ENGY Central Energy Partners LP (CE)

Items 1 and 2. Business and Properties.

General

Central Energy Partners LP is a publicly-traded Delaware limited partnership. We currently provide liquid bulk storage, trans-loading and transportation services for hazardous chemicals and petroleum products through our wholly-owned subsidiary, Regional Enterprises, Inc. (“ Regional ”). Our strategy going forward continues to be organic growth at Regional (to the extent of available free cash) and to acquire midstream assets, which include gas gathering and transmission systems, compression, treating and processing facilities, fractionation facilities, and transportation capabilities. The Partnership’s Common Units are listed for trading on the over-the-counter market with Pink OTC Markets, Inc. under the symbol “ENGY”. Our principal executive offices are located at 8150 N. Central Expressway, Suite 1525, Dallas, Texas 75206, and our telephone number is (214) 360-7480. Our website is located at http://www.centralenergylp.com .

The Partnership’s only operations are conducted through Regional, which it acquired in July 2007. The principal business of Regional is the storage, transportation and railcar trans-loading of bulk liquids, including hazardous chemicals and petroleum products owned by its customers. Regional’s principal facilities are located on the James River in Hopewell, Virginia, where it receives bulk chemicals and petroleum products from ships and barges into approximately 10 million gallons of available storage tanks for delivery throughout the mid-Atlantic region of the United States. Regional also receives product from a rail spur which is capable of receiving 15 rail cars at any one time for trans-loading of chemical and petroleum liquids for delivery throughout the mid-Atlantic region of the United States. Regional also operates a trans-loading facility in Johnson City, Tennessee, with 6 rail car slots. Regional also provides transportation services to customers for products which don’t originate at any of Regional’s terminal facilities. Regional intends to cease operations at the Johnson City facility on March 31, 2013. See “ Current Assets and Operations ” below for additional information regarding Regional’s business.

During the second half of 2011 and all of 2012, the General Partner identified a number of potential acquisition activities and made indicative offers to purchase five different midstream assets and entered into significant negotiations for the purchase of two of such assets. Several of these opportunities were the subject of an auction process in which the General Partner was not the successful bidder as the result of more aggressive bids being placed by other entities. In each case, management of the General Partner believed that the successful bids exceeded the value of the assets. Management prefers to evaluate opportunities without a competitive bidding process; however, such opportunities are more difficult to identify. Management is continuing to evaluate acquisition opportunities, but there is no assurance that they will be successful in consummating any of these opportunities.

Recent Developments

On November 17, 2010, the Partnership, Penn Octane and Central Energy, LP, as successor in interest to Central Energy, LLC, completed the transactions contemplated by the terms of a Securities Purchase and Sale Agreement dated May 25, 2010, as amended. At closing, the Partnership sold the 12,724,019 newly-issued Common Units (the “ Newly Issued Common Units ”) to Central Energy, LP for $3,950,291 and Penn Octane sold 100% of the limited liability company interests in the General Partner (the “ GP Interest ”) to Central Energy, LP for $149,709 (collectively, the “ Sale ”). The proceeds received by Penn Octane from the Sale were contributed to Central Energy GP LLC, the General Partner of the Partnership (the “ General Partner ”), which in turn immediately contributed the same funds to the Partnership. The Partnership utilized $1,200,000 of the proceeds from the transaction to settle all amounts owing to Penn Octane by the Partnership and the General Partner, $2,200,000 of the proceeds to pay transaction costs and to settle certain outstanding claims and contingent obligations of the Partnership at the time of the sale, and $700,000 for working capital. As a result of the completion of the Sale, all control in the General Partner and the Partnership transferred to Central Energy, LP.

Effective November 17, 2010, the Partnership commenced conducting its business operations from Dallas, Texas. As a result, it entered into a Reimbursement Agreement with an affiliate of Imad K. Anbouba, Chief Executive Officer and President of the General Partner, AirNow Compression Systems, LTD. The agreement provides for the monthly payment of allocable “overhead costs,” which include rent, utilities, telephones, office equipment and furnishings attributable to the space utilized by employees of the General Partner. The term of the agreement is month-to-month and can be terminated by either party on 30 day’s advance written notice. Effective January 1, 2011, the Partnership entered into an identical agreement with Rover Technologies LLC, a company affiliated with Ian Bothwell, the General Partner’s Executive Vice President, Chief Financial Officer and Secretary, located in Manhattan Beach, California. Mr. Bothwell is a resident of California and lives near Manhattan Beach. For the years ended December 31, 2011 and 2012, expenses billed in connection with each of these agreements are included in the audited financial statements were $31,000 and $164,000 (2011) and $30,000 and $74,000 (2012), respectively.

On December 28, 2010, the Amended and Restated Limited Liability Company Agreement of the General Partner as in effect at that time was amended to change the name of the General Partner to “Central Energy GP LLC,” and the First Amended and Restated Agreement of Limited Partnership of the Partnership as in effect at that time was amended to change the name of the Partnership to “Central Energy Partners LP.” In addition, the partnership agreement was amended to change the definition of the terms “Common Unit Arrearage” and “Cumulative Common Unit Arrearage” in order that the Partnership would no longer be obligated to make any further distributions of Common Unit Arrearages or Cumulative Common Unit Arrearages in respect of any quarter prior to the quarter beginning October 1, 2011. The General Partner also entered into employment agreements with each of Messrs. Anbouba and Montgomery, the terms of which are described in “ Item 11. Executive Compensation – Compensation of the General Partner’s Executive Officers .”

On April 12, 2011, the sole member of the General Partner at that time, Central Energy, LP, adopted the Second Amended and Restated Limited Liability Company Agreement of the General Partner (the “ GP Agreement ”), and the General Partner and limited partners of the Partnership holding more than a majority of the Common Units voted to amend and restate the First Amended and Restated Agreement of Limited Partnership, as amended, of the Partnership. The GP Agreement, as amended and restated, substantially modified the Amended and Restated Limited Liability Agreement of the General Partner. The more significant changes in the GP Agreement included provisions: (i) ensuring the separateness of the books and records of the General Partner and the Partnership; (ii) for a right of first refusal with respect to the proposed sale of a GP Interest of the General Partner by any of its members; (iii) prohibiting the General Partner from transferring ownership of the Incentive Distribution Rights to any third party without the approval of members holding 66-2/3% of the GP Interests; (iv) restricting the dissemination of “material and non-public information” regarding the Partnership and the General Partner; (v) providing Messrs. Anbouba and Montgomery the right to appoint five of the seven members of the Board of Directors of the General Partner and the Cushing Fund the right to appoint the other two members to the Board of Directors; (vi) requiring the Board of Directors of the General Partner will maintain a Conflicts Committee, an Audit Committee and a Compensation Committee and that each committee will be composed of not less than a majority of independent directors; (vii) changing the tax allocation provisions to comply with current tax law and regulations; and (viii) to various other ministerial changes to clarify the intent of the GP Agreement and comply with new law adopted in Delaware since the last amendment of the GP Agreement. The Second Amended and Restated Agreement of Limited Partnership of Central Energy Partners LP (the “ Partnership Agreement ”) also included a number of changes. The principal changes made to the Partnership Agreement included provisions that provide: (i) for the separateness of the books and records of the Partnership and the General Partner; (ii) for the issuance of uncertificated securities so that partnership interests can be eligible for a direct registration program; (iii) the General Partner with the right to redeem a Unitholder’s Common Units in the event such Unitholder fails to provide information requested by the General Partner to determine the tax status of such Unitholder; (iv) the General Partner with the right to reset the minimum quarterly distribution and target distribution levels and issue Common Units to the holder of the Partnership’s Incentive Distribution Rights; (v) for changes in the tax allocation provisions to comply with current tax law and regulations; (vi) the General Partner with the option to evaluate a potential conflict of interest arising from a transaction between the General Partner and/or an affiliate, on the one hand, and the Partnership or its subsidiaries, on the other hand, without referring such conflict of interest to the General Partner’s Conflicts Committee; and (vii) the General Partner and its affiliates with the right to purchase all of a class of Partnership securities in the event the General Partner and its affiliates hold more than 80% of the amount of such securities then issued and outstanding. Please see “ Item 1A. Risk Factors – Risks Inherent in an Investment in the Partnership ” for a more detailed description of some of the risks and impacts of these changes to Unitholders.

Based on the Partnership’s historical cash flow constraints and the likelihood of a restriction on distributions as a result of anticipated acquisitions, on March 28, 2012, the General Partner and Limited Partners holding a majority of the issued and outstanding Common Units of the Partnership voted to amend the Partnership Agreement to change the commencement of the payment of Common Unit Arrearages from the first quarter beginning October 1, 2011 until an undetermined future quarter to be established by the Board of Directors of the General Partner. At the present time, the limited partners of Central Energy, LP, the entity that acquired the Newly-Issued Common Units in the Sale, hold 80% of the total issued and outstanding Common Units of the Partnership and, therefore, control any Limited Partner vote on Partnership matters. The ability of the Partnership to make distributions can be further impacted by many factors including the ability to successfully complete an acquisition, the financing terms of debt and/or equity proceeds received to fund the acquisition and the overall success of the Partnership and its operating subsidiaries.

On May 26, 2011, pursuant to the terms of its limited partnership agreement, Central Energy LP distributed the Newly Issued Common Units of the Partnership to its limited partners. As a result, Cushing MLP Opportunity Fund I L.P., a Delaware limited partnership (the “ Cushing Fund ”), holds 7,413,013 Common Units of the Partnership (46.7%). Sanctuary Capital LLC holds 1,017,922 Common Units of the Partnership (6.4%). Messrs. Anbouba and Montgomery were not distributed any Newly Issued Common Units from Central Energy, LP. In addition, in accordance with the terms of the limited partnership agreement of Central Energy, LP and other agreements between Messrs. Anbouba and Montgomery and certain of the limited partners of Central Energy LP, it distributed all of the GP Interests in Central Energy GP LLC, the General Partner of the Partnership, to its limited partners in September, 2011. As a result of the distribution of the GP Interests, Messrs. Imad K. Anbouba and Carter R. Montgomery, the sole members of Central Energy, LP’s general partner, each beneficially own 30.17% of the GP Interests. The Cushing Fund holds 25% of the GP Interests and the remaining interests are held by others, none representing more than 5% individually. Given their respective ownership interests, Messrs. Anbouba and Montgomery and the Cushing Fund are each deemed a controlling member of the General Partner.

The following chart summarizes our organizational structure at March 15, 2013:

At a meeting held on June 29, 2011, Messrs. Anbouba and Montgomery appointed five directors to the Board of Directors of the General Partner, including three independent directors, and the Cushing Fund appointed two directors to the Board of Directors. In addition, the Board of Directors designated each of the three independent directors, Messrs. William M. Comegys, III, David M. Laney and Michael T. Wilhite, Jr., to each of the Board of Director’s Audit Committee and Compensation Committee on that date. Mr. Wilhite was designated to serve as the Chairman of the Audit Committee, and Mr. Laney was designated to serve as the Chairman of the Compensation Committee. As a result, the General Partner now has a Board of Directors constituted in compliance with the listing requirements of both the New York Stock Exchange and the NASDAQ Stock Market. The composition of the Audit Committee also meets the listing requirements of each of these National Securities Exchanges. At a meeting held on August 11, 2011, the Board of Directors designated five directors, including each of the three independent directors, to serve on its Conflicts Committee. The members of the Conflicts Committee include Messrs. Anbouba, Comegys, Laney, Montgomery and Wilhite. Mr. Comegys was designated to serve as the Chairman of the Committee. Please see “ Item 10. Managers, Executive Officers and Corporate Governance ” for additional information regarding the composition of the Board of Directors and its committees.

In connection with the name change of the Partnership, as approved in December 2010, management applied for a new trading symbol for the Partnership’s Common Units in early 2011. On March 30, 2011, the Partnership was notified by FINRA that its Common Units would trade under a new ticker symbol – “ENGY” – commencing with the opening of the trading markets on March 31, 2011 (previous ticker symbol was “RVEP”). The new ticker symbol better reflects the Partnership’s focus on the energy business, rather than the actual name under which it conducts its business.

On June 14, 2011, the Partnership filed the previously delinquent federal partnership tax returns for the periods from January 1, 2008 through December 31, 2008 and January 1, 2009 through December 31, 2009. On June 23, 2011, the Partnership also distributed the previously delinquent Schedules K-1 for such taxable periods to its Partners. The Partnership timely filed its federal partnership tax returns for the years ended December 31, 2010 and December 31, 2011, and delivered the Schedules K-1 to its Unitholders for those tax periods. The Partnership also filed all of the previously delinquent required state partnership tax returns for the years ended December 31, 2008 and 2009 during 2011. The Partnership timely filed all the required state partnership tax returns for the years ended December 31, 2010 and December 31, 2011. The Internal Revenue Code provides for penalties to be assessed against taxpayers in connection with the late filing of the federal partnership returns and the failure to furnish timely the required Schedules K-1 to investors. Similar penalties are also assessed by certain states for late filing of state partnership returns. The Code and state statutes also provide taxpayer relief in the form of reduction and/or abatement of penalties assessed for late filing of the returns under certain circumstances. The Internal Revenue Service previously notified the Partnership that its calculation of penalties for the delinquent 2008 and 2009 tax returns was approximately $2.5 million. The Partnership previously estimated that the maximum penalty exposure for all state penalties for delinquent 2008 and 2009 tax returns was $940,000.

During September 2011, the Partnership submitted to the IRS its request for a waiver of the penalties for failure to timely file the Partnership’s federal tax returns and associated K-1’s for tax years 2008 and 2009. The waiver request was made pursuant to Code Section 6698(a)(2) which provides that the penalty will not apply if the taxpayer establishes that its failure to file was due to reasonable cause. The Partnership also requested a waiver based on the IRS’s past administrative policies towards first offenders. During September 2011, the Partnership received notice from the IRS that is was opening an administrative procedure to audit the 2008 and 2009 tax returns of the Partnership and Central Energy GP LLC. On November 19, 2012, the Partnership received a notice from the IRS that its request for a waiver of the penalties for failure to timely file the Partnership’s federal tax returns and associated K-1’s for tax years 2008 and 2009, was denied (“ Notice ”). The Notice indicated that the information submitted in connection with the request did not establish reasonable cause or show due diligence. In connection with the Notice, the Partnership had the right to appeal the decision and/or supply additional information for the IRS to reconsider the denial. On January 11, 2013, the Partnership submitted its appeal of the Notice. On February 8, 2013, the Partnership received notice from the IRS that its request to remove the 2008 penalties was granted and that the request to remove the 2009 penalties was currently under review. The Partnership would be entitled to pursue other avenues of relief if all of its appeal efforts for the removal of the 2009 penalties are unsuccessful. The amount of the IRS penalties for the 2009 tax year total approximately $1.2 million and continue to accrue interest until the penalties are ultimately satisfied.

Since filing the delinquent 2008 and 2009 state partnership tax returns, the Partnership had also (i) submitted a request for abatement of penalties based on reasonable cause and/or (ii) applied for participation into voluntary disclosure and compliance programs for first offenders which provide relief of the penalties to those states which impose significant penalties for late filing of state returns (“ Requests ”). During 2012, the Partnership received notices from all of the applicable states that the Requests to have the penalties abated and/or waived through participation in voluntary disclosure and compliance programs were granted.

The Partnership has accrued a total of approximately $1.1 million through December 31, 2012 as its estimate of the penalty exposure related to its failure to file timely its federal tax return for the 2009 tax year. The Partnership no longer is liable for penalties for late filings of state tax returns for 2008 and 2009. There can be no assurance that the Partnership’s request for relief from the federal tax penalties will be approved by the IRS or that the Partnership’s estimate of its penalty exposure is accurate. The Partnership does not currently have the financial resources to pay the penalties that may be assessed by the IRS.

Effective as of August 1, 2011, the Partnership and the limited partners of Central Energy, LP executed a Registration Rights Agreement. The Registration Rights Agreement was prepared and signed by the parties as a part of the transaction consummated on November 17, 2010 pursuant to which Central Energy, LP, an affiliate of the General Partner, acquired 12,724,019 newly-issued Common Units of the Partnership. The Registration Rights Agreement provides the limited partners of Central Energy, LP who acquired newly-issued Common Units in the November 17, 2010 transaction (the “ Purchasers ”) with shelf registration rights and piggyback registration rights, with certain restrictions, for the Common Units held by them (the “ Registrable Securities ”). The Partnership is required to file a “shelf registration statement” covering the Registrable Securities as soon as practicable after April 15, 2012, and maintain the shelf registration statement as “effective” with respect to the Registrable Securities from the date such registration statement becomes effective until the earlier to occur of (1) all securities registered under the shelf registration statement have been distributed as contemplated in the shelf registration statement, (2) there are no Registrable Securities outstanding or (3) two years from the dated on which the shelf registration statement was first filed. Given the current financial condition of Central, as well as the current bid/ask price of the Common Units, the Partnership does not anticipate filing the shelf registration statement for the foreseeable future. The Partnership will seek to amend the Registration Rights Agreement to extend such filing requirement to a later date. Please see “ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Registration Rights Agreements ” for additional terms of the Registration Rights Agreement.

On October 12, 2011, the General Partner notified Burton McCumber & Cortez, L.L.P., that it was being dismissed as the auditing firm of the Partnership and the General Partner. The determination to change auditing firms did not result from any disagreement or dissatisfaction with Burton McCumber & Cortez. On October 18, 2011, the General Partner retained the services of Montgomery Coscia & Greilich LLP, Certified Public Accountants, to (i) audit the consolidated financial statements of the Partnership and Regional as of December 31, 2011 and 2012 and (ii) review the Partnership’s unaudited quarterly financial information for the quarter ended September 30, 2011 and each of the quarters ended March 31, June 30 and September 30, 2012. The decision to dismiss Burton McCumber & Cortez and retain a new auditing firm was the result of a review initiated by the Audit Committee of the Board of Directors of the General Partner.

In late October 2011, the Partnership entered into an agreement with Computershare Trust Company, N.A., the transfer agent and registrar for the Partnership’s Common Units, to record stock ownership and transfer Common Units utilizing the Direct Registration System (the “ DRS ”). DRS is an electronic system for recording and transferring ownership of securities. Computershare maintains an electronic registry of owners of Partnership Common Units. When a Unitholder transfers or sells Common Units, the transaction takes place electronically without the need to move certificates evidencing the Common Units. The Partnership elected to utilize this service in order to (i) eliminate the risk of loss, theft or destruction of paper certificates, (ii) eliminate the expense associated with replacing lost certificates, (iii) improve the speed of settlement of stock transfers, and (iv) save the Partnership the cost of printing and mailing certificates. Unitholders may convert their certificated Common Units to electronic format by sending certificates to Computershare together with a Transaction Request Form available at Computershare’s website at www-us.computershare.com/Investors/FormsCatal .

Effective January 18, 2012, Regional entered into a maintenance agreement with Penske Truck Leasing Co., L.P. (“ Penske ”) for the maintenance of its owned tractor and trailer fleet. This agreement provides for scheduled maintenance services, at a fixed monthly rate for tractors and for trailers and additional requested services at hourly rates and discounts set forth in the agreement. Pricing for the fixed services is subject to upward adjustment for each rise of at least one percent (1%) for the Consumer Price Index for All Urban Consumers for the United States published by the United States Department of Labor. The term of the agreement is 36 months. See “Regional Operations – Transportation” below for a more detailed explanation of this agreement.

On February 17, 2012, Regional entered into a vehicle lease agreement with Penske for the outsourcing of 20 new truck tractors (the “ New Tractors ”) to be acquired by Penske and leased to Regional, and the outsourcing of the maintenance of the New Tractors to Penske. Under the terms of the agreement, Regional made a $90,000 deposit, the proceeds for which were obtained from the sale of six of Regional’s owned tractors, and is required to pay a monthly lease fee per tractor and monthly maintenance charge which is based on the actual miles driven by each New Tractor during each month. The maintenance charge covers all scheduled maintenance, including tires, to keep the New Tractors in good repair and operating condition. Any replacement parts and labor for repairs which are not ordinary wear and tear shall be in accordance with Penske fleet pricing, and such costs are subject to upward adjustment on the same terms as set forth in the maintenance agreement described in the previous paragraph. Penske is also obligated to provide road-side service resulting from mechanical or tire failure. Penske will obtain all operating permits and licenses with respect to the use of the New Tractors by Regional. The term of the Lease Agreement is for seven years. The New Tractors were delivered by Penske during May 2012 and June 2012. See “ Regional Operations – Transportation ” below for a more detailed explanation of this agreement.

On September 14, 2012, Regional received a “Response and Notice of Default and Reservation of Rights” (“ September 14 Default Notice” ) from RZB in connection with the RZB Loan. The September 14 Default Notice was the result of Regional’s failure to make the August 2012 interest payment of $10,619.65 due and payable on September 4, 2012. On October 4, 2012, Regional received a “Notice of Default, Demand for Payment and Reservation of Rights” (“ October 4 Demand Notice” ) from RZB in connection with the RZB Loan. The October 4 Demand Notice was delivered as the result of Regional’s failure to pay the monthly principal payment in the amount of $90,000 due and payable on October 1, 2012, and the continued default with respect to the non-payment of the interest payment as set forth in the September 14 Default Notice. The October 4 Demand Notice declared all Obligations (as defined in the RZB Loan) immediately due and payable and demanded immediate payment in full of all Obligations, including fees, expenses and other costs of RZB. The October 4 Demand Notice also (1) contemplated the initiation of foreclosure proceedings in respect of the property owned by Regional and covered by that certain Mortgage, Deed of Trust and Security Agreement dated as of July 26, 2007, and (2) demanded immediate payment of all rents due upon the property pursuant to the terms of the Assignment of Leases and Rents dated July 26, 2007.

On November 29, 2012, Regional and RZB entered into a “Limited Waiver and Ninth Amendment” (“ Ninth Amendment ”) to the Loan Agreement. The Ninth Amendment waived the defaults outstanding as set forth in the October 4, Demand Notice and additional defaults arising since the Demand Notice and the execution of the Ninth Amendment. The Ninth Amendment also amended certain other terms of the Loan Agreement. Under the terms of the Ninth Amendment, the maturity date of the RZB note (“ RZB Note ”) was changed from May 31, 2014 to March 31, 2013, the required monthly amortization payments were reduced to only require monthly amortization payments of $50,000 per month beginning January 31, 2013, and the applicable base margin rate as defined under the Loan Agreement increased from 4.0% to 8.0%. In addition, under the Ninth Amendment, Regional was (a) required to deliver to RZB by January 13, 2013, a copy of an executed letter of intent (“ Letter of Intent ”) evidencing the intent of an investor (or investors) to provide sufficient financing to Regional to repay the balance of the outstanding obligations under the RZB Note by March 31, 2013, and (b) required to deliver to RZB by February 12, 2013, evidence that the preparation of definitive legal documentation evidencing the transaction contemplated by the Letter of Intent has commenced. Regional made the January 31, 2013 monthly amortization payment and delivered to RZB the Letter of Intent and evidence that legal documentation evidencing the transaction contemplated by the Letter of Intent had commenced.

On March 1, 2013, Regional received a “Notice of Default, Demand for Payment and Reservation of Rights” (“ March 1, 2013 Demand Notice ”) from RZB in connection with the Loan Agreement. The March 1, 2013 Demand Notice was delivered as the result of Regional’s failure to pay the monthly principal payment in the amount of $50,000 due and payable on February 28, 2013 as prescribed under the Ninth Amendment and the continued default with respect to the non-payment of interest and principal due under the Loan Agreement which had been previously waived pursuant to the Ninth Amendment. The March 1, 2013 Demand Notice declared all Obligations (as defined in the Loan Agreement) immediately due and payable and demanded immediate payment in full of all Obligations, including fees, expenses and other costs of RZB. The March 1, 2013 Demand Notice also (1) contemplated the initiation of foreclosure proceedings in respect of the property owned by Regional and covered by that certain Mortgage, Deed of Trust and Security Agreement dated as of July 26, 2007 and (2) demanded immediate payment of all rents due upon the property pursuant to the terms of the Assignment of Leases and Rents dated July 26, 2006.

On March 20, 2013, Regional entered into a Term Loan and Security Agreement (“ Hopewell Loan Agreement ”) with Hopewell Investment Partners, LLC (“ Hopewell ”) pursuant to which Hopewell will loan Regional of up to $2,500,000 (“ Hopewell Loan ”), of which $1,998,000 was advanced on such date. In connection with the Hopewell Loan, Regional issued Hopewell a promissory note (“ Hopewell Note ”) and granted Hopewell a security interest in all of Regional’s assets, including a first lien mortgage on the real property owned by Regional and an assignment of rents and leases and fixtures on the remaining assets of Regional. In connection with the Hopewell Loan, the Partnership delivered to Hopewell a pledge of the outstanding capital stock of Regional and the Partnership entered into an unlimited guaranty for the benefit of Hopewell. In addition, Regional and the Partnership entered into an Environmental Certificate with Hopewell representing as to the environmental condition of the property owned by Regional, agreeing to clean up or remediate any hazardous substances from the property, and agreeing, jointly and severally, to indemnify Hopewell from and against any claims whatsoever related to any hazardous substance on, in or impacting the property of Regional.

The principal purpose of the Hopewell Loan was to repay the entire amounts due by Regional to RZB in connection with the Loan Agreement totaling $1,975,000 at the time of payoff, including principal, interest and legal fees and other expenses owed in connection with the Loan Agreement. Any additional amounts provided under the Hopewell Loan to Regional will be used for working capital.

During the year ended December 31, 2011 and the nine months ended September 30, 2012, the General Partner made cash advances to the Partnership of $955,000 and $30,000, respectively, for the purpose of funding working capital. On September 14, 2012, a Super-Majority of the Members, as defined in the Second Amended and Restated Limited Liability Company Agreement of the General Partner, dated April 12, 2011, as amended (the “ Agreement ”), approved the issuance and sale by the General Partner of 12,000 additional Membership Interests of the General Partner (“ Additional Interests ”) at a purchase price of $50.00 per unit, pursuant to Sections 3.2(a) and 6.13(a) of the Agreement (“ GP Sale ”). The Additional Interests were purchased by all the existing members of the General Partner, except 144 units offered to one existing member (“ Unsubscribed Units ”), in accordance with their pro rata ownership of the General Partner. In accordance with the Agreement, the General Partner offered the Unsubscribed Units to those members whom participated in the GP Sale for which those members also purchased their pro rata portion of the Unsubscribed Units.

As of December 31, 2012, $434,000 of the net proceeds from the GP Sale, which totaled $507,000 (after the offset of $93,000 of prior advances from Messrs. Anbouba and Montgomery of the General Partner that were applied towards their purchase price amounts due in connection with the GP Sale) were used by the General Partner to fund working capital requirements of the Partnership, including the payment of certain outstanding obligations. All funds advanced to the Partnership by the General Partner since November 17, 2010 have been treated as a loan pursuant to the terms of an intercompany demand promissory note effective March 1, 2012. The intercompany demand note provides for advances from time to time by the General Partner to Central of up to $2,000,000. Repayment of such advances, together with accrued and unpaid interest, is to be made in 12 substantially equal quarterly installments starting with the quarter ended March 31, 2016. The note bears interest at the imputed rate of the IRS for medium term notes. The rate at March 1, 2013 is 1.1% per annum and such rate is adjusted monthly by the IRS under IRB 625. At December 31, 2012, the total amount owed to the General Partner by the Partnership, including accrued interest, was $1,510,000.

The Partnership currently does not have sufficient available cash to resume making the minimum quarterly distribution of $0.25 per Common Unit or any other amount to its Partners. Similarly, the Partnership does not foresee the ability to make distributions of $0.25 per Common Unit or any other amount to its Partners. Currently the General Partner has exhausted its cash reserves, and Regional’s operating cash flow is limited to cash available from Regional’s operations. The use of Regional’s available cash from operations is restricted as a result of the debt covenants associated with the Hopewell Loan Agreement, the tax obligations of Regional, the deficit in working capital and required maintenance of its facilities. As a result, after Partnership expenses, there is no cash available for distribution to the Partners. Furthermore, the General Partner anticipates that any financing of its next acquisition will include some form of limitation on the Partnership’s ability to make distributions on its Common Units until such time as the acquired operations have been stabilized and the Partnership has built adequate cash reserves for its operations.

Current Operations

Management’s primary focus during the first half of 2011 was complying with obligations under federal and state law regarding a number of obligations that the Partnership and Regional had failed to meet due to its previous lack of working capital, including (1) the obligation, as a publicly-traded company, to file quarterly and annual reports for calendar years 2009 and 2010, (2) prepare and publish reviewed and/or audited financial statements for Regional during the calendar years 2009 and 2010, (3) file the Partnership’s 2008 and 2009 federal and state income tax reports, (4) deliver Schedules K-1 to its Partners as required by federal tax laws and (5) file Regional’s 2009 federal and state income tax reports. During the first half of 2011, the Partnership filed with the SEC a Comprehensive Form 10-K including all financial disclosures, by quarter and annually, for the years 2008, 2009 and 2010 and has since timely filed all subsequent reports required pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “ Exchange Act ”). As a result, the Partnership is current with all reporting requirements under the Exchange Act and is eligible to use Forms S-3 and S-8 to register its securities (if it otherwise qualifies to use such forms) and to utilize Rule 144 to resell unregistered securities. The Partnership also prepared and filed its delinquent tax returns for the tax years ended December 31, 2008 and 2009 with the IRS and the state taxing authorities, and delivered to its Partners delinquent Schedules K-1 for the tax years 2008 and 2009. Regional prepared and filed either reviewed or audited financial statements as required for the calendar years 2009 and 2010. The Partnership and Regional have also timely filed their respective 2010 and 2011 federal and state tax returns within the required deadlines.

During the second half of 2011 and all of 2012, after regaining compliance with its tax and financial reporting obligations, management’s focus turned to expanding the asset base of the Partnership. The General Partner identified a number of potential acquisition opportunities, made indicative offers to purchase five different midstream assets and entered into significant negotiations for the purchase of two of such assets. Several of these opportunities were subject to an auction process in which the General Partner was not the successful bidder as the result of more aggressive bids being placed by other entities. In each case, management of the General Partner believed that the successful bids exceeded the value of the assets. Management is continuing to evaluate acquisition opportunities, but there is no assurance that they will be successful in consummating any of these opportunities.

At the present time, the Partnership’s sole operating subsidiary is Regional. Cash flow from the Partnership’s current and future operating subsidiaries are intended to fund the various costs incurred by the General Partner in operating the Partnership (including the compliance costs associated with being a publicly-registered entity), acquisition costs (including costs associated with identifying and valuing acquisition targets, performing due diligence reviews and documenting a potential transaction) and other governance activities associated with a publicly-traded entity. At the time of the Sale, the General Partner anticipated the need for cash reserves sufficient to allow the Partnership to regain compliance with its delinquent tax and financial reporting requirements and to fund general overhead for a reasonable period of time while it identified and completed the acquisition of additional assets that would provide sufficient liquidity to fund its future operations and the ongoing overhead costs described above. Those funds were exhausted by September 2012. In connection with the GP Sale during October 2012, the General Partner raised additional funds which it believed were sufficient to cover general overhead for an additional six months. As described in the previous paragraph, the General Partner has not completed an acquisition of additional assets.

Currently the Partnership and the General Partner have each exhausted their available cash reserves, and Regional relies solely on its cash flow from operations to fund payments required on the Hopewell Note, its tax obligations, funding of other working capital deficits and the required maintenance of its facilities. Furthermore, the use of Regional’s remaining cash from operations, if any, to fund the Partnership’s and the General Partner’s overhead expenses is restricted as a result of the debt covenants associated with the Hopewell Loan Agreement, and the agreement to subordinate the payment of all intercompany receivables and loans to the Hopewell Note. Currently, there is no cash available for distribution to the Partners. At December 31, 2012, the Partnership had unpaid third-party obligations totaling $6,626,000 and contingent liabilities, including accrued and unpaid taxes by Regional and estimated penalties related to the late filing of the Schedules K-1 for the 2009 tax year of $1,184,000. The Partnership also had intercompany obligations to the General Partner for cash advances of $1,510,000.

Due to the Partnership’s and the General Partner’s concerns over liquidity, effective November 1, 2011, Messrs. Anbouba and Montgomery, executive officers of the General Partner, agreed to forego any further compensation until such time as the General Partner completed its plan for recapitalizing the Partnership and obtaining sufficient funds needed to conduct its operations. On January 1, 2012, the Chief Financial Officer of the General Partner also ceased receiving compensation. During June 2012, the Chief Financial Officer of the General Partner began receiving a portion of his ongoing monthly salary. The Partnership has also failed to reimburse expenses to Messrs. Anbouba and Montgomery since September 2011 and the Chief Financial Officer since September 2011. In addition, the General Partner has not reimbursed AirNow Compression Systems, LTD. since January 2012 or Rover Technologies LLC since September 2011 for the overhead costs associated with offices maintained on the premises of each affiliated organization. Management intends to resume compensation to the executive officers and satisfy outstanding expense reimbursements to the executive officers and/or their affiliates at such time as there are sufficient funds from operations to make such payments or a recapitalization of the Partnership, in connection with an acquisition, is accomplished.

Based on the amounts advanced under the Hopewell Loan as of March 20, 2013, Regional is required to make interest payments only of $20,000 per month for the first six months and then 29 equal monthly payments of $44,500 (principal and interest) from the seventh month through the 35 ^th month with a balloon payment of $1,193,000 due on March 19, 2016. In addition, Regional has arranged for an installment agreement with the IRS for the payment of all delinquent income tax amounts due through December 31, 2012. Beginning January 1, 2013, Regional began to receive rental revenues for a tank which was idle during all of 2012. Regional expects to complete the repair of another tank that has been out of service since a leak was discovered in March 2012. This tank is expected to be operational by May 1, 2013. Regional has also reached agreements with several vendors which provide for the payment of outstanding balances over future monthly periods. As a result of the above efforts, management believes that Regional’s financial position will be stable for the foreseeable future and that working capital will continue to improve provided none of the obligations described above are accelerated and/or projected revenues from operations are less than anticipated. Management also continues to seek acquisition opportunities for the Partnership to expand its assets and generate additional cash from operations. There is no assurance that Regional will have sufficient working capital to cover any of the ongoing overhead expenses of the Partnership and the General Partner (including unpaid salaries, expense reimbursements and professional fees) for the period of time that management believes is necessary to complete an acquisition that will provide additional working capital for the Partnership. Despite significant effort, the Partnership has thus far been unsuccessful in completing an acquisition transaction. There can be no assurance that the Partnership will be able to complete an accretive acquisition or otherwise find additional sources of working capital. If the Partnership does not have sufficient cash reserves, its ability to pursue additional acquisition transactions will be adversely impacted. Should the Partnership fail to obtain the needed working capital as required in the near future, it will be forced to take alternative action, such as the sale of assets or liquidation.

Management believes that the future completion of any acquisition will require the use of then available Partnership resources, third-party debt and/or proceeds from the issuance of new securities by the Partnership, or a combination thereof. Management does not expect that it will complete an acquisition before the second half of 2013. There is no assurance that management will be successful in completing an acquisition. If an acquisition is completed, management expects that the terms of any related financing will contain some form of restriction on the Partnership’s ability to make distributions on its Common Units until such time as the acquired operations have been stabilized and the Partnership has built adequate cash reserves for its operations.

Based on the Partnership’s expected cash flow constraints and the likelihood of a restriction on distributions as a result of anticipated acquisitions, on March 28, 2012, the General Partner and Limited Partners holding a majority of the issued and outstanding Common Units of the Partnership voted to amend the Partnership Agreement to change the commencement of the payment of Common Unit Arrearages from the first quarter beginning October 1, 2011, until an undetermined future quarter to be established by the Board of Directors of the General Partner. At the present time, the limited partners of Central Energy, LP, the entity that acquired the Newly-Issued Common Units in the Sale, hold 80% of the total issued and outstanding Common Units of the Partnership and, therefore, control any Limited Partner vote on Partnership matters. The ability of the Partnership to make distributions can be further impacted by many factors including the ability to successfully complete an acquisition, the financing terms of debt and/or equity proceeds received to fund the acquisition and the overall success of the Partnership and its operating subsidiaries.

In addition to eliminating the obligation to make payments of any unpaid minimum quarterly distributions until an undetermined future date to be established by its Board of Directors, the General Partner expects that the minimum quarterly distribution amount and/or the target distribution levels will be adjusted to a level which reflects the existing economics of the Partnership and provides for the desired financial targets, including Common Unit trading price, targeted cash distribution yields and the participation by the General Partner in incentive distribution rights. The distribution of the 12,724,019 Newly-Issued Common Units in the Sale (which did not result in the acquisition of any proportional increase in distributable cash flow) and the additional issuance of Common Units or other Partnership securities in connection with the next acquisition will not support the current minimum quarterly distribution of $0.25 per Common Unit. Management anticipates making this adjustment in connection with its next acquisition since the financing of an acquisition may involve the issuance of additional Common Units or other securities by the Partnership. In connection with an acquisition, the General Partner will be able to better determine the future capital structure of the Partnership and the amounts of “distributable cash” that the Partnership may generate in the future. The establishment of a revised target distribution rate may be accomplished by a reverse split of the number of Partnership Common Units issued and outstanding and/or a reduction in the actual amount of the target distribution rate per Common Unit. Please see the section “ Future Operations ” below for a further explanation of the Partnership’s plans with respect to growth through acquisitions.

Future Operations

Management continues to focus on obtaining sufficient working capital to conduct Central’s operations and expand its asset base. Management’s long-term business objective is to maintain stable cash flows and to reinstate the Partnership’s quarterly cash distribution over time. Management’s strategy is to identify for acquisition midstream assets, which include gas gathering and transmission systems, compression, treating and processing facilities, fractionation facilities, and transportation capabilities. It intends to accomplish these objectives by executing the following strategies.

Acquisitions will be made through subsidiaries of the Partnership created to acquire identified entities or assets. We will use available Partnership resources, third-party debt and/or proceeds from the issuance by the Partnership of new securities, or any combination thereof, to fund such acquisitions.

During the second half of 2011 and all of 2012, the General Partner identified a number of potential acquisition activities, made indicative offers to purchase five different midstream assets and entered into significant negotiations for the purchase of two of those assets. Several of these opportunities were the subject of an auction process in which the General Partner was not the successful bidder as the result of more aggressive bids being placed by other entities. In each case, management of the General Partner believed that the successful bids exceeded the value of the assets. Management prefers to evaluate opportunities without a competitive bidding process; however, such opportunities are more difficult to identify. Management is continuing to evaluate acquisition opportunities, but there is no assurance that they will be successful in consummating any of these opportunities.

Midstream Industry Overview

The following diagram illustrates the gathering, processing, marketing and transportation of natural gas, natural gas liquids (“ NGLs ”) and condensates.

The midstream industry is the link between the exploration for and production of oil and natural gas and the delivery of its components, including NGLs and condensates, to end-user markets. The midstream industry is generally characterized by regional competition based on the proximity of gathering systems and processing plants to producing wells.

Gathering. The gathering process follows the drilling of wells into hydrocarbon bearing rock, sand or other formations. Once a well has been completed, the well is connected to a gathering system. Gathering systems typically consist of a network of small diameter pipelines and, if necessary, compression systems which collect natural gas and NGLs from points near producing wells and transport it to larger pipelines for further transmission.

Compression. Gathering systems are operated at pressures that will maximize the total throughput from all connected wells. Because wells produce at progressively lower field pressures as they age, it becomes increasingly difficult to deliver the remaining production in the ground against the higher pressure that exists in the connected gathering system. Natural gas compression is a mechanical process in which a volume of gas at an existing pressure is compressed to a desired higher pressure, allowing gas that no longer naturally flows into a higher-pressure downstream pipeline to be brought to market. Field compression is typically used to allow a gathering system to operate at a lower pressure or provide sufficient discharge pressure to deliver gas into a higher-pressure downstream pipeline. If field compression is not installed, then the remaining natural gas in the ground will not be produced because it will be unable to overcome the higher gathering system pressure. In contrast, if field compression is installed, a declining well can continue delivering natural gas.

Treating . Natural gas has a varied composition depending on the field, the formation and the reservoir from which it is produced. Natural gas from certain formations is higher in carbon dioxide, hydrogen sulfide or certain other contaminants. Treating plants remove carbon dioxide, hydrogen sulfide or other contaminants from natural gas to ensure that it meets pipeline quality specifications.

Processing. The principal components of natural gas are methane and ethane, but most natural gas also contains varying amounts of heavier NGLs and contaminants, such as water, sulfur compounds, nitrogen or helium. Natural gas produced by a well may not be suitable for long-haul pipeline transportation or commercial use and may need to be processed to remove the heavier hydrocarbon components and contaminants. Natural gas in commercial distribution systems is composed almost entirely of methane and ethane, with moisture and other contaminants removed to very low concentrations. Natural gas is processed not only to remove unwanted contaminants that would interfere with pipeline transportation or use of the natural gas, but also to separate from the gas those hydrocarbon liquids that have higher value as NGLs. The removal and separation of individual hydrocarbons by processing is possible because of differences in weight, boiling point, vapor pressure and other physical characteristics. Natural gas processing involves the separation of natural gas into pipeline quality natural gas and a mixed NGL stream, as well as the removal of contaminants.

Fractionation. NGL fractionation facilities separate mixed NGL streams into discrete NGL products: oil, ethane, propane, normal butane, isobutane and natural gasoline. Ethane is primarily used in the petrochemical industry as feedstock for ethylene, one of the basic building blocks for a wide range of plastics and other chemical products. Propane is used both as a petrochemical feedstock and as a heating fuel, an engine fuel and an industrial fuel. Normal butane is used as a petrochemical, and as a blend stock for motor gasoline. Isobutane is typically fractionated from mixed butane (a stream of normal butane and isobutane in solution), principally for use in enhancing the octane content of motor gasoline. Natural gasoline, a mixture of pentanes and heavier hydrocarbons, is used primarily as motor gasoline blend stock or petrochemical feedstock.

Condensate Stabilization. Natural gas condensate is a low-density mixture of hydrocarbon liquids found in the raw natural gas stream. Condensate stabilization is a process by which the vapor pressure of the condensate is reduced by removing the lighter hydrocarbons, which are retained and sold. The remaining condensate with lower vapor pressure is better positioned to meet transportation and end-user specifications.

Transportation.  Natural gas transportation consists of moving pipeline-quality natural gas from gathering systems, processing plants and other pipelines and delivering it to wholesalers, utilities and other pipelines. NGL transportation consists of moving the raw natural gas stream to fractionation facilities and discrete NGL products to end markets. Condensate is typically transported locally by truck and aggregated into storage tanks before being delivered to end markets via a range of transportation alternatives, including truck, rail, barge or pipeline.

Terminalling, Transportation and Storage . Terminalling and storage facilities and related short-haul pipelines complement transportation systems, refinery operations and refined products transportation, and play a key role in moving refined products to the end-user market. Terminals are generally used for distribution, storage, inventory management, and blending to achieve specified grades of gasoline, filtering of jet fuel, injection of additives, including ethanol, and other ancillary services. Typically, refined product terminals are equipped with automated truck loading facilities commonly referred to as “truck racks” that operate 24 hours a day and often include storage tanks. These automated truck loading facilities provide for control of security, allocations, credit and carrier certification by remote input of data by customers. Trucks pick up refined products at the truck racks and transport them to commercial, industrial and retail end-users. Additionally, some terminals use rail cars or barges to deliver refined products from and receive refined products into the terminal.

Regional Operations

On July 27 2007, the Partnership acquired the business of Regional Enterprises, Inc., a Virginia corporation. Regional has provided liquid bulk storage, transportation and railcar trans-loading of bulk liquids, including hazardous chemicals and petroleum products, to its customers for over 40 years.

The principal business of Regional is the storage, transportation and railcar trans-loading of bulk liquids, including hazardous chemicals and petroleum products owned by its customers. Regional’s principal facilities are located on the James River in Hopewell, Virginia, where it receives bulk chemicals and petroleum products from ships and barges into approximately 10 million gallons of available storage tanks for delivery throughout the mid-Atlantic region of the United States. Regional also receives product from a rail spur which is capable of receiving 15 rail cars at any one time for trans-loading of chemical and petroleum liquids for delivery throughout the mid-Atlantic region of the United States. Regional also operates a trans-loading facility in Johnson City, Tennessee, with 6 rail car slots. Regional also provides transportation services to customers for products which don’t originate at any of Regional’s terminal facilities. Regional intends to cease operations at the Johnson City facility on March 31, 2013 as a result of the decision by Regional’s sole customer for this facility not to renew its agreement (which expires on March 31, 2013) as a result of the shut-down of a nearby processing plant for which that customer was supplying product out of the Johnson City site. Certain customers for whom Regional provides storage services also use its transportation services. The hazardous materials and petroleum products stored, trans-loaded and transported by Regional are owned by its customers at all times.

For the years ended December 31, 2011 and 2012, Regional’s revenues were divided as set forth below. All dollar amounts are in thousands.

Transportation . Regional transports a broad range of hazardous and non-hazardous liquid products. Hazardous liquids transported by the Company include aluminum sulfate solution, hydrochloric acid, sulfuric acid, sodium hydroxide, aqua ammonia and sodium bisulfate. Non-hazardous materials include crude tall oil, No. 2 oil, No. 6 oil, asphalt additives and vacuum gas oil. Regional’s transportation services are, for the most part, short-haul in nature, with an estimated 85% of Regional’s deliveries being made within 150 miles of its Hopewell, Virginia terminal. Virtually all of Regional’s transportation services are provided within the states of Virginia, North Carolina, South Carolina, Georgia, Tennessee, Maryland, Pennsylvania and Delaware.

At December 31, 2012, Regional had a fleet of 20 New Tractors (see below), 5 owned tractors and 48 tanker units dedicated to its transportation services. The majority of the tanker units are constructed of stainless steel, with 11 being rubber or chlorobutyl lined, which enables them to carry the toughest corrosives. The tanker fleet also includes four aluminum-constructed petroleum tankers with vapor recovery systems. Management believes that this extensive inventory of tankers enables Regional to service the majority of its customers’ needs. Major maintenance and repairs and tanker inspections have been outsourced.

Effective January 18, 2012, Regional entered into a Vehicle Maintenance Agreement (“ Maintenance Agreement ”) with Penske Truck Leasing Co., L. P. (“ Penske ”) for the maintenance of its owned tractor and trailer fleet. The Maintenance Agreement provides for (i) fixed servicing as described in the agreement, which is basically scheduled maintenance, at the fixed monthly rate for tractors and for trailers and (ii) additional requested services, such as tire replacement, mechanical repairs, physical damage repairs, tire replacement, towing and roadside service and the provision of substitute vehicles, at hourly rates and discounts set forth in the agreement. Pricing for the fixed services is subject to upward adjustment for each rise of at least one percent (1%) for the Consumer Price Index for All Urban Consumers for the United States published by the United States Department of Labor. The term of the agreement is 36 months. Regional is obligated to maintain liability insurance coverage on all vehicles naming Penske as a co-insured and indemnify Penske for any loss it or its representatives may incur in excess of the insurance coverage. Penske has the right to terminate the Maintenance Agreement for any breach by Regional upon 60 days written notice, including failure to pay timely all fees owing Penske, maintenance of Regional’s insurance obligation or any other breach of the terms of the agreement.

On February 17, 2012, Regional entered into a Vehicle Lease Service Agreement with Penske for the outsourcing of 20 new Volvo tractors (“ New Tractors ”) to be acquired by Penske and leased to Regional, and the outsourcing of the maintenance of the New Tractors to Penske (“ Lease Agreement ”). Under the terms of the Lease Agreement, Regional made a $90,000 deposit, the proceeds for which were obtained from the sale of six of Regional’s owned tractors, and will pay a monthly lease fee per tractor and monthly maintenance charge (“ Maintenance Charge ”) which is based on the actual miles driven by each New Tractor during each month. The Maintenance Charge covers all scheduled maintenance, including tires, to keep the New Tractors in good repair and operating condition. Any replacement parts and labor for repairs which are not ordinary wear and tear shall be in accordance with Penske fleet pricing, and such costs are subject to upward adjustment on the same terms as set forth in the Maintenance Agreement. Penske is also obligated to provide roadside service resulting from mechanical or tire failure. Penske will obtain all operating permits and licenses with respect to the use of the New Tractors by Regional.

The term of the Lease Agreement is for seven years. The New Tractors were delivered by Penske during May 2012 and June 2012. Under the terms of the Lease Agreement, Regional (i) may acquire any or all of the New Tractors after the first anniversary date of the Lease Agreement based on the non-depreciated value of the tractor and (ii) has the option after the first anniversary date of the Lease Agreement to terminate the lease arrangement with respect to as many as five of the New Tractors leased based on a documented downturn in business. Regional is obligated to maintain liability insurance coverage on all vehicles covered by the Lease Agreement on the same basis as in the Lease Agreement.

The Lease Agreement can be terminated by Penske upon an “event of default” by Regional. An event of default includes (i) failure by Regional to pay timely any lease charges when due or maintain insurance coverage as required by the Lease Agreement, (ii) any representation or warranty of Regional is incorrect in any material respect, (iii) Regional fails to remedy any non-performance under the agreement within five (5) days of written notice from Penske, (iv) Regional or any guarantor of its obligations becomes insolvent, makes a bulk transfer or other transfer of all or substantially all of its assets or makes an assignment for the benefit of creditors or (v) Regional files for bankruptcy protection or any other proceeding providing for the relief of debtors. Penske may institute legal action to enforce the Lease Agreement or, with or without terminating the Lease Agreement, take immediate possession of the New Trucks wherever located or, upon five (5) days written notice to Regional, either require Regional to purchase any or all of the New Tractors or make the “alternative payment” described below. In addition, Regional is obligated to pay all lease charges for all such New Tractors accrued and owing through the date of the notice from Penske as described above. Penske’s ability to require Regional to purchase the New Truck fleet or make the “alternative payment” would place a substantial financial burden on Regional.

The Lease Agreement can also be terminated by either party upon 120 days written notice to the other party as to any New Truck subject to the agreement on any annual anniversary of such tractor’s in-service date. Upon termination of the Lease Agreement by either party, Regional shall, at Penske’s option, either acquire the New Tractor that is the subject of the notice at the non-depreciated value of such tractor, or pay Penske the “alternative payment.” The “alternative payment” is defined in the Lease Agreement as the difference, if any, between the fair market value of the New Tractor and such tractor’s “depreciated Schedule A value” ($738 per month commencing on the in-service date of such tractor). If the Lease Agreement is terminated by Penske and Regional is not then in default under any term of the Lease Agreement, Regional is not obligated to either acquire the New Tractor that is the subject of the termination or pay Penske the “alternative payment” as described above.

In connection with the delivery of the New Tractors, Regional sold its remaining owned tractor fleet, except for several owned tractor units which were retained to be used for terminal site logistics.

As a result of entering into the Lease Agreement and the Vehicle Maintenance Agreement, Regional no longer provides maintenance for either the New Tractors or its owned tractor and tanker fleet. Regional expects that the annual costs related to the future operation of the transportation fleet, including savings from fuel efficiencies and reduced maintenance costs, will be reduced from historical amounts.

Storage . Regional’s Hopewell facility has a total of 15 tanks, six of which have capacities in excess of one million gallons (“ Large Tanks ”). Of these 15 tanks, nine tanks are currently being utilized by customers, including five of the Large Tanks, two tanks are vacant and available for customer use, two tanks are being used by Regional to store truck and boiler fuel, two tanks are out of service until the completion of future inspections to determine suitability of use and the remaining Large Tank is idle due to a leak that requires repair. The eight tanks currently utilized by customers have a combined storage capacity of approximately 9 million gallons, the two tanks available for rental have a capacity of 39,811 gallons each, and the two tanks being utilized by the company have a capacity of 10,702 gallons each. All of the tanks are constructed of carbon steel, both insulated and bare, and some with internal walls lined and unlined. Several tanks and all of the associated piping are equipped with heat via either heat transfer fluid (hot oil) or steam. At December 31, 2012, Regional stored the following products: two grades of asphalt, asphalt additive, sodium hydroxide, No. 2 oil and No. 6 oil. Beginning January 1, 2013, Regional began storing MORLIFE 5000, an asphalt additive. The company also stored sodium hydroxide, sodium bisulfate, sulfuric acid and crude tall oil in tank cars at its rail siding.

In January 2012, Noble Oil Services, Inc., one of Regional’s largest customers, notified the company that it was not going to renew its two storage agreements. As a result, two of the company’s Large Tanks, with capacities of 1.3 million and 1.7 million gallons, were vacated – one in January 2012 and the other in February 2012. At the time Noble Oil vacated the tanks, Noble was storing vacuum gas oil in these two tanks. On March 1, 2012, Regional entered into a 36-month agreement, with automatic one-year renewals, to store No. 6 oil in the 1.3 million gallon storage tank. As part of the lease, Regional was required to make modifications to the tank and barge line and insulate the tank. Effective January 1, 2013, Regional entered into a 36-month agreement, with automatic one-year renewals, to store MORLIFE 5000, an asphalt additive, in the 1.7 million gallon storage tank. During the time the tank was idle, Regional completed certain refurbishments of the tank, completed upgrades to the barge connections between the tank to the port facility and insulated the tank.

On March 19, 2012, one of the Large Tanks which was storing asphalt was discovered to have a leak. During April 2012, after removal of the existing product from the storage tank, the storage tank was taken out of service. The storage tank is expected to be operational by May 1, 2013.

Regional expects that during 2013, one of the Large Tanks will need to be relined. Regional does not expect that the tank will be out of service for any significant period during this maintenance.

During fiscal 2013, three contracts which provide for the leasing of several of the Large Tanks are subject to expiration. Regional expects to be able to negotiate extensions to the existing contracts and/or obtain new contracts with current and/or new customers under terms no less favorable than the existing contracts.

Port Facility . Regional’s port is located 75 miles upriver from the Port of Hampton Roads. The draft of the location is 24 feet at mean low water, and the turning basin is greater than 600 feet. The company’s loading dock is parallel to the main shipping channel of the James River with berthing dolphin clusters approximately 210 feet apart. Mooring dolphins are also available for vessels up to 600 feet in length. The facility can handle one vessel at a time. The loading dock is served by two six-inch and one 10-inch steel pipeline connecting the dock to various tanks in the facility.

Trans-loading . Regional provides trans-loading services utilizing its two rail sidings, off-loading facilities and 9 truck racks located in Hopewell, Virginia and Johnson City, Tennessee (see below), to transfer products from ships, barges, railcars and storage tanks to tanker trucks. Regional owns siding tracks and has 15 railcar slots at its Hopewell facility, with Norfolk Southern conducting switching operations. The siding tracks and railcar slots are accessed through an open-access switch owned by the City of Hopewell and served by Norfolk Southern and CSX. At December 31, 2012 and March 20, 2013, Regional had no railcar slots available for lease.

Regional also maintains a trans-loading facility in Johnson City, Tennessee, where it leases siding tracks and six railcar slots. Switching operations for the Johnson City facility are provided by East Tennessee Railway, which services tracks over which both the CSX and Norfolk Southern railroads operate. Regional stores sulfuric acid in tank cars positioned at the six railcar slots in Johnson City. These bulk liquids are transferred from the railcar siding to trucks by the use of a mobile truck rack. Regional intends to cease operations at the Johnson City facility on March 31, 2013, as a result of the decision by Regional’s sole customer for the Johnson City site not to renew its agreement (which expires on March 31, 2013) as a result of the shut-down of a nearby processing plant for which that customer was supplying product out of the Johnson City site. Regional intends to immediately deploy the Regional owned equipment from the Johnson City site to the Hopewell facility once operations have ceased. Regional has provided a notice of termination in connection with its lease agreement for the Johnson City site effective March 31, 2013, and will lease the site on a month to month basis beginning April 2013 until such time that Regional determines the viability of identifying a new customer for that facility.

Open rail access to the Norfolk Southern and CSX rail lines offers competitive rail economics and flexibility for Regional’s customers. Customers who utilize Regional’s rail trans-loading services typically do so because either their own rail service is at full capacity or Regional’s strategic location provides them with an important distribution point not available in their own distribution system. Trans-loading products, either from storage tanks or tankers, in railcar quantities, provide a logistical pricing advantage over long-haul transportation in tanker trucks. Steam heat or compressed air is available at each railcar spot.

Future Expansion . Regional is exploring future expansion options at its Hopewell location and the opening of future satellite operations similar to its Johnson City facility in cooperation with potential customers seeking new or alternative trans-loading facilities near their end-customers. There is approximately 2.25 acres of undeveloped acreage at Regional’s Hopewell facility, which could be used to accommodate construction of up to an additional 4.2 million gallons of storage capacity. The company is in continuous dialogue with its existing and potential customers about expansion opportunities and the financial viability of a number of proposals. However, given Regional’s current financial situation, it does not currently have the capital resources to pursue any of these opportunities should they arise absent funding from a customer or other source.

Property . Regional owns 8.5 acres of land on which its Hopewell, Virginia facility is located. The property is pledged as collateral under the Hopewell Loan. Improvements on the land include the port facilities, storage tanks and rail trans-loading facilities. The company also has a 5,000 square foot facility which houses the offices from which it provides most of its management, administrative and marketing operations and formerly housed its maintenance operation. The Company leases two facilities to park its tractors and tankers and also has concrete pads at its Hopewell facility to park pre-loaded tanker units on the property.

Regional also leases six railcar spots, office facilities and parking at the location in Johnson City, Tennessee where it operates a trans-loading facility. The property and track lease agreement was for an initial term of one year and automatically renewed in one year increments unless terminated by either party by giving written notice 60 days in advance to the other party. Regional intends to cease operations at the Johnson City facility on March 31, 2013, as a result of the decision by Regional’s sole customer for the Johnson City site not to renew its agreement (which expires on March 31, 2013) as a result of the shut-down of a nearby processing plant for which that customer was supplying product out of the Johnson City site. Regional intends to immediately deploy the Regional owned equipment from the Johnson City site to the Hopewell facility once operations have ceased. Regional has provided a notice of termination in connection with its lease agreement for the Johnson City site effective March 31, 2013, and will lease the site on a month to month basis beginning April 2013 until such time that Regional determines the viability of identifying a new customer for that facility.

Customers . Regional’s customers lease storage space for hazardous chemicals and petroleum products and/or utilize the company’s transportation and trans-loading services. The company has long-term contracts with a number of customers. Please see “ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Agreements ” for details regarding the long-term contracts of Regional. The company’s transportation and trans-loading services are completed within one week of the customer order and are billed upon completion.

For the fiscal year ended December 31, 2011, Suffolk Sales, Noble Oil Services and General Chemical Corporation accounted for approximately 24%, 17% and 13% of Regional’s revenues, respectively, and approximately 36%, 6% and 19% of Regional’s accounts receivable, respectively, with no other individual customer accounting for more than 10% of Regional’s revenues and accounts receivable. Regional did not lose any tank rental customers during the calendar years ended 2010 and 2011, and had increased rental rates during each of those periods. However, Noble Oil did vacate two storage tanks in January and February 2012 as disclosed under “ Storage ” above, and one other tank has been out of service since April 2012 as a result of a discovered leak. Regional re-leased one of the storage tanks vacated by Noble Oil during 2012 and re-leased the other tank effective January 1, 2013. Regional gained several new customers for its hauling and trans-loading businesses since December 2011 and has outsourced its truck fleet beginning since May 2012. As stated above, Regional plans to cease operations at its Johnson City facilities on March 31, 2013, in connection with the decision by the sole customer of the facility not to renew its agreement with the company.

For the fiscal year ended December 31, 2012, General Chemical Corporation, Suffolk Sales, and SGR Energy LLC accounted for approximately 16%, 15% and 11% of Regional’s revenues, respectively, and approximately 14%, 13% and 8% of Regional’s accounts receivable, respectively. MeadWestVaco Specialty Chemicals, Inc. accounted for 7% of Regional's revenues and 15% of Regional's accounts receivables. Honeywell International, Inc. accounted for 3% of Regional’s revenues and 22% of Regional’s accounts receivables.

During fiscal 2013, three contracts which provide for the leasing of several of the Large Tanks are subject to expiration. Regional expects to be able to negotiate extensions to the existing contracts and/or obtain new contracts with current and/or new customers under terms no less favorable than the existing contracts.

Competition . The storage and transportation industry is highly competitive. Regional faces competition from other storage terminals and transportation companies that may be able to supply its customers with refined products and chemicals on a more competitive basis, due to terminal location, price, versatility and services provided. Also, to the extent the Partnership executes its growth strategy, Regional may face competition for refined product supply sources. Regional’s current competition is primarily independent terminal and distribution companies. In the future, as the Partnership executes its growth strategy, competition could include integrated petroleum companies, refining and marketing companies and large distribution companies with marketing and trading arms. Competition in the mid-Atlantic region is affected primarily by the volumes of refined products and chemicals located in the region and by the availability of refined products and chemicals and the cost of transportation to end customers located in the region.

Regional has identified only one competitor in the mid-Atlantic region that offers all of the services provided by the company – A&R Logistics in Chesapeake, Virginia. Other companies offer some component of the services provided by Regional. For example, Allied Terminals in Norfolk, Virginia is a competitor for tank storage services, Atlantic Bulk Carriers, Quality Carriers, Oakley Logistics and Oakley Tank Lines, and Hillcrest Transportation provide tank truck hauling services in the region, and RSI Leasing Inc. (in Petersburg, Virginia) and CSX (in Richmond, Virginia) are competitors for rail trans-loading services. Several of these companies are larger than Regional and have financial and technical resources and staffs substantially larger than the company. Regional is able to compete with these companies and other competitors on quality of service and the fact that it can provide all needed services for the handling of hazardous liquids, including bulk storage, delivery of such liquids to or from storage by sea, rail and truck and railcar trans-loading.

Regional is also affected by competition for availability of specialized equipment. The purchase of certain trucking equipment, including tankers, requires significant lead time and possible higher prices to obtain. Accordingly, we may not be able to bid for additional business which requires equipment not currently available to us. We also encounter strong competition from other independent operators and from companies in securing trained personnel. Many of these competitors have financial and technical resources and staffs substantially larger than ours.

Insurance . Terminals, storage tanks and similar facilities may experience damage as a result of an accident or natural disaster. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operations. In addition, claims exposure in the motor carrier industry consists of cargo loss and damage, third-party casualty and workers’ compensation. Regional maintains insurance policies to cover losses incurred as a result of its transportation and trans-loading activities, pollution liability and business interruption, as well as workers compensation, property, boiler and equipment, and personal injury coverage. However, such insurance does not cover every potential risk associated with its operations, and we cannot ensure that such insurance will be adequate to protect Regional’s assets, customers and employees from all material expenses related to potential future claims for personal and property damaged, or that these levels of insurance will be available in the future at commercially reasonable prices. All of the companies which provide coverage to Regional are rated “A-” or better by A. M. Best Company; however, there can be no assurance that insurance companies providing coverage to Regional will not become insolvent. The Company has been able to obtain what it believes to be adequate insurance coverage for 2013 and is not aware of any matters which would significantly impair its ability to obtain adequate insurance coverage at market rates for its operations in the foreseeable future.

Safety and Security . Regional performs preventive and normal maintenance on all of its storage tanks, pipelines and terminals, and makes repairs and replacements when necessary or appropriate. It also conducts routine and required inspections of those assets as required by regulations. The Hopewell facility has response plans, spill prevention and control plans, all as required by applicable regulation, and other programs to respond to emergencies. The company continually strives to maintain compliance with applicable air, solid waste and wastewater regulations. Please see “ Environmental Matters and Government Regulation” below for additional information regarding the regulatory scheme with which the company must comply.

Regional is subject to the Compliance, Safety and Accountability (“ CSA ”) program of the Federal Motor Carrier Safety Administration, which was fully implemented in 2010 to enforce the current motor carrier safety regulations of the United States Department of Transportation (“ DOT ”). CSA replaces the DOT’s prior safety measurement, Safestat, in an effort to improve the safety of commercial vehicles through proactive prevention to ultimately reduce crashes, injuries and fatalities. The components of CSA include the measurement of motor carriers and drivers in seven behavior analysis and safety improvement categories, as well as evaluation and intervention programs. Based on the published carrier scores for the first five categories of measurement updated in March 2013, Regional continued to demonstrate a better than average safety reputation, scoring well below the alert thresholds in all basic scoring categories. Unsatisfactory CSA scores could result in a DOT intervention or audit, resulting in the assessment of fines or penalties. Enforcement of CSA may lead to a decline in available drivers and trucking companies. This industry safety dynamic could provide an opportunity for qualified carriers to gain market share.

Regional employs a full-time, hands-on, safety manager who is in the field insuring that our programs and training are being upheld to the highest standards. The company’s “out-of-service” rates, which are a part of the CSA scoring system, for vehicle inspections, driver inspections and hazardous materials are 8.3%, 3.3% and 0%, respectively, compared to national averages of 20.7%, 5.5% and 4.5%, respectively. During the years ended December 31, 2011 and 2012, Regional had only three reportable OSHA incidents resulting in 50 days of lost work time. To date, the company has had no reportable incidents in 2013.

Employees . As of December 31, 2012, Regional had a total of 40 full- and part-time employees, consisting of 20 drivers, 7 terminal operators, three mechanics and 13 office staff. During 2012, our driver utilization rate was 85%. Regional’s driver turn-over rate is 36% at the present time as compared to an industry average of 50%. None of the Company’s employees are members of any labor union, and there has been no effort to organize Company employees in either 2011 or 2012. In January, 2012, Regional eliminated its in-house fleet maintenance and service operation in conjunction with its outsourcing of its owned-fleet maintenance to Penske. One of the employees eliminated stayed on as a driver for Regional.

Tax Structure . Regional’s assets and operations are conducted within a C-Corp for federal income tax purposes. The Partnership believes that a portion of Regional’s income could be considered as “qualified income” as defined under Section 7704 of the Internal Revenue Code of 1986, as amended (the “Code”). Regional believes that income derived from the storage of Asphalt, MORLIFE 5000, No. 2 Oil and/or No. 6 Oil could constitute “qualifying income.” The Partnership may explore options regarding the reorganization of some or all of its Regional assets into a more efficient tax structure to take advantage of the tax savings that could result from the “qualified income” being generated at the Partnership level rather than at the Regional level. The Partnership expects that there would be a tax expense associated with the transfer of income from Regional to the Partnership. Please see Note J to the Partnership’s Audited Consolidated Financial Statements in “ Item 8. Financial Statements and Supplementary Data ” for a more detailed discussion of the impact of the Partnership not having “qualified income.”

Government Regulation

Regional’s operations are subject to stringent federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Its operations are subject to the same environmental laws and regulations as other companies in the refined products and petrochemical transportation industry. As a licensed contract or common carrier, Regional is subject to various laws and regulations, including those of the DOT and the Federal Motor Carrier Safety Administration as described above. Regional has also been subject to cargo security and transportation regulations issued by the Transportation Security Administration (“ TSA ”) since 2001 and regulations issued by the U.S. Department of Homeland Security (“ DHS ”) since 2002. In addition, the company’s operations are subject to oversight and regulation by a number of federal agencies, including the United State Coast Guard, the Environmental Protection Agency (“ EPA ”), the United States Department of Labor, Federal Railroad Administration and the United States Army Corp of Engineers. The laws and regulations enforced by these agencies may:

This regulatory burden increases Regional’s cost of doing business and consequently affects profitability. In addition, Congress and federal and state agencies frequently revise environmental laws and regulations, and any changes that result in more stringent and costly waste handling, disposal and clean-up requirements for the petrochemical transportation industry could have a significant impact on our operating costs. Management believes that Regional substantially complies with all current applicable environmental laws and regulations and that its continued compliance with existing requirements will not have a material adverse impact on its financial condition and results of operations. However, we cannot predict how future environmental laws and regulations may impact Regional’s properties or operations.

To comply with regulatory requirements imposed by federal, state and local government authorities, Regional maintains a number of permits, licenses and registrations with applicable federal, state and local administrative agencies, including the U.S. Interstate Commerce Commission, the U.S. Department of Transportation, the U.S. Department of Environmental Quality, the Virginia Department of Transportation, the Virginia Occupational Safety and Health Department and the Kentucky Highway Department. Regional also maintains a discharge contingency plan, approved spill prevention control and countermeasures plan, and approved storm water discharge plan with the U.S. Department of Environmental Quality. In addition, Regional has developed and maintains integrated contingency plans for port safety with the United States Coast Guard and for hazardous spills with the Environmental Protection Agency. The company also holds permits with the Hopewell Regional Wastewater Treatment Facility for treatment and disposal of its wastewater generated through rainwater runoff and tanker washing operations.

Environmental compliance is conducted by Regional personnel and outsourced to organizations that have specific certifications and equipment as appropriate. Regional has not been notified of any deficiencies in its environmental practices which have not been remedied to the satisfaction of the responsible regulatory agency. The company had no environmental spills during 2011 or 2012. For the years ended December 31, 2011 and 2012, Regional did not incur any material capital expenditures for installation of remediation or pollution control equipment at any of our facilities. Management is not aware of any environmental issues or claims that will require material capital expenditures during 2013 or that will otherwise have a material impact on our financial position or results of operations.

The applicable federal and state laws are discussed below.

Resource Conservation and Recovery Act . The Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984 (“ RCRA ”), and comparable state statutes, regulate the generation, transportation, treatment, storage, disposal and cleanup of “hazardous wastes” and the disposal of non-hazardous wastes. Under the auspices of the EPA, individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. We believe that Regional is currently in substantial compliance with the requirements of RCRA and related state and local laws and regulations, and that it holds all necessary and up-to-date permits, registrations and other authorizations to the extent that its operations require them under such laws and regulations. Although we do not believe the current costs of managing Regional’s wastes as they are presently classified to be significant, any legislative or regulatory reclassification of oil and gas development and production wastes could increase our costs to manage and dispose of such wastes.

Comprehensive Environmental Response, Compensation and Liability Act . The Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Authorization Act of 1986 (“ CERCLA ”), also known as the “Superfund” law, imposes joint and several liability, without regard to fault or legality of conduct, on persons who are considered to be responsible for the release of a “hazardous substance” into the environment. These persons include the owner or operator of the site where the release occurred and companies that disposed or arranged for the disposal of the hazardous substance at the site. Under CERCLA, such persons may be liable for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment.

Regional currently owns, leases and operates properties that have been used for the storage of oil, oil products and hazardous chemicals. Although we believe Regional has utilized operating and waste disposal practices that were standard in the industry at the time, hazardous substances, wastes or hydrocarbons may have been released on or under the properties owned or leased by it, or on or under other locations, including off-site locations, where such substances have been taken for disposal. In addition, some of these properties have been operated by third parties or by previous owners or operators whose treatment and disposal of hazardous substances, wastes or hydrocarbons was not under our control. These properties and the substances disposed or released on them may be subject to CERCLA, RCRA and analogous state laws. Under such laws, we could be required to remove previously disposed substances and wastes, remediate contaminated property or perform remedial plugging or pit closure operations to prevent future contamination.

Water Pollution Control Act . The Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, and analogous state laws impose restrictions and strict controls on the discharge of pollutants, including oil, oil products and other hazardous chemicals, into waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or the relevant state. The Clean Water Act also prohibits the discharge of dredge and fill material into regulated waters, including wetlands, unless authorized by a permit issued by the U.S. Army Corps of Engineers. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the federal Clean Water Act and analogous state laws and regulations. We believe that we are in substantial compliance with the requirements of the Clean Water Act.

Clean Air Act . The Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, and associated state laws and regulations, regulate emissions of various air pollutants through the issuance of permits and the imposition of other requirements. In addition, the EPA has developed, and continues to develop, stringent regulations governing emissions of toxic air pollutants at specified sources. Any new facilities we construct in the future may be required to obtain permits before work can begin, and existing facilities may be required to incur capital costs in order to comply with new emission limitations. These regulations may increase the costs of compliance for some facilities, and federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance. We believe that we are in substantial compliance with the requirements of the Clean Air Act.

Oil Pollution Act . The Oil Pollution Act of 1990 (“ OPA ”) requires owners and operators of facilities that could be the source of an oil spill into waters of the U.S. (a term defined to include rivers, creeks, wetlands and coastal waters) to adopt and implement plans and procedures to prevent any such oil spill. OPA also requires affected facility owners and operators to demonstrate that they have at least $35 million in financial resources to pay the costs of cleaning up an oil spill and to compensate any parties damaged by an oil spill. Such financial assurances may be increased to as much as $150 million if a formal assessment indicates such an increase is warranted. Based on annual inspections at the Hopewell Facilities and management’s reviews, the company believes that we are in substantial compliance with all requirements.

Occupational Safety and Health Act . Regional is subject to the requirements of the Occupational Safety and Health Act (“ OSHA ”), and comparable state statutes that regulate the protection of the health and safety of its employees. OSHA establishes a number of requirements for companies with operations such as Regional, including: providing workplace inspections to ensure that employers are complying with the standards established by OSHA; the provision of personal protective equipment designed to protect against hazards in the workplace (at no cost to the employee); conducting a hazardous materials evaluation of all substances handled by the company (including proper labeling and warnings regarding handling); maintenance of records regarding job-related injuries and illnesses and providing employees access to those records maintained by the company; and reporting of any job-related injury to three or more workers or a fatality within eight hours of the incident. In addition, the OSHA hazard communication standard requires that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local governmental authorities, and citizens. Management believes that Regional’s operations are in compliance with OSHA requirements, including general industry standards, record keeping requirements, and monitoring of occupational exposure to regulated substances.

Maritime Transportation Security Act . The Maritime Transportation Security Act of 2002 (“ MTSA ”) was enacted to protect U.S. ports and waterways from a terrorist attack. It mandates that all vessels operating in U.S. waterways meet specific security requirements and comply with the International Ship and Port Security code. According to the MTSA, all tankers and other vessels considered at high risk of a security incident (e.g., barges, large passenger ships, and cargo and towing vessels) operating in U.S. waters must have certified security plans that address how they would respond to emergency incidents, identify the person authorized to implement security actions, and describe provisions for establishing and maintaining physical security, cargo security, and personnel security. These plans must be updated at least every five years. The MTSA also specifies that all U.S. port facilities deemed at risk for a “transportation security incident,” such as refined petroleum and petrochemical processing and storage facilities, must prepare and implement security plans for deterring such incidents to the “maximum extent practicable.” Approved plans were to be in place by July 1, 2004. The MTSA also requires better coordination on waterfront security between local port security committees and federal agencies. Regional has adopted a security plan meeting the requirements of the MTSA, which plan has been reviewed and approved by the U.S. Coast Guard.

Motor Carrier Safety Act of 1999 . The Motor Carrier Safety Act of 1999 (“ MCSA ”) was enacted to enhance the safety of motor carrier operations and the nations highway system by amending existing safety laws to strengthen commercial driver licensing and compliance standards. The act created the Federal Motor Carrier Safety Administration (“ FMCSA ”) as a part of the Department of Transportation and preempted a number of state laws to create uniformity in the application of driver licensing and safety standards. The MCSA establishes qualifying requirements for drivers of commercial motor vehicles; requires employers of drivers of commercial vehicles to maintain a qualification file for each employed driver; establishes rules and regulations which operators of commercial motor vehicles must meet, including offenses which disqualify a driver from operating a commercial motor vehicle, hours of service rules for drivers, and alcohol and drug testing requirements; and inspection, repair and maintenance requirements for motor carrier operators. These rules are enforced by the FMCSA and include the CSA Safety Measurement System discussed under “ Regional Enterprises – Safety and Security ” above.

Other Laws and Regulation . The Kyoto Protocol to the United Nations Framework Convention on Climate Change (the “ Protocol ”) became effective in February 2005. Under the Protocol, participating nations are required to implement programs to reduce emissions of certain gases, typically referred to as greenhouse gases, which are suspected of contributing to global warming. The United States is not currently a participant in the Protocol, and Congress has resisted recent proposed legislation directed at reducing greenhouse gas emissions. However, there has been support in various regions of the country for legislation that requires reductions in greenhouse gas emissions, and some states have already adopted legislation addressing greenhouse gas emissions from various sources, primarily power plants. The oil and gas industry is a direct source of certain greenhouse gas emissions, namely carbon dioxide and methane, and future restrictions on such emissions could impact our future operations. Our operations are not adversely impacted by current state and local climate change initiatives and, at this time, it is not possible to accurately estimate how potential future laws or regulations addressing greenhouse gas emissions would impact our business.

Other Federal Laws . Regional is registered as a “small business” with the federal government and has completed its On-line Representations and Certifications Application registration. As a result, the Company is a qualified vendor for storing, transporting and supplying bulk chemical and petroleum products on behalf of U.S. government agencies. Regional may seek contracts with the Department of Defense and the Defense Energy Support Center based on the proximity of its Hopewell facilities to multiple U.S. military bases in the future.

State Laws. Regional is subject to a number of state regulatory schemes, including those created by the Virginia Waste Management Act, the Virginia Water Quality Improvement Act of 1997, the Motor Vehicle Code of Virginia and the regulations adopted by the Virginia Air Pollution Control Board. These laws and regulations provide an added layer of compliance for the management of pollution of state waterways and water quality, air quality and the operation of commercial motor vehicles on the roadways of the Commonwealth of Virginia. Other states in which Regional conducts its business of storing and trans-loading hazardous chemicals and petroleum products for its customers or is transporting such bulk liquids have similar laws that apply to the company. Regional believes that it is generally in compliance with all such laws.

In addition to these federal and state statutes and regulations, future Partnership activities may subject it to both federal and state laws regulating the gathering, treating, processing and transportation of oil, gas and NGLs in interstate commerce and oversight by the Federal Energy Regulatory Commission and the Department of Transportation’s Pipeline and Hazardous Material Safety Administration.

Terminal Operator Status of Regional Facility

In May 2011, Regional was contacted by the IRS regarding whether its Hopewell, Virginia facility would qualify as a “terminal operator” which handles “taxable fuels” and accordingly is required to register through a submission of Form 637 to the IRS. Code Section 4101 provides that a “fuel terminal operator” is a person that (a) operates a terminal or refinery within a foreign trade zone or within a customs bonded storage facility or, (b) holds an inventory position with respect to a taxable fuel in such a terminal. In June 2011, an agent of the IRS toured the Hopewell, Virginia facility and notified the plant manager verbally that he thought the facility did qualify as a “terminal operator.” As a result, even though Regional disagrees with the IRS agent’s analysis, it elected to submit, under protest, to the IRS a Form 637 registration application in July 2011 to provide information about the Hopewell facility. Regional believes that its Form 637 should be rejected by the IRS because (1) the regulations do not apply to Regional’s facility, (2) the items stored do not meet the definition of a “taxable fuel” and (3) there were no taxable fuels being stored or expected to be stored in the foreseeable future that would trigger the registration requirement. Regional had not received a response with respect to its Form 637 submission or arguments that it is not subject to the Requirements. During December 2012, Regional received notification from IRS’ appeals unit (“ Appeals Unit ”) that the above matter was under review. A telephonic meeting took place in January 2013 whereby the Appeal Unit determined that Regional did not meet the conditions of a terminal operator which handled taxable fuels and that the matter was dismissed. Regional is awaiting a final determination letter from the IRS. As indicated above, should Regional’s operations in the future include activities which qualify Regional as a terminal operator which handles taxable fuels as defined in the Code, Regional would be subject to additional administrative and filing requirements, although the costs associated with compliance are not expected to be material and Regional would be subject to penalties for the failure to file timely with the IRS any future required reports or forms.