansas City, Kansas 66103
Attention: Edmund S. Gross
Facsimile No.: 913-982-5651
Section 3.3 Entire Agreement
This Agreement constitutes the entire agreement of the Parties relating to the matters
contained herein, superseding all prior contracts or agreements (including the Original Agreement),
whether oral or written, relating to the matters contained herein.
Section 3.4 Amendment or Modification
This Agreement may be amended or modified from time to time only by the written agreement of
all the Parties hereto. Each such instrument shall be reduced to writing and shall be designated
on its face an Amendment or an Addendum to this Agreement.
Section 3.5 Assignment
No Party shall have the right to assign any of its rights or obligations under this Agreement
without the consent of the other Parties hereto.
Section 3.6 Counterparts
This Agreement may be executed in any number of counterparts with the same effect as if all
signatory parties had signed the same document. All counterparts shall be construed together and
shall constitute one and the same instrument.
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Section 3.7 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.
Section 3.8 Further Assurances
In connection with this Agreement and all transactions contemplated by this Agreement, each
signatory party hereto agrees to execute and deliver such additional documents and instruments and
to perform such additional acts as may be necessary or appropriate to effectuate, carry out and
perform all of the terms, provisions and conditions of this Agreement and all such transactions.
Section 3.9 Rights of Limited Partners; Third Party Beneficiaries
The provisions of this Agreement are enforceable solely by the Parties to this Agreement, and
no Limited Partner of the Partnership shall have the right, separate and apart from the
Partnership, to cause the Partnership to enforce any provision of this Agreement or to compel any
Party to this Agreement to comply with the terms of this Agreement. Kelso & Company, L.P. and
their respective Affiliates and successors and assigns as owners of interests in the CVR Entities
shall be entitled to assert rights and remedies hereunder as a third-party beneficiary hereto with
respect to Section 3.10.
Section 3.10 No Restrictions on Owners of General Partner or CVR
Notwithstanding anything herein to the contrary, nothing herein shall be deemed to restrict
Kelso & Company, L.P. or their respective Affiliates (other than the CVR Entities), or their
respective successors and assigns as owners of interests in the CVR Entities, from engaging in any
banking, brokerage, trading, market making, hedging, arbitrage, investment advisory, financial
advisory, anti-raid advisory, merger advisory, financing, lending, underwriting, asset management,
principal investing, mergers & acquisitions or other activities conducted in the ordinary course of
their or their Affiliates business in compliance with applicable law, including without limitation
buying and selling securities of any CVR Entity or Partnership Entity, entering into derivatives
transactions regarding or shorting securities of any CVR Entity or Partnership Entity, serving as a
lender, underwriter or market maker or issuing research with respect to securities of any CVR
Entity or Partnership Entity or acquiring, selling, making investments in or entering into other
transactions with companies or businesses in the same or similar lines of business as any CVR
Entity or Partnership Entity whether or not such investments or transactions are or may be
competitive with any business of any CVR Entity or Partnership Entity.
[SIGNATURE PAGE FOLLOWS]
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The Parties have executed this Agreement on, and effective as of, the Closing Date.
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CVR ENERGY, INC. |
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CVR GP, LLC |
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Name:
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CVR PARTNERS, LP |
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By:
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CVR GP, LLC, its General Partner |
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Signature Page to Omnibus Agreement
exv10w11
Exhibit 10.11
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
CVR PARTNERS, LP
Dated as of [ ], 2011
TABLE OF CONTENTS
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Section 1. Registrations Upon Request |
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1.1. Requests by the Unitholder |
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1.2. Registration Statement Form |
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1.3. Expenses |
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1.4. Effective Registration Statement |
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1.5. Right to Withdraw |
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1.6. Priority in Demand Registrations |
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Section 2. Incidental Registrations |
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Section 3. Registration Procedures |
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Section 4. Underwritten Offerings |
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4.1. Underwriting Agreement |
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4.2. Selection of Underwriters |
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Section 5. Holdback Agreements |
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Section 6. Preparation; Reasonable Investigation |
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Section 7. Indemnification |
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7.1. Indemnification by the Partnership |
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7.2. Indemnification by the Sellers |
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7.3. Notices of Claims, etc. |
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7.4. Other Indemnification |
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7.5. Indemnification Payments |
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7.6. Other Remedies |
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Section 8. Representations and Warranties |
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Section 9. Definitions |
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Section 10. Miscellaneous |
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10.1. Rule 144, etc. |
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10.2. Successors, Assigns and Transferees |
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10.3. Splits, etc. |
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10.4. Amendment and Modification |
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10.5. Governing Law; Venue and Service of Process |
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10.6. Invalidity of Provision |
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10.7. Reserved |
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10.8. Notices |
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10.9. Headings: Execution in Counterparts |
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10.10. Injunctive Relief |
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10.11. Term |
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10.12. Further Assurances |
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10.13. Entire Agreement |
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ii
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
of CVR Partners, LP
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of March __, 2011 (the
Agreement), by and among CVR Partners, LP, a Delaware limited partnership (the
Partnership), and Coffeyville Resources, LLC, a Delaware limited liability company (the
Unitholder). Capitalized terms used herein without definition are defined in Section
9.
WHEREAS, the Partnership, the Unitholder and CVR Special GP, LLC, a direct wholly-owned
subsidiary of Unitholder (the Special General Partner), were parties to the original
Registration Rights Agreement, which provided for registration under the Securities Act of the
Partnership units issued to the Unitholder and the Special General Partner pursuant to that certain
Contribution, Conveyance and Assumption Agreement by and among the Partnership, the Unitholder,
Special GP and CVR GP, LLC (the Original Contribution Agreement) entered into in
connection with the Partnerships formation;
WHEREAS, on the date hereof, in connection with the Partnerships initial public offering, the
Partnership, the Unitholder and certain other parties amended and restated the Original
Contribution Agreement (the Amended Contribution Agreement);
WHEREAS, pursuant to the Amended Contribution Agreement, (a) all of the units held by the
Unitholder and Special GP were exchanged for common units representing limited partner interests in
the Partnership (Common Units) and (b) Special GP was merged with and into the
Unitholder, with the Unitholder remaining as the surviving entity; and
WHEREAS, the Partnership and the Unitholder (on behalf of itself and as successor in interest
to the Special General Partner) have agreed to amend the Original Registration Rights Agreement
pursuant to Section 11.4 thereof to provide the registration and other rights set forth in this
Agreement for the benefit of the Unitholder;
NOW, THEREFORE, in consideration of the mutual covenants and obligations set forth in this
Agreement, the parties hereto agree as follows:
Section 1. Registrations Upon Request
1.1. Requests by the Unitholder
(a) Notice of Request. The Unitholder shall have the right to make up
to six requests (each, a Demand Registration) that the Partnership effect
the registration under the Securities Act of all or a portion of the Registrable
Securities Beneficially Owned by the Unitholder (the Unitholder, in such capacity,
the Initiating Unitholder), each such request to specify the number
of Registrable Securities to be registered and the intended method or methods
of disposition thereof; provided that, with respect to any shelf
registration requested by the Initiating Unitholder pursuant to Section
1.1(b) (which initial request shall
count as a request for purposes of this
Section 1.1), each subsequent request by the Initiating Unitholder that the
Partnership sell Registrable Securities from such Shelf Registration Statement (as
such term is defined in part (b) of this Section 1.1) that is not made
simultaneously with such initial request shall be counted as an additional request
for purposes of this Section 1.1. Upon any such request (each, a
Demand Request Notice), the Partnership will promptly, but in any event
within 5 days, give written notice of such request to all holders of Registrable
Securities and thereupon the Partnership will, subject to Section 1.4:
(i) use its best efforts to effect the prompt registration under the
Securities Act of
(A) the Registrable Securities which the Partnership has been so
requested to register by the Initiating Unitholder, and
(B) all other Registrable Securities which the Partnership has
been requested to register by the holders thereof by written request
given to the Partnership by such holders within 30 days after the
giving of such written notice by the Partnership to such holders (or,
15 days if, at the request of the Initiating Unitholder, the
Partnership states in such written notice or gives telephonic notice
to each holder of Registrable Securities, with written confirmation
to follow promptly thereafter, stating that (i) such registration
will be on Form S-3 and (ii) such shorter period of time is required
because of a planned filing date),
all to the extent required to permit the disposition of the
Registrable Securities so to be registered in accordance with the
intended method or methods of disposition of the Initiating
Unitholder and any Participating Unitholders, which term
shall refer to any Permitted Transferee that exercises its right to
participate in the registration initiated by the Initiating
Unitholder, which intended method or methods of distribution may
include, at the option of the Initiating Unitholder or the
Participating Unitholders, as applicable, a distribution of such
Registrable Securities to, and resale of such Registrable Securities
by, the shareholders, members or partners of the Unitholder or the
equity owners of the Unitholder (a Partner Distribution);
and
(ii) if requested by the Initiating Unitholder or any Participating
Unitholders, as applicable, obtain acceleration of the effective date of the
registration statement relating to such registration. Notwithstanding
anything contained herein to the contrary, the Partnership
shall, at the request of the Initiating Unitholder or any Participating
Unitholders, as applicable, seeking to effect a Partner Distribution, file
any prospectus supplement or post-effective amendments and shall otherwise
2
take any action necessary to include such language, if such language was not
included in the initial registration statement, or revise such language if
deemed necessary by the Unitholder, to effect such Partner Distribution.
(b) Shelf Registration. The right of the Unitholder to request a
registration of Registrable Securities pursuant to Section 1.1(a) shall
include the right from and after the first anniversary of the Initial Public
Offering to request that the Partnership file a registration statement to permit the
requesting holder to sell Registrable Securities on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act (or any similar rule that may be
adopted by the Commission) in accordance with the intended method or methods of
disposition by such requesting holder (a Shelf Registration Statement).
Notwithstanding anything to the contrary herein,
(i) upon any Shelf Registration Statement having been declared
effective, the Partnership shall use reasonable best efforts to keep such
Shelf Registration Statement continuously effective in order to permit the
prospectus included therein to be usable by the holders of Registrable
Securities until the earlier of (x) such time as all Registrable Securities
that could be sold under such Shelf Registration Statement have been sold or
are no longer outstanding; (y) two years from the date of effectiveness; and
(z) the date that the Unitholder can sell all Registrable Securities
Beneficially Owned by it in accordance with Rule 144 under the Securities
Act without any volume or manner limitations pursuant thereto;
(ii) if at any time following the effectiveness of any Shelf
Registration Statement the Unitholder desires to sell Registrable Securities
pursuant thereto, the Unitholder shall notify the Partnership of such intent
at least ten Business Days prior to any such sale (any such proposed
transaction, a Take-down Transaction), and the Partnership
thereupon shall prepare and file within ten Business Days after receipt of
such notice a prospectus supplement or post-effective amendment to the Shelf
Registration Statement, as necessary, to permit the consummation of such
Take-down Transaction;
(iii) upon receipt of notice from the Unitholder regarding a Take-down
Transaction as provided in clause (ii) of this Section 1.1(b), the
Partnership shall immediately deliver notice to any other holders of
Registrable Securities whose Registrable Securities have been included in
such Shelf Registration Statement and shall permit such holders to
participate in such Take-down Transaction (subject to Section 1.4),
it being understood, for the avoidance of doubt, that no holder other than
the Unitholder shall have the right to initiate a Take-down Transaction;
(iv) each holder who participates in a Take-down Transaction shall be
deemed through such participation to have represented to the
3
Partnership
that any information previously supplied by such holder to the Partnership
in writing for inclusion in the Shelf Registration Statement, unless
modified by such holder by written notice to the Partnership, remains
accurate as of the date of the prospectus supplement or amendment to the
Shelf Registration Statement, as applicable; and
(v) if the continued use of such Shelf Registration Statement at any
time would require the Partnership to make any public disclosure of
material, non-public information, disclosure of which, in the good faith
judgment of the Board of Directors of CVR GP, LLC, after consultation with
independent outside counsel to the Partnership, (i) would be required to be
made in any registration statement filed with the Commission by the
Partnership so that such registration statement would not be materially
misleading and (ii) would not be required to be made at such time but for
the filing of such registration statement; and the Partnership has a bona
fide business purpose for not disclosing such information publicly, the
Partnership may, upon giving prompt written notice of such action to the
holders of Registrable Securities, suspend use of the Shelf Registration
Statement (a Shelf Suspension); provided, however,
that the Partnership shall not be permitted to exercise a Shelf Suspension
(x) more than once during any 12 month period or (y) for a period exceeding
45 days on any one occasion. In the case of a Shelf Suspension, the holders
of Registrable Securities agree to suspend use of the applicable prospectus
in connection with any sale or purchase of, or offer to sell or purchase,
Registrable Securities, upon receipt of the notice referred to above. Upon
the written request of either the Initiating Unitholder or the Participating
Unitholders, the Partnership shall provide such holder of Registrable
Securities in writing with a general statement of the reasons for such
postponement and an approximation of the anticipated delay. The Partnership
shall immediately notify the holders of Registrable Securities upon the
termination of any Shelf Suspension, amend or supplement the prospectus, if
necessary, so it does not contain any untrue statement of a material fact or
omission and furnish to the holders of Registrable Securities such numbers
of copies of the prospectus as so amended or supplemented as such holders
may reasonably request. The Partnership agrees, if necessary, to supplement
or make amendments to the Shelf Registration Statement, if required by the
registration form used by the Partnership for the shelf registration or by
the instructions applicable to such registration form or by the Securities
Act or as may reasonably be requested by the Majority Holders.
1.2. Registration Statement Form. A registration requested pursuant to Section 1.1
shall be effected by the filing of a
registration statement on a form of the Commission (i) selected by the Majority Holders, which form
shall be reasonably acceptable to the Partnership; provided that the Partnership agrees that, at
the request of the Initiating Unitholder,
4
at such time as the Partnership becomes a well-known
seasoned issuer, as such term is defined in Rule 405 under the Securities Act, the Partnership
will register an offering pursuant to Section 1.1 on an automatic shelf registration statement,
as such term is defined in Rule 405 under the Securities Act; provided, that the Partnership is
advised by independent outside counsel that filing an automatic shelf registration statement for
registration of the Registrable Securities will not cause the Partnership to be an ineligible
issuer, as such term is defined in Rule 405 under the Securities Act and (ii) which shall permit
the disposition of Registrable Securities in accordance with the intended method or methods of
disposition specified in such request for registration, including, without limitation, a Partner
Distribution or, as provided above, a continuous or delayed basis offering pursuant to Rule 415
under the Securities Act. The Partnership agrees to include in any such registration statement all
information which, in the opinion of counsel to the Initiating Unitholder, counsel to any
Participating Unitholder and counsel to the Partnership, is necessary or desirable to be included
therein.
1.3. Expenses. The Partnership shall pay, and shall be responsible for, all Registration Expenses in
connection with any registration requested under Section 1.1; provided that each seller of
Registrable Securities shall pay all Registration Expenses to the extent required to be paid by
such seller under applicable law and all underwriting discounts and commissions and transfer taxes,
if any, in respect of the Registrable Securities being registered for such seller.
1.4. Effective Registration Statement. A registration requested pursuant to Section 1.1 shall not be deemed a Demand Registration
(including for purposes of Section 1.1(a)) unless a registration statement with respect thereto has
become effective and has been kept continuously effective for a period of at least 180 days (or
such shorter period which shall terminate when all the Registrable Securities covered by such
registration statement have been sold pursuant thereto) or, if such registration statement relates
to an underwritten offering, such longer period as in the opinion of counsel for the underwriter or
underwriters a prospectus is required by law to be delivered in connection with sales of
Registrable Securities by an underwriter or dealer. Should a Demand Registration not become
effective due to the failure of a holder of Registrable Securities participating in such offering
of Registrable Securities (a Participating Holder) to perform its obligations under this
Agreement, or in the event the Initiating Unitholder withdraws or does not pursue its request for
the Demand Registration as provided for in Section 1.6 below (in each of the foregoing cases,
provided that at such time the Partnership is in compliance in all material respects with its
obligations under this Agreement), then, such Demand Registration shall be deemed to have been
effected (including for purposes of Section 1.1(a)); provided, that, if (i) the Demand Registration
does not become effective because a material adverse change has occurred, or is reasonably likely
to occur, in the condition (financial or otherwise), prospects, business, assets or results of
operations of the Partnership and its subsidiaries taken as a whole subsequent to the
date of the delivery of the Demand Request Notice, (ii) after the Demand Registration has
become effective, such registration is interfered with by any stop order, injunction, or other
order or requirement of the Commission or other governmental agency or court, (iii) the Demand
Registration is withdrawn at the request of the Initiating Unitholder due to the advice of the
managing underwriter(s) that the Registrable Securities covered by the registration statement could
not be sold in such offering within a price range acceptable to the Initiating Unitholder, or (iv)
the Initiating Unitholder reimburses the Partnership for any and all
5
Registration Expenses incurred
by the Partnership in connection with such request for a Demand Registration that was withdrawn or
not pursued, then the Demand Registration shall not be deemed to have been effected and will not
count as a Demand Registration.
1.5. Right to Withdraw. Any Participating Holder shall have the right to withdraw its request for inclusion of
Registrable Securities in any registration statement pursuant to Section 1.1 at any time prior to
the effective date of such registration statement by giving written notice to the Partnership of
its request to withdraw. Upon receipt of notices from all Participating Holders to such effect, the
Partnership shall cease all efforts to obtain effectiveness of the applicable registration
statement, and whether the Initiating Unitholders request for registration pursuant to Section 1.1
shall be counted as a Demand Registration for purposes of Section 1.6 shall be determined in
accordance with Section 1.4 above.
1.6. Priority in Demand Registrations. Whenever the Partnership effects a registration pursuant to Section 1.1 in connection with
an underwritten offering, no securities other than Registrable Securities shall be included among
the securities covered by such registration unless the Majority Holders consent in writing to the
inclusion therein of such other securities, which consent may be subject to terms and conditions
determined by the Majority Holders in their sole discretion. If a registration pursuant to Section
1.1 involves an underwritten offering, and the managing underwriter (or, in the case of an offering
which is not underwritten, a nationally recognized investment banking firm) shall advise the
Partnership in writing (with a copy to each Person requesting registration of Registrable
Securities) that, in its opinion, the number of securities requested, and otherwise proposed to be
included in such registration, exceeds the number which can be sold in such offering without
materially and adversely affecting the offering price, the Partnership shall include in such
registration, to the extent of the number which the Partnership is so advised can be sold in such
offering without such material adverse effect, first, the Registrable Securities of the Initiating
Unitholder and the Participating Unitholders requesting inclusion in such registration, on a pro
rata basis (based on the number of shares of Registrable Securities owned by the Unitholder), and
second, the securities, if any, being sold by the Partnership. In the event of any such
determination under this Section 1.4, the Partnership shall give the affected holders of
Registrable Securities notice of such determination and in lieu of the notice otherwise required
under Section 1.1.
Section 2. Incidental Registrations. If the Partnership at any time proposes to register any of its equity securities under the
Securities Act (other than a registration on Form S-4 or S-8 or any successor form or an automatic
shelf registration statement on Form S-3 if the Partnership would otherwise qualify as a WKSI
and has been advised by independent outside counsel that filing an automatic shelf registration
statement for registration of the Registrable Securities would not cause the Partnership to be an
ineligible issuer, as such term is defined in Rule 405 under the Securities Act) whether or not
for sale for its own account, then the Partnership shall give prompt written notice (but in no
event less than 30 days prior to the initial filing with respect thereto) to all holders of
Registrable Securities regarding such proposed registration. Upon the written request of any such
holder made within 15 days after the receipt of any such notice (which request shall specify the
number of Registrable Securities intended to be disposed of by such holder and the intended method
or methods of disposition thereof), the Partnership shall use its best efforts to effect the
registration under the Securities Act of such
6
Registrable Securities on a pro rata basis in
accordance with such intended method or methods of disposition; provided that:
(a) the Partnership shall not include Registrable Securities in such proposed
registration to the extent that the Board of Directors of CVR GP, LLC shall have
determined, after consultation with the managing underwriter for such offering, that
it would materially and adversely affect the offering price to include any
Registrable Securities in such registration and provided, further,
that the Partnership shall give the affected holders of Registrable Securities
notice of such determination and in lieu of the notice otherwise required by the
first sentence of this Section 2;
(b) if, at any time after giving written notice (pursuant to this Section
2) of its intention to register equity securities and prior to the effective
date of the registration statement filed in connection with such registration, the
Partnership shall determine for any reason not to register such equity securities,
the Partnership may, at its election, give written notice of such determination to
each holder of Registrable Securities and, thereupon, shall not be obligated to
register any Registrable Securities in connection with such registration (but shall
nevertheless pay the Registration Expenses in connection therewith), without
prejudice, however, to the rights of the Unitholder that a registration be effected
under Section 1.1; and
(c) if in connection with a registration pursuant to this Section 2,
the managing underwriter of such registration (or, in the case of an offering that
is not underwritten, a nationally recognized investment banking firm) shall advise
the Partnership in writing (with a copy to each holder of Registrable Securities
requesting. registration thereof) that the number of securities requested
and otherwise proposed to be included in such registration exceeds the number which
can be sold in such offering without materially and adversely affecting the offering
price of the securities being sold in such registration, then in the case of any
registration pursuant to this Section 2, the Partnership shall include in
such registration to the extent of the number which the Partnership is so advised
can be sold in such offering without such material adverse effect, first,
the securities, if
any, being sold by the Partnership, and second, the Registrable
Securities of the Unitholder requesting inclusion in such registration and
Partnership Securities of other Persons who have been granted registration rights or
are granted registration rights on or after the date of this Agreement, to the
extent such other Persons have been granted registration rights that are pari passu
to the rights of the Unitholder hereunder, on a pro rata basis (based on the number
of shares of Registrable Securities owned by the Unitholder and the number of
Partnership Securities of any such other Persons).
The Partnership shall pay all Registration Expenses in connection with each registration of
Registrable Securities requested pursuant to this Section 2; provided that each seller of
Registrable Securities shall pay all Registration Expenses to the extent required to be
7
paid by
such seller under applicable law and all underwriting discounts and commissions and transfer taxes,
if any, in respect of the Registrable Securities being registered for such seller. No registration
effected under this Section 2 shall relieve the Partnership from its obligation to effect
registrations under Section 1.1.
Section 3. Registration Procedures. If and whenever the Partnership is required to use its best efforts to effect the
registration of any Registrable Securities under the Securities Act pursuant to Sections
1.1 or 2, the Partnership shall promptly:
(a) prepare, and as soon as practicable, but in any event within 30 days
thereafter, file with the Commission, a registration statement with respect to such
Registrable Securities, make all required filings with FINRA and use its best
efforts to cause such registration statement to become and remain effective as soon
as practicable;
(b) prepare and promptly file with the Commission such amendments and
post-effective amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for so long as is required to comply with the
provisions of the Securities Act and to complete the disposition of all securities
covered by such registration statement in accordance with the intended method or
methods of disposition thereof, but in no event for a period of more than six months
after such registration statement becomes effective (except as provided in
Section 1.1(b)(i));
(c) furnish copies of all documents proposed to be filed with the Commission in
connection with such registration to (i) counsel selected by the Initiating
Unitholder and counsel selected by any Participating Unitholders either of which
counsel may also be counsel to the Partnership, and (ii) each seller of Registrable
Securities (or in the case of the initial filing of a registration statement, within
five business days of such initial filing) and such documents shall be subject to
the review of such counsel; provided that the Partnership shall
not file any registration statement or any amendment or post-effective
amendment or supplement to such registration statement or the prospectus used in
connection therewith or any free writing prospectus related thereto to which such
counsel shall have reasonably objected on the grounds that such registration
statement amendment, supplement or prospectus or free writing prospectus does not
comply (explaining why) in all material respects with the requirements of the
Securities Act or of the rules or regulations thereunder;
(d) furnish to each seller of Registrable Securities, without charge, such
number of conformed copies of such registration statement and of each such amendment
and supplement thereto (in each case including all exhibits and documents filed
therewith) and such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and any summary prospectus) and any
other prospectus filed under Rule 424 under the
8
Securities Act, in conformity with
the requirements of the Securities Act, each free writing prospectus utilized in
connection therewith, and such other documents, as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities owned
by such seller in accordance with the intended method or methods of disposition
thereof;
(e) use its best efforts to register or qualify such Registrable Securities and
other securities covered by such registration statement under the securities or blue
sky laws of such jurisdictions as each seller shall reasonably request, and do any
and all other acts and things which may be necessary or advisable to enable such
seller to consummate the disposition of such Registrable Securities in such
jurisdictions in accordance with the intended method or methods of disposition
thereof; provided that the Partnership shall not for any such purpose be
required to qualify generally to do business in any jurisdiction wherein it is not
so qualified, subject itself to taxation in any jurisdiction wherein it is not so
subject, or take any action which would subject it to general service of process in
any jurisdiction wherein it is not so subject;
(f) use its best efforts to cause all Registrable Securities covered by such
registration statement to be registered with or approved by such other governmental
agencies, authorities or self-regulatory bodies as may be necessary by virtue of the
business and operations of the Partnership to enable the seller or sellers thereof
to consummate the disposition of such Registrable Securities in accordance with the
intended method or methods of disposition thereof;
(g) furnish to the Initiating Unitholder and any Participating Unitholders:
(i) an opinion of counsel for the Partnership experienced in securities
law matters, dated the effective date of the registration statement (and, if
such registration includes an underwritten public offering, the date of the
closing under the underwriting agreement), and
(ii) a comfort letter (unless the registration is pursuant to
Section 2 and such a letter is not otherwise being furnished to the
Partnership), dated the effective date of such registration statement (and
if such registration includes an underwritten public offering, dated the
date of the closing under the underwriting agreement), signed by the
independent public accountants who have issued an audit report on the
Partnerships financial statements included in the registration statement,
covering such matters as are customarily covered in opinions of issuers counsel and
in accountants letters delivered to the underwriters in underwritten public
offerings of securities and such other matters as the Initiating Unitholder and any
Participating Unitholders may reasonably request;
9
(h) promptly notify each seller of any Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is required to
be delivered under the Securities Act of the happening of any event or existence of
any fact as a result of which the prospectus included in such registration
statement, as then in effect, includes 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 in light of the circumstances then existing,
and, as promptly as is practicable, prepare and furnish to such seller a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
(i) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable and in any event within 16 months after the effective date of the
registration statement, an earnings statement of the Partnership (in form complying
with the provisions of Rule 158 under the Securities Act) covering the period of at
least 12 months, but not more than 18 consecutive months, beginning with the first
full calendar month after the effective date of such registration statement;
(j) notify each seller of any Registrable Securities covered by such
registration statement (i) when the prospectus or any prospectus supplement or
post-effective amendment or any free writing prospectus has been filed and/or used,
and, with respect to such registration statement or any post-effective amendment,
when the same has become effective, (ii) of the receipt by the Partnership of any
comments from the Commission or of any request by the Commission for amendments or
supplements to such registration statement or to amend or to supplement such
prospectus or for additional information, (iii) of the issuance by the Commission of
any stop order suspending the effectiveness of
such registration statement or the initiation of any proceedings for that
purpose and (iv) of the suspension of the qualification of such securities for
offering or sale in any jurisdiction, or of the institution of any proceedings for
any of such purposes;
(k) use every reasonable effort to obtain the lifting of any stop order that
might be issued suspending the effectiveness of such registration statement at the
earliest possible moment;
(l) use its best efforts (i) (A) to list such Registrable Securities on any
securities exchange on which the equity securities of the Partnership are then
listed or, if no such equity securities are then listed, on an exchange selected by
the Partnership, if such listing is then permitted under the rules of such exchange,
10
or (B) if such listing is not practicable, to secure designation of such securities
as a NASDAQ national market system security within the meaning of Rule 11Aa2-1
under the Exchange Act or, failing that, to secure NASDAQ authorization for such
Registrable Securities, and, without limiting the foregoing, to arrange for at least
two market makers to register as such with respect to such Registrable Securities
with FINRA, and (ii) to provide a transfer agent and registrar for such Registrable
Securities not later than the effective date of such registration statement and to
instruct such transfer agent (A) to release any stop transfer order with respect to
the certificates with respect to the Registrable Securities being sold and (B) to
furnish certificates without restrictive legends (other than those that apply
generally to all Partnership Securities) representing ownership of the shares being
sold, in such denominations requested by the sellers of the Registrable Securities
or the lead underwriter;
(m) enter into such agreements and take such other actions as the sellers of
Registrable Securities or the underwriters reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities, including, without
limitation, preparing for, and participating in, such number of road shows and all
such other customary selling efforts as the underwriters reasonably request in order
to expedite or facilitate such disposition;
(n) furnish to any holder of such Registrable Securities such information and
assistance as such holder may reasonably request in connection with any due
diligence effort which such seller deems appropriate;
(o) cooperate with each seller of Registrable Securities and each underwriter
and their respective counsel in connection with any filings required to be made with
FINRA, the New York Stock Exchange, or any other securities exchange on which such
Registrable Securities are traded or will be traded;
(p) cooperate with the sellers of the Registrable Securities and the managing
underwriter to facilitate the timely preparation and delivery of certificates not
bearing any restrictive legends (other than those that apply
generally to all Partnership Securities) representing the Registrable
Securities to be sold, and cause such Registrable Securities to be issued in such
denominations and registered in such names in accordance with the underwriting
agreement prior to any sale of Registrable Securities to the underwriters or, if not
an underwritten offering, in accordance with the instructions of the Majority
Holders at least five business days prior to any sale of Registrable Securities and
instruct any transfer agent and registrar of Registrable Securities to release any
stop transfer orders in respect thereof;
(q) cause its officers and employees to participate in, and to otherwise
facilitate and cooperate with the preparation of the registration statement and
prospectus and any amendments or supplements thereto (including participating
11
in meetings, drafting sessions and due diligence sessions) taking into account the
Partnerships business needs;
(r) use its best efforts to take all other steps necessary to effect the
registration of such Registrable Securities contemplated hereby;
(s) take all reasonable action to ensure that any free writing prospectus
utilized in connection with any registration covered by this agreement complies in
all material respects with the Securities Act, is filed in accordance with the
Securities Act to the extent required thereby, is retained in accordance with the
Securities Act to the extent required thereby and, when taken together with the
related prospectus, prospectus supplement and related documents, will not contain
any untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they were
made, not misleading; and
(t) in connection with any underwritten offering, if at any time the
information conveyed to a purchaser at the time of sale includes any untrue
statement of a material fact or omits to state any material fact necessary in order
to make the statements therein, in light of the circumstances under which they were
made, not misleading, promptly file with the Commission such amendments or
supplements to such information as may be necessary so that the statements as so
amended or supplemented will not, in light of the circumstances, be misleading.
To the extent the Partnership is a well-known seasoned issuer (as defined in Rule 405 under
the Securities Act) (a WKSI) at the time any Demand Request Notice is submitted to the
Partnership, and such Demand Request Notice requests that the Partnership file an automatic shelf
registration statement (as defined in Rule 405 under the Securities Act) (an automatic shelf
registration statement) on Form S-3 and the Partnership has been advised by independent outside
counsel that filing an automatic shelf registration statement for registration of the Registrable
Securities will not cause the Partnership to be an ineligible issuer, as such term is defined in
Rule 405 under the Securities Act, the Partnership shall file an automatic shelf registration
statement which covers those Registrable Securities which are
requested to be registered. The Partnership shall use its commercially reasonable best
efforts to remain a WKSI (and not become an ineligible issuer (as defined in Rule 405 under the
Securities Act)) during the period during which such automatic shelf registration statement is
required to remain effective. If the Partnership does not pay the filing fee covering the
Registrable Securities at the time the automatic shelf registration statement is filed, the
Partnership agrees to pay such fee at such time or times as the Registrable Securities are to be
sold. If the automatic shelf registration statement has been outstanding for at least three years,
at the end of the third year the Partnership shall refile a new automatic shelf registration
statement covering the Registrable Securities. If at any time when the Partnership is required to
re-evaluate its WKSI status the Partnership determines that it is not a WKSI, the Partnership shall
use its commercially reasonable best efforts to refile the shelf registration statement on Form S-3
and, if such form is
12
not available, Form S-1 and keep such registration statement effective during
the period during which such registration statement is required to be kept effective.
If the Partnership files any shelf registration statement for the benefit of the holders of
any of its securities other than the Unitholder, the Partnership agrees that it shall give prior
written notice to the Unitholder and, upon request of the Unitholder, include in such registration
statement such disclosures as may be required by Rule 430B (referring to the unnamed selling
security holders in a generic manner by identifying the initial issuance and sale of the securities
to the Unitholder) in order to ensure that the Unitholder may be added to such shelf registration
statement at a later time through the filing of a prospectus supplement rather than a
post-effective amendment.
As a condition to its registration of Registrable Securities of any prospective seller, the
Partnership may require such seller of any Registrable Securities as to which any registration is
being effected to execute powers-of-attorney, custody arrangements and other customary agreements
appropriate to facilitate the offering and to furnish to the Partnership such information regarding
such seller, its ownership of Registrable Securities and the disposition of such Registrable
Securities as the Partnership may from time to time reasonably request in writing and as shall be
required by law in connection therewith. Each such holder agrees to furnish promptly to the
Partnership all information required to be disclosed in such registration statement in order to
make the information previously furnished to the Partnership by such holder and disclosed in such
registration statement not materially misleading.
The Partnership agrees not to file or make any amendment to any registration statement with
respect to any Registrable Securities, or any amendment of or supplement to the prospectus used in
connection therewith, which refers to any holder of Registrable Securities, or otherwise identifies
any holder of Registrable Securities as the holder of any Registrable Securities, without the prior
consent of such holder, such consent not to be unreasonably withheld or delayed, unless such
disclosure is required by law. Notwithstanding the foregoing, if any such registration statement or
comparable statement under blue sky laws refers to any holder of Registrable Securities by name
or otherwise as the holder of any securities of the Partnership, then such holder shall have the
right to require (i) the insertion therein of language, in form and substance satisfactory to such
holder and the Partnership, to the effect that the holding by such holder of such Registrable
Securities is not to be construed as a recommendation by such holder of the investment quality of
the Partnerships securities covered thereby and that
such holding does not imply that such holder will assist in meeting any future financial
requirements of the Partnership, or (ii) in the event that such reference to such holder by name or
otherwise is not in the judgment of the Partnership, as advised by counsel, required by the
Securities Act or any similar federal statute or any state blue sky or securities law then in
force, the deletion of the reference to such holder.
By acquisition of Registrable Securities, each holder of such Registrable Securities shall be
deemed to have agreed that upon receipt of any notice from the Partnership of the happening of any
event of the kind described in Section 3(h), such holder will promptly discontinue such
holders disposition of Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such holders receipt of the copies of the
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supplemented or amended
prospectus contemplated by Section 3(h). If so directed by the Partnership, each holder of
Registrable Securities will deliver to the Partnership (at the Partnerships expense) all copies,
other than permanent file copies, in such holders possession of the prospectus covering such
Registrable Securities at the time of receipt of such notice. In the event that the Partnership
shall give any such notice, the period mentioned in Section 3(a) shall be extended 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 each seller of any Registrable Securities covered by such registration
statement shall have received the copies of the supplemented or amended prospectus contemplated by
Section 3(h).
Section 4. Underwritten Offerings.
4.1. Underwriting Agreement. If requested by the underwriters for any underwritten offering pursuant to a registration
requested under Section 1.1 or 2, the Partnership shall enter into an underwriting agreement with
the underwriters for such offering, such agreement to be reasonably satisfactory in substance and
form to the underwriters and to the Unitholder. Any such underwriting agreement shall contain such
representations and warranties by, and such other agreements on the part of, the Partnership and
such other terms and provisions as are customarily contained in agreements of this type, including,
without limitation, indemnities to the effect and to the extent provided in Section 7. The
Unitholder and each other holder of Registrable Securities to be distributed by such underwriter
shall be a party to such underwriting agreement and may, at such holders option, require that any
or all of the representations and warranties by, and the agreements on the part of, the Partnership
to and for the benefit of such underwriters be made to and for the benefit of such holder of
Registrable Securities and that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement shall also be conditions precedent to the
obligations of such holder of Registrable Securities. The Unitholder in its capacity as a Partner
and/or controlling person shall not be required by any underwriting agreement to make any
representations or warranties to or agreements with the Partnership or the underwriters other than
representations, warranties or agreements regarding such holder, the ownership of such holders
Registrable Securities and such holders intended method or methods of disposition and any other
representation required by law or to furnish any indemnity to any Person which is broader than the
indemnity furnished by such holder pursuant to Section 7.2.
4.2. Selection of Underwriters. If the Partnership at any time proposes to register any of its securities under the
Securities Act for sale for its own account pursuant to an underwritten offering, the Partnership
will have the right to select the managing underwriter (which shall be of nationally recognized
standing) to administer the offering. Notwithstanding the foregoing sentence, whenever a
registration requested pursuant to Section 1.1 is for an underwritten offering, the Initiating
Unitholder will have the right to select the managing underwriter (which shall be of nationally
recognized standing and reasonably acceptable to any Participating Unitholders) to administer the
offering, but only with the approval of the Partnership, such approval not to be unreasonably
withheld.
Section 5. Holdback Agreements.
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(a) If and whenever the Partnership proposes to register any of its equity
securities under the Securities Act for its own account (other than on Form S-4 or
S-8 or any successor form) or is required to use its best efforts to effect the
registration of any Registrable Securities under the Securities Act pursuant to
Section 1.1 or 2, each holder of Registrable Securities agrees by
acquisition of such Registrable Securities not to effect any offer, sale or
distribution, including any sale pursuant to Rule 144 under the Securities Act, or
to request registration under Section 1.1 of any Registrable Securities
within seven days prior to the reasonably expected effective date of the
contemplated registration statement (or the date of the underwriting agreement in an
offering off of a Shelf Registration Statement) and during the period beginning on
the effective date of the registration statement relating to such registration (or
the date of the underwriting agreement in an offering off of a Shelf Registration
Statement) (the Trigger Date) and until 90 days (unless advised by the
managing underwriter that a longer period, not to exceed 180 days, is required, or
such shorter period as the managing underwriter for any underwritten offering may
agree) after the Trigger Date, except as part of such registration or offering or
unless, in the case of a sale or distribution not involving a public offering, the
transferee agrees in writing to be subject to this Section 5, even if such
Registrable Securities cease to be Registrable Securities upon such transfer. If
requested by such managing underwriter, each holder of Registrable Securities agrees
to execute an agreement to such effect with the Partnership and consistent with such
managing underwriters customary form of holdback agreement.
(b) The Partnership agrees not to effect any public offer, sale or distribution
of its equity securities or securities convertible into or exchangeable or
exercisable for any of such securities within seven days prior to the reasonably
expected effective date of the contemplated registration statement (or the date of
the underwriting agreement in an offering off of a Shelf Registration Statement) and
during the period beginning on the Trigger Date and until 90 days (or such longer
period, not to exceed 180 days, which may be required by the managing underwriter,
or such shorter period as the managing underwriter may agree) after
the Trigger Date with respect to any registration statement filed pursuant to
Section 1.1 (except (i) as part of such registration, (ii) as permitted by
any related underwriting agreement, (iii) pursuant to an employee equity
compensation plan, (iv) pursuant to an acquisition or strategic relationship or
similar transaction or (v) pursuant to a registration on Form S-4 or S-8 or any
successor form). In addition, if, and to the extent requested by the managing
underwriter, the Partnership shall use its best efforts to cause each holder (other
than any holder already subject to Section 5(a)) of its equity securities or
any securities convertible into or exchangeable or exercisable for any of such
securities, whether outstanding on the date of this Agreement or issued at any time
after the date of this Agreement (other than any such securities acquired in a
public offering), to agree not to effect any such public offer, sale or distribution
of such securities during such period, except as part of any such registration if
permitted, and to cause each such holder
15
to enter into an agreement to such effect
with the Partnership and consistent with such managing underwriters customary form
of holdback agreement, provided that no holder of less than 5% of the Partnerships
outstanding equity securities shall be required to enter into such an agreement.
Section 6. Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement registering
Registrable Securities under the Securities Act, the Partnership shall give counsel to the holders
of such Registrable Securities so to be registered, the managing underwriter(s), and their
respective counsel, accountants and other representatives and agents the opportunity to participate
in the preparation of such registration statement, each prospectus included therein or filed with
the Commission, and each amendment thereof or supplement thereto, and shall give each of the
foregoing parties access to the financial and other records, pertinent corporate documents and
properties of the Partnership and its subsidiaries and opportunities to discuss the business of the
Partnership with its officers and the independent public accountants who have issued audit reports
on its financial statements in each case as shall be reasonably requested by each of the foregoing
parties in connection with such registration statement.
Section 7. Indemnification.
7.1. Indemnification by the Partnership. The Partnership agrees that in the event of any registration of any Registrable Securities
pursuant to this Agreement, the Partnership shall indemnify, defend and hold harmless (a) each
holder of Registrable Securities, (b) the Affiliates of such holder and the respective directors,
members, stockholders, officers, partners, employees, advisors, representatives, agents of such
holder and its Affiliates, (c) each Person who participates as an underwriter or Qualified
Independent Underwriter in the offering or sale of such securities and (d) each person, if any, who
controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
any of the foregoing against any and all losses, penalties, fines, liens, judgments, claims,
damages or liabilities (or actions or proceedings in respect thereof) and expenses (including
reasonable fees of counsel and any amounts paid in settlement effected with the
Partnerships consent, which consent shall not be unreasonably withheld or delayed if such
settlement is solely with respect to monetary damages), jointly or severally, directly or
indirectly, based upon or arising out of (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement under which such Registrable Securities were
registered under the Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein or used in connection with the offering of securities covered thereby,
or any amendment or supplement thereto, or any documents incorporated by reference therein, or any
free writing prospectus, as such term is defined in Rule 405 under the Securities Act, utilized
in connection with any related offering, (ii) any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein not misleading or
(iii) any untrue statement or alleged untrue statement of a material fact in the information
conveyed to any purchaser at the time of the sale to such purchaser, or the omission or alleged
omission to state therein a material fact required to be stated therein; and the Partnership will
reimburse each such indemnified party for any legal or any other expenses reasonably incurred by
them in connection with enforcing its rights hereunder or under the underwriting agreement entered
into in connection with such offering or
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investigating, preparing, pursuing or defending any such
loss, claim, damage, liability, action or proceeding as such expenses are incurred, except insofar
as any such loss, penalty, fine, lien, judgment, claim, damage, liability, action, proceeding or
expense arises out of or is based upon an untrue statement of a material fact or omission of a
material fact made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement, document incorporated by reference therein
or free writing prospectus utilized in connection with any related offering in reliance upon and
in conformity with written information furnished to the Partnership by such holder expressly for
use in the preparation thereof in accordance with the second sentence of Section 7.2. Such
indemnity shall remain in full force and effect, regardless of any investigation made by such
indemnified party and shall survive the transfer of such Registrable Securities by such seller.
7.2. Indemnification by the Sellers. The Partnership may require, as a condition to including any Registrable Securities in any
registration statement filed pursuant to Section 1.1 or 2, that the Partnership shall have received
an undertaking satisfactory to it from each of the prospective sellers of such Registrable
Securities to indemnify and hold harmless, severally and not jointly, in the same manner and to the
same extent as set forth in Section 7.1, the Partnership, CVR GP, LLC and its directors, officers,
employees, agents and each person, if any, who controls (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) the Partnership, with respect to any statement of
a material fact or alleged statement of a material fact in or omission of a material fact or
alleged omission of a material fact from such registration statement, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or supplement thereto,
or any free writing prospectus utilized in connection with any related offering, but only to the
extent such statement or alleged statement or such omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the Partnership by such
seller expressly for use in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus,
amendment or supplement or free writing prospectus. The Partnership and the holders of the
Registrable Securities in their capacities as stockholders and/or controlling persons hereby
acknowledge and agree that, unless otherwise expressly agreed to in writing by such holders, the
only information furnished or to be furnished to the Partnership for use in any registration
statement or prospectus relating to the Registrable Securities or in any amendment, supplement or
preliminary materials associated therewith or any free writing prospectus related thereto are
statements specifically relating to (a) transactions between such holder and its Affiliates, on the
one hand, and the Partnership, on the other hand, (b) the beneficial ownership of Partnership
Securities by such holder and its Affiliates and (c) the name and address of such holder. If any
additional information about such holder or the plan of distribution (other than for an
underwritten offering) is required by law to be disclosed in any such document, then such holder
shall not unreasonably withhold its agreement referred to in the immediately preceding sentence of
this Section 7.2. Such indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Partnership or any such director, officer or controlling
person and shall survive the transfer of such Registrable Securities by such seller. The indemnity
agreement contained in this Section 7.2 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, action or proceeding if such settlement is effected without the
consent of such seller (which consent shall not be unreasonably withheld or
17
delayed if such
settlement is solely with respect to monetary damages). The indemnity provided by each seller of
Registrable Securities under this Section 7.2 shall be limited in amount to the net amount of
proceeds (i.e., net of expenses, underwriting discounts and commissions) actually received by such
seller from the sale of Registrable Securities pursuant to such registration statement.
7.3. Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action
or proceeding involving a claim referred to in the preceding paragraphs of this Section 7, such
indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party,
give written notice to the indemnifying party of the commencement of such action or proceeding;
provided that the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding paragraphs of this Section 7,
except to the extent that the indemnifying party is materially prejudiced by such failure to give
notice. In case any such action is brought against an indemnified party, the indemnifying party
shall be entitled to participate therein and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof except for the reasonable fees and expenses of any
counsel retained by such indemnified party to monitor such action or proceeding. Notwithstanding
the foregoing, if such indemnified party reasonably determines, based upon advice of independent
counsel, that a conflict of interest may exist between the indemnified party and the indemnifying
party with respect to such action and that it is advisable for such indemnified party to be
represented by separate counsel, such indemnified party may retain other counsel, reasonably
satisfactory to the indemnifying party, to represent
such indemnified party, and the indemnifying party shall pay all reasonable fees and expenses
of such counsel. No indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of such indemnified party, which consent shall not be unreasonably
withheld, consent to entry of any judgment or enter into any settlement unless such judgment,
compromise or settlement (A) includes as an unconditional term thereof the giving by the claimant
or plaintiff to such indemnified party of a release from all liability in respect of such claim or
litigation, (B) does not include a statement as to or an admission of fault, culpability or a
failure to act, by or on behalf of any indemnified party, and (C) does not require any action other
than the payment of money by the indemnifying party.
7.4. Other Indemnification. Indemnification similar to that specified in the preceding paragraphs of this Section 7
(with appropriate modifications) shall be given by the Partnership and each seller of Registrable
Securities with respect to any required registration (other than under the Securities Act) or other
qualification of such Registrable Securities under any federal or state law or regulation of any
governmental authority.
7.5. Indemnification Payments. Any indemnification required to be made by an indemnifying party pursuant to this Section 7
shall be made by periodic payments to the indemnified party during the course of the action or
proceeding, as and when bills are received
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by such indemnifying party with respect to an
indemnifiable loss, penalty, fine, lien, judgment, claim, damage, liability or expense incurred by
such indemnified party.
7.6. Other Remedies. If for any reason any indemnification specified in the preceding paragraphs of this Section
7 is unavailable, or is insufficient to hold harmless an indemnified party, other than by reason of
the exceptions provided therein, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, penalties, fines, liens, judgments,
claims, damages, liabilities, actions, proceedings or expenses in such proportion as is appropriate
to reflect the relative benefits to and faults of the indemnifying party on the one hand and the
indemnified party on the other and the statements or omissions or alleged statements or omissions
which resulted in such loss, penalty, fine, lien, judgment, claim, damage, liability, action,
proceeding or expense, as well as any other relevant equitable considerations. The relative fault
of the indemnifying party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the indemnifying party or by the indemnified party and the
parties relative intent, knowledge, access to information and opportunity to correct or prevent
such statements or omissions. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 7.6 were to be determined by pro rata allocation or by any
other method of allocation which does not take into account the equitable considerations referred
to in the preceding sentence of this Section 7.6. 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. Notwithstanding the other provisions of this Section 7, in respect
of any claim for indemnification pursuant to this Section 7, no indemnifying party (other than the
Partnership) shall be required to contribute pursuant to this Section 7.6 any amount in excess of
(a) the net proceeds (i.e., net of expenses, underwriting discounts and commissions) received and
retained by such indemnifying party from the sale of its Registrable Securities covered by the
applicable registration statement, preliminary prospectus, final prospectus, or supplement or
amendment thereto, filed pursuant hereto minus (b) any amounts previously paid by such indemnifying
party pursuant to this Section 7 in respect of such claim, it being understood that insofar as such
net proceeds have been distributed by any indemnifying party to its partners, stockholders or
members, the amount of such indemnifying partys contribution hereunder shall be limited to the net
proceeds which it actually recovers from its partners, stockholders or members based upon their
relative fault and that to the extent that such indemnifying party has not distributed such net
proceeds, the amount such indemnifying partys contribution hereunder shall be limited by the
percentage of such net proceeds which corresponds to the percentage equity interests in such
indemnifying party held by those of its partners, stockholders or members who have been determined
to be at fault. No party shall be liable for contribution under this Section 7.6 except to the
extent and under such circumstances as such party would have been liable for indemnification under
this Section 7 if such indemnification were enforceable under applicable law.
Section 8. Representations and Warranties. The Unitholder represents and warrants to the Partnership that:
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(a) it has all limited liability company power and authority to execute,
deliver and perform this Agreement;
(b) the execution, delivery and performance of this Agreement has been duly and
validly authorized and approved by all necessary limited liability company action;
(c) this Agreement has been duly and validly executed and delivered by the
Unitholder and constitutes a valid and legally binding obligation of the Unitholder,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to creditors
rights generally and general principles of equity; and
(d) the execution, delivery and performance of this Agreement by the Unitholder
does not and will not violate the terms of or result in the acceleration of any
obligation under (i) any material contract, commitment or other material instrument
to which the Unitholder is a party or by which the Unitholder is bound or (ii) the
Unitholders certificate of formation or limited liability company agreement.
Section 9. Definitions. Capitalized terms used herein without definition shall have the meanings given to them in
the Partnership Agreement (as hereinafter defined). For purposes of this Agreement, the following
terms shall have the following respective meanings:
Affiliate: a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with, the Person
specified.
Commission: the Securities and Exchange Commission.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any successor
federal statute, and the rules and regulations thereunder which shall be in effect at the time.
FINRA: the Financial Industry Regulatory Authority, Inc.
Majority Holders: the holders of at least 51% of the Registrable Securities that
are participating in the registration at issue.
Majority Voting Holders: the holders of at least 51% of the Registrable Securities.
NASDAQ: the Nasdaq Global Market or the Nasdaq Global Select Market.
Partnership Agreement means the Second Amended and Restated Agreement of Limited
Partnership of CVR Partners, LP, dated as of the date hereof, as amended and/or restated from time
to time.
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Person: an individual, corporation, partnership, limited liability company, joint
venture, business association, trust or any other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
Registrable Securities: the Common Units issued to the Unitholder pursuant to the
Amended Contribution Agreement on the date of this Agreement or otherwise issued to the Unitholder
pursuant to the Partnership Agreement or otherwise. As to any particular Registrable Securities,
such securities shall cease to be Registrable Securities when (i) a registration statement with
respect to the sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration statement, (ii) a
registration statement on Form S-8 with respect to the sale of such securities shall have become
effective under the Securities Act, (iii) such securities shall have been sold to the public
pursuant to Rule 144 under the Securities Act, or (iv) such securities shall have ceased to be
outstanding. Any and all Common Units which may be issued in respect of, in exchange for, upon
conversion of, or in substitution for any Registrable Securities, whether by reason of any stock
split, stock dividend, reverse stock split, recapitalization, combination, merger, consolidation or
otherwise, shall also be Registrable Securities hereunder.
Registration Expenses: all fees and expenses incurred in connection with the
Partnerships performance of or compliance with any registration pursuant to this Agreement,
including, without limitation, (i) registration, filing and applicable Commission and FINRA fees,
(ii) fees and expenses of complying with securities or blue sky laws, (iii) fees and expenses
associated with listing securities on an exchange, (iv) word processing, duplicating and printing
expenses, (v) messenger and delivery expenses, (vi) transfer agents, trustees, depositories,
registrars and fiscal agents fees, (vii) fees and disbursements of counsel for the Partnership
and of its independent public accountants, including the expenses of any special audits or cold
comfort letters required by, or incident to, such registration, (viii) reasonable fees and
disbursements of any one counsel retained by the Initiating Unitholder and any one counsel retained
by the Participating Unitholders, and (ix) any fees and disbursements of underwriters customarily
paid by issuers or sellers of securities, but excluding underwriting discounts and commissions and
transfer taxes, if any.
Securities Act: the Securities Act of 1933, as amended, or any successor federal
statute, and the rules and regulations thereunder which shall be in effect at the time.
Section 10. Miscellaneous.
10.1. Rule 144, etc. If the Partnership shall have filed a registration statement pursuant to the requirements
of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the
Securities Act relating to any class of equity securities, the Partnership shall file the reports
required to be filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder, and shall take such further action as any holder
of Registrable Securities 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 limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such
rule may be amended from time to time, or (b) any successor rule or
21
regulation hereafter adopted by
the Commission. Upon the request of any holder of Registrable Securities, the Partnership shall
deliver to such holder a written statement as to whether it has complied with such requirements, a
copy of the most recent annual or quarterly report of the Partnership, and such other reports and
documents as such holder may reasonably request in order to avail itself of any rule or regulation
of the Commission allowing it to sell any Registrable Securities without registration.
10.2. Successors, Assigns and Transferees. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective permitted successors, personal representatives and assigns
under this Section 10.2. The Partnership may not assign any of its rights or delegate any of its
duties under this Agreement without the prior written consent of the Majority Voting Holders. The
provisions of this Agreement which are for the benefit of a holder of Registrable Securities shall
be for the benefit of and enforceable by any transferee of such Registrable Securities. Any holder
of Registrable Securities may, at its election and at any time
or from time to time, assign its rights under this Agreement, in whole or in part, to any
Person to whom such holder sells, assigns or otherwise transfers its shares of Registrable
Securities; provided that (i) such transferee acquires such Registrable Securities in accordance
with any then applicable transfer restrictions in respect of such Registrable Securities, (ii) no
such assignment shall be binding upon or obligate the Partnership to any such transferee unless and
until such transferee executes a joinder agreement agreeing to be bound by all of the transferors
obligations hereunder, including, without limitation, Section 5 hereof, copies of which shall have
been delivered to the Partnership (each such transferee, a Permitted Transferee) and (iii) the
rights of the Unitholder to make a Demand Registration pursuant to Section 1.1 may only be assigned
as a whole and not in part (and otherwise in accordance with the other provisions of this proviso).
10.3. Splits, etc. Each holder of Registrable Securities agrees that it will vote to effect a split, reverse
split, recapitalization or combination with respect to any Registrable Securities in connection
with any registration of any Registrable Securities hereunder, or otherwise, if (i) the managing
underwriter shall advise the Partnership in writing (or, in connection with an offering that is not
underwritten, if an investment banker shall advise the Partnership in writing) that in its opinion
such a split, reverse split, recapitalization or combination would facilitate or increase the
likelihood of success of the offering, and (ii) such split, reverse split, recapitalization or
combination does not impact the respective Percentage Interests of each such holder of Registrable
Securities in the Partnership. The Partnership shall cooperate in all respects in effecting any
such split, stock split, recapitalization or combination.
10.4. Amendment and Modification. This Agreement may be amended, waived, modified or supplemented by the Partnership only
with the prior written consent of the Unitholder and a majority (by number of shares) of any other
holders of Registrable Securities whose interests would be adversely affected by such amendment,
waiver, modification or supplement; provided that the interests of any existing holders of
Registrable Securities shall not be adversely affected by an amendment, waiver, modification or
settlement of this Agreement that provides for or has the effect of providing for an additional
grant of incidental registration rights with a lower or the same priority as the rights held by
such existing holders of Registrable Securities, as long as any such grant of incidental
registration rights with the same priority are
22
pari passu with those held by such existing holders
of Registrable Securities. Each holder of Registrable Securities shall be bound by any such
amendment, waiver, modification or supplement authorized in accordance with this Section 10.4,
whether or not such Registrable Securities shall have been marked to indicate such amendment,
waiver, modification or supplement. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a further or continuing waiver of such breach
or as a waiver of any other or subsequent breach, except as otherwise explicitly provided for in
such waiver. Except as otherwise expressly provided herein, no failure on the part of any party to
exercise, and no delay in exercising, any right, power or remedy hereunder, or otherwise available
in respect hereof at law or in equity, shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or remedy by such
party preclude any other or further exercise thereof or the exercise of any other right, power
or remedy. The execution of a counterpart signature page to this Agreement by a Permitted
Transferee pursuant to Section 10.2 shall not require consent of any party hereto and shall not be
deemed an amendment to this Agreement.
10.5. Governing Law; Venue and Service of Process. This Agreement and the rights and obligations of the parties hereunder and the Persons
subject hereto shall be governed by, and construed and interpreted in accordance with, the law of
the State of Delaware, without giving effect to the choice of law principles thereof. By execution
and delivery of this Agreement, each of the parties hereto hereby irrevocably and unconditionally
(i) consents to submit to the exclusive jurisdiction of the courts of the State of New York in New
York County and the United States District Court for the Southern District of New York
(collectively, the Selected Courts) for any action or proceeding arising out of or relating to
this Agreement and the transactions contemplated hereby, and agrees not to commence any action or
proceeding relating thereto except in the Selected Courts, provided, that, a party may commence any
action or proceeding in a court other than a Selected Court solely for the purpose of enforcing an
order or judgment issued by one of the Selected Courts; (ii) consents to service of any process,
summons, notice or document in any action or proceeding by registered first-class mail, postage
prepaid, return receipt requested or by nationally recognized courier guaranteeing overnight
delivery in accordance with Section 10.8 hereof and agrees that such service of process shall be
effective service of process for any action or proceeding brought against it in any such court,
provided, that, nothing herein shall affect the right of any party hereto to serve process in any
other manner permitted by law; (iii) waives any objection to the laying of venue of any action or
proceeding arising out of this Agreement or the transactions contemplated hereby in the Selected
Courts; and (iv) waives and agrees not to plead or claim in any court that any such action or
proceeding brought in any such Selected Court has been brought in an inconvenient forum.
10.6. Invalidity of Provision. The invalidity or unenforceability of any provision of this Agreement in any jurisdiction
shall not affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of this Agreement, including that provision, in any
other jurisdiction.
10.7. Reserved Notices. All notices, requests, demands, letters, waivers and other communications required or
permitted to be given under this Agreement shall be in writing and shall be deemed to have been
duly given if (a) delivered personally, (b) mailed, certified or
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registered mail with postage
prepaid, (c) sent by next-day or overnight mail or delivery or (d) sent by fax, as follows:
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10 E. Cambridge Circle, Ste. 250
Kansas City, Kansas 66103
Attention: Edmund S. Gross
Facsimile No.: 913-982-5651
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Kansas City, Kansas 66103
Attention: Edmund S. Gross
Facsimile No.: 913-981-0000 |
or to such other Person or address as any party shall specify by notice in writing to the
Partnership. All such notices, requests, demands, letters, waivers and other communications shall
be deemed to have been received (w) if by personal delivery, at the time delivered by hand (x) if
by certified or registered mail, on the fifth business day after the mailing thereof, (y) if by
next-day or overnight mail or delivery, on the day delivered, or (z) if by fax, on the day
delivered; provided that such delivery is confirmed.
10.9. Headings: Execution in Counterparts. The headings and captions contained herein are for convenience and shall not control or
affect the meaning or construction of any provision hereof. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and which together shall
constitute one and the same instrument.
10.10. Injunctive Relief. Each of the parties recognizes and agrees that money damages may be insufficient and,
therefore, in the event of a breach of any provision of this Agreement, the aggrieved party may
elect to institute and prosecute proceedings in any court of competent jurisdiction to enforce
specific performance or to enjoin the continuing breach of this Agreement. Such remedies shall,
however, be cumulative and not exclusive, and shall be in addition to any other remedy which such
party may have.
10.11. Term. This Agreement shall be effective as of the date hereof and shall continue in effect
thereafter until the earlier of (a) its termination by the written consent of the parties hereto or
their respective successors in interest and (b) the date on which no Registrable Securities remain
outstanding.
10.12. Further Assurances. Subject to the specific terms of this Agreement, each of the Partnership and the Unitholder
shall make, execute, acknowledge and deliver such other instruments and documents,
and take all such other actions, as may be reasonably required in
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order to effectuate the
purposes of this Agreement and to consummate the transactions contemplated hereby.
10.13. Entire Agreement. This Agreement and any agreements entered into in connection with this Agreement constitute
the entire agreement and the understanding of the parties hereto with respect to the matters
referred to herein. This Agreement and the agreements referred to in the preceding sentence
supersede all prior agreements and understandings between the parties with respect to such matters,
including but not limited to the Original Registration Rights Agreement.
[Signature page follows]
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IN WITNESS WHEREOF this Amended and Restated Agreement has been signed by each of the parties
hereto, and shall be effective as of the date first above written.
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CVR Partners, LP |
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CVR GP, LLC, |
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its General Partner |
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Coffeyville Resources, LLC |
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[Signature Page to CVR Partners, LP Amended and Restated Registration Rights Agreement]
exv10w12
Exhibit 10.12
CVR PARTNERS, LP
AMENDED AND RESTATED
CONTRIBUTION, CONVEYANCE AND ASSUMPTION
AGREEMENT
AMENDED AND RESTATED CONTRIBUTION, CONVEYANCE AND ASSUMPTION
AGREEMENT
This Amended and Restated Contribution, Conveyance and Assumption Agreement, dated as of
, 2011, is entered into by and among COFFEYVILLE RESOURCES, LLC, a Delaware limited liability
company (Coffeyville Resources), CVR GP, LLC, a Delaware limited liability company (the
Managing General Partner), COFFEYVILLE ACQUISITION III LLC, a Delaware limited liability
company (C/A III), CVR Special GP LLC, a Delaware limited liability company (the
Special General Partner) and CVR PARTNERS, LP, a Delaware limited partnership (the
Partnership). The above-named entities are sometimes referred to in this Agreement each
as a Party and collectively as the Parties. Capitalized terms used herein
shall have the meanings assigned to such terms in Section 1.1.
RECITALS:
WHEREAS, Coffeyville Resources, the Managing General Partner, the Partnership and the Special
General Partner are parties to the Original Contribution Agreement.
WHEREAS, the Parties desire to amend and restate the Original Contribution Agreement pursuant
to Section 7.10 thereof.
WHEREAS, Coffeyville Resources, the Managing General Partner and the Special General Partner
have formed the Partnership pursuant to the Delaware Revised Uniform Limited Partnership Act (the
Delaware LP Act) for the purpose of engaging in any business activity that is approved by
and that lawfully may be conducted by a limited partnership organized pursuant to the Delaware LP
Act in accordance with the terms of the Original Partnership Agreement.
WHEREAS, each of the following actions have been taken prior to the date hereof:
1. Coffeyville Resources formed the Managing General Partner under the terms of the
Delaware Limited Liability Company Act (the Delaware LLC Act) and contributed
$1,000 to the Managing General Partner in exchange for all of the member interests in the
Managing General Partner;
2. Coffeyville Resources formed the Special General Partner under the terms of the
Delaware LLC Act and contributed $1,000 to the Special General Partner in exchange for all
of the member interests in the Special General Partner;
3. The Managing General Partner, the Special General Partner and Coffeyville Resources
formed the Partnership under the terms of the Delaware LP Act and (a) the Managing General
Partner contributed $1,000 to the Partnership in exchange for a
managing general partner interest in the Partnership, (b) the Special General Partner
contributed $1,000 to the Partnership in exchange for a non-managing general partner
interest in the Partnership and (c) Coffeyville Resources contributed $1,000 to the
Partnership in exchange for a nominal limited partner interest in the Partnership;
4. Coffeyville Resources Nitrogen Fertilizers, LLC (Fertilizers) distributed
all of its receivables (as of the Original Contribution Effective Time), other than
receivables relating to prepay fertilizer sales contracts to Coffeyville Resources;
5. Coffeyville Resources conveyed:
(a) 1.0% of the Fertilizer Interests to the Partnership, on behalf of the
Managing General Partner, in exchange for the Managing General Partner Interest in
the Partnership issued to the Managing General Partner;
(b) 98.901% of the Fertilizer Interests to the Partnership, on behalf of the
Special General Partner, in exchange for 30,303,000 Special GP Units, representing a
99.9% special general partner interest in the Partnership, issued to the Special
General Partner;
(c) 0.099% of the Fertilizer Interests to the Partnership, on its own behalf,
in exchange for 30,333 Special LP Units, representing a 0.1% limited partner
interest in the Partnership; and
(d) all of the membership interests in the Managing General Partner to C/A III
in exchange for its fair market value of $10.6 million;
6. The Partnership distributed an intercompany note in the amount of $160.0 million to
Coffeyville Resources.
WHEREAS, the Partnership has filed a registration statement on Form S-1 (Registration No.
333-171270) (the Registration Statement) relating to the offering and sale of up to [
] Common Units, including [ ] Common Units to cover over-allotments.
WHEREAS, in connection with the consummation of the transactions contemplated hereby, each of
the following shall occur:
1. The Partnership will distribute all of its cash on hand on the date of the
distribution (other than cash in respect of prepaid sales) to Coffeyville Resources;
2. Coffeyville Resources will contribute 30,333 Special LP Units to the Partnership in
exchange for 0.1% of the Sponsor Consideration;
3. The Special General Partner will contribute 30,303,000 Special GP Units to the
Partnership in exchange for 99.9% of the Sponsor Consideration;
4. The Special General Partner will merge with and into Coffeyville Resources, with
Coffeyville Resources remaining as the surviving entity;
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5. In connection with the Initial Offering, the public, through the Underwriters, will
contribute an amount agreed upon by the Underwriters and the Partnership pursuant to the
Underwriting Agreement less the Underwriters Spread to the Partnership in exchange for the
Firm Units;
6. The Original Partnership Agreement will be amended and restated by adoption of the
Partnership Agreement; and
7. The Partnership will use $[ ] of the proceeds of the Initial Offering to (a) make a
distribution of $[ ] million to Coffeyville Resources ([$18.5] million as a reimbursement
for certain capital expenditures made by Coffeyville Resources during the two-year period
prior to the effective date of the sale of the Managing General Partner to C/A III) and (b)
make a distribution of $[26.0] million to the Managing General Partner to redeem the IDRs
and will retain $[ ] million to (x) pay transaction expenses and (y) for general
partnership purposes.
WHEREAS, the members or partners of the Parties have taken all limited liability company or
partnership action, as the case may be, required to be taken to approve the transactions
contemplated hereby.
WHEREAS, the Partnership may adjust upward or downward the number of Firm Units to be offered
to the public through the Underwriters.
NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Terms.
Capitalized terms used herein but not defined shall have the meanings given them in the
Partnership Agreement. The following defined terms shall have the meanings given below:
Agreement means this Amended and Restated Contribution, Conveyance and Assumption
Agreement, as amended, restated, modified or replaced from time to time.
C/A III has the meaning set forth in the opening paragraph of this Agreement.
Closing means the closing of the sale of the Firm Units to the Underwriters in the
Initial Offering.
Common Unit means a common unit representing a limited partner interest in the
Partnership, with the rights and preferences set forth in the Partnership Agreement.
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Deferred Issuance and Distribution means both (a) the issuance by the Partnership of
a number of additional Common Units that is equal to the excess, if any, of (x) the number of
Option Units over (y) the aggregate number, if any, of Common Units actually purchased by and
issued to the Underwriters pursuant to the Over-Allotment Option on the Option Closing Date(s), and
(b) a distribution in an amount equal to the aggregate amount of cash contributed by the
Underwriters to the Partnership on the Option Closing Date(s) with respect to Common Units issued
by the Partnership upon each exercise of the Over-Allotment Option as described in Section 4.2, if
any.
Delaware LLC Act has the meaning set forth in the recitals hereto.
Delaware LP Act has the meaning set forth in the recitals hereto.
Effective Time means 9:00 am Eastern Time on the date of the Closing.
Fertilizers has the meaning set forth in the recitals hereto.
Fertilizer Interests means the membership interests in Fertilizers.
Fertilizer Interest Liabilities means all liabilities arising out of or related to
the ownership of the Fertilizer Interests to the extent arising or accruing on and after the
effective time of the Original Contribution Agreement, whether known or unknown, accrued or
contingent, and whether or not reflected on the books and records of Fertilizers or its affiliates.
Firm Units means the Common Units to be sold to the Underwriters pursuant to the
terms of the Underwriting Agreement, but does not include any Option Units.
IDRs mean the distribution rights associated with the Managing General Partners
equity interest in the Partnership, as set forth in the Original Partnership Agreement.
Initial Offering means the initial public offering of the Partnerships Common
Units.
Managing General Partner has the meaning set forth in the opening paragraph of this
Agreement.
Managing General Partner Interest means the interest issued by the Partnership to
the Managing General Partner (including the IDRs), having the rights and preferences as set forth
in the Original Partnership Agreement.
Option Units means the Common Units subject to the Over-Allotment Option pursuant to
the Underwriting Agreement.
Option Closing Date means the date or dates on which any Common Units are sold by
the Partnership to the Underwriters upon exercise of the Over-Allotment Option.
Original Contribution Agreement means that certain Contribution, Assignment and
Assumption Agreement dated October 24, 2007, by and among Coffeyville Resources, the Managing
General Partner, the Special General Partner and the Partnership.
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Original Contribution Effective Time means immediately after the close of business
on October 24, 2007.
Original Partnership Agreement means the First Amended and Restated Agreement of
Limited Partnership of CVR Partners, LP, dated as of October 24, 2007.
Over-Allotment Option means the Underwriters Option, pursuant to the Underwriting
Agreement, to purchase from the Partnership a number of Common Units equal to 15% of the Firm
Units, which the Partnership will agree to sell to the Underwriters, at the Underwriters option,
to cover over-allotments in connection with the Initial Offering.
Partnership has the meaning set forth in the opening paragraph of this Agreement.
Partnership Agreement means the Second Amended and Restated Agreement of Limited
Partnership of CVR Partners, LP, to be dated as of as of the date of the Closing, in substantially
the form included as Annex A to the Registration Statement, as such agreement may be amended,
restated or modified from time to time.
Party or Parties has the meaning set forth in the opening paragraph of
this Agreement.
Registration Statement has the meaning set forth in the recitals hereto.
Special General Partner has the meaning set forth in the opening paragraph of this
Agreement.
Special GP Unit means a Special GP unit representing a general partner interest in
the Partnership, with the rights and preferences set forth in the Original Partnership Agreement.
Special LP Unit means a Special LP unit representing a limited partner interest in
the Partnership, with the rights and preferences set forth in the Original Partnership Agreement.
Special Units means the Special GP Units and Special LP Units, collectively.
Sponsor Common Units means [________] Common Units, provided that if the Partnership
increases the number of Firm Units above [_________] Common Units, the Sponsor Common Units will be
decreased by a number of Common Units equal to 115% of such increase, and if the Partnership
decreases the Firm Units below [_________] Common Units, the Sponsor Common Units will be increased
by a number of Common Units equal to 115% of such decrease.
Sponsor Consideration means the Sponsor Common Units and the right to receive the
Deferred Issuance and Distribution.
Underwriters means the underwriting syndicate to be listed in the Underwriting
Agreement.
Underwriters Spread means the total amount of the Underwriters discount.
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Underwriting Agreement means a firm commitment underwriting agreement to be entered
into between the Partnership and the underwriters named in the Registration Statement, as such
agreement may be amended or restated from time to time.
ARTICLE II
ACTIONS TAKEN AT EFFECTIVE TIME
Section 2.1 Distribution of Cash on Hand. The Partnership hereby agrees to distribute, as of the Effective Time, all of its cash on
hand, other than cash in respect of prepaid sales, as of the Effective Time (expected to be
approximately $[ ] million) to Coffeyville Resources.
ARTICLE III
CONTRIBUTIONS AND ACTIONS TAKEN AFTER EFFECTIVE TIME
Section 3.1 Contribution of Special Units to the Partnership. (a) Immediately after the Effective Time, the Special General Partner will grant,
contribute, bargain, convey, assign, transfer, set over and deliver 33,303,000 Special GP Units,
representing a 99.9% interest in the Partnership to the Partnership, its successors and assigns,
for its and their own use forever in exchange for 99.9% of the Sponsor Consideration and (b)
Coffeyville Resources will grant, contribute, bargain, convey, assign, transfer, set over and
deliver 30,333 Special LP Units to the Partnership, its successors and assigns, for its and their
own use forever, in exchange for 0.1% of the Sponsor Consideration. Upon the transfer of the
Special GP Units pursuant to this Section 3.1, the Special General Partner will become a limited
partner of the Partnership and cease to be a general partner of the Partnership, and Sections 5.5
and 5.6 of the Original Partnership Agreement will be of no force and effect.
Section 3.2 Merger of the Special General Partner with and into Coffeyville Resources. The Special General Partner and Coffeyville Resources shall enter into a merger agreement
whereby the Special General Partner will merge with and into Coffeyville Resources, with
Coffeyville Resources remaining as the surviving entity, and file a certificate of merger with the
Secretary of State of the State of Delaware to effect such merger.
Section 3.3 Use of Proceeds from Initial Offering. The Partnership shall use the net proceeds from the Initial Offering in the following
manner:
(i) $[18.5] million to repay Coffeyville Resources for capital expenditures Coffeyville
Resources incurred related to the assets of Fertilizers during the two-year
period prior to the effective date of the sale of the Managing General Partner by
Coffeyville Resources to C/A III;
(ii) $[] million to make a distribution to Coffeyville Resources;
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(iii) $[26.0] million to redeem the IDRs from the Managing General Partner; and
(iv) $[ ] million to (x) pay transaction expenses and (y) for general partnership
purposes.
Section 3.4 Execution of the Partnership Agreement. Coffeyville Resources and the General Partner will amend and restate the Original
Partnership Agreement by executing the Partnership Agreement in substantially the form included as
Appendix A to the Registration Statement, with such changes as are necessary to reflect any
adjustment to the number of Firm Units and Option Units as the Partnership may agree with the
Underwriters and such other changes as Coffeyville Resources and the General Partner may agree.
Section 3.5 Distribution to C/A III. The Managing General Partner will distribute the proceeds it received with respect to the
redemption of the IDRs in Section 3.3(iii) to C/A III.
Section 3.6 Conveyance of the General Partner to Coffeyville Resources. C/A III shall grant, contribute, bargain, convey, assign, transfer, set over and delivers
its interest in the General Partner to Coffeyville Resources in exchange for $[1,000].
Section 3.7 Deferred Issuance and Distribution. Upon the earlier to occur of the expiration of the Over-Allotment Option period or the
exercise in full of the Over-Allotment Option, the Partnership shall issue to Coffeyville Resources
a number of additional Common Units that is equal to the excess, if any, of (x) the total number of
Option Units over (y) the aggregate number of Common Units, if any, actually purchased by and
issued to the Underwriters pursuant to the exercise or exercises of the Over-Allotment Option.
Upon each exercise of the Over-Allotment Option, the Partnership shall distribute to Coffeyville
Resources an amount of cash equal to the net proceeds (after underwriting discounts) of each such
exercise.
ARTICLE IV
FURTHER ASSURANCES
From time to time after the date hereof, and without any further consideration the Parties
agree to execute, acknowledge and deliver all such additional deeds, assignments, bills of sale,
conveyances, instruments, notices, releases, acquittances and other documents, and will do all
such other acts and things, all in accordance with applicable law, as may be necessary or
appropriate (a) more fully to assure that the applicable Parties own all of the properties, rights,
titles, interests, estates, remedies, powers and privileges granted by this Agreement, or which are
intended to be so granted, or (b) more fully and effectively to vest in the applicable Parties and
their respective successors and assigns beneficial and record title to the interests contributed
and assigned by this Agreement or intended so to be and to more fully and effectively carry out the
purposes and intent of this Agreement.
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ARTICLE V
EFFECTIVE TIME; ORDER OF TRANSACTIONS
Notwithstanding anything contained in this Agreement to the contrary, the provisions Article
II shall not be operative or have any effect until the Effective Time, following which time Article
II of this Agreement shall be effective and operative in accordance with this Article V, without
further action by any Party. After the Effective Time, the provisions of Article III shall take
place in the order in which such provisions are listed; provided, however, that if the Initial
Offering is not consummated within six months of the date of this Agreement, this Agreement shall
be of no force and effect and the Original Contribution Agreement shall become effective in its
entirety.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Assumption of Fertilizer Interest Liabilities by the Partnership. The Partnership hereby assumes and agrees to duly and timely pay, perform and discharge the
Fertilizer Interest Liabilities, to the full extent that CR had been obligated, or would have been
obligated in the future, to pay as of the effective time of the Original Contribution Agreement
were it not for the execution and delivery of the Original Contribution Agreement; provided,
however, that said assumption and agreement to duly and timely pay, perform and discharge the
Fertilizer Interest Liabilities shall not (a) increase the obligation of the Partnership with
respect to the Fertilizer Interest Liabilities beyond that of CR, (b) waive any valid defense that
was available to CR with respect to the Fertilizer Interest Liabilities or (c) enlarge any rights
or remedies of any third party, if any, under any of the Fertilizer Interest Liabilities.
Section 6.2 Costs. The Partnership shall pay all expenses, fees and costs, including sales, use and similar
taxes arising out of the contributions, conveyances and deliveries to be made hereunder, and shall
pay all documentary, filing, recording, transfer, deed and conveyance taxes and fees required in
connection therewith. In addition, the Partnership shall be responsible for all costs, liabilities
and expenses (including court costs and reasonable attorneys fees) incurred in
connection with the implementation of any conveyance or delivery pursuant to Article IV of
this Agreement.
Section 6.3 Headings; References; Interpretation. All Article and Section headings in this Agreement are for convenience only and shall not
be deemed to control or affect the meaning or construction of any of the provisions hereof. The
words hereof, herein and hereunder and words of similar import, when used in this Agreement,
shall refer to this Agreement as a whole, and not to any particular provision of this Agreement.
All references herein to Articles and Sections shall, unless the context requires a different
construction, be deemed to be references to the Articles and Sections of this Agreement,
respectively. All personal pronouns used in this Agreement, whether used in the masculine,
feminine or neuter gender, shall include all other genders, and the singular shall include the
plural and vice versa. The terms include, includes, including or words of like import shall
be deemed to be followed by the words without limitation.
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Section 6.4 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their
respective successors and assigns.
Section 6.5 No Third Party Rights. The provisions of this Agreement are intended to bind the parties signatory hereto as to
each other and are not intended to and do not create rights in any other person or confer upon any
other person any benefits, rights or remedies and no person is or is intended to be a third party
beneficiary of any of the provisions of this Agreement.
Section 6.6 Counterparts. This Agreement may be executed in any number of counterparts, all of which together shall
constitute one agreement binding on the Parties.
Section 6.7 Governing Law; Forum, Venue and Jurisdiction.
(a) This Agreement shall be subject to and governed by the laws of the State of New York.
(b) Each of the Parties:
(i) irrevocably agrees that any claims, suits, actions or proceedings arising out of or
relating in any way to this Agreement shall be exclusively brought in the Court of Chancery
of the State of Delaware;
(ii) irrevocably submits to the exclusive jurisdiction of the Court of Chancery of the
State of Delaware in connection with any such claim, suit, action or proceeding;
(iii) agrees not to, and waives any right to, assert in any such claim, suit, action or
proceeding that (A) it is not personally subject to the jurisdiction of the Court of
Chancery of the State of Delaware or of any other court to which proceedings in the Court of
Chancery of the State of Delaware may be appealed, (B) such claim, suit, action or
proceeding is brought in an inconvenient forum, or (C) the venue of such claim, suit, action
or proceeding is improper;
(iv) expressly waives any requirement for the posting of a bond by a Party bringing
such claim, suit, action or proceeding; and
(v) consents to process being served in any such claim, suit, action or proceeding by
mailing, certified mail, return receipt requested, a copy thereof to such Party at the
address in effect for notices hereunder, and agrees that such services shall constitute good
and sufficient service of process and notice thereof; provided, nothing in clause (v) hereof
shall affect or limit any right to serve process in any other manner permitted by law.
Section 6.8 Severability. If any of the provisions of this Agreement are held by any court of competent jurisdiction
to contravene, or to be invalid under, the laws of any political body having jurisdiction over the
subject matter hereof, such contravention or invalidity shall not invalidate the entire Agreement.
Instead, this Agreement shall be construed as if it did not contain the particular provision or
provisions held to be invalid, and an equitable adjustment
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shall be made and necessary provision
added so as to give effect to the intention of the Parties as expressed in this Agreement at the
time of execution of this Agreement.
Section 6.9 Amendment or Modification. This Agreement may be amended or modified from time to time only by the written agreement
of all the Parties.
Section 6.10 Integration. This Agreement and the instruments referenced herein supersede all previous understandings
or agreements among the Parties, whether oral or written, with respect to its subject matter. This
document and such instruments contain the entire understanding of the Parties with respect to the
subject matter hereof and thereof. No understanding, representation, promise or agreement, whether
oral or written, is intended to be or shall be included in or form part of this Agreement unless it
is contained in a written amendment hereto executed by the Parties after the date of this
Agreement.
Section 6.11 Deed; Bill of Sale; Assignment. To the extent required and permitted by applicable law, this Agreement shall also
constitute a deed, bill of sale or assignment of the assets and interests referenced herein.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed by the Parties as of the date first
written above.
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CVR PARTNERS, LP
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CVR Partners, LP
Amended and Restated Contribution, Conveyance and Assumption Agreement
Signature Page
exv10w13
Exhibit 10.13
CVR PARTNERS, LP
LONG-TERM INCENTIVE PLAN
1. Purpose.
The CVR Partners, LP Long-Term Incentive Plan has been adopted by CVR GP, LLC, a Delaware
limited liability company (the General Partner), the general partner of CVR Partners, LP,
a Delaware limited partnership (the Partnership), and is intended to strengthen the
Partnership by providing an incentive to its and its Subsidiaries and Parents employees,
officers, consultants and directors, thereby encouraging them to devote their abilities and
industry to the success of the Partnerships business enterprise. It is intended that this purpose
be achieved by extending to employees (including future employees who have received a formal
written offer of employment), officers, consultants and directors of the Partnership and its
Subsidiaries and Parents an added incentive for high levels of performance and unusual efforts
through the grant of awards in respect of Units.
2. Definitions.
For purposes of the Plan:
2.1 Affiliate means any entity, directly or indirectly, controlled by, controlling
or under common control with the Partnership.
2.2 Agreement means a written or electronic agreement between the Partnership and a
Participant evidencing the grant of an Option or Award and setting forth the terms and conditions
thereof.
2.3 Award means a grant of a Restricted Unit, Phantom Unit, Unit Appreciation Right,
Distribution Equivalent Right, or Other Unit-Based Award or any or all of them.
2.4 Beneficiary means an individual designated as a Beneficiary pursuant to Section
18.4.
2.5 Board means the Board of Directors of the General Partner.
2.6 Cause means, with respect to the termination of a Participants employment or
services by the Partnership or any Subsidiary or Parent of the Partnership that employs such
individual or to which the Participant performs services (or by the Partnership on behalf of any
such Subsidiary or Parent), such Participants (i) refusal or neglect to perform substantially his
or her employment-related duties or services, (ii) personal dishonesty, incompetence, willful
misconduct or breach of fiduciary duty, (iii) indictment for, conviction of or entering a plea of
guilty or nolo contendere to a crime constituting a felony or his or her willful violation of any
applicable law (other than a traffic violation or other offense or violation outside of the course
of employment or services to the Partnership or its Subsidiaries or Parents which in no way
adversely affects the Partnership or any of its Subsidiaries or Parents or any of their reputation,
or the ability of the Participant to perform his or her employment-related duties
or services or to represent the Partnership or any Subsidiary or Parent of the Partnership
that employs such Participant or to which the Participant performs services), (iv) failure to
reasonably cooperate, following a request to do so by the Partnership, in any internal or
governmental investigation of the Partnership or any of its Subsidiaries or Parents or (v) material
breach of any written covenant or agreement with the Partnership or any of its Subsidiaries or
Parents not to disclose any information pertaining to the Partnership or such Subsidiary or Parent
or not to compete or interfere with the Partnership or such Subsidiary or Parent; provided that, in
the case of any Participant who, as of the date of determination, is party to an effective
services, severance or employment agreement with the Partnership or any Subsidiary or Parent of the
Partnership, Cause shall have the meaning, if any, specified in such agreement.
2.7 Change in Capitalization means any increase or reduction in the number of Units,
any change (including, but not limited to, in the case of a spin-off, or other distribution in
respect of Units, a change in value) in the Units or any exchange of Units for a different number
or kind of units or other securities of the Partnership or another corporation, by reason of a
reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up,
issuance of warrants, rights or debentures, stock distribution, stock split or reverse stock split,
cash distribution, property distribution, combination or exchange of units, repurchase of units,
change in corporate structure or otherwise.
2.8 Change in Control means the occurrence of any of the following: (a) CVR Energy and its wholly owned Subsidiaries ceasing to own, beneficially and of record,
outstanding equity interests in the General Partner representing more than 50% of each of the
aggregate ordinary voting power (or, if the General Partner shall be a partnership, of the general
partner interests) and the aggregate equity value represented by the issued and outstanding equity
interests in the General Partner; (b) the failure by the General Partner to be the sole general
partner of and to own, beneficially and of record, 100% of the general partner interests in the
Partnership; or (c) CVR Energy and its wholly owned Subsidiaries ceasing to own, beneficially and
of record, equity interests in the Partnership representing at least 25% of the aggregate equity
value represented by the issued and outstanding equity interests in the Partnership.
2.9 Code means the Internal Revenue Code of 1986, as amended.
2.10 Committee means the Committee which administers the Plan as provided in Section
3.
2.11 Director means a member of the Board.
2,12 Disability means a Participants inability, due to physical or mental ill
health, to perform the essential functions of the Participants job, with or without a reasonable
accommodation, for 180 days during any 365 day period irrespective of whether such days are
consecutive; provided that, in the case of any Participant who is a party to an effective services,
severance or employment agreement with the Partnership or any of its Subsidiaries or Parents, the
meaning for Disability will have the meaning (if any) specified in such agreement.
2.13 Division means any of the operating units or divisions of the Partnership
designated as a Division by the Committee.
2.14 Distribution Equivalent Right means a right to receive cash, Units or other
property based on the value of distributions that are paid with respect to Units.
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2.15 Effective Date means the date of approval of the Plan by the Partnerships
Board pursuant to Section 18.5.
2.16 Eligible Individual means any of the following individuals: (a) any Director,
officer or employee of the Partnership or any Subsidiary or Parent of the Partnership, (b) any
individual to whom the Partnership or any Subsidiary or Parent of the Partnership has extended a
formal, written offer of employment, and (c) any consultant or advisor of the Partnership or any
Subsidiary or Parent of the Partnership.
2.17 Exchange Act means the Securities Exchange Act of 1934, as amended.
2.18 Fair Market Value on any date means:
(a) if the Units are listed for trading on the New York Stock Exchange, the closing price at
the close of the primary trading session of the Units on such date on the New York Stock Exchange,
or if there has been no such closing price of the Units on such date, on the next preceding date on
which there was such a closing price;
(b) if the Units are not listed for trading on the New York Stock Exchange, but are listed on
another national securities exchange, the closing price at the close of the primary trading session
of the Units on such date on such exchange, or if there has been no such closing price of the Units
on such date, on the next preceding date on which there was such a closing price;
(c ) if the Units are not listed on the New York Stock Exchange or on another national
securities exchange, the last sale price at the end of normal market hours of the Units on such
date as quoted on the National Association of Securities Dealers Automated Quotation System
(NASDAQ) or, if no such price shall have been quoted for such date, on the next preceding
date for which such price was so quoted; or
(d) if the Units are not listed for trading on a national securities exchange or are not
authorized for quotation on NASDAQ, the fair market value of the Units as determined in good faith
by the Committee.
2.19 Full Value Award means a grant of a Restricted Unit, Phantom Unit, Other
Unit-Based Award or any or all of them.
2.20 General Partner has the meaning set forth in Section 1.
2.21 Good Reason means with respect to any Participant who is a party to an
effective services, severance or employment agreement with the Partnership or any of its
Affiliates, the meaning for Good Reason specified in such agreement.
2.22 Initial Public Offering means the consummation of the first public offering of
Units pursuant to a registration statement (other than a Form S-8 or successor forms) filed with,
and declared effective by, the Securities and Exchange Commission.
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2.23 Nonemployee Director means a Director who is a nonemployee director within
the meaning of Rule 16b-3 promulgated under the Exchange Act.
2.24 Option means an award granted pursuant to Section 5.
2.25 Other Unit-Based Award means awards granted pursuant to Section 9.
2.26 Parent of a specified person means an affiliate controlling such person
directly, or indirectly through one or more intermediaries.
2.27 Participant means a person to whom an Award or Option has been granted under
the Plan.
2.28 Partnership has the meaning set forth in Section 1.
2.29 Phantom Units means rights granted to an Eligible Individual under Section 8
representing a number of hypothetical Units.
2.30 Plan means this CVR Partners, LP Long-Term Incentive Plan, as amended from time
to time.
2.31 Restricted Units means Units issued or transferred to an Eligible Individual
pursuant to Section 8.
2.32 Retirement means a Participants termination or resignation of employment with
the Partnership or any of its Affiliates for any reason (other than for Cause or by reason of the
Participants death) following the date the Participant attains age 65; provided that, in the case
of any Participant who is a party to an effective services, severance or employment agreement with
the Partnership or any of its Affiliates, the meaning of Retirement will have the meaning (if
any) specified in such agreement.
2.33 Subsidiary means (a) any entity, whether or not incorporated, in which the
Partnership directly or indirectly owns at least 50% or more of the outstanding equity or other
ownership interests, and (b) any Affiliate controlled by the Partnership, directly or indirectly,
through one or more intermediaries.
2.34 Termination Date means the date that is ten (10) years after the Effective
Date, unless the Plan is earlier terminated by the Board pursuant to Section 14 hereof.
2.35 Unit Appreciation Right means a right to receive all or some portion of the
increase, if any, in the value of the Units as provided in Section 6 hereof.
2.36 Units means common units representing limited partnership interests in the
Partnership and any other securities into which such Units are changed or for which such units are
exchanged.
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3. Administration.
3.1 Committees; Procedure. The Plan shall be administered by a Committee which, until
the Board appoints a different Committee, shall be the Compensation Committee of the Board. The
Committee may adopt such rules, regulations and guidelines as it deems are necessary or appropriate
for the administration of the Plan. The Committee shall consist of at least two (2) Directors and
may consist of the entire Board; provided, however, that if the Committee consists of less than the
entire Board, then, with respect to any Option or Award granted to an Eligible Individual who is
subject to Section 16 of the Exchange Act, the Committee shall consist of at least two (2)
Directors, each of whom shall be a Non-Employee Director. For purposes of the preceding sentence,
if one or more members of the Committee is not a Nonemployee Director and an Outside Director but
recuses himself or herself or abstains from voting with respect to a particular action taken by the
Committee, then the Committee, with respect to that action, shall be deemed to consist only of the
members of the Committee who have not recused themselves or abstained from voting.
3.2 Board Reservation and Delegation. The Board may, in its discretion, reserve to
itself or exercise any or all of the authority and responsibility of the Committee hereunder and
may consist of one or more Directors who may, but need not be officers or employees of the
Partnership. To the extent the Board has reserved to itself, or exercised the authority and
responsibility of the Committee, all references to the Committee in the Plan shall be to the Board.
3.3 Committee Powers. Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time to:
(a) select those Eligible Individuals to whom Options shall be granted under the Plan and the
number of such Options to be granted and prescribe the terms and conditions (which need not be
identical) of each such Option, including the exercise price per Unit, the vesting schedule and the
duration of each Option, and make any amendment or modification to any Option Agreement consistent
with the terms of the Plan;
(b) select those Eligible Individuals to whom Awards shall be granted under the Plan and
determine the number of Units or amount of cash in respect of which each Award is granted, the
terms and conditions (which need not be identical) of each such Award, and make any amendment or
modification to any Agreement consistent with the terms of the Plan;
(c) construe and interpret the Plan and the Options and Awards granted hereunder and
establish, amend and revoke rules and regulations for the administration of the Plan, including,
but not limited to, correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Agreement, in the manner and to the extent it shall deem
necessary or advisable, including so that the Plan and the operation of the Plan comply with Rule
16b-3 under the Exchange Act, the Code to the extent applicable and other applicable law, and
otherwise to make the Plan fully effective;
- 5 -
(d) determine the duration and purposes for leaves of absence which may be granted to a
Participant on an individual basis without constituting a termination of employment or service for
purposes of the Plan;
(e) cancel, with the consent of the Participant, outstanding Awards and Options;
(f) exercise its discretion with respect to the powers and rights granted to it as set forth
in the Plan; and
(g) generally, exercise such powers and perform such acts as are deemed necessary or advisable
to promote the best interests of the Partnership with respect to the Plan.
All decisions and determinations by the Committee in the exercise of the above powers shall be
final, binding and conclusive upon the Partnership, its Subsidiaries and Parents, the Participants
and all other persons having any interest therein.
3.4 Notwithstanding anything herein to the contrary, with respect to Participants working
outside the United States, the Committee may determine the terms and conditions of Options and
Awards and make such adjustments to the terms thereof as are necessary or advisable to fulfill the
purposes of the Plan taking into account matters of local law or practice, including tax and
securities laws of jurisdictions outside the United States.
3.5 Indemnification. No member of the Committee shall be liable for any action,
failure to act, determination or interpretation made in good faith with respect to the Plan or any
transaction hereunder. The Partnership hereby agrees to indemnify each member of the Committee for
all costs and expenses and, to the extent permitted by applicable law, any liability incurred in
connection with defending against, responding to, negotiating for the settlement of or otherwise
dealing with any claim, cause of action or dispute of any kind arising in connection with any
actions in administering the Plan or in authorizing or denying authorization to any transaction
hereunder.
3.6 No Repricing of Options or Unit Appreciation Rights. The Committee shall have no
authority to make any adjustment (other than in connection with a stock distribution,
recapitalization or other transaction where an adjustment is permitted or required under the terms
of the Plan) or amendment, and no such adjustment or amendment shall be made, that reduces or would
have the effect of reducing the exercise price of an Option or Unit Appreciation Right previously
granted under the Plan, whether through amendment, cancellation or replacement grants, or other
means.
4. Units Subject to the Plan; Grant Limitations.
4.1 Aggregate Number of Units Authorized for Issuance. Subject to any adjustment as
provided in the Plan, the Units to be issued under the Plan may be, in whole or in part, newly
issued Units or issued Units which shall have been reacquired by the Partnership.
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The aggregate number of Units that may be issued to Participants under the Plan shall not
exceed []. Any Units delivered pursuant to an Award or an Option shall consist, in whole or in
part, of Units acquired in the open market, from any Affiliate, the Partnership or any other
Person, or any combination of the foregoing, as determined by the Committee in its discretion.
4.2 Calculating Units Available.
(a) Upon the granting of an Award or an Option, the number of Units available under this
Section 4 for the granting of further Awards and Options shall be reduced as follows:
(i) In connection with the granting of an Option, Unit Appreciation Right, Restricted Unit,
Phantom Unit, or Other Unit-Based Award, the number of Units available under this Section 4 for the
granting of further Options and Awards shall be reduced by the number of Units in respect of which
the Option or Award is granted or denominated.
(ii) In connection with the granting of a Distribution Equivalent Right, the number of Units
available under this Section 4 shall not be reduced; provided, however, that if Units are issued in
settlement of a Distribution Equivalent Right, the number of Units available for the granting of
further Options and Awards under this Section 4 shall be reduced by the number of Units so issued.
(b) Notwithstanding Section 4.2(a), in the event that an Award is granted that, pursuant to
the terms of the Agreement, cannot be settled in Units, the aggregate number of Units that may be
made the subject of Awards or Options granted under the Plan shall not be reduced. Whenever any
outstanding Option or Award or portion thereof expires, is canceled, is forfeited, is settled in
cash or is otherwise terminated for any reason without having been exercised or payment having been
made in respect of the entire Option or Award, the number of Units previously allocable to the
expired, forfeited canceled, settled or otherwise terminated portion of the Option or Award shall
again be available for the granting of Options or Awards under the Plan.
(c) Notwithstanding anything in this Section 4.2 to the contrary, (i) Units tendered as full
or partial payment of the Option Price shall not increase the number of Units available under this
Section 4, (ii) Units tendered as settlement of tax withholding obligations shall not increase the
number of Units available under this Section 4, and (iii) Units repurchased by the Partnership
using proceeds from the exercise of Options shall not be available for issuance under the Plan.
5. Options.
5.1 Authority of Committee. Subject to the provisions of the Plan, the Committee
shall have full and final authority to select those Eligible Individuals who will receive Options,
and the terms and conditions of the grant to any such Eligible Individual shall be set forth in an
Agreement.
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5.2 Exercise Price. The purchase price or the manner in which the exercise price is
to be determined for Units under each Option shall be determined by the Committee and set forth in
the Agreement; provided, however, that the exercise price per Unit under each Option shall not be
less than the greater of (i) the par value of a Unit and (ii) 100% of the Fair Market Value of a
Unit on the date the Option is granted.
5.3 Maximum Duration. Options granted hereunder shall be for such term as the
Committee shall determine; provided, that an Option shall not be exercisable after the expiration
of ten (10) years from the date it is granted; provided, further, however, that unless the
Committee provides otherwise, an Option may, upon the death of the Participant prior to the
expiration of the Option, be exercised for up to one (1) year following the date of the
Participants death, even if such period extends beyond ten (10) years from the date the Option is
granted. The Committee may, subsequent to the granting of any Option, extend the term thereof, but
in no event shall the term as so extended exceed the maximum term provided for in the preceding
sentence.
5.4 Vesting. The Committee shall determine the time or times at which an Option shall
become vested and exercisable. To the extent not exercised, installments shall accumulate and be
exercisable, in whole or in part, at any time after becoming exercisable, but not later than the
date the Option expires. The Committee may accelerate the exercisability of any Option or portion
thereof at any time.
5.5 Transferability. Except as otherwise provided in this Section 5.5, no Option
shall be transferable by the Participant otherwise than by will or by the laws of descent and
distribution, and an Option shall be exercisable during the lifetime of such Participant only by
the Participant or his or her guardian or legal representative. The Committee may set forth in the
Agreement evidencing an Option at the time of grant or thereafter, that the Option, or a portion
thereof, may be transferred to any third party, including but not limited to, members of the
Participants immediate family, to trusts solely for the benefit of such immediate family members
and to partnerships in which such family members and/or trusts are the only partners. In addition,
for purposes of the Plan, unless otherwise determined by the Committee at the time of grant or
thereafter, a transferee of an Option pursuant to this Section 5.5 shall be deemed to be the
Participant; provided that the rights of any such transferee thereafter shall be nontransferable
except that such transferee, where applicable under the terms of the transfer by the Participant,
shall have the right previously held by the Participant to designate a Beneficiary. For this
purpose, immediate family means the Participants spouse, parents, children, stepchildren and
grandchildren and the spouses of such parents, children, stepchildren and grandchildren. The terms
of an Option shall be final, binding and conclusive upon the beneficiaries, executors,
administrators, heirs and successors of the Participant. Notwithstanding Section 18.2, or the
terms of any Agreement, neither the Partnership nor any of its Subsidiaries or Parents shall
withhold any amount attributable to the Participants tax liability from any payment of cash or
Units to a transferee or transferees Beneficiary under this Section 5.5, but may require the
payment of an amount equal to the Partnerships or any of its Subsidiaries or Parents withholding
tax obligation as a condition to exercise or as a condition to the release of cash or Units upon
exercise or upon transfer of the option.
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5.6 Method of Exercise. The exercise of an Option shall be made only by giving
written notice delivered in person or by mail to the person designated by the Partnership,
specifying the number of Units to be exercised and, to the extent applicable, accompanied by
payment therefor and otherwise in accordance with the Agreement pursuant to which the Option was
granted. The exercise price for any Units purchased pursuant to the exercise of an Option shall be
paid in any or any combination of the following forms: (a) cash or its equivalent (e.g., a check)
or (b) if permitted by the Committee, the transfer, either actually or by attestation, to the
Partnership of Units that have been held by the Participant for at least six (6) months (or such
lesser period as may be permitted by the Committee) prior to the exercise of the Option, such
transfer to be upon such terms and conditions as determined by the Committee or (c) in the form of
other property as determined by the Committee. In addition, Options may be exercised through a
registered broker-dealer pursuant to such cashless exercise procedures that are, from time to time,
deemed acceptable by the Committee. Any Units transferred to the Partnership as payment of the
exercise price under an Option shall be valued at their Fair Market Value on the last business day
preceding the date of exercise of such Option. If requested by the Committee, the Participant
shall deliver the Agreement evidencing the Option to the Partnership, which shall endorse thereon a
notation of such exercise and return such Agreement to the Participant. No fractional Units (or
cash in lieu thereof) shall be issued upon exercise of an Option and the number of Units that may
be purchased upon exercise shall be rounded to the nearest number of whole Units.
5.7 Rights of Participants. No Participant shall be deemed for any purpose to be the
owner of any Units subject to any Option unless and until (a) the Option shall have been exercised
pursuant to the terms thereof, (b) the Partnership shall have issued and delivered Units (whether
or not certificated) to the Participant, a securities broker acting on behalf of the Participant or
such other nominee of the Participant, and (c) the Participants name, or the name of his or her
broker or other nominee, shall have been entered as a unitholder of record on the books of the
Partnership. Thereupon, the Participant shall have full voting, distribution and other ownership
rights with respect to such Units, subject to such terms and conditions as may be set forth in the
applicable Agreement.
5.8 Effect of Change in Control. The effect of a Change in Control on an Option may
be set forth in the applicable Agreement.
6. Unit Appreciation Rights.
6.1 Grant. The Committee may in its discretion, grant Unit Appreciation Rights to
Eligible Individuals in accordance with the Plan, the terms and conditions of which shall be set
forth in an Agreement.
6.2 Terms; Duration. Unit Appreciation Rights shall contain such terms and conditions
as to exercisability, vesting and duration as the Committee shall determine, but in no event shall
they have a term of greater than ten (10) years; provided that unless the Committee provides
otherwise, a Unit Appreciation Right may, upon the death of the Participant prior to the expiration
of the Award, be exercised for up to one (1) year following the date of the
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Participants death even if such period extends beyond ten (10) years from the date the Unit
Appreciation Right is granted.
6.3 Amount Payable. Upon exercise of a Unit Appreciation Right, the Grantee shall be
entitled to receive an amount determined by multiplying (i) the excess of the Fair Market Value of
a Unit on the last business day preceding the date of exercise of such Unit Appreciation Right over
the Fair Market Value of a Unit on the date the Unit Appreciation Right was granted, by (ii) the
number of Units as to which the Unit Appreciation Right is being exercised. Notwithstanding the
foregoing, the Committee may limit in any manner the amount payable with respect to any Unit
Appreciation Right by including such a limit in the Agreement evidencing the Unit Appreciation
Right at the time it is granted.
6.4 Transferability. (i) Except as otherwise provided in this Section 6.4, no Unit
Appreciation Right shall be transferable by the Participant otherwise than by will or the laws of
descent and distribution, and a Unit Appreciation Right shall be exercisable during the lifetime of
such Participant only by the Participant or his or her guardian or legal representative. The
Committee may set forth in the Agreement evidencing a Unit Appreciation Right at the time of grant
or thereafter, that the Award, or a portion thereof, may be transferred to any third party,
including but not limited to, members of the Participants immediate family, to trusts solely for
the benefit of such immediate family members and to partnerships in which such family members
and/or trusts are the only partners. In addition, for purposes of the Plan, unless otherwise
determined by the Committee at the time of grant or thereafter, a transferee of a Unit Appreciation
Right pursuant to this Section 6.4 shall be deemed to be the Participant; provided that the rights
of any such transferee thereafter shall be nontransferable except that such transferee, where
applicable under the terms of the transfer by the Participant, shall have the right previously held
by the Participant to designate a Beneficiary. For this purpose, immediate family means the
Participants spouse, parents, children, stepchildren and grandchildren and the spouses of such
parents, children, stepchildren and grandchildren. Notwithstanding Section 18.2, or the terms of
any Agreement, neither the Partnership nor any of its Subsidiaries or Parents shall withhold any
amount attributable to the Participants tax liability from any payment of cash or Units to a
transferee or transferees Beneficiary under this Section 6.4, but may require the payment of an
amount equal to the Partnerships or any of its Subsidiaries or Parents withholding tax
obligation as a condition to exercise or as a condition to the release of cash or Units upon
exercise or upon transfer of the Unit Appreciation Right.
6.5 Method of Exercise. Unit Appreciation Rights shall be exercised by a Participant
only by giving written notice delivered in person or by mail to the person designated by the
Partnership, specifying the number of Units with respect to which the Unit Appreciation Right is
being exercised. If requested by the Committee, the Participant shall deliver the Agreement
evidencing the Unit Appreciation Right being exercised and the Agreement evidencing any related
Option to the Partnership, which shall endorse thereon a notation of such exercise and return such
Agreement to the Participant.
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6.6 Form of Payment. Payment of the amount determined under Section 6.3 may be made
in the discretion of the Committee solely in whole Units in a number determined at their Fair
Market Value on the last business day preceding the date of exercise of the Unit Appreciation
Right, or solely in cash, or in a combination of cash and Units. If the Committee decides to make
full payment in Units and the amount payable results in a fractional Unit, payment for the
fractional Unit will be made in cash.
6.7 Effect of Change in Control. The effect of a Change in Control on a Unit
Appreciation Right may be set forth in the applicable Agreement.
7. Distribution Equivalent Rights.
The Committee may in its discretion, grant Distribution Equivalent Rights either in tandem
with an Option or Award or as a separate Award, to Eligible Individuals in accordance with the
Plan. The terms and conditions applicable to each Distribution Equivalent Right shall be
specified in the Agreement under which the Distribution Equivalent Right is granted. Amounts
payable in respect of Distribution Equivalent Rights may be payable currently or, if applicable,
deferred until the lapsing of restrictions on such Distribution Equivalent Rights or until the
vesting, exercise, payment, settlement or other lapse of restrictions on the Option or Award to
which the Distribution Equivalent Rights relate; provided, that Distribution Equivalent
Rights may not contain payment or other terms that could adversely affect the Option or Award to
which it relates under Section 409A of the Code or otherwise. In the event that the amount
payable in respect of Distribution Equivalent Rights are to be deferred, the Committee shall
determine whether such amounts are to be held in cash or reinvested in Units or deemed
(notionally) to be reinvested in Units. If amounts payable in respect of Distribution
Equivalent Rights are to be held in cash, there may be credited at the end of each year (or
portion thereof) interest on the amount of the account at the beginning of the year at a rate
per annum as the Committee, in its discretion, may determine. Distribution Equivalent Rights
may be settled in cash or Units or a combination thereof, in a single installment or multiple
installments, as determined by the Committee.
8. Restricted Units; Phantom Units.
8.1 Restricted Units. The Committee may grant to Eligible Individuals Awards of
Restricted Units, which shall be evidenced by an Agreement. Each Agreement shall contain such
restrictions, terms and conditions as the Committee may, in its discretion, determine and (without
limiting the generality of the foregoing) such Agreements may require that an appropriate legend be
placed on Unit certificates. Awards of Restricted Units shall be subject to the terms and
provisions set forth below in this Section 8.1.
(a) Rights of Participant. Restricted Units granted pursuant to an Award hereunder
shall be issued in the name of the Participant as soon as reasonably practicable after the Award is
granted provided that the Participant has executed an Agreement evidencing the Award, the
appropriate blank stock powers and, in the discretion of the Committee, an escrow agreement and any
other documents which the Committee may require as a condition to
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the issuance of such Units. At the discretion of the Committee, Units issued in connection
with an Award of Restricted Units shall be deposited together with the stock powers with an escrow
agent (which may be the Partnership) designated by the Committee. Unless the Committee determines
otherwise and as set forth in the Agreement, upon delivery of the Units to the escrow agent, the
Participant shall have all of the rights of a unitholder with respect to such Units, including the
right to vote the Units and to receive all distributions paid or made with respect to the Units.
(b) Non-transferability. Until all restrictions upon Restricted Units awarded to a
Participant shall have lapsed in the manner set forth in Section 8.1(c), such Units shall not be
sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated.
(c) Lapse of Restrictions.
(i) Generally. Restrictions upon Restricted Units awarded hereunder shall lapse at
such time or times and on such terms and conditions as the Committee may determine. The Agreement
evidencing the Award shall set forth any such restrictions.
(ii) Effect of Change in Control. The effect of a Change in Control on an Awards of
Restricted Units may be set forth in the applicable Agreement.
(d) Treatment of Distributions. At the time an Award of Restricted Units is granted,
the Committee may, in its discretion, determine that the payment to the Participant of
distributions, or a specified portion thereof, made in respect of such Units by the Partnership
shall be (i) deferred until the lapsing of the restrictions imposed upon such Units and (ii) held
by the Partnership for the account of the Participant until such time. In the event that
distributions are to be deferred, the Committee shall determine whether such distributions are to
be reinvested in Units (which shall be held as additional Restricted Units) or held in cash. If
deferred distributions are to be held in cash, there may be credited interest on the amount of the
account at such times and at a rate per annum as the Committee, in its discretion, may determine.
Payment of deferred distributions in respect of Restricted Units (whether held in cash or as
additional Restricted Units), together with interest accrued thereon, if any, shall be made upon
the lapsing of restrictions imposed on the Units in respect of which the deferred distributions
were made, and any distributions deferred (together with any interest accrued thereon) in respect
of any Restricted Units shall be forfeited upon the forfeiture of such Units.
(e) Delivery of Units. Upon the lapse of the restrictions on Restricted Units, the
Committee shall cause a unit certificate or other evidence of issuance of Units to be delivered to
the Participant with respect to such Restricted Units, free of all restrictions hereunder.
8.2 Phantom Unit Awards. The Committee may grant to Eligible Individuals Phantom
Units, which shall be evidenced by an Agreement. Each such Agreement shall contain
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such restrictions, terms and conditions as the Committee may, in its discretion, determine.
Phantom Units shall be subject to the terms and provisions set forth below in this Section 8.2.
(a) Payment of Awards. Each Phantom Unit shall represent the right of the Participant
to receive a payment upon vesting of the Phantom Unit or on any later date specified by the
Committee equal to the Fair Market Value of a Unit as of the date the Phantom Unit was granted, the
vesting date or such other date as determined by the Committee at the time the Phantom Unit was
granted. The Committee may, at the time a Phantom Unit is granted, provide a limitation on the
amount payable in respect of each Phantom Unit. The Committee may provide for the settlement of
Phantom Units in cash or with Units having a Fair Market Value equal to the payment to which the
Participant has become entitled.
(b) Effect of Change in Control. The effect of a Change in Control on an Award of
Phantom Units shall be set forth in the applicable Agreement.
9. Other Unit-Based Awards.
The Committee may grant Other Unit-Based Awards to any Eligible Individual on such terms and
conditions as the Committee may determine in its sole discretion. Other Unit-Based Awards may be
made as additional compensation for services rendered by the Eligible Individual or may be in lieu
of cash or other compensation to which the Eligible Individual is entitled from the Partnership.
10. Effect of a Termination of Employment.
The Agreement evidencing the grant of each Option and each Award shall set forth the terms
and conditions applicable to such Option or Award upon (a) a termination or change in the status
of the employment of the Participant by the Partnership, a Subsidiary or Parent of the
Partnership, or a Division (including a termination or change by reason of the sale of any
Subsidiary or Parent of the Partnership, or a Division), or (b) in the case of a Director, the
cessation of the Directors service on the Board, which shall be as the Committee may, in its
discretion, determine at the time the Option or Award is granted or thereafter.
11. Adjustment Upon Changes in Capitalization.
11.1 In the event of a Change in Capitalization, the Committee shall conclusively determine
the appropriate adjustments, if any, to (a) the maximum number and class of Units or other stock or
securities with respect to which Options or Awards may be granted under the Plan and (b) the number
and class of Units or other stock or securities, cash or other property which are subject to
outstanding Options or Awards granted under the Plan and the exercise price therefore, if
applicable.
11.2 If, by reason of a Change in Capitalization, a Participant shall be entitled to, or shall
be entitled to exercise an Option with respect to, new, additional or different units or securities
of the Partnership or any other corporation, such new, additional or different securities shall
thereupon be subject to all of the conditions, restrictions and performance criteria which
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were applicable to the Units subject to the Award or Option, as the case may be, prior to such
Change in Capitalization.
12. Effect of Certain Transactions.
Subject to the terms of an Agreement, following (a) the liquidation or dissolution of the
Partnership or (b) a merger or consolidation of the Partnership (a Transaction), either (i)
each outstanding Option or Award shall be treated as provided for in the agreement entered into
in connection with the Transaction or (ii) if not so provided in such agreement, each Optionee
and Grantee shall be entitled to receive in respect of each Unit subject to any outstanding
Options or Awards, as the case may be, upon exercise of any Option or payment or transfer in
respect of any Award, the same number and kind of stock, securities, cash, property or other
consideration that each holder of a Unit was entitled to receive in the Transaction in respect of
a Unit; provided, however, that such stock, securities, cash, property, or other consideration
shall remain subject to all of the conditions, restrictions and performance criteria which were
applicable to the Options and Awards prior to such Transaction. Without limiting the generality
of the foregoing, the treatment of outstanding Options and Awards pursuant to clause (i) of this
Section 12 in connection with a Transaction may include the cancellation of outstanding Options
and Awards upon consummation of the Transaction provided either (x) the holders of affected
Options have been given a period of at least fifteen (15) days prior to the date of the
consummation of the Transaction to exercise the Options (whether of
not they were otherwise exercisable) or (y) the holders of affected Options and Awards are paid (in cash or cash equivalents) the following amounts: (A) in respect
of each Unit underlying Options being cancelled, an amount equal to the excess, if any,
of the per unit price paid or distributed to stockholders in the transaction (the value of any
non-cash consideration to be determined by the Committee in its sole discretion) over the
exercise price of the Option; and (B) in respect of each Unit covered by Awards being
cancelled, an amount equal to the per unit price paid or distributed to stockholders in the
transaction (the value of any non-cash consideration to be determined by the Committee in its
sole discretion). For avoidance of doubt, the cancellation of Options and Awards pursuant to
clause (y) of the preceding sentence may be effected notwithstanding anything to the contrary
contained in this Plan or any Agreement, and if the amount determined pursuant to clause (y) of
the preceding sentence is zero or less, the affected Option or Award may be cancelled without any
payment therefor. The treatment of any Option or Award as provided in this Section 12 shall be
conclusively presumed to be appropriate for purposes of Section 11.
13. Interpretation.
13.1 Section 16 Compliance. The Plan is intended to comply with Rule 16b-3
promulgated under the Exchange Act and the Committee shall interpret and administer the provisions
of the Plan or any Agreement in a manner consistent therewith. Any provisions inconsistent with
such Rule shall be inoperative and shall not affect the validity of the Plan.
13.2 Compliance With Section 409A. All Options and Awards granted under the Plan are
intended either not to be subject to Section 409A of the Code or, if subject to Section
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409A of the Code, to be administered, operated and construed in compliance with Section 409A
of the Code and any guidance issued thereunder. Notwithstanding this or any other provision of the
Plan to the contrary, the Committee may amend the Plan or any Option or Award granted hereunder in
any manner, or take any other action that it determines, in its sole discretion, is necessary,
appropriate or advisable (including replacing any Option or Award) to cause the Plan or any Option
or Award granted hereunder to comply with Section 409A and any guidance issued thereunder or to not
be subject to Section 409A. Any such action, once taken, shall be deemed to be effective from the
earliest date necessary to avoid a violation of Section 409A and shall be final, binding and
conclusive on all Eligible Individuals and other individuals having or claiming any right or
interest under the Plan.
14. Termination and Amendment of the Plan or Modification of Options and Awards.
14.1 Plan Amendment or Termination. The Board may at any time terminate the Plan and
the Board may at any time and from time to time amend, modify or suspend the Plan; provided,
however, that:
(a) no such amendment, modification, suspension or termination shall impair or adversely alter
any Options or Awards theretofore granted under the Plan, except with the consent of the
Participant, nor shall any amendment, modification, suspension or termination deprive any
Participant of any Units which he or she may have acquired through or as a result of the Plan; and
(b) to the extent necessary under any applicable law, regulation or exchange requirement, no
other amendment shall be effective unless approved by the unitholders of the Partnership in
accordance with applicable law, regulation or exchange requirement.
14.2 Modification of Options and Awards. No modification of an Option or Award shall
adversely alter or impair any rights or obligations under the Option or Award without the consent
of the Participant.
15. Non-Exclusivity of the Plan.
The adoption of the Plan by the Board shall not be construed as amending, modifying or
rescinding any previously approved incentive arrangement or as creating any limitations on the
power of the Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
16. Limitation of Liability.
As illustrative of the limitations of liability of the Partnership, but not intended to be
exhaustive thereof, nothing in the Plan shall be construed to:
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(a) give any person any right to be granted an Option or Award other than at the sole
discretion of the Committee;
(b) give any person any rights whatsoever with respect to Units except as specifically
provided in the Plan;
(c) limit in any way the right of the Partnership or any of its Subsidiaries or Parents to
terminate the employment of any person at any time; or
(d) be evidence of any agreement or understanding, express or implied, that the Partnership
will employ any person at any particular rate of compensation or for any particular period of time.
17. Regulations and Other Approvals; Governing Law.
17.1 Except as to matters of federal law, the Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance with the laws of the State of Delaware
without giving effect to conflicts of laws principles thereof.
17.2 The obligation of the Partnership to sell or deliver Units with respect to Options and
Awards granted under the Plan shall be subject to all applicable laws, rules and regulations,
including all applicable federal and state securities laws, and the obtaining of all such approvals
by governmental agencies as may be deemed necessary or appropriate by the Committee.
17.3 The Board may make such changes as may be necessary or appropriate to comply with the
rules and regulations of any government authority.
17.4 Each grant of an Option and Award and the issuance of Units or other settlement of the
Option or Award is subject to the compliance with all applicable federal, state or foreign law.
Further, if at any time the Committee determines, in its discretion, that the listing, registration
or qualification of Units issuable pursuant to the Plan is required by any securities exchange or
under any federal, state or foreign law, or the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with, the grant of an Option or
Award or the issuance of Units, no Options or Awards shall be or shall be deemed to be granted or
payment made or Units issued, in whole or in part, unless listing, registration, qualification,
consent or approval has been effected or obtained free of any conditions that are not acceptable to
the Committee. Any person exercising an Option or receiving Units in connection with any other
Award shall make such representations and agreements and furnish such information as the Board or
Committee may request to assure compliance with the foregoing or any other applicable legal
requirements.
17.5 Notwithstanding anything contained in the Plan or any Agreement to the contrary, in the
event that the disposition of Units acquired pursuant to the Plan is not covered by a then current
registration statement under the Securities Act of 1933, as amended (the Securities Act),
and is not otherwise exempt from such registration, such Units shall be
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restricted against transfer to the extent required by the Securities Act and Rule 144 or other
regulations promulgated thereunder. The Committee may require any individual receiving Units
pursuant to an Option or Award granted under the Plan, as a condition precedent to receipt of such
Units, to represent and warrant to the Partnership in writing that the Units acquired by such
individual are acquired without a view to any distribution thereof and will not be sold or
transferred other than pursuant to an effective registration thereof under the Securities Act or
pursuant to an exemption applicable under the Securities Act or the rules and regulations
promulgated thereunder. The certificates evidencing any of such Units shall be appropriately
amended or have an appropriate legend placed thereon to reflect their status as restricted
securities as aforesaid.
18. Miscellaneous.
18.1 Multiple Agreements. The terms of each Option or Award may differ from other
Options or Awards granted under the Plan at the same time, or at some other time. The Committee
may also grant more than one Option or Award to a given Eligible Individual during the term of the
Plan, either in addition to, or subject to Section 3.6, in substitution for, one or more Options or
Awards previously granted to that Eligible Individual.
18.2 Withholding of Taxes.
(a) The Partnership and its Subsidiaries and Parents may withhold from any payment of cash or
Units to a Participant or other person under the Plan an amount sufficient to cover any withholding
taxes which may become required with respect to such payment or shall take any other action as it
deems necessary to satisfy any income or other tax withholding requirements as a result of the
grant or exercise of any Award under the Plan. The Partnership and its Subsidiaries and Parents
shall have the right to require the payment of any such taxes and require that any person furnish
information deemed necessary by the Partnership or any Subsidiary or Parent of the Partnership to
meet any tax reporting obligation as a condition to exercise or before making any payment pursuant
to an Award or Option. If specified in an Agreement at the time of grant or otherwise approved by
the Committee, a Participant may, in satisfaction of his or her obligation to pay withholding taxes
in connection with the exercise, vesting or other settlement of an Option or Award, elect to (i)
make a cash payment to the Partnership, (ii) have withheld a portion of the Units then issuable to
him or her, or (iii) surrender Units owned by the Participant prior to the exercise, vesting or
other settlement of an Option or Award, in each case having an aggregate Fair Market Value equal to
the withholding taxes.
18.3 Plan Unfunded. The Plan shall be unfunded. Except for reserving a sufficient
number of authorized Units to the extent required by law to meet the requirements of the Plan, the
Partnership shall not be required to establish any special or separate fund or to make any other
segregation of assets to assure payment of any Award or Option granted under the Plan.
18.4 Beneficiary Designation. Each Participant may, from time to time, name one or
more individuals (each, a Beneficiary) to whom any benefit under the Plan is to be paid
in case of the Participants death before he or she receives any or all of such benefit. Each such
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designation shall revoke all prior designations by the same Participant, shall be in a form
prescribed by the Partnership, and will be effective only when filed by the Participant in writing
with the Partnership during the Participants lifetime. In the absence of any such designation,
benefits remaining unpaid at the Participants death shall be paid to the Participants estate.
18.5 Effective Date/Term. The effective date of the Plan shall be the date of its
approval by the Board (the Effective Date). The Plan shall terminate on the Termination
Date. No Option or Award shall be granted after the Termination Date. The applicable terms of the
Plan, and any terms and conditions applicable to Options and Awards granted prior to the
Termination Date shall survive the termination of the Plan and continue to apply to such Options
and Awards.
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exv10w13w1
Exhibit 10.13.1
FORM OF
CVR PARTNERS, LP
LONG-TERM INCENTIVE PLAN
DIRECTOR PHANTOM UNIT AGREEMENT
THIS AGREEMENT, made as of the ___ day of _________, 2011 (the Grant Date), between
CVR Partners, LP, a Delaware limited partnership (the Partnership), and __________ (the
Grantee).
WHEREAS, the board of directors of CVR GP, LLC, a Delaware limited liability company (the
General Partner), has adopted the CVR Partners, LP Long-Term Incentive Plan (the
Plan) in order to provide an additional incentive to certain of the Partnerships and its
Subsidiaries and Parents employees, officers, consultants and directors; and
WHEREAS, the Committee responsible for administration of the Plan has determined to
grant Phantom Units to the Grantee as provided herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Phantom Units.
1.1 The Company hereby grants to the Grantee, and the Grantee hereby accepts from the Company,
_____________ Phantom Units on the terms and conditions set forth in this Agreement. Subject to
the terms of this Agreement, each Phantom Unit represents the right of the Grantee to receive, if
such Phantom Unit becomes vested, one (1) Unit or, at the Partnerships option, cash in lieu of all
or any portion of the Units, on the date specified in Section 4. Such cash payment shall be equal
to the product of the number of Phantom Units being settled in cash and the Fair Market Value of a
Unit as of the applicable payment date. If all or any portion of the Phantom Units are settled in
Units, the issuance of such Units shall be subject to the Grantees prior execution of and becoming
a party to the Agreement of Limited Partnership of CVR Partners, LP, as may be amended from time to
time, and as in effect at the time of such issuance. Further, any Units delivered to the Grantee
in respect of the Phantom Units shall remain subject to the unit retention guidelines included in
the Corporate Governance Guidelines of the Partnership, as in effect on the date of the award.
1.2 This Agreement shall be construed in accordance with and consistent with, and subject to,
the provisions of the Plan (the provisions of which are incorporated herein by reference). Except
as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have
the same definitions as set forth in the Plan.
2. Vesting Date.
Except as provided in Section 3 hereof, 100% of total number of Phantom Units granted
hereunder will vest on the six month anniversary of the Grant Date (the Vesting Date),
provided the Grantee continues to serve as a director of the General Partner on the Vesting Date.
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3. Ceasing to Serve as Director.
In the event the Grantee ceases to serve as a director of the General Partner prior to the
Vesting Date for any reason other than as a result of his or her death or Disability, the Grantee
shall forfeit the Phantom Units and shall have no rights with respect thereto. In the event the
Grantee ceases to serve as a director of the General Partner prior to the Vesting Date by reason of
the Grantees death or Disability, the Phantom Units shall become immediately vested.
4. Payment Date.
The Units (or cash in lieu thereof) underlying the Phantom Units that become vested pursuant
to Section 2 of this Agreement shall be delivered within thirty (30) days following the Vesting
Date, or, if the Grantee ceases to serve as a director of the General Partner prior to the Vesting
Date by reason of death or Disability, within thirty (30) days following the date of such cessation
of services.
5. Non-transferability.
The Phantom Units may not be sold, transferred or otherwise disposed of and may not be pledged
or otherwise hypothecated.
6. Withholding of Taxes.
The Company and the Grantee shall agree on arrangements necessary for the Grantee to pay such
Grantees estimated federal and state income taxes associated with the taxable income generated by
the vesting of the Phantom Units and delivery of Units or cash in respect of such Phantom Units.
In the event the Phantom Units are settled in Units, at the Grantees election, the Company shall
withhold delivery of a number of Units having a Fair Market Value equal to the total number of
Phantom Units granted pursuant to this Agreement multiplied by such Grantees statutory
supplemental federal and state rates, and shall pay the Grantee such amount in cash.
7. Grantee Bound by the Plan.
The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all
the terms and provisions thereof.
8. Modification of Agreement.
This Agreement may be modified, amended, suspended or terminated, and any terms or conditions
may be waived, but only by a written instrument executed by the parties hereto. No waiver by
either party hereto of any breach by the other party hereto of any provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or dissimilar provisions at
the time or at any prior or subsequent time.
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9. Severability.
Should any provision of this Agreement be held by a court of competent jurisdiction to be
unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be
affected by such holding and shall continue in full force in accordance with their terms.
10. Governing Law.
The validity, interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware without giving effect to the conflicts of laws principles
thereof.
11. Successors in Interest.
This Agreement shall inure to the benefit of and be binding upon any successor to the
Partnership. This Agreement shall inure to the benefit of the Grantees legal representatives.
All obligations imposed upon the Grantee and all rights granted to the Partnership under this
Agreement shall be final, binding and conclusive upon the Grantees beneficiaries, heirs,
executors, administrators and successors.
12. Resolution of Disputes.
Any dispute or disagreement which may arise under, or as a result of, or in any way relate to,
the interpretation, construction or application of this Agreement shall be determined by the
Committee. Any determination made hereunder shall be final, binding and conclusive on the Grantee
and the Partnership for all purposes.
[signature pages follow]
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IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above.
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exv10w13w2
Exhibit 10.13.2
FORM OF
CVR PARTNERS, LP
LONG-TERM INCENTIVE PLAN
DIRECTOR STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of the ___day of , 2011 (the Grant Date), between
CVR Partners, LP, a Delaware limited partnership (the Partnership), and (the
Grantee).
WHEREAS, the board of directors of CVR GP, LLC, a Delaware limited liability company (the
General Partner), has adopted the CVR Partners, LP Long-Term Incentive Plan (the
Plan) in order to provide an additional incentive to certain of the Partnerships and its
Subsidiaries and Parents employees, officers, consultants and directors; and
WHEREAS, the Committee responsible for administration of the Plan has determined to grant an
option to the Grantee as provided herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option.
1.1. The Partnership hereby grants to the Grantee the right and option (the Option)
to purchase all or any part of an aggregate of whole Units subject to, and in accordance
with, the terms and conditions set forth in this Agreement.
1.2. The Option is not intended to qualify as an Incentive Stock Option.
1.3. This Agreement shall be construed in accordance and consistent with, and subject to, the
provisions of the Plan (the provisions of which are incorporated herein by reference). Except as
otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the
same definitions as set forth in the Plan.
2. Purchase Price.
The price at which the Grantee shall be entitled to purchase Units upon the exercise of the
Option shall be $ per Unit.
3. Duration of Option.
Except as otherwise provided in Section 6 hereof, the Option shall be exercisable to the
extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the
Exercise Term).
4. Vesting and Exercisability of Option.
Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Grantee
to purchase, in whole at any time or in part from time to time, thirty-three and one-third percent
(33-1/3%) of the total number of Units covered by the Option after the expiration of one (1) year
from the Grant Date, an additional thirty-three and one-third percent (33-1/3%) of the total number
of Units covered by the Option after the second anniversary of the Grant Date, and the remainder of
the number of Units subject to the Option after the third anniversary of the Grant Date, provided
that the Grantee continues to serve as a director of the General Partner on each applicable vesting
date. Each such right of purchase shall be cumulative and shall continue, unless sooner exercised
as herein provided, during the remaining period of the Exercise Term. Any fractional number of
Units resulting from the application of the percentages set forth in this Section 4 shall be
rounded to the next higher whole number of Units.
5. Manner of Exercise and Payment.
5.1. Subject to the terms and conditions of this Agreement and the Plan, the Option may be
exercised by delivery of written notice to the Partnership, at its principal executive office.
Such notice shall state that the Grantee is electing to exercise the Option and the number of Units
in respect of which the Option is being exercised and shall be signed by the person or persons
exercising the Option. If requested by the Committee, such person or persons shall (i) deliver
this Agreement to the Secretary of the Partnership who shall endorse on this Agreement a notation
of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to
exercise the Option.
5.2. The notice of exercise described in Section 5.1 shall be accompanied by the full purchase
price for the Units in respect of which the Option is being exercised, in cash or by check or, if
indicated in the notice, such payment shall follow by check from a registered broker acting as
agent on behalf of the Grantee. However, at the discretion of the Committee appointed to
administer the Plan, the Grantee may pay the exercise price in part or in full by transferring to
the Partnership unrestricted Units owned by the Grantee prior to the exercise of the Option having
a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which
such Units are substituted.
5.3. Upon receipt of notice of exercise and full payment for the Units in respect of which the
Option is being exercised, the Partnership shall, subject to this Agreement and the Plan, take such
action as may be necessary to effect the transfer to the Grantee of the number of Units as to which
such exercise was effective.
5.4. The Grantee shall not be deemed to be the holder of, or to have any of the rights of a
holder with respect to, any Units subject to the Option until (i) the Option shall have been
exercised pursuant to the terms of this Agreement and the Grantee shall have paid the full purchase
price for the number of Units in respect of which the Option was exercised, (ii) the Partnership
shall have issued and delivered the Units to the Grantee, and (iii) the Grantees name shall have
been entered as a unitholder of record on the books of the Partnership, whereupon the Grantee shall
have full voting and other ownership rights with respect to such Units.
6. Ceasing to Serve as Director.
6.1. Cause. In the event the Grantees service to the General Partner as a director
terminates for Cause, the Option shall immediately expire in its entirety whether or not vested and
exercisable.
6.2. Other Termination of Service. In the event the Grantee ceases to serve as a
director of the General Partner under any circumstance other than (i) for Cause, (ii) due the
Grantees death or (iii) due to the Grantees Disability, any portion of the Option that is not
vested and exercisable on the Termination Date shall expire and the Grantee may, at any time within
ninety (90) days after the Termination Date, exercise the Option to the extent, but only to the
extent, that the Option or portion thereof was vested and exercisable on the Termination Date. For
purposes of this Agreement, Termination Date shall mean the last day on which the Grantee
serves as a director of the General Partner.
6.3. Death or Disability. In the event the Grantee ceases to serve as a director of
the General Partner by reason of the Grantees death or Disability, any portion of the Option that
is not yet vested and exercisable on the Termination Date shall become immediately vested and fully
exercisable on such date, and the entire Option shall remain exercisable for a period of one (1)
year following the Termination Date by the Grantee or by the Grantees legatee or legatees under
his will, or by his personal representatives or distributees, as applicable.
6.4. No Extension of Exercise Term. Notwithstanding the terms of Section 6.2 and 6.3
and except as provided in this Section 6.4, in no event may the Option be exercised by anyone after
the expiration of the Exercise Term. In the event of the Grantees death during (i) the period of
the Grantees service as a director of the General Partner, (ii) the ninety (90) day period
described in Section 6.2 or (iii) the one (1) year period described in Section 6.3, the Option
shall be exercisable, to the extent exercisable immediately prior to his or her death, by the
legatee or legatees under the Grantees will, or by the Grantees personal representatives or
distributees, at any time within the one (1) year period after the date of the Optionees death,
even if such one (1) year period extends beyond the Exercise Term.
7. Non-transferability.
The Option shall not be assignable or transferable other than by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order (within the meaning of Rule
16a-12 promulgated under the Exchange Act). During the lifetime of the Grantee, the Option shall
be exercisable only by the Grantee, his or her legal guardian or legal representatives or a
bankruptcy trustee. Notwithstanding anything to the contrary contained herein, the Option may not
be exercised by or transferred to any person other than the Grantee, unless such other person
presents documentation to the Committee, which proves to the Committee to its reasonable
satisfaction such persons right to the transfer or exercise.
8. Grantee Bound by the Plan.
The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all
the terms and provisions thereof.
9. Modification of Agreement.
This Agreement may be modified, amended, suspended or terminated, and any terms or conditions
may be waived, but only by a written instrument executed by the parties hereto. No waiver by
either party hereto of any breach by the other party hereto of any provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or dissimilar provisions at
the time or at any prior or subsequent time.
10. Severability.
Should any provision of this Agreement be held by a court of competent jurisdiction to be
unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be
affected by such holding and shall continue in full force in accordance with their terms.
11. Governing Law.
The validity, interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware without giving effect to the conflicts of laws principles
thereof.
12. Successors in Interest.
This Agreement shall inure to the benefit of and be binding upon any successor to the
Partnership. This Agreement shall inure to the benefit of the Grantees legal representatives.
All obligations imposed upon the Grantee and all rights granted to the Partnership under this
Agreement shall be final, binding and conclusive upon the Grantees beneficiaries, heirs,
executors, administrators and successors.
13. Resolution of Disputes.
Any dispute or disagreement which may arise under, or as a result of, or in any way relate to,
the interpretation, construction or application of this Agreement shall be determined by the
Committee. Any determination made hereunder shall be final, binding and conclusive on the Grantee
and the Partnership for all purposes.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above.
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CVR PARTNERS, LP
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GRANTEE |
By: CVR GP, LLC, its general partner |
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exv23w1
Exhibit 23.1
Consent
of Independent Registered Public Accounting Firm
The Board
of Directors of CVR GP, LLC
and
The Managing General Partner of CVR Partners, LP:
We consent
to the use of our report included herein and to the reference to our
firm under the headings Summary Historical and Pro Forma
Consolidated Financial Information, Selected Historical
Consolidated Financial Information, and Experts in the prospectus.
/s/ KPMG
LLP
Houston,
Texas
March 16, 2011