EXHIBIT 10.V
INCENTIVE DISTRIBUTION REDUCTION AGREEMENT
This INCENTIVE DISTRIBUTION REDUCTION AGREEMENT (this "AGREEMENT") is
entered into as of October 1, 2003 by and between GulfTerra Energy Company,
L.L.C., a Delaware limited liability company (the "COMPANY"), and GulfTerra
Energy Partners, L.P., a Delaware limited partnership (the "PARTNERSHIP").
RECITALS
WHEREAS, GulfTerra GP Holding Company, a Delaware corporation ("HOLDING
CO.") and ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Co., a New York limited partnership (the "INVESTOR"),
are parties to that certain Purchase and Sale Agreement, dated October 1, 2003
(the "LLC PURCHASE AGREEMENT"), whereby the Investor will purchase from Holding
Co. the Class A Membership Interests of the Company (as issued and outstanding
on the date of determination, the "CLASS A MEMBERSHIP INTERESTS") from Holding
Co.;
WHEREAS, the Partnership and the Investor are parties to that certain
Purchase and Sale Agreement, dated October 1, 2003 (the "UNIT PURCHASE
AGREEMENT," and with the LLC Purchase Agreement, the "PURCHASE AGREEMENTS"),
whereby the Investor will purchase from the Partnership 3,000,000 newly issued
Series A common units representing limited partner interests in the Partnership
("COMMON UNITS") from the Partnership;
WHEREAS, the Company, the Partnership and the Investor are parties to
that certain Exchange and Registration Rights Agreement, dated October 1, 2003
(the "EXCHANGE AGREEMENT,") whereby, under certain circumstances described
therein, the Investor may contribute its Class A Membership to the Partnership
in exchange for Exchange Units;
WHEREAS, the Partnership and the Company have agreed that upon each
such Exchange pursuant to the Exchange Agreement, the Partnership will deliver
the Class A Membership Interest received in such Exchange to the Company for
cancellation, and the Company will cause the Incentive Distribution Rights (as
defined therein) to be reduced as is provided in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows.
ARTICLE I
SECTION 1.1 DEFINITIONS. In addition to the terms defined elsewhere
herein, capitalized terms used herein but not defined herein shall have the
meanings assigned to such terms in the Exchange Agreement (which is attached as
Exhibit A hereto).
ARTICLE II
INCENTIVE DISTRIBUTION REDUCTION
SECTION 2.1 TRANSFER AND REDUCTION. The parties hereto agree and
acknowledge that, immediately following any Exchange pursuant to Article II of
the Exchange Agreement, (i) the
Class A Membership Interest contributed by the Investor to the Partnership shall
be transferred to the Company, (ii) upon receipt thereof, such Class A
Membership Interest shall be cancelled by the Company and (iii) the Incentive
Distributions payable by the Partnership to the Company shall be reduced by an
aggregate dollar amount (the "REDUCTION AMOUNT") equal to the aggregate dollar
amount of the most recent Common Unit Quarterly Distribution prior to the
Initial Exchange that would have been paid on the number of Exchange Units
issued in such Exchange. The Reduction Amount shall be achieved by reducing the
percentage allocation to the Company at each target level of the Incentive
Distributions (the "HIGH SPLIT ALLOCATION PERCENTAGES") by the same percentage
(the "STANDARD REDUCTION FACTOR"); provided, however, that in determining the
Standard Reduction Factor, if any distribution is to be paid in respect of an
Incentive Distribution target level, the Company shall always receive no less
than 1% of such distribution (as required by the Partnership Agreement). The
calculation and application of the Standard Reduction Factor is illustrated in
the examples set forth in Exhibit B hereto. The new High-Split Allocation
Percentages determined pursuant to this Section 2.1 shall be used to determine
the Incentive Distributions payable by the Partnership to the Company for all
quarterly distributions by the Partnership subsequent to any reduction pursuant
to this Section 2.1. The actions described in the initial sentence of this
Section 2.1 shall be deemed to occur automatically and in immediate succession.
Any administrative actions required to memorialize such steps (such as transfer
and cancellation of physical certificates and amendment of the Partnership
Agreement) shall be completed within three business days.
SECTION 2.2 AMENDMENTS TO PARTNERSHIP AGREEMENT. In order to give
effect to the reduction of the Highest-Split Percentage pursuant to Section 2.1,
concurrently therewith, the Company shall amend the Partnership Agreement, in
compliance with Section 15.1 thereof, (i) to reflect each reduction in the
Highest-Split Percentage and (ii) to make any other changes necessary to effect
such reduction in the Incentive Distributions payable by the Partnership to the
Company.
SECTION 2.3 CERTIFICATE; DISPUTE RESOLUTION. Upon each reduction of the
Highest-Split Percentage pursuant to Section 2.1, the Partnership will within 10
business days of the Exchange by the Holder deliver to the Company (i) a
certificate signed by an appropriate officer on behalf of the Partnership that
sets forth in reasonable detail the calculation of the new Highest-Split
Percentage pursuant to the Reduction Formula and (ii) a copy of the amendment to
the Partnership Agreement effected pursuant to Section 2.2. If the Company does
not agree with the new Highest-Split Percentage, such party shall give written
notice (a "REDUCTION DISPUTE NOTICE") to the Partnership within five business
days of the receipt of such certificate. If the parties are unable to mutually
agree on the new Highest-Split Percentage within five business days of receipt
of such Adjustment Dispute Notice by the other parties, the Company and the
Partnership shall each select a firm of independent accountants of nationally
recognized standing within five business days, which firms shall then mutually
agree upon a third firm of independent accountants of nationally recognized
standing and refer the matter to such third firm for resolution within five
additional business days. Such third firm shall determine the new Highest-Split
Percentage pursuant to the Reduction Formula within 15 business days of such
referral The aggregate fees and expense of such firms shall be borne in the
following manner: one-half by the Company and one-half by the Partnership. The
determination by such third firm of the new Highest-Split Percentage shall be
final, binding and conclusive on the parties.
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ARTICLE III
MISCELLANEOUS
SECTION 3.1 NOTICES. All notices and other communications provided for
or permitted under this Agreement shall be made in writing by hand delivery,
first class mail (registered or certified, return receipt requested), telex,
telecopier, or air courier guaranteeing overnight delivery:
if to the Company:
GulfTerra Energy Company, L.L.C.
c/o El Paso Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇ ▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇
with a copy to:
GulfTerra Energy Company, L.L.C.
c/o El Paso Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇ ▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
and a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇ ▇▇▇▇
Attention: G. ▇▇▇▇▇▇▇ ▇'▇▇▇▇▇
if to the Partnership:
GulfTerra Energy Partners, L.P.
Four ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇ ▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
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with a copy to:
GulfTerra Energy Partners, L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇ ▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
and a copy to:
Akin Gump ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ Tower
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇ ▇▇▇▇
Attention: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
says after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
SECTION 3.2 TERMINATION. This Agreement shall terminate upon the later
to occur of the conversion of all of the Class A Membership Interest to a Class
B Membership Interest or the retirement of all of such Class A Membership
Interest pursuant to the provisions of the Company LLC Agreement or upon the
termination of the Exchange Agreement.
SECTION 3.3 AMENDMENT. This Agreement may be amended or modified from
time to time only by written agreement of all the parties hereto. Each such
instrument shall be reduced to writing and shall be designated on its face an
"amendment" to this Agreement.
SECTION 3.4 SUCCESSORS AND ASSIGNS. All of the terms, agreements,
covenants, representations, warranties, and conditions of this Agreement are
binding upon, and inure to the benefit of and are enforceable by, the parties
hereto and their respective successors and assigns.
SECTION 3.5 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
SECTION 3.6 ARTICLES AND SECTIONS; HEADINGS. Unless otherwise provided,
all reference to Articles, Sections and paragraphs herein refer to Articles,
Sections and paragraphs of this Agreement. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
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SECTION 3.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, without regard to
the conflict of law rules thereof.
SECTION 3.8 SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
SECTION 3.9 ENTIRE AGREEMENT. This Agreement, together with Transaction
Documents to which the parties hereto are party, constitutes the entire
agreement and understanding of the parties hereto in respect of its subject
matter and supersedes all prior understandings, agreements, or representations
by or among such parties, written or oral, to the extent they relate in any way
to the subject matter hereof.
* * * * *
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY
GulfTerra Energy Company, L.L.C.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇
President
PARTNERSHIP
GulfTerra Energy Partners, L.P.
By: GulfTerra Energy Company, L.L.C.,
its general partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
President
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Exhibit A
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
A-1
Exhibit B
EXAMPLE OF CALCULATION OF STANDARD REDUCTION FACTOR
EXHIBIT B TO EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
INCENTIVE DISTRIBUTION REDUCTION CALCULATION EXAMPLE
INVESTOR GP OWNERSHIP 9.9%
CLASS A QUARTERLY DISTRIBUTION $ 1.89 MM
COMMON UNIT QUARTERLY DISTRIBUTION $ 0.07 $/Unit
ANNUALIZED COMMON UNIT DISTRIBUTION $ 2.80 $/Unit
STATUS QUO COMMON UNITS OUTSTANDING
Public Common Units 38.757 MM
El Paso Common Units 11.674
El Paso Series C Units 10.938
Pro Forma Investor Units 3.000
Other --
Other --
-------
Total 64.369 MM
Exchange Units 2.703 MM
-------
PRO FORMA COMMON UNITS OUTSTANDING 67.072 MM
REDUCTION AMOUNT $ 7.6 MM
STANDARD REDUCTION FACTOR 7.81%
STATUS QUO
GTM INCENTIVE DISTRIBUTION TABLE ($/UNIT)
-------------------------------------------------------------------------
SPLITS ANNUAL DISTRIBUTIONS ANNUAL DISTRIBUTIONS ($MM)
QUARTERLY ANNUALIZED --------------- ------------------------ --------------------------
DISTRIBUTION DISTRIBUTION LP GP LP GP TOTAL LP GP TOTAL
------------ -------------- ------ ------ ------ ------ ------ -------- ------ --------
MQD $0.275 $ -- $1.100 99.00% 1.00% $1.100 $0.011 $1.111 $ 70.81 $ 0.72 $ 71.52
FIRST TIER $0.325 $1.100 $1.300 99.00% 1.00% $0.200 $0.002 $0.202 $ 12.87 $ 0.13 $ 13.00
SECOND TIER $0.375 $1.300 $1.500 85.87% 14.13% $0.200 $0.033 $0.233 $ 12.87 $ 2.12 $ 14.99
THIRD TIER $0.425 $1.500 $1.700 75.77% 24.23% $0.200 $0.064 $0.264 $ 12.87 $ 4.12 $ 16.99
THEREAFTER $0.425 $1.700 $2.800 50.51% 49.49% $1.100 $1.078 $2.178 $ 70.81 $69.38 $140.18
------ ------ ------ ------- ------ -------
$2.800 $1.188 $3.988 Total $180.23 $76.46 $256.69
Quarterly $0.700 $0.297 $0.997 Total Per Unit $ 2.800 $1.188 $ 3.988
PRO FORMA FOR EXCHANGE UNITS
GTM INCENTIVE DISTRIBUTION TABLE ($/UNIT)
-------------------------------------------------------------------------
SPLITS ANNUAL DISTRIBUTIONS ANNUAL DISTRIBUTIONS ($MM)
QUARTERLY ANNUALIZED --------------- ------------------------ --------------------------
DISTRIBUTION DISTRIBUTION LP GP LP GP TOTAL LP GP TOTAL
------------ -------------- ------ ------ ------ ------ ------ ------- ------- --------
MQD $0.275 $ -- $1.100 99.00% 1.00% $1.100 $0.011 $1.111 $ 73.78 $ 0.75 $ 74.52
FIRST TIER $0.325 $1.100 $1.300 99.00% 1.00% $0.200 $0.002 $0.202 $ 13.41 $ 0.14 $ 13.55
SECOND TIER $0.375 $1.300 $1.500 86.89% 13.11% $0.200 $0.030 $0.230 $ 13.41 $ 2.02 $ 15.44
THIRD TIER $0.425 $1.500 $1.700 77.58% 22.42% $0.200 $0.058 $0.258 $ 13.41 $ 3.88 $ 17.29
THEREAFTER $0.425 $1.700 $2.800 54.29% 45.71% $1.100 $0.926 $2.026 $ 73.78 $ 62.11 $135.89
------ ------ ------ ------- - ----- -------
$2.800 $1.027 $3.827 Total $187.80 $ 68.89 $256.69
Quarterly $0.700 $0.257 $0.957 Change $ 7.57 $ (7.57) $ (0.00)
Total Per Unit $ 2.800 $ 1.027 $ 3.827
Change Per Unit $ -- $(0.161) $(0.161)