UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December
31, 2014
¨
TRANSACTION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________
to ________
Commission File No. 000-50394
CENTRAL
ENERGY PARTNERS LP
(Exact Name of Issuer as specified in its
charter)
| Delaware |
|
20-0153267 |
| (State or Other Jurisdiction of Incorporation) |
|
(I.R.S. Employer File No.) |
| 4809 Cole Avenue, Suite 108, Dallas, Texas |
|
75205 |
| (Address of Principal Executive Offices) |
|
(Zip Code) |
(214) 526-9700
(Registrant's telephone number, including
area code)
Securities registered pursuant to Section
12 (b) of the Exchange Act:
| None |
|
None |
| (Title of each class) |
|
(Name of each exchange on which registered) |
Securities registered pursuant to Section
12 (g) of the Exchange Act:
Common Units
(Title of Class)
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. o Yes þ No
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. þ Yes o No
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). o Yes þ No
Indicate by check mark if disclosure of
delinquent filers in response to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2
of the Exchange Act. (Check one):
|
Large Accelerated Filer
¨ |
Accelerated Filer
¨ |
Non-Accelerated Filer
¨ |
Smaller Reporting Company
x |
| |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No
As of June 30, 2014 (the last business
day of our most recently completed second fiscal quarter), based upon the average bid and asked price on that date, the aggregate
market value of the Common Units held by non-affiliates of the Partnership (for this purpose, all outstanding Common Units of the
Partnership minus all Common Units held by the officers, directors and known holders of 10% or more of the Common Units), was $904,863.
The number of Common Units outstanding
on March 5, 2015 was 19,591,482.
DOCUMENTS INCORPORATED BY REFERENCE: None
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
The statements contained in this Annual
Report of Central Energy Partners LP (the “Partnership”), that are not historical facts are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
(the “Exchange Act”). These forward-looking statements are identified as any statement that does not relate
strictly to historical or current facts. Statements using words such as “may,” “could,” “should,”
“expect,” “plan,” “project,” “strategy,” “forecast,” “intend,”
“anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,”
“target,” “continue,” or similar expressions help identify forward-looking statements.
The forward-looking statements contained
in this Annual Report are largely based on our expectations, which reflect estimates and assumptions made by our management. These
estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe
such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties
that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management
cautions all readers that the forward-looking statements contained in this Annual Report are not guarantees of future performance,
and management cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will
in fact occur. The Partnership’s actual results may differ materially from those anticipated, estimated, projected or expected
by management. When considering forward-looking statements, please read “Item 1A. Risk Factors” and “Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual
Report.
AVAILABLE INFORMATION
The Partnership is a reporting company
pursuant to Section 12(g) of the Exchange Act. As a result, it files Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K
and Current Reports on Form 8-K, and amendments to these reports, with the SEC pursuant to Section 13(a) or 15(d) of the Exchange
Act. These reports are available on the Partnership’s website at www.centralenergylp.com. These reports are also available
on the SEC’s website at www.SEC.gov. In addition, the Partnership will provide copies of these reports free of charge
upon request.
The public may also read a copy of any
materials filed by the Partnership with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
GLOSSARY OF TERMS
Central Energy Partners LP and its consolidated
subsidiaries (not including the General Partner) are hereinafter referred to as “Central”. When referring to
Central and using phrases such as “we,” “our,” “us,” or the “Company,”
our intent is to refer to Central and its consolidated subsidiaries as a whole or on an entity basis, depending on the context
in which the statements are made. References to the “Partnership” are to Central Energy Partners LP only, and
such references are not intended to include any of its subsidiaries or the General Partner. For convenience, this glossary includes
other terms used in this Annual Report, and each of the following terms has the meaning set forth below.
“Affiliate”
means a person that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common
control with, a specified person. The term “control” (including the terms controlling, controlled by
and under common control with) means the possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.
“Board”
means the Board of Directors of Central Energy GP LLC, the General Partner of the Partnership.
“CEGP”
means CEGP Acquisition, LLC, a Texas limited liability company controlled by John L. Denman, Jr. and G. Thomas Graves III, which
entity owns 55% of the membership interests in the General Partner.
“Code”
means the Internal Revenue Code of 1986, as amended from time to time.
“Common
Units” means those limited partner interests issued by the Partnership as prescribed in the Partnership Agreement.
“CEGP
Investment” means the transaction dated November 26, 2013, pursuant to which CEGP and its Affiliates purchased 3,000,000
newly-issued Common Units of the Partnership, the Performance Warrants and newly-issued membership interests representing a 55%
interest in the General Partner to CEGP for $2,750,000.
“DOT”
means the United States Department of Transportation.
“EPA” means the United
States Environmental Protection Agency.
“Exchange Act” means
the Securities Exchange Act of 1934, as amended.
“FERC”
means the Federal Energy Regulatory Commission.
“FMCSA”
means the Federal Motor Carrier Safety Administration.
“GAAP”
means United States generally accepted accounting principles in effect from time to time set forth in Opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards
Board.
“General
Partner” means Central Energy GP LLC, a Delaware limited liability company.
“GP
Agreement” means the Third Amended and Restated Limited Liability Company Agreement of the General Partner dated November
26, 2013.
“GP
Interests” means the issued and outstanding membership interests in the General Partner.
“IRS” means the United
States Internal Revenue Service.
“Limited
Partners” means those natural persons or entities holding Common Units of the Partnership.
“National
Securities Exchange” means a recognized national securities exchange that offers the Partnership an exemption from the
registration requirements of state securities laws with respect to the Common Units.
“NGLs”
means natural gas liquids.
“Partners”
means the General Partner and all Limited Partners.
“Partnership”
means Central Energy Partners LP.
“Partnership
Agreement” means the Third Amended and Restated Agreement of Limited Partnership dated November 26, 2013.
“Performance
Warrants” refers to the warrants granted in connection with the CEGP Investment to JLD Services, Ltd. and G. Thomas Graves
III providing each with the right, but not the obligation, to acquire up to 1,500,000 Common Units at a price of $0.093478, in
the event the Partnership successfully completed one or more asset acquisition transactions, approved by the Board of the General
Partner, with an aggregate gross purchase price of at least $20 million within 12 months after November 26, 2013.
“Regional”
means Regional Enterprises, Inc., a Virginia corporation and wholly-owned subsidiary of the Partnership.
“RVOP”
means Rio Vista Operating Partnership L.P., an entity owned 99.9% by the Partnership, as limited partner, and 0.1% by Rio Vista
Operating GP LLC, as general partner, an entity wholly-owned by the Partnership.
“Sale”
means the sale of 12,724,019 newly-issued Common Units of the Partnership and all of the outstanding membership interests in the
General Partner to Central Energy LP for $4,100,000 on November 17, 2010.
“Securities
Act” means the Securities Act of 1933, as amended.
“SEC”
means the United States Securities and Exchange Commission.
“SG&A”
means selling, general and administrative expenses.
“Treasury”
means the United States Department of Treasury.
“Unitholders” mean those
Limited Partners holding Common Units issued by the Partnership.
PART I
Items 1 and 2. Business and Properties.
General
Central Energy Partners
LP (“Partnership”) 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 the possible acquisition of midstream oil and gas assets, such as gas gathering and transmission
systems, compression, treating and processing facilities and facilities. The Partnership’s Common Units are listed for trading
on the OTC Pink (formerly known as Pink OTC Markets, Inc.) under the symbol “ENGY”. Our principal executive offices
are located at 4809 Cole Avenue, Suite 108, Dallas, Texas 75205, and our telephone number is (214) 526-9700. Our website is located
at www.centralenergylp.com.
Operations
The Partnership’s
only operations are conducted through Regional. 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 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. Regional also receives product from a rail spur which is capable of receiving 23
rail cars at any one time for trans-loading of chemical and petroleum liquids into trucks for delivery throughout the mid-Atlantic
region of the United States. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations – Current Assets and Operations” below for additional information regarding Regional’s business.
Our primary business
objective is to achieve stable cash flows from the existing operations at Regional and growing its business through expanded customer
relationships. In addition, management continues to evaluate possible opportunities to expand storage capacity at Regional’s
Hopewell, Virginia facility to meet existing or new customer’s capacity requirements. Any such expansion would be funded
in partnership with customers seeking additional storage capacity. Management intends to accomplish these objectives by executing
the following strategies.
| · | Focus on the Midstream Business. The Partnership intends to remain focused on opportunities
to provide fee-based logistics services without engaging in the trading of refined products and the risk associated with fluctuating
commodity prices. |
| · | Pursue Organic Growth Opportunities. Management intends to evaluate investment opportunities
to expand Regional’s existing asset base where client demand warrants such investment and working capital is available to
support any identified initiative. In addition, it will seek to enhance the profitability of its existing assets by improving operating
efficiencies and increasing utilization of existing assets. |
At March 15, 2015,
the Company had approximately $288,000 in cash and approximately $275,000 in accounts receivable at Regional. This cash, together
with anticipated cash generated from Regional’s operations during the fiscal year, will be insufficient to meet the Company’s
cash requirements. Absent additional proceeds from the issuance of securities by the General Partner or the Partnership, the Company
will be required to implement further cost saving procedures, sell assets and/or determine other alternatives for meeting its cash
needs. There can be no assurance that management will be successful in its efforts to obtain the additional funding necessary to
continue Company operations.
We may pursue accretive
acquisitions of gas transportation and services assets, such as dedicated pipelines and natural gas liquids distribution facilities
or businesses in cases where such assets can be purchased in a negotiated transaction that is accretive to the financial results
of the Company. We do not intend to acquire producing oil and gas properties, but in some cases they may be a part of the assets
associated with a dedicated pipeline. Our acquisitions, if any, will be made through subsidiaries of the Partnership created to
acquire identified entities or assets. We will use proceeds from the issuance of additional Common Units or new securities, a combination
thereof, and/or third-party debt to fund such acquisitions.
During 2013 and early
2014, the General Partner identified several potential acquisition opportunities and made indicative offers to purchase different
midstream assets. All but one of these opportunities were the subject of an auction process in which the Company was not the successful
bidder. Management prefers to evaluate opportunities without a competitive bidding process; however, such opportunities are more
difficult to identify. Management will continue to evaluate acquisition opportunities that meet these criteria, but there is no
assurance that they will be successful in consummating any acquisition opportunity or have the resources needed to pursue such
acquisitions. See “Item 1A. Risk Factors – Risks Inherent in an Investment in the Partnership” and “-
Risks Related to our Business” for additional information on the risks associated with making acquisitions.
Regional Operations
On July 27, 2007, the Partnership acquired
the business of Regional Enterprises, Inc., a Virginia corporation. 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
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 23 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. The hazardous
materials and petroleum products stored, trans-loaded and transported by Regional are owned by its customers at all times.
For the year ended
December 31, 2014, Regional’s revenues were divided as set forth below. All dollar amounts are in thousands.
| Quarters For Year ended 2014 | |
Year ended | |
| | |
March 31 | | |
June 30 | | |
September 30 | | |
December 31 | | |
December 31, 2014 | |
| | |
Revenue | | |
% | | |
Revenue | | |
% | | |
Revenue | | |
% | | |
Revenue | | |
% | | |
Revenue | | |
% | |
| Hauling | |
$ | 552 | | |
| 43 | % | |
$ | 467 | | |
| 37 | % | |
$ | 744 | | |
| 51 | % | |
$ | 457 | | |
| 42 | % | |
$ | 2,220 | | |
| 44 | % |
| Storage | |
| 506 | | |
| 39 | % | |
| 544 | | |
| 44 | % | |
| 606 | | |
| 42 | % | |
| 566 | | |
| 53 | % | |
| 2,222 | | |
| 44 | % |
| Terminal | |
| 239 | | |
| 18 | % | |
| 239 | | |
| 19 | % | |
| 106 | | |
| 7 | % | |
| 51 | | |
| 5 | % | |
| 635 | | |
| 12 | % |
| Other | |
| — | | |
| 0 | % | |
| — | | |
| 0 | % | |
| — | | |
| 0 | % | |
| — | | |
| 0 | % | |
| — | | |
| 0 | % |
| Total | |
$ | 1,297 | | |
| 100 | % | |
$ | 1,250 | | |
| 100 | % | |
$ | 1,456 | | |
| 100 | % | |
$ | 1,074 | | |
| 100 | % | |
$ | 5,077 | | |
| 100 | % |
Hauling
Regional transports
a broad range of hazardous and non-hazardous liquid products. Hazardous liquids stored and/or transported by the Company include
aluminum sulfate solution, hydrochloric acid, sulfuric acid, sodium hydroxide, aqua ammonia, sodium bisulfate and fuel blends.
Non-hazardous materials include crude tall oil, No. 2 oil, No. 6 oil, asphalt additives, micro-c 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, 2014,
Regional had a fleet of 15 leased tractors, 5 owned tractors and 36 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.
The revenue generated
from Regional’s hauling business has declined over 35% since 2012 due to a decrease in utilization of the company’s
trucking fleet by customers storing product at the Hopewell facility. This decline was temporarily offset during the third quarter
of 2014 as the result of a number of loads being hauled for a new customer pursuant to the Fuel Blend Agreement described below
under “Tank Storage and Terminal Services Agreements”. With the termination of this agreement, hauling revenues
reached the lowest point in three years. Management does not anticipate an improvement in its hauling operations given the downturn
in oil prices and the impact it is having on the sale of products being stored by Regional’s customers at the Hopewell facility.
As a result of this continuing decline, Regional returned five leased tractors to its lessor during January 2015 to reduce the
losses experienced in the hauling segment of its business.
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 Maintenance Agreement is 84 months from the date a vehicle is placed in service and subject to the agreement. Regional
is obligated to maintain liability insurance coverage on all vehicles subject to the Maintenance Agreement 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.
Regional continues to perform minor maintenance to its owned tractor and tanker fleet.
On February 17, 2012,
Regional entered into a Vehicle Lease Service Agreement with Penske for the purpose of leasing 20 new Volvo tractors (“Leased
Tractors”) to be acquired by Penske and leased to Regional, and the outsourcing of the maintenance of the Leased 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
Leased Tractor during each month. The Maintenance Charge covers all scheduled maintenance, including tires, to keep the Leased
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 Leased Tractors by Regional. In connection with the
delivery of the Leased Tractors, Regional sold its remaining owned tractor fleet, except for several owned tractor units which
were retained to be used for terminal site logistics.
The term of the Lease
Agreement is for seven years. The Leased 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 Leased Tractors after the first anniversary date of the Lease Agreement
based on the non-depreciated value of such tractors 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 Leased Tractors based on a documented downturn in business.
On May 31, 2013, Regional notified Penske of its intent to terminate the lease arrangement effective June 15, 2013, for five Leased
Tractors as provided in the Lease Agreement due to a decline in Regional’s transportation business. In January 2015, Regional
approached Penske about terminating the lease arrangement for an additional five tractors due to a continued decline in its hauling
business. Penske agreed to terminate the lease for the five tractors at a cost of $50,000 ($10,000 per tractor), which amount is
being paid in three monthly installments commencing in January 2015. As a result of these partial terminations, Regional now leases
10 tractors pursuant to the Lease Agreement. Regional is obligated to maintain liability insurance coverage on all remaining vehicles
covered by the Lease Agreement on the same basis as in the Maintenance 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
Leased Tractors wherever located or, upon five (5) days written notice to Regional, either require Regional to purchase any or
all of the Leased Tractors or make the “alternative payment” described below. In addition, Regional is obligated
to pay all lease charges for all such Leased Tractors accrued and owing through the date of the notice from Penske as described
above. Penske’s ability to require Regional to purchase the Leased Tractors 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 Leased Tractor 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 Leased 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 Leased 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 Leased Tractor that is the subject of the termination or pay Penske the “alternative payment” as described above.
Storage
Regional’s Hopewell
facility has a total of 15 tanks, six of which have capacities in excess of one million gallons (“Large Tanks”).
As of December 31, 2014, 11 tanks were contracted by customers, including all but one of the Large Tanks. Two tanks are being used
by Regional to store truck and boiler fuel. The 11 tanks contracted by customers and the two idle tanks as of December 31, 2014
have a combined storage capacity of approximately 10.2 million gallons 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, some 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, 2014, Regional provided storage for the following products under existing contracts: asphalt,
asphalt additives, sodium hydroxide, and micro-c. Regional also stored sodium hydroxide, sodium bisulfate, sulfuric acid and crude
tall oil in tank cars at its rail siding.
Tank Storage and Terminal Services Agreements
On November 30, 2000,
Regional renewed a Storage and Product Handling Agreement with a customer with an effective date of December 1, 2000 (“Asphalt
Agreement”). The Asphalt Agreement provides for the pricing, terms and conditions under which the customer will purchase
terminal services and facility usage from Regional for the storage and handling of the customer’s asphalt products. The Asphalt
Agreement was amended on October 15, 2002 with an effective date of December 1, 2002 (“Amended Asphalt Agreement”).
The term of the Amended Asphalt Agreement was five years with an option by the customer for an additional five-year renewal term,
which the customer exercised in July 2007. After the additional five-year term, the Amended Asphalt Agreement has been renewed
automatically for successive one-year terms through November 30, 2013. During July 2013, Regional provided written notice in accordance
with the Asphalt Agreement that it did not intend to renew the Asphalt Agreement under the existing terms.
On March 19, 2012,
one of the storage tanks (“Storage Tank”) leased under the Amended Asphalt Agreement was discovered to have
a leak. During April 2012, after removal of the existing product from the Storage Tank, the customer of the Storage Tank was notified
by Regional that the Storage Tank was no longer available for use until necessary repairs were completed. Lost revenue with respect
to the Storage Tank totaled approximately $250,000 and $0 during the years ended December 31, 2013 and 2014, respectively, bringing
total lost revenues to $475,000.00. The repairs to the Storage Tank were completed at a total cost of $350,000.00 (of which $75,000
was incurred during the year ended December 31, 2013), and the tank became operational during November 2013. Regional’s insurance
providers have notified Regional that the incident did not fall within insurance coverage limits.
On October 31, 2013,
Regional and a new customer entered into an agreement (“New Asphalt Agreement”) with a commencement date of
January 1, 2014. The New Asphalt Agreement provides for the pricing, terms and conditions under which the customer will purchase
terminal services and facility usage from Regional for the storage and handling of the customer’s asphalt products. In connection
with the New Asphalt Agreement, Regional was required to fund during the first nine months of the New Asphalt Agreement up to $465,000
for refurbishments of certain assets and modifications to the existing facilities to provide for greater efficiencies and extended
logistical capabilities (“Refurbishments”). As of December 31, 2014, Regional had spent approximately $900,000 in connection
with the Refurbishments. Under the terms of the New Asphalt Agreement, Regional and the customer were to agree on the repayment
of any excess amounts required for the Refurbishments. Regional and the customer are currently negotiating an amendment to the
New Asphalt agreement which would modify the nature of Refurbishments to be made by Regional. See “Upgrades”
below for a more detailed description of the upgrades and modifications required by the New Asphalt Agreement. The term of the
New Asphalt Agreement is four years from the commencement date and automatically extends for additional 2-year periods unless either
party provides 180 days written notice to cancel. During the term of the New Asphalt Agreement, Regional agrees to provide up to
five storage tanks and certain related equipment improvements and modifications, including 10 additional rail siding slots, to
the customer on an exclusive basis as well as access to Regional’s barge docking facility.
On November 16, 1998,
Regional renewed a Terminal Agreement with a customer with an effective date of November 1, 1998, as amended on April 5, 2001,
October 11, 2001 and August 1, 2003 (“Fuel Oil Agreement”). The Fuel Oil Agreement provided for the pricing,
terms and conditions under which Regional provided terminal facilities and services to the customers for the delivery of fuel oil.
Pursuant to the Fuel Oil Agreement, Regional agreed to provide three storage tanks, certain related pipelines and equipment, and
at least two tractor tankers to the customer on an exclusive basis, as well as access to Regional’s barge docking facility.
Under the terms of the Fuel Oil Agreement, the customer paid an annual tank rental plus a product transportation fee calculated
on a per 100 gallon basis, each subject to annual adjustment for inflation. Regional agreed to deliver a minimum daily quantity
of fuel oil on behalf of the customer. During December 2008, the customer and Regional negotiated a new Fuel Oil Agreement whereby
Regional was only required to provide two storage tanks through May 2009 and one storage tank through November 30, 2011, which
was subsequently extended through February 28, 2014. The Fuel Oil Agreement was not extended upon the expiration.
During May 2014, Regional
entered into a services agreement with a customer with an effective date of May 22, 2014 and a termination date of November 30,
2015 (“Fuel Blend Agreement”). The Fuel Blend Agreement provided for the pricing, terms, and conditions under
which Regional provided terminal facilities and services to the customer for the receipt, storage and distribution of a fuel blend
oil. Pursuant to the Fuel Blend Agreement, Regional provided one storage tank, certain related pipelines and equipment, necessary
tractor tankers, as well as access to Regional’s barge docking and rail facilities. In connection with the Fuel Blend Agreement,
the customer was required to provide Regional a security deposit of $320,000 of which Regional received $140,000 and Regional was
granted a “possessory lien” in any existing inventory in the tank to be used to secure obligations owing to Regional
under the Fuel Blend Agreement, including any past due payments and tank cleanup costs. In exchange for use of Regional’s
facilities and services, the customer was required to pay a base monthly fee, a minimum incremental monthly fee and to reimburse
Regional for certain other terminal related costs. In addition, the customer agreed to provide Regional a minimum amount of hauling
loads per week and to achieve minimum product thru-put volumes beginning with the three months ended September 30, 2014. During
October 2014, Regional notified the customer that it was in default under the Fuel Blend Agreement and that it was terminating
the Fuel Blend Agreement. The customer has not paid any base monthly fees to Regional since September 2014 and the customer has
also failed to remove the contents of the tank. Regional has applied the full amount of the security deposit received towards outstanding
amounts due from the customer. Regional is currently taking steps to sell and/or remove the inventory held in the tank in a commercially
reasonable manner. We will use any proceeds received from such sale/removal, if any, towards any remaining amounts due from the
customer. However, we could incur expenses in excess of proceeds from any sale. At December 31, 2014, the financial statements
do not reflect any remaining amounts still owed by the customer in connection with the Fuel Blend Agreement and applicable default
charges, as Regional estimates that the total amounts which may be received from the sale of the inventory, if any, will be negligible.
Regional believes that
it will be successful in the sale/removal of the inventory from the tank in a commercially reasonable manner and as a result has
not reserved any amounts at December 31, 2014 associated with disposal of the inventory. Regional is in discussions with several
customers to lease the tank once the product in the tank has been removed.
On September 27, 2007,
Regional entered into a terminal agreement with a customer with an effective date of June 1, 2008 and an expiration date of May
30, 2013 (“Hydroxide Agreement”). The Hydroxide Agreement provided for the pricing, terms and conditions under
which Regional will provide terminal facilities and services to the customer for the receipt, storage and distribution of sodium
hydroxide. On May 21, 2013, the Hydroxide Agreement was extended to August 31, 2013. On July 11, 2013, the parties entered into
a new Hydroxide Agreement effective June 28, 2013 and an expiration date of June 27, 2016, subject to being automatically renewed
in one-year increments unless terminated upon 120 days advance written notice by either party. Under the terms of the new Hydroxide
Agreement, either party may cancel the agreement at any time by providing 120 days advance written notice after the one year anniversary
of the effective date. Pursuant to the terms of the new Hydroxide Agreement, Regional provides two storage tanks, certain related
pipelines and equipment, as well as access to Regional’s barge docking and rail facilities. In exchange for use of Regional’s
facilities and services, the customer pays an annual fixed tank rental fee and variable fees based on excess of certain minimum
levels of thru-put, plus a product transportation fee calculated on a per run basis, each subject to annual adjustment for inflation.
Regional also contracts with this customer to provide other transportation and trans-loading services of specialty chemicals.
During January 2013,
Regional entered into a services agreement with a customer with an effective date of January 1, 2013 and a termination date of
December 31, 2015 (“Asphalt Additive Agreement”). The customer has the sole discretion to extend the term of
the Asphalt Additive Agreement prior to expiration for up to two successive one-year terms upon providing Regional 90 days advance
written notice prior to expiration of the Asphalt Additive Agreement. The Asphalt Additive Agreement provides for the pricing,
terms, and conditions under which Regional will provide terminal facilities and services to the customer for the receipt, storage
and distribution of an asphalt additive. Pursuant to the agreement, Regional provides one storage tank, certain related pipelines
and equipment, necessary tractor tankers, as well as access to Regional’s barge docking and rail facilities. In exchange
for use of Regional’s facilities and services, the customer pays an annual tank rental amount, plus loading and unloading
fees.
On March 1, 2012, Regional
entered into a services agreement with a customer with an effective date of March 1, 2012 and a termination date of February 28,
2015, subject to being automatically renewed in one-year increments unless terminated upon 180 days advance written notice by either
party (“SGR Agreement”). The SGR Agreement provided for the pricing, terms, and conditions under which Regional
would provide terminal facilities and services to the customer for the receipt, storage and distribution of No. 6 oil. Pursuant
to the SGR Agreement, Regional provided one storage tank, certain related pipelines and equipment, necessary tractor tankers, as
well as access to Regional’s barge docking and rail facilities. In exchange for use of Regional’s facilities and services,
the customer paid an annual tank rental amount, plus loading and unloading fees. As part of the lease, Regional insulated the tank
and made other modifications to the tank and barge line. During October 2013, the SGR Agreement was terminated. Please see “Item
3 – Legal Proceedings – SGR Energy LLC” for a detailed discussion of the legal proceedings related to the
termination of the SGR Agreement.
During November 2013,
Regional entered into a services agreement with a customer with an effective date of November 1, 2013 and a termination date of
April 30, 2014 (“Second Asphalt Additive Agreement”). The Second Asphalt Additive Agreement automatically renews
for 90 days unless either party provides 60 days written notice to terminate prior to expiration, which is still in effect as of
December 31, 2014. The Second Asphalt Additive Agreement provides for the pricing, terms, and conditions under which Regional will
provide terminal facilities and services to the customer for the receipt, storage and distribution of an asphalt additive. Pursuant
to the agreement, Regional provides one storage tank, certain related pipelines and equipment, necessary tractor tankers, as well
as access to Regional’s barge docking and rail facilities. In exchange for use of Regional’s facilities and services,
the customer pays an annual tank rental amount, plus loading and unloading fees. In connection with the Second Asphalt Additive
Agreement, Regional has the right of first refusal to provide trucking services to the customer, provided Regional’s rates
are competitive.
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 approximately 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 currently
provides trans-loading services utilizing its rail sidings, off-loading facilities and truck racks located in Hopewell, Virginia,
to transfer products from ships, barges, railcars and storage tanks to tanker trucks. Regional owns the siding tracks and has 23 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. While many of the
railcar slots are not exclusively held by customers, the ability of Regional to accept additional rail cars are limited based on
the railcar slot availability at Regional at the time and the flexibility that existing customers are willing to provide. As described
under the caption “Upgrades” below, Regional upgraded its rail facilities to accommodate an additional 5 railcars.
In addition, under the New Asphalt Agreement, Regional has agreed to make an additional 5rail car slots available. Regional and
the customer are currently negotiating an amendment to the New Asphalt Agreement which would modify the requirement of Regional
to make the additional 5 rail car slots available.
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.
Prior to March 31,
2013, Regional maintained a trans-loading facility in Johnson City, Tennessee, where it leased siding tracks and six railcar slots.
Switching operations for the Johnson City facility were provided by East Tennessee Railway, which services tracks over which both
the CSX and Norfolk Southern railroads operate. Regional stored sulfuric acid in tank cars positioned at the six railcar slots
in Johnson City. These bulk liquids were transferred from the railcar siding to trucks by the use of a mobile truck rack. Regional
ceased 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 expired 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 deployed the Regional owned
equipment from the Johnson City site to the Hopewell facility once operations ceased.
Upgrades
In connection with
the New Asphalt Agreement described above under “Storage”, Regional is required to complete upgrades at the
Hopewell location (“Asphalt Upgrades”), subject to the Regional Upgrade Commitment amount (see below) as follows:
(a) expand its rail car loading/unloading capabilities to provide for the loading and/or unloading of up to 10 railcars in a single
switch within a 24 hour period; (b) provide for the ability of the hot oil heater and steam boiler to operate on natural gas; (c)
refurbish and place into service two smaller idle tanks; and (d) upgrade its terminal automation system to provide the ability
to control and monitor the loading of asphalt and additives in desired amounts. Under the terms of the New Asphalt Agreement, Regional
agreed to fund up to $465,000 (“Regional Upgrade Commitment”) during fiscal 2014 in connection with the Asphalt
Upgrades, which amount has been fully expended. To date, Regional has spent a total of $897,912 to install and implement the necessary
upgrades to its terminal automation system, complete the rebuilding of the two smaller idle tanks, and complete modifications to
its rail terminal to accommodate an additional five railcars. This increase was due in large part to the cost of completing five
additional railcar sitings and rebuilding the smaller idle tanks. Regional is in discussions with its customer to (a) determine
if any of the yet to be completed Asphalt Upgrades should be modified and (b) finalize mutually satisfactory arrangements for the
assumption of any additional funding commitments by either party.
Future Expansion
In connection with
the New Asphalt Agreement, Regional has taken steps towards expanding its capabilities and services and improving the costs to
operate at its Hopewell location. In addition, Regional has sought opportunities to open future satellite operations, similar to
the Johnson City facility operation (which was closed in March 2013), 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. Regional’s 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 located on the property 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.
Regional has several
leases for parking and other facilities which are short-term in nature and can be terminated by the lessors or Regional upon giving
60 days’ notice of cancellation.
Effective November
17, 2010, the Partnership moved its principal executive offices to Dallas, Texas. The Partnership has not leased space from a third
party, but has reimbursed Affiliates for space it uses. Pursuant to a month-to-month Reimbursement Agreement, from November 2010
through December 2013, the Partnership reimbursed AirNow Compression Systems, LTD (“Airnow”), an affiliate of
Imad K. Anbouba, the General Partner’s Chief Executive Officer and President until November 2013 for the monthly payment
of allocable “overhead costs,” which included rent, utilities, telephones, office equipment and furnishings attributable
to the space utilized by employees of the General Partner. Effective December 31, 2013, in connection with the CEGP Investment
and the resulting change in control of the General Partner, the Partnership moved its principal executive offices to another office
location within Dallas, Texas that is leased from Katy Resources LLC (“Katy”), an entity controlled by C Thomas
Graves III, the Chairman of the Board of the General Partner. As a result, the Reimbursement Agreement with Airnow was terminated
and the Partnership entered into a new reimbursement agreement with Katy on a month to month basis for reimbursement of allocable
“overhead costs” which 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 limited liability 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 in Manhattan Beach. Since June 2012, Regional has been directly
charged for its allocated portion of Rover Technologies LLC’s expenses.
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 “Tank Storage and Terminal Services
Agreements” above 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.
A substantial part
of Regional’s revenues and profits come from a few customers. In 2014, 57% of Regional’s revenues were from three customers:
Suffolk Sales, Associated Asphalt Hopewell, LLC and MeadWestvaco Specialty Chemicals, Inc. As of January 1, 2015, five customers
contracted for 13 of Regional’s storage tanks, and one of those customers has contracted for five of those tanks.
For the 12 months ended
December 31, 2014, Suffolk Sales, Associated Asphalt Hopewell, LLC and MeadWestvaco Specialty Chemicals, Inc., accounted for approximately
21%, 20% and 16% of Regional’s revenues, respectively, and approximately 23%, 0% and 38% of Regional’s accounts receivable,
respectively. Honeywell International, Inc. accounted for approximately 3% of Regional’s revenues and approximately 17% of
the accounts receivable.
For the 12 months ended
December 31, 2013, Suffolk Sales, SGR Energy LLC, and MeadWestvaco Specialty Chemicals, Inc., accounted for approximately 22%,
16% and 15% of Regional’s revenues, respectively, and approximately 33%, 0% and 13% of Regional’s accounts receivable,
respectively. Noble Oil Services, Inc., accounted for 3% of Regional's revenues and 18% of Regional's accounts receivables.
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, railcar trans-loading, and delivery of such liquids to or from storage
by sea, rail and truck.
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
2015 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 applicable federal and state 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 Safety Measurement System (“CSA”) of the Federal Motor Carrier
Safety Administration (the “FMCSA”), 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 2014, 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. This industry safety dynamic could provide an opportunity for qualified carriers to gain market share.
Employees
As of December 31,
2014, Regional had a total of 26 full and part-time employees, consisting of 10 drivers, seven terminal operators, one
mechanic and eight office staff. None of the Company’s employees are members of any labor union, and there has been no effort
to organize Company employees in either 2013 or 2014.
Tax Structure
Regional is a state
law corporation subject to federal and state income taxation. 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, asphalt additives and No. 2
oil would constitute “qualifying income.” The Partnership is exploring 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 will
evaluate the potential alternatives to determine the most efficient tax structure and operational feasibility of such proposed
changes before determining whether any of Regional’s assets will be reorganized to the Partnership. Please see Note J to
the Company’s Audited Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data”
for a more detailed discussion of the impact of the Company 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 FMCSA as described above under “Safety
and Security”. Regional has also been subject to cargo security and transportation regulations issued by the Transportation
Security Administration since 2001 and regulations issued by the U.S. Department of Homeland Security 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, the Federal
Railroad Administration and the United States Army Corp of Engineers. The laws and regulations enforced by these agencies may:
| • | require the installation of expensive pollution control equipment; |
| • | restrict the types, quantities and concentration of various substances that can be released into
the environment; |
| • | require remedial measures to prevent pollution from storage facilities or remediate closed operations,
such as old storage tanks; |
| • | impose substantial liabilities for pollution resulting from our operations; and |
| • | with respect to ongoing operations or the expansion of existing operations, may require the preparation
of a new or amended Resource Management Plan, Integrated Contingency Plan, an Environmental Assessment, and/or an Environmental
Impact Statement. |
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 2013 or 2014. In 2012, the company had a spill
associated with the leakage from an asphalt storage tank, which has been completely remediated in connection with the repairs to
such tank. For the years ended December 31, 2013 and 2014, 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 2015 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 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 discussed under “Safety and Security” above.
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 that the above matter was under review. A telephonic meeting took place
in January 2013 whereby the appeals unit determined that Regional did not meet the conditions of a terminal operator which handled
taxable fuels and that the matter was dismissed. During March 2013, Regional received formal notification from the IRS that the
matter was dismissed with no further action required by Regional. 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.
Properties
The Partnership does
not own any property other than Regional’s Hopewell facility. It reimburses the General Partner for office space utilized
by executive officers of the General Partner. Presently, Katy Resources LLC, an affiliate of G. Thomas Graves III, Chairman of
the Board of the General Partner, provides the office space utilized as the Partnership’s corporate office location and which
is the primary location for certain individuals that are performing services on behalf of the Partnership, including Messrs. John
L. Denman, Jr., CEO and President of the General Partner, Mr. Graves and Douglas W. Weir, Senior Vice President and Chief Financial
Officer of the General Partner. Rover Technologies LLC, an affiliate of Mr. Ian Bothwell, the General Partner’s Executive
Vice President and Secretary, provides office space for Mr. Bothwell in Manhattan Beach, California, where Mr. Bothwell resides.
Partnership Employees
The Partnership has
no employees. At December 31, 2014, Regional employed personnel in connection with the operation of its businesses as described
under the caption “Operations – Regional Enterprises – Employees” above. The business of the Partnership
is managed by the General Partner. The General Partner employs all persons, other than the employees of the Partnership’s
operating subsidiaries, including executive officers, necessary for the operation of the Partnership’s business. The General
Partner currently has four employees.
Item 1A. Risk Factors
Limited partner
interests are inherently different from capital stock of a corporation, although many of the business risks to which the Partnership
is subject are similar to those that would be faced by a corporation engaged in a similar business. The following are some of the
important factors that could affect our business, financial condition and results of operations. Our actual results could differ
materially from estimates contained in our forward-looking statements. We may encounter risks in addition to those described below.
Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also adversely impair
or offset our business results of operation, financial condition and prospects.
Risks Inherent in an Investment in
the Partnership
Central does not currently have sufficient
cash flow from its operations to fund its obligations and ongoing business operations through the fiscal year ended December 31,
2015.
At March 15, 2015,
the Company had approximately $288,000 in cash and approximately $275,000 in accounts receivable at Regional. This cash, together
with anticipated cash generated from Regional’s operations during the fiscal year, will be insufficient to meet the Company’s
cash requirements for the fiscal year ended December 31, 2015. Absent additional proceeds from the issuance of securities by the
General Partner or the Partnership, the Company will be required to implement further cost saving procedures, sell assets, discontinue
operations, add/or seek protection under U.S. bankruptcy laws.
Central’s primary source of
working capital since 2010 has been from the sale of Common Units and loans to Central by the General Partner. There can be no
assurance that the General Partner will have the funds needed to make any additional loans to the Company or that additional Common
Units or other securities of the Partnership can be sold to fund working capital needs in the future.
Since the use of the proceeds raised by
the Partnership in the Sale, working capital has been provided by loans by the General Partner and the sale of Common Units in
the CEGP Investment. The source of funds for these loans has been the sale of membership interests in the General Partner to its
members. There can be no assurance that the Board of the General Partner will offer to sell additional membership interests in
the future or, if such an offer is made, that the members will agree to acquire such offered membership interests. Absent an acquisition
or a refinancing of the Partnership or General Partner, management does not believe that a placement of Common Units or other securities
of the Partnership is possible on terms that are in the best interest of our Partners. Please see “Item 7 – Managements’
Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for
additional information on the Company’s current financial condition.
Central’s debt levels and contingent
obligations limit our flexibility to obtain additional financing and pursue other business opportunities and affects our ability
to make distributions.
As of December 31,
2014, the Partnership had approximately $2.5 million of debt resulting from the Hopewell Loan Agreement. The Hopewell Loan
Agreement is secured by all of the assets of Regional and a pledge of Regional’s common stock to Hopewell by the Partnership.
In addition, Regional is obligated under the Penske Lease Agreement to make monthly lease payments for the Leased Tractors. If
the Penske Lease Agreement is terminated as a result of a default by Regional, Regional could be required to purchase the Leased
Tractors at their fair market value or make the “alternative payment”, each which would place a substantial financial
burden on Regional. Lastly, the Partnership may be obligated to pay the remaining 2012 IRS Penalties of $142,000 if its appeal
is unsuccessful. These provisions and the pledge of substantially all of the Partnership’s assets limit our ability to obtain
additional financing for working capital, capital expenditures, acquisitions or other purposes without significant future growth.
Our ability to service
indebtedness depends upon our future financial and operating performance, which will be affected by prevailing economic conditions
and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient
to service our current or future indebtedness, we will be forced to take actions such as reducing or delaying business activities,
acquisitions, investments and/or capital expenditures, selling assets, restructuring or refinancing our indebtedness, issuing additional
equity capital, or bankruptcy protection. We may not be able to affect any of these remedies on satisfactory terms or at all.
We do not have sufficient cash flow
from operations to make quarterly distributions on Common Units to our Unitholders, and the General Partner has deferred the date
on which Common Unit Arrearages will be paid to an undetermined future quarter to be established by the Board of the General Partner.
Under the terms of
our Partnership Agreement, the amount of cash otherwise available for distribution is reduced by Partnership operating expenses,
reimbursements made to the General Partner for expenses incurred on behalf of the Partnership, the amount of any cash reserve our
General Partner establishes to provide for the proper conduct of our business, meeting any of our obligations arising from any
of our debt instruments or other agreements, and compliance with applicable law. The amount of cash the Partnership can distribute
to Unitholders and the General Partner principally depends upon the amount of cash generated from its operations, which will fluctuate
from quarter to quarter based on, among other things:
| • | the volume of petroleum and petrochemical products we store and transport; |
| • | trucking, storage and trans-loading fees with respect to the volumes of petroleum and petrochemical
products we handle; and |
| • | prevailing economic conditions. |
In addition, the actual amount of cash
that the Partnership will have available for distribution will depend on other factors, some of which are beyond management’s
control, including:
| • | the actual cash flow generated from operations; |
| • | the level of our capital expenditures; |
| • | our ability to make borrowings under revolving credit facilities, if any, to make distributions; |
| • | limitations on Regional’s ability to make distributions to the Partnership under the Hopewell
Loan Agreement, as discussed under “Item 7 — Management’s Discussion and Analysis of Financial Condition and
Results of Operations;” |
| • | sources of cash used to fund acquisitions; |
| • | debt service requirements and restrictions on distributions contained in the Hopewell Loan Agreement,
the Penske Lease Agreement and any future debt agreements; |
| • | general and administrative expenses, including expenses incurred as a result of being a public
company; and |
| • | timing and collectability of receivables. |
The Partnership has
not made distributions to its Unitholders or the General Partner since August 18, 2008 for the quarter ended June 30,
2008. Since the Sale in November 2010, the members of the General Partner have held more than 80% of the total issued and outstanding
Common Units of the Partnership and, therefore, controls any Limited Partner vote on Partnership matters. In December 2010, the
General Partner and Unitholders holding more than a majority in interest of the Common Units of the Partnership approved an amendment
to the Partnership Agreement to provide that the Partnership was no longer obligated to make distributions of “Common Unit
Arrearage” or “Cumulative Common Unit Arrearages” pursuant to the terms of the Partnership Agreement in respect
of any quarter prior to the quarter beginning October 1, 2011. The impact of this amendment was that the Partnership was no longer
obligated to Unitholders for unpaid minimum quarterly distributions prior to the quarter beginning October 1, 2011 and Unitholders
would only be entitled to minimum quarterly distributions arising from the quarter beginning October 1, 2011 and thereafter. This
amendment was incorporated into the Partnership Agreement in April 2011.
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 the General
Partner. The ability of the Partnership to make distributions will be impacted by many factors including the ability to stabilize
operations at Regional, to successfully complete an accretive acquisition, the financing terms of debt and/or equity proceeds received
to fund ongoing Company operations and/or an acquisition, and the overall success of the Partnership and its operating subsidiaries.
The Partnership does
not have sufficient available cash to resume making any minimum quarterly distributions to its Partners. Furthermore, the Partnership
does not foresee the ability to make quarterly distributions to its Partners in the near future. Currently the General Partner’s
cash reserves are limited and the remaining available amounts (approximately $288,000 at March 15, 2015) are intended to be used
to fund the Partnership’s ongoing working capital requirements, including necessary funding of working capital for Regional.
Regional’s operating cash flow is limited to cash available from Regional’s operations. 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. As a result, after Partnership expenses, there is no cash available
for distribution to the Partners.
The Partnership may not make cash
distributions during periods when it records net income. The amount of cash distributions that we will be able to distribute to
Unitholders will be reduced by the costs associated with general and administrative expenses and reserves that our General Partner
believes prudent to maintain for the proper conduct of our business and for future distributions.
Before the Partnership
can pay distributions to Unitholders, it must first pay or reserve cash for expenses, including capital expenditures and the costs
of being a public company and other operating expenses, and it may reserve cash for future distributions during periods of limited
cash flows. The amount of cash available for distribution to Unitholders will be affected by the Partnership’s level of reserves
and expenses. The amount of cash the Partnership has available for distribution depends on its cash flow, including cash from financial
reserves, working capital or other borrowings, and not solely on profitability, which will be affected by non-cash items. As a
result, the Partnership could make cash distributions during periods when it records losses and may not make cash distributions
during periods when it records net income.
If the Partnership is unable to make
acquisitions on economically acceptable terms from third parties, its future growth will be limited and any acquisitions which
it makes may reduce, rather than increase, its cash flows and ability to make distributions to Unitholders.
The Partnership’s
strategy to grow its business and increase distributions to Unitholders is dependent in part on management’s ability to make
accretive acquisitions that will result in an increase in cash flow. The acquisition component of our growth strategy is based,
in large part, on our expectation of ongoing divestitures of gathering, transportation and storage assets by industry participants.
A material decrease in such divestitures would limit our opportunities for future acquisitions and could adversely affect our ability
to grow our operations and make cash distributions to Unitholders. If we are unable to make acquisitions for any reason, our future
growth and ability to increase distributions will be significantly impacted. As an example, during 2013 and 2014, the General Partner
identified several potential acquisition opportunities and made offers to purchase different midstream assets and, in some cases,
entered into significant negotiations for the purchase of certain of those assets. All but one of these opportunities were the
subject of an auction process in which the General Partner was not the successful bidder. Furthermore, even if we do consummate
acquisitions that we believe will be accretive in nature, they may in fact result in a decrease in cash flow in early years due
to the obligation to retire acquisition financing. Any acquisition involves potential risks, including, among other things:
| • | mistaken assumptions about revenues and costs, including synergies; |
| • | the assumption of unknown liabilities, losses or costs for which our indemnity is inadequate; |
| • | limitations on rights to indemnity from the seller; |
| • | mistaken assumptions about the overall costs of equity or debt; |
| • | the diversion of management’s attention from other business concerns; |
| • | unforeseen difficulties operating in new product areas or new geographic areas; |
| • | customer or key employee losses at the acquired businesses; |
| • | our inability to hire, train or retain qualified personnel to manage and operate our growing business
and assets; and |
| • | our inability to integrate and successfully manage the businesses we acquire. |
If we consummate any future acquisitions,
our capitalization and results of operations may change significantly, and Unitholders will not have the opportunity to evaluate
the economic, financial and other relevant information that we will consider in determining whether to make a particular acquisition
and the sources and uses of funds and other resources for any such acquisitions as these decisions will be made solely by the General
Partner.
We have identified various material
weaknesses in our internal control over financial reporting. These material weaknesses have not been remediated, and we cannot
assure you that other material weaknesses will not be identified in the future.
As a result of the
circumstances giving rise to weaknesses in our accounting practices and personnel as discussed in “Item 9A. Controls
and Procedures” below, the Audit Committee of our General Partner, and the Chief Executive Officer and Chief Financial
Officer of the General Partner have concluded that, as of December 31, 2014, we had material weaknesses in our internal controls
over financial reporting. As a result, our disclosure controls and procedures and our internal controls over financial reporting
were not effective at such date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over
financial reporting that creates a reasonable possibility that a material misstatement of our annual or interim consolidated financial
statements will not be prevented or detected on a timely basis.
In addition, management
believes that Central continues to have material weaknesses in its internal control over financial reporting subsequent to December 31,
2014. Please see “Item 9A. Controls and Procedures” for a detailed discussion of the material weaknesses
as of December 31, 2014 and material weaknesses as of subsequent periods. Moreover, we cannot assure you that additional material
weaknesses in our internal control over financial reporting will not arise or be identified in the future or that such weaknesses
will be remediated in the near term. If any material weaknesses result in material misstatements in our financial statements, we
may be required to restate those financial statements and, could cause investors to lose confidence in our reported financial information,
leading to a decline in the price of the Common Units.
Officers of the General Partner manage
all of Central’s business and operations. Failure of such officers to devote sufficient attention to the management and operation
of Central’s business may adversely affect financial results and the ability to make distributions to Unitholders.
The executive officers
of the General Partner are responsible for managing all of Central’s business and operations. Central does not maintain key
person life insurance policies on any personnel. The General Partner has arrangements relating to compensation and benefits with
certain of its executive officers through employment contracts. Since the closing of the CEGP Investment, Messrs. Denman, Graves
and Weir have agreed to forego receipt of any compensation as a result of concerns over the Partnership’s and the General
Partner’s available cash resources. In addition, during December 2013, the President of Regional agreed to have a portion
of his annual salary paid on each anniversary date of his employment agreement. Should the General Partner not be able to obtain
sufficient working capital to commence payment of salaries, the likelihood of a change in executive personnel of the General Partner
is enhanced. The loss of the services of any of these individuals could have a material adverse effect on its business and the
Partnership’s ability to make distributions to Partners.
The Partnership Agreement limits
our General Partner’s fiduciary duties to holders of Common Units.
The Partnership Agreement
contains provisions that modify and reduce the fiduciary standards to which the General Partner would otherwise be held by state
fiduciary duty law. For example, the Partnership Agreement permits the General Partner to make a number of decisions in its individual
capacity, as opposed to in its capacity as a general partner, or otherwise free of fiduciary duties to the Partnership and its
Unitholders. This entitles the General Partner to consider only the interests and factors that it desires and relieves it of any
duty or obligation to give any consideration to any interest of, or factors affecting, the Partnership, its affiliates or its limited
partners. Examples of decisions that the General Partner may make in its individual capacity include:
| • | how to exercise its voting rights with respect to the Common Units it may own; |
| • | whether to exercise its limited call right; |
| • | whether to exercise its registration rights; |
| • | whether to elect to reset minimum quarterly distributions and target distribution levels; |
| • | issue Common Units to holders of the “incentive distribution rights” (currently the
General Partner); and |
| • | whether or not to consent to any merger or consolidation of the Partnership or make any amendment
to the Partnership Agreement. |
By having purchased Common Units, each
Unitholder has consented to all provisions in the Partnership Agreement, including the provisions discussed above.
The Partnership Agreement restricts
the remedies available to holders of our Common Units for actions taken by the General Partner that might otherwise constitute
breaches of fiduciary duty.
The Partnership Agreement
contains provisions that restrict the remedies available to Unitholders for actions taken by our General Partner that might otherwise
constitute breaches of fiduciary duty under state fiduciary duty law. For example, the Partnership Agreement:
| • | provides that whenever the General Partner makes a determination or takes, or declines to take,
any other action in its capacity as general partner, the General Partner is required to make such determination, or take or decline
to take such other action, in good faith, and will not be subject to any other or different standard imposed by the Partnership
Agreement, Delaware law, or any other law, rule or regulation, or at equity; |
| • | provides that the General Partner will not have any liability to the Partnership or its Unitholders
for decisions made in its capacity as a general partner so long as it acted in good faith, which requires that it believed that
the decision was in, or not opposed to, the best interest of the Partnership; |
| • | provides that the General Partner and its officers and directors will not be liable for monetary
damages to the Partnership or its limited partners resulting from any act or omission unless there has been a final and non-appealable
judgment entered by a court of competent jurisdiction determining that the General Partner or its officers and directors, as the
case may be, acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge
that the conduct was criminal; and |
| • | provides that the General Partner will not be in breach of its obligations under the Partnership
Agreement or its fiduciary duties to the Partnership or its limited partners if a transaction with an affiliate or the resolution
of a conflict of interest is: |
| 1. | approved by the Conflicts Committee of the General Partner’s Board of Directors, although
the General Partner is not obligated to seek such approval; |
| 2. | approved by the vote of a majority of the outstanding Common Units, excluding any Common Units
owned by the General Partner and its affiliates; |
| 3. | on terms no less favorable to the Partnership than those generally being provided to or available
from unrelated third parties; or |
| 4. | fair and reasonable to the Partnership, taking into account the totality of the relationships among
the parties involved, including other transactions that may be particularly favorable or advantageous to the Partnership. |
In connection with
a situation involving a transaction with an affiliate or a conflict of interest, any determination by the General Partner must
be made in good faith. If an affiliate transaction or the resolution of a conflict of interest is not approved by the Conflicts
Committee of the Board of Directors, or the General Partner determines that the resolution or course of action taken with respect
to the affiliate transaction or conflict of interest satisfies either of the standards set forth in subclauses 3 and 4 above, then
it will be presumed that, in making its decision, the General Partner acted in good faith, and in any proceeding brought by or
on behalf of any limited partner or the Partnership, the person bringing or prosecuting such proceeding will have the burden of
overcoming such presumption.
Unitholders have limited voting rights
and are not entitled to designate the General Partner or its Directors.
Unlike the holders
of common stock in a corporation, Unitholders have only limited voting rights on matters affecting the Partnership’s business
and, therefore, limited ability to influence management’s decisions regarding its business. Unitholders will not appoint
the General Partner or members of its Board of Directors. The Board of Directors of our General Partner are chosen by its members.
Furthermore, if the Unitholders are dissatisfied with the performance of the General Partner, they will have little ability to
remove the General Partner. As a result of these limitations, the price at which the Common Units will trade could be diminished
because of the absence or reduction of a takeover premium in the trading price.
Even if Unitholders are dissatisfied,
it would be difficult to remove the General Partner.
The vote of the holders
of at least 80% of all outstanding partnership interests, including the Common Units, voting together as a single class is required
to remove the General Partner. Therefore, even if the Unitholders are dissatisfied with the results of the Partnership’s
operations, the lack of distributions from the Partnership to Unitholders, the market price if the Common Stock or any other matter,
it would be difficult for the Unitholders to remove the General Partner due to the number of Unitholders needed to obtain an 80%
affirmative vote.
Control of the General Partner may
be transferred to a third party without Unitholder consent.
The General Partner
may transfer its interest to a third party for any reason without the consent of the Unitholders. Members of the General Partner
are subject to certain restrictions on the transfer of their membership interests in the General Partner. The Unitholders of our
General Partner are in a position to replace the Board of Directors and officers of the General Partner as they desire and thereby
influence the decisions made by the Board of Directors and officers.
The incentive distribution rights
held by our General Partner may be transferred to a third party without Unitholder consent.
The General Partner
holds all incentive distribution rights, as defined in the Partnership Agreement, issued by the Partnership and may transfer such
incentive distribution rights to a third party at any time without the consent of Unitholders. If the General Partner transfers
its incentive distribution rights to a third party but retains its general partner interest, the General Partner may not have the
same incentive to grow our Partnership and increase quarterly distributions to Unitholders over time as it would if it had retained
ownership of its incentive distribution rights.
The Partnership may issue additional
partner interests, including interests that are senior to the Common Units, without Unitholder approval, which would dilute the
ownership interests of its existing Unitholders.
The Partnership Agreement
does not limit the number of additional partner interests that the Partnership may issue. In addition, the Partnership may issue
an unlimited number of partner interests that are senior to the Common Units in right of distribution, liquidation and voting.
The issuance of additional Common Units or other equity securities of equal or senior rank will have the following effects:
| • | the Unitholders’ proportionate ownership interest in the Partnership will decrease; |
| • | the amount of cash available for distribution may decrease; |
| • | the ratio of taxable income to distributions may increase; |
| • | the relative voting strength of each previously outstanding Common Unit or other partner interest
may be diminished; and |
| • | the market price of the Common Units may decline. |
The Partnership Agreement restricts
the voting rights of Unitholders, other than the General Partner and its affiliates, owning 20% or more of our Common Units, which
may limit the ability of significant Unitholders to influence the manner or direction of management.
The Partnership Agreement
restricts Unitholders’ voting rights by providing that any Common Units held by a person, entity or group that owns 20% or
more of any class of Common Units then outstanding, other than our General Partner, its affiliates, their transferees and persons
who acquired such Common Units with the prior approval of the Board of our General Partner, cannot vote on any matter, subject
to waiver of such restriction by the General Partner in its sole discretion. The Partnership Agreement also contains provisions
limiting the ability of Unitholders to call meetings or to acquire information about Partnership operations, other than the information
specified in the Partnership Agreement, as well as other provisions limiting Unitholders’ ability to influence the manner
or direction of management.
The liability of our Unitholders
may not be limited if a court finds that Unitholder action constitutes control of our business.
A general partner of
a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations
of the partnership that are expressly made without recourse to the general partner. The Partnership is organized under Delaware
law and conducts business in a number of other states. The limitations on the liability of holders of limited partner interests
for the obligations of a limited partnership may not have been clearly established in some of the other states in which we may
do business. Unitholders could be liable for Partnership obligations as if they were a general partner in the event a court or
government agency determines that:
| • | the Partnership is conducting business in a state but has not complied with that particular state’s
partnership statute; or |
| • | the Unitholders, acting as a group, to remove or replace the General Partner, to approve some amendments
to our Partnership Agreement or to take other actions under our Partnership Agreement constitute “control” of the Partnership
and its business. |
Unitholders may have liability to
repay distributions under certain circumstances.
Under certain circumstances,
Unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17-607 of the Delaware Revised
Uniform Limited Partnership Act, the Partnership may not make a distribution to Unitholders if the distribution would cause its
liabilities to exceed the fair value of its assets. Liabilities to partners on account of their partnership interests and liabilities
that are non-recourse to the Partnership are not counted for purposes of determining whether a distribution is permitted. Delaware
law provides that for a period of three years from the date of an impermissible distribution, limited partners who received the
distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership
for the distribution amount. A purchaser of Common Units who becomes a substituted limited partner is liable for the obligations
of the transferring limited partner to make contributions to the Partnership that are known to such purchaser of Common Units at
the time it became a substituted limited partner and for unknown obligations if the liabilities could be determined from our Partnership
Agreement.
Our General Partner has a limited
call right that may require you to sell your Common Units at an undesirable time or price.
If at any time the
General Partner and its affiliates own more than 80% of the Common Units or any other class of partner interests issued by the
Partnership, our General Partner has the right, but not the obligation, which it may assign to any of its affiliates, to acquire
all, but not less than all, of the Common Units (or any other class of partner interests issued by the Partnership) held by persons
other than the General Partner or its affiliates at a price not less than their then-current market price. As a result, you may
be required to sell your Common Units at an undesirable time or price and may not receive a return on your investment. You may
also incur a tax liability upon a sale of your Common Units.
Our General Partner, or any transferee
holding incentive distribution rights, may elect to cause the Partnership to issue Common Units and general partner units to it
in connection with a resetting of the target distribution levels related to such incentive distribution rights, without the approval
of the Conflicts Committee of the General Partner or the consent of Unitholders. This could result in lower distributions to Unitholders.
The General Partner
has the right, at any time when Unitholders have received distributions for each of the four most recently completed quarters and
the amount of each such distribution did not exceed the adjusted operating surplus of the Partnership for such quarter, to reset
the minimum quarterly distribution and the target distribution levels based on the average of the distributions actually made for
the two most recent quarters immediately preceding the reset election. Following a reset election, the minimum quarterly distribution
will be adjusted to equal the reset minimum quarterly distribution, and the target distribution levels will be reset to correspondingly
higher levels based on percentage increases above the reset minimum quarterly distribution.
If the General Partner
elects to reset the target distribution levels, the holder of the incentive distribution rights will be entitled to receive their
proportionate share of a number of Common Units derived by dividing (i) the average amount of cash distributions made by the Partnership
for the two full quarters immediately preceding the reset election by (ii) the average of the cash distributions made by the Partnership
in respect of each Common Unit for the same period. The General Partner will also be issued the number of partnership units necessary
to maintain its 2% general partner’s interest in the Partnership that existed immediately prior to the reset election at
no cost to the General Partner. We anticipate that the General Partner would exercise this reset right in order to facilitate acquisitions
or internal growth projects that would not be sufficiently accretive to cash distributions per Common Unit without such conversion.
It is possible, however, that the General Partner could exercise this reset election at a time when it is experiencing, or expects
to experience, declines in the cash distributions it receives related to its incentive distribution rights and may, therefore,
desire to be issued Common Units rather than retain the right to receive distributions based on the initial target distribution
levels. This risk could be elevated if the incentive distribution rights have been transferred to a third party. As a result, a
reset election may cause Unitholders to experience a reduction in the amount of cash distributions that they would have otherwise
received had the Partnership not issued new Common Units and general partner interests in connection with resetting the target
distribution levels. Additionally, the General Partner has the right to transfer the incentive distribution rights at any time,
and such transferee shall have the same rights as the General Partner relative to resetting target distributions if the General
Partner concurs that the tests for resetting target distributions have been fulfilled.
The Unitholders who fail to furnish
certain information requested by the General Partner or who the General Partner, upon receipt of such information, determines are
not “eligible holders” may not be entitled to receive distributions in kind upon liquidation of the Partnership and
their Common Units will be subject to redemption.
The General Partner
may require each Unitholder to furnish information about his nationality, citizenship or related status in order to determine if
such Unitholder is a person qualified to hold an interest in the Partnership and its assets. United States law prohibits certain
non-U.S. nationals from holding real property or other assets in the United States. A violation of these laws could jeopardize
the Partnership’s status as a “pass-through” entity for federal and state income tax law purposes. In addition,
the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the
“USA Patriot Act”) requires the sponsor of any entity raising capital to confirm the identity of each investor
to the extent practicable. As a result, the General Partner must meet the requirements of the USA Patriot Act and confirm the identity
of each Unitholder and its assignee, and the principal beneficial owners of any Unitholder or its assignee, as applicable. The
General Partner can rely on the diligence of a third party with respect to any Unitholder or its assignee. A detailed verification
of a Unitholder’s (or his assignee’s) identity may not be required where the Unitholder is a recognized financial institution
or the Unitholder makes payment for his Common Units from an account held in the Unitholder’s name at a recognized financial
institution. As of the date of this Report on Form 10-K, an eligible holder means:
| • | a citizen of the United States; |
| • | any corporation organized under the laws of the United States or of any state thereof; |
| • | a public body, including a municipality; or |
| • | an association of United States citizens, such as a partnership or limited liability company, organized
under the laws of the United States or of any state thereof, but only if such association does not have any direct or indirect
foreign ownership, other than foreign ownership of stock in a parent corporation organized under the laws of the United States
or of any state thereof. |
If a Unitholder or
its assignee fails to furnish information about his nationality, citizenship or other related status within 30 days after a request
for the information, or the General Partner determines, after receipt of the information, that the Unitholder or its assignee is
not an eligible holder, the Unitholder or its assignee may be treated as an “ineligible holder.” An ineligible holder
does not have the right to direct the voting of his Common Units (the General Partner has the right to vote such Common Units)
and may not receive distributions in kind upon a liquidation of the Partnership. Furthermore, the General Partner has the right
to redeem all of the Common Units of any ineligible holder or of any Unitholder or assignee that fails to furnish the requested
information. The redemption price will be the average of the closing sales price per Common Unit for the 20 consecutive trading
days immediately prior to the date of redemption and such price will be paid in cash or by delivery of a promissory note, as determined
by the General Partner in its sole discretion.
Common Units held by persons who
are non-taxpaying assignees will be subject to the possibility of redemption.
To avoid any adverse
effect on the maximum applicable rates chargeable to customers by us under FERC regulations, or in order to reverse an adverse
determination that has occurred regarding such maximum rate, our Partnership Agreement gives the General Partner the power to amend
the agreement. If the General Partner determines that the Partnership not being treated as an association taxable as a corporation
or otherwise taxable as an entity for U.S. federal income tax purposes, coupled with the tax status (or lack of proof thereof)
of one or more of our Unitholders, has, or is reasonably likely to have, a material adverse effect on the maximum applicable rates
chargeable to customers by us, then the General Partner may adopt such amendments to the Partnership Agreement as it determines
are necessary or advisable to obtain proof of the U.S. federal income tax status of our Unitholders (and their owners, to the extent
relevant) and permit us to redeem the Common Units held by any person whose tax status has or is reasonably likely to have a material
adverse effect on the maximum applicable rates or who fails to comply with the procedures instituted by the General Partner to
obtain proof of the U.S. federal income tax status.
Risks Related to Our Business
The price for petroleum and petrochemical
products, the distribution requirements for such products, and the need for our storage and transportation assets, are very volatile.
A change in prices could cause a decline in our cash flow from operations by impacting the sale of the petroleum and petrochemical
products which we store and distribute.
The petroleum and petrochemical
product markets are very volatile, and we cannot predict future demand or pricing. Prices for petroleum and petrochemical products
may fluctuate widely in response to relatively minor changes in the supply of and demand for such products, market uncertainty
and a variety of additional factors that are beyond our control, such as:
| • | domestic and foreign supply of and demand for petroleum and petrochemical products; |
| • | overall domestic and global economic conditions; |
| • | political and economic conditions in oil producing countries, including those in the Middle East
and South America; |
| • | actions of the Organization of Petroleum Exporting Countries, or OPEC, and other state-controlled
oil companies relating to oil price and production controls; |
| • | impact of the U.S. dollar exchange rates on oil prices; |
| • | technological advances affecting energy consumption and energy supply; |
| • | domestic and foreign governmental regulations and taxation; |
| • | the impact of energy conservation efforts; |
| • | the proximity, capacity, cost and availability of competing storage and transportation facilities; |
| • | the availability of refining capacity; and |
| • | the price and availability of petroleum and petrochemical products. |
Our revenue, profitability
and cash flow depend upon the prices of and demand for petroleum and petrochemical products, as well as the competitive capabilities
of Regional’s management and assets. A change in prices can significantly affect our financial results and impede our growth.
In particular, changes in the price for oil, refined petroleum products and petrochemicals, and the resulting fluctuation in demand,
will reduce the amount of cash flow available for capital expenditures, limit our ability to borrow money or raise additional capital,
and impair our ability to make distributions. If we raise our distribution levels in response to increased cash flow during periods
of relatively high product demand, we may not be able to sustain those distribution levels during subsequent periods of lower demand.
The business of Regional is dependent
on several major customers. The loss of any one of these major customers could have an adverse effect on the revenue and business
of the Partnership.
A substantial part
of Regional’s revenues and profits come from a few customers. For example, 57% of Regional’s revenues in 2014 were
from three customers: Suffolk Sales, Associated Asphalt Hopewell, LLC and MeadWestvaco Specialty Chemicals, Inc. As of January
1, 2015, five customers contract for the 11 Regional tanks which were under contract and one of those customers has contracted
for five of those tanks.
Due to the Partnership owning only
one operating entity, any adverse developments in its industry or its limited operating area would have a significantly greater
impact on results of operations and possible distributions to Unitholders.
Currently, the Partnership’s
only operating entity is Regional. Its business is solely focused on the transportation and storage of hazardous chemicals and
petroleum products for distribution to markets in the east central United States. The greatest part of Regional’s operations
is conducted within a 150-mile radius of its principal facility in southeastern Virginia. Due to the lack of diversification in
assets and the location of those assets, any adverse development in the business of Regional or within its geographic market area
would have a significantly greater impact on the Partnership’s results of operations and any cash available for distribution
to its Unitholders than if we maintained more diverse businesses and locations.
The Partnership operates in a highly
competitive industry and may be unable to compete effectively with larger companies, which may adversely affect our ability to
generate sufficient revenue to allow us to make distributions to our Unitholders.
The provision of services
to the petroleum and petrochemical industry is intensely competitive and securing equipment and trained personnel is challenging.
Central competes with other companies that have greater resources. Many of the Central’s competitors are major and large
diversified energy and logistics companies, and possess and employ financial, technical and personnel resources substantially greater
than ours. Those companies are able to operate on a much more diversified geographic area and take advantage of synergies associated
with size and improved purchasing power, potentially resulting in lower pricing for storage, transportation and other services.
In addition, there is substantial competition for investment capital in the industry. These larger companies may have a greater
ability to continue expansion of their operations during periods of low demand for petroleum and petrochemical products and to
absorb the burden of present and future federal, state, local and other laws and regulations. Central’s inability to compete
effectively with larger companies could have a material adverse impact on our business activities, financial condition and results
of operations.
Regional’s logistics operations
are subject to many risks and operational hazards, some of which may result in business interruptions and shutdowns of our facilities
and damages for which we may not be fully covered by insurance. If a significant accident or event occurs that results in business
interruption or shutdowns for which we are not adequately insured, our operations and financial results could be adversely affected.
Regional’s logistics
operations are subject to all of the risks and operational hazards inherent in transporting and storing bulk liquids, petroleum
products and hazardous chemicals, including:
| • | damages to its facilities, related equipment and surrounding properties caused by earthquakes,
floods, leaks, accidents, fires, explosions, hurricanes other natural disasters, hazardous materials releases and acts of terrorism; |
| • | mechanical or structural failures at its facilities or at third-party facilities on which its operations
are dependent; |
| • | curtailments of operations relative to severe seasonal weather, including hurricanes; |
| • | personal injury or other accidents (including spills) resulting from the operation of its trans-loading
facilities and its truck and tanker fleet; and |
These risks, most of
which are beyond management’s control, could result in substantial losses due to personal injury and/or loss of life, severe
damage to and destruction of property and equipment, or chemical or product spills resulting in business interruptions or shutdowns
of our facilities, and pollution or other environmental damage and fines. Any such event or unplanned shutdown could have a material
adverse effect on our business, financial condition and results of operations. A serious accident at Regional’s facilities
could result in serious injury or death to employees of Regional, customers or contractors and could expose us to significant liability
for personal injury claims and reputational risk, which has occurred in the past. The location of our facilities near populated
areas, including residential areas, commercial business centers and industrial sites, could significantly increase the level of
damages resulting from these risks.
On March 19, 2012,
one of Regional’s leased storage tanks was discovered to have a leak. During April 2012, after removal of the stored asphalt
from the tank, the tank was taken out of service. Repairs to the storage tank were completed at a total cost of $350,000 and the
tank was placed back in service during November 2013. Regional’s insurance providers have notified Regional that the incident
did not fall within insurance coverage limits. Lost revenue with respect to the storage tank totaled approximately $250,000 and
$0 during the years ended December 31, 2013 and 2014, respectively, bringing total lost revenues to $475,000.
Regional stores and transports hazardous
petrochemical products to and from its facilities. If its safety procedures are not effective, an accident involving these hazardous
petrochemicals could result in serious injuries or death, or result in the shutdown of our facilities.
Regional stores and
transports hazardous petrochemicals, such as sodium hydroxide, sodium bisulfate, ferric sulfate, hydrochloric acid, aqua ammonia,
sulfuric acid and fuel blends, to and from its facilities. An accident involving any of these petrochemicals could result in serious
injuries or death, or evacuation of areas near an accident. An accident could also result in third-party property damage or shutdown
of our port and rail facilities, or cause us to expend significant amounts in excess of our insurance coverage, where applicable,
to remediate safety issues or to repair damaged facilities. As a result, an accident involving any of these chemicals could have
a material adverse effect on our results of operations, liquidity or financial condition.
Regional is not fully
insured against all risks. For example, pollution and environmental risks generally are not fully insurable. We may also elect
not to obtain insurance if we believe that the cost of available insurance is excessive relative to the perceived risks presented.
Losses could, therefore, occur for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. Moreover,
insurance may not be available in the future at commercially reasonable costs and on commercially reasonable terms. Changes in
the insurance markets due to terrorist attacks and hurricanes have made it more difficult for us to obtain certain types of coverage.
We may not be able to obtain the levels or types of insurance we would otherwise have obtained prior to these market changes, and
our insurance may contain large deductibles or fail to cover certain hazards or cover all potential losses. Losses and liabilities
from uninsured and underinsured events and delay in the payment of insurance proceeds could have a material adverse effect on our
business, financial condition, results of operations and ability to make distributions to our Unitholders.
Regional stores hazardous products
on behalf of its customers and is at risk for the costs associated with the clean-up of the facilities used, including removal
and disposal of excess product and all resulting waste, sludge and wash-water generated from the cleaning process.
All of Regional’s
storage contracts include provisions that upon termination of the contract, the customer is responsible for the clean-up of the
storage tank and associated facilities utilized, including removal and disposal of excess product and all resulting waste, sludge
and wash-water generated from the cleaning process. Regional does not hold title to any of the products stored by its customers.
If a customer were to terminate its storage contract without cleaning the tank, Regional would be responsible to perform the clean-up.
Depending on the nature of the product stored, the amount of product left in the storage tank, the existing marketability of the
product, and/or the financial condition of the customer, Regional could be exposed to significant financial risks associated with
performing the clean-up as a result of the following:
| - | If there is product remaining in the tank in excess of “residual” amounts, Regional
may be required to get court approval prior to removing the product (dispose and/or sell), which may cause a significant delay.
In addition, there may be difficulty in selling and/or disposing of the product, particularly “off-spec” products and/or
products containing hazardous waste characteristics. |
| - | The costs for cleaning a tank are more costly depending on the product stored. In addition, the
costs to transport the product to a potential buyer and/or disposal site may be in excess of the market value of the product. If
the product is to be disposed, there is a cost of disposal based on the overall quantity being disposed of and the level of hazardous
components contained in the product. The actual costs of cleaning a tank which contains hazardous components are generally more
costly to complete. |
| - | Customers which are not willing or able to perform the required cleaning of the tank are likely
to be experiencing financial difficulties and any judgment which may ultimately be determined in Regional’s favor may be
uncollectible. |
| - | Regional may be responsible for funding the clean-up costs prior to any financial reimbursement,
if any. Regional may not have the available funds at the time. In addition to the costs described above, Regional could be exposed
to additional financial losses resulting from: |
| o | delays in obtaining legal judgments to provide ability to sell and/or dispose of product; |
| o | delays in Regional selling and/or disposing of product due to lack of marketability; and/or |
| o | lost revenues associated with the period of time before Regional is able to lease the tank to a
new customer. |
| - | Depending on the circumstances, the disposal of significant quantities of hazardous wastes could
impact the classification of Regional’s terminal operations by the Virginia Department of Environmental Quality. |
An example of the type of liability that
can result from the circumstances discussed above includes Regional’s dispute with SGR Energy LLC. See “Item 3.
Legal Proceedings – SGR Energy LLC” for additional details regarding the issues faced by the company.
Regional depends heavily on the availability
of fuel for its hauling operations. Fuel shortages, increases in fuel costs and the inability to collect fuel surcharges or obtain
sufficient fuel supplies could have a material adverse effect on Regional’s operating results.
The transportation
industry is dependent upon the availability of adequate fuel supplies and the price for those supplies. Regional has not experienced
a lack of available fuel but could be adversely impacted if a fuel shortage was to develop or prices increase significantly. Fuel
prices have fluctuated significantly in recent years. All of Regional’s customers, except one, have built in fuel surcharges
as part of the overall rate to offset the volatility of fuel prices. Regional’s sole customer that is not charged a fuel
surcharge has contracted a fixed rate which is to be reviewed periodically to reflect changes in overall rates and operating costs
of Regional. Although revenues from fuel surcharges generally more than offset increases in direct diesel fuel costs, other operating
costs have been, and may continue to be, impacted by fluctuating fuel prices. Regional’s customers are also being impacted
by fluctuating fuel costs, which could impact their supply patterns in a way that is adverse to Regional’s operations, cash
flow and profits. If Regional continues to increase fuel surcharges to its customers, such customers may seek less expensive alternatives.
As a result, Regional may be forced to reduce its surcharges which will adversely affect its transportation business and revenues.
The total impact of
higher energy prices on other nonfuel-related expenses is difficult to ascertain. Regional cannot predict, with reasonable certainty,
future fuel price fluctuations, the impact of higher energy prices on other cost elements, recoverability of higher fuel costs
through fuel surcharges, the effect of fuel surcharges on Regional’s overall rate structure or the total price that it will
receive from its customers. Whether fuel prices fluctuate or remain constant, operating income may be adversely affected if competitive
pressures limit Regional’s ability to recover fuel surcharges.
Regional does not have
any long-term fuel purchase contracts or any hedging arrangements to protect against fuel price increases. Significant changes
in diesel fuel prices and the associated fuel surcharge may increase volatility in the company’s fuel surcharge revenue and
fuel-related costs. Volatile fuel prices will continue to impact the base rate increases Regional is able to secure and could continue
to have an adverse effect on its operating results. Significant increases in fuel prices or fuel taxes resulting from economic
or regulatory changes which are not offset by freight rate increases or fuel surcharges could have an adverse impact on Regional’s
results of operations.
Regional depends heavily on the availability
of fuel oil for heating required at its Hopewell terminal. Fuel shortages, increases in fuel costs and the impact of such costs
or ability to obtain sufficient fuel supplies could have a material adverse effect on Regional’s operating results.
Some of the products
which Regional handles at its Hopewell terminal are required to be heated. Heating requirements are generally higher during the
winter months. As a result, some storage tanks and railcar and truck loading and unloading apparatus are designed to receive heat
via steam and/or hot oil. Regional’s hot oil heater and steam boiler both operate on fuel oil. In certain instances, Regional
utilizes heat to perform other routine facility maintenance and services. For those customers that are not charged for their allocable
share of heat related costs, Regional is impacted by higher energy prices which will adversely affect its business and revenues.
For those customers which are allocated fuel costs, those customers are impacted by fluctuating fuel costs, which could impact
their supply patterns in a way that is adverse to Regional’s operations, cash flow and profits, and they may seek less expensive
alternatives. As a result, Regional may be forced to reduce the impact of its fuel charges to retain customers which will adversely
affect its business and revenues.
In connection with
the New Asphalt Agreement, Regional has taken steps towards expanding its capabilities and services and improving the operating
costs at its Hopewell location. As part of the upgrades, Regional is planning to provide for the ability of the hot oil heater
and steam boiler to operate on natural gas. This would significantly reduce fuel costs to Regional and its customers, as well as
Regional’s dependency on a single source of fuel for its hot oil heater and steam boiler.
The Partnership is subject to complex
federal, state, local and other laws and regulations that could adversely affect the cost, manner or feasibility of conducting
our operations.
The Partnership’s
operations are subject to complex and stringent laws and regulations by multiple federal, state and local government agencies.
In order to conduct Partnership’s operations in compliance with these laws and regulations, we must obtain and maintain numerous
permits, approvals and certificates from various federal, state and local governmental authorities. Our historical and projected
operating costs reflect the recurring costs resulting from compliance with these regulations, and we do not anticipate material
expenditures in excess of these amounts in the absence of future acquisitions, or changes in regulation, or discovery of existing
but unknown compliance issues. Please see “Items 1 and 2. Business and Properties – Regional Operations –
Government Regulation” for additional information regarding the federal and state laws with which the Partnership must
comply.
Additional proposals
and proceedings that affect the petroleum and petrochemical products industry are regularly considered by Congress, as well as
by state legislatures and federal and state regulatory commissions and agencies and courts. We cannot predict when or whether any
such proposals may become effective or the magnitude of the impact changes in laws and regulations may have on our business; however,
additions or enhancements to the regulatory burden on our industry generally increase the cost of doing business and affect our
profitability. As a result, we may incur substantial costs in order to maintain compliance with these existing laws and regulations.
In addition, our costs of compliance may increase if existing laws and regulations are revised or reinterpreted, or if new laws
and regulations become applicable to our operations. Failure to comply with such laws and regulations, as interpreted and enforced,
could have a material adverse effect on our business, financial condition, results of operations and ability to make distributions
to our Unitholders.
The Partnership’s business
would be adversely affected if operations at Regional’s storage and distribution facilities experienced significant interruptions.
Regional’s business would also be adversely affected if the operations of its customers and suppliers experienced significant
interruptions.
Regional’s operations
are dependent upon its storage and distribution facilities and its various means of transportation. It is also dependent upon the
uninterrupted operations of certain facilities owned or operated by its suppliers and customers. Any significant interruption at
our facilities or those of our customers, or the inability to transport products to or from these facilities or to or from our
customers for any reason would adversely affect our results of operations, cash flow and ability to make distributions to our Unitholders
or to make principal and interest payments on our current or future debt obligations. Operations at Regional’s facilities
and at the facilities owned or operated by our suppliers and customers could be partially or completely shut down, temporarily
or permanently, as the result of any number of circumstances that are not within its control, such as severe weather conditions
including hurricanes (which impacted Regional’s operations in 2003 when Hurricane Isabel struck the Atlantic coast and destroyed
a storage tank at the Hopewell facility), environmental remediations, labor difficulties and disruptions in the supply of petroleum
and petrochemical products to its facilities, demand for such products, or the means of transportation of such products.
As an example, Regional
was forced to close its Johnson City facility on March 31, 2013, due to a decision by Regional’s sole customer for the Johnson
City site not to renew its agreement (which expired 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. This closure resulted in Regional’s revenues
for 2013 being materially reduced.
The occurrence or threat of extraordinary
events, including domestic and international terrorist attacks, and laws and regulations related thereto may disrupt our operations
and decrease demand for our products and services.
Terrorist attacks and
acts of sabotage could target oil and gas production facilities, refineries, processing plants, terminals and other infrastructure
facilities. Any significant interruptions at our facilities, facilities owned or operated by our suppliers or customers, or in
the oil and gas industry as a whole caused by such attacks or acts could have a material adverse effect on our results of operations,
cash flow and ability to make distributions to our Unitholders or to make principal and interest payments on our debt securities.
Chemical-related assets,
such as those handled at our terminalling and storage facilities, may be at greater risk of future terrorist attacks than other
possible targets in the United States. Federal legislation known as the Safe Chemicals Act of 2013, which would amend the Toxic
Substances Control Act, is pending before the Committee on Environment and Public Works in the United States Senate. This legislation,
if passed and signed into law, could impose new site security requirements, specifically on chemical facilities, which may increase
our overhead expenses. Regional’s business or its customers’ businesses could be adversely affected because of the
cost of complying with new security regulations.
New federal regulations
have already been adopted to increase the security of the transportation of hazardous chemicals in the United States. We believe
we have met these requirements but additional federal and local regulations that limit the distribution of hazardous materials
are being considered. We store, ship and receive materials that are classified as hazardous. Bans on movement of hazardous materials
through certain cities could affect the efficiency of our logistical operations. Broader restrictions on hazardous material movements
could lead to additional investment to produce hazardous raw materials and change where and what products we provide and transport.
The occurrence of extraordinary
events, including future terrorist attacks and the outbreak or escalation of hostilities, cannot be predicted, and their occurrence
can be expected to continue to affect negatively the economy in general, and specifically the markets for our products. The resulting
damage from a direct attack on our assets, or assets used by us, could include loss of life and property damage. Available insurance
coverage may not be sufficient to cover all of the damage incurred or, if available, may be prohibitively expensive.
Regional is subject to many environmental
and safety regulations that may result in significant unanticipated costs or liabilities or cause interruptions in our operations.
Regional’s operations
involve the handling, transportation and storage of materials that are classified as hazardous or toxic and that are extensively
regulated by environmental and health and safety laws, regulations and permit requirements. It may incur substantial costs, including
fines, damages and criminal or civil sanctions, or experience interruptions in its operations for actual or alleged violations
or compliance requirements arising under environmental laws, any of which could have a material adverse effect on its business,
financial condition, and results of operations or cash flows. Regional’s operations could result in violations of environmental
laws, including spills or other releases of hazardous substances to the environment. In the event of a catastrophic incident, it
could incur material costs. Furthermore, Regional may be liable for the costs of investigating and cleaning up environmental contamination
on or from its properties or at off-site locations where it disposed of or arranged for the disposal or treatment of hazardous
materials. Regional owns or leases properties that have been used to store or distribute hazardous chemicals and petroleum products
for many years. Many of these properties were operated by third parties whose handling, disposal or release of hydrocarbons and
other wastes was not under Regional’s control. If significant previously unknown contamination is discovered, or if existing
laws or their enforcement change, then the resulting expenditures could have a material adverse effect on Regional’s business,
financial condition, results of operations or cash flows.
Regional’s Hopewell,
Virginia facility operates in environmentally sensitive waters where maritime vessel, pipeline and refined product transportation
and storage operations are closely monitored by federal, state and local agencies and environmental interest groups. Transportation
and storage of hazardous chemicals and petroleum products over water or proximate to navigable waters involves inherent risks and
subjects us to the provisions of the Oil Pollution Act of 1990 and similar state environmental laws. Among other things, these
laws require Regional to demonstrate our capacity to respond to a spill of up to 100,000 barrels of oil from an above ground storage
tank adjacent to water (a “worst case discharge”) to the maximum extent possible. To meet this requirement, we have
contracted with various spill response service companies in the areas in which we transport or store refined petroleum and petrochemical
products. However, these companies may not be able to adequately contain a “worst case discharge” in all instances,
and we cannot ensure that all of their services would be available for our use at any given time. There are many factors that could
inhibit the availability of these service providers, including, but not limited to, weather conditions, governmental regulations
or other global events. By requirement of state or federal ruling, the availability of these service providers could be diverted
to respond to other global events. In these and other cases, we may be subject to liability in connection with the discharge of
refined petroleum or petrochemical products into navigable waters.
Regional’s trucking
operations are subject to a number of federal, state and local rules and regulations generally governing such activities as authorization
to engage in motor carrier operations, safety compliance and reporting, contract compliance, insurance requirements, taxation and
financial reporting. Regional could be subject to new or more restrictive regulations, such as regulations relating to engine emissions,
drivers’ hours of service, occupational safety and health, ergonomics or cargo security. Compliance with such regulations
could substantially reduce equipment productivity, and the costs of compliance could increase our operating expenses.
In January 2004, Regional
implemented the current DOT rules regulating driving time for commercial truck drivers. The rules have had a minimal impact upon
our operations. However, future changes in these rules, including the proposed revision to the hours of service rules that were
published in December 2010, could materially and adversely affect our operating efficiency and increase costs. CSA regulations
could potentially result in a loss of business to other carriers, driver shortages, increased costs for qualified drivers, and
driver and/or business suspension for noncompliance. CSA scores are available to the general public. Shippers may be influenced
by the scores in selecting a carrier to haul their freight and, although Regional is recognized in the industry for its commitment
to safety, carriers with better CSA scores may be selected in certain cases. A resulting decline in the availability of qualified
drivers, coupled with additional personnel required to satisfy future revisions to hours of service regulations, could adversely
impact our ability to hire drivers to adequately meet current or future business needs. Failures to comply with DOT safety regulations
or downgrades in our safety rating could have a material adverse impact on our operations or financial condition. Unsatisfactory
CSA scores could result in a DOT intervention or audit, resulting in the assessment of fines or penalties. A downgrade in our safety
rating could cause our insurance premiums to increase in the future or reduce our ability to find adequate insurance coverage at
acceptable rates.
Regional’s drivers
and facility workers also must comply with the safety and fitness regulations promulgated by the DOT, including those relating
to drug and alcohol testing and hours of service. The TSA has adopted regulations that require all drivers who carry hazardous
materials to undergo background checks by the Federal Bureau of Investigation when they obtain or renew their licenses.
Currently, proposed
federal, state and regional initiatives that require the measurement and reduction of greenhouse gas emissions (including carbon
dioxide, methane and other gases) are in various phases of discussion or implementation. These initiatives, if enacted into law,
could require us to reduce greenhouse gas emissions from our facilities. Requiring a reduction in greenhouse gas emissions and
the increased use of renewable fuels could also decrease demand for refined products, which could have an indirect, but material,
adverse effect on our business, financial condition and results of operations. For example, in June 2010, the EPA promulgated a
rule establishing greenhouse gas emission thresholds for the permitting of certain stationary sources, which could require greenhouse
emission controls for those sources. The rule calls for a “stepped” approach to emission thresholds related to the
size of a green-house gas emitting entity. Regional would be subject to step 3 of the rule; however, the EPA will not require permits
for smaller generators of greenhouse gases under step 3 of the rule or through any other action until at least April 30, 2016.
The EPA recently stated that it would maintain the current level of emissions for, and not impose lowered levels of emissions on,
“small” sources of emissions. As a result, Regional does not believe it will be required to install new emission control
equipment on its facility base on the current pronouncements from the EPA.
Environmental, health
and safety laws, regulations and permit requirements, and the potential for further expanded laws, regulations and permit requirements
may increase our costs or reduce demand for our products and thereby negatively affect our business. Environmental permits required
for our operations are subject to periodic renewal and may be revoked or modified for cause or when new or revised environmental
requirements are implemented. Changing and increasingly strict environmental requirements and the potential for further expanded
regulation may increase our costs and can affect the manufacturing, handling, processing, distribution and use of our products.
If so affected, our business and operations may be materially and adversely affected. In addition, changes in these requirements
may cause us to incur substantial costs in upgrading or redesigning our facilities and processes, including our waste treatment,
storage, disposal and other waste handling practices and equipment. For these reasons, we may need to make capital expenditures
beyond those currently anticipated to comply with existing or future environmental or safety laws.
Risks Related to Tax Matters
The tax treatment of the Partnership
depends on its status as a partnership for federal income tax purposes, as well as it not being subject to a material amount of
entity-level taxation by individual states. If the IRS were to treat the Partnership as a corporation for federal income tax purposes
or it was to become subject to additional entity-level taxation for state tax purposes, then the cash available for distribution
would be substantially reduced.
The anticipated after-tax
economic benefit of an investment in the Common Units depends largely on the Partnership being treated as a partnership for federal
income tax purposes. The Partnership has not requested, and does not plan to request, a ruling from the IRS on this or any other
tax matter affecting the Partnership.
Despite the fact that
the Partnership is a limited partnership under Delaware law, it is possible in certain circumstances for a partnership such as
this one to be treated as a corporation for federal income tax purposes. Although management does not believe, based upon our current
operations, that the Partnership will be treated as a corporation for federal income tax purposes, a change in its business (or
a change in current law) could cause the Partnership to be treated as a corporation for federal income tax purposes or otherwise
subject it to taxation as an entity.
If the Partnership
were treated as a corporation for federal income tax purposes, it would pay federal income tax on its taxable income at the corporate
tax rate, which is currently a maximum of 35% and would likely pay state income tax at varying rates. Distributions to Unitholders
would generally be taxed again as dividends, and no income, gains, losses or deductions would flow through to Unitholders. Because
a tax would be imposed upon the Partnership as a corporation, its cash available for distribution to Unitholders would be substantially
reduced. Therefore, treatment of the Partnership as a corporation would result in a material reduction in the anticipated cash
flow and after-tax return to the Unitholders, likely causing a substantial reduction in the value of the Common Units.
Current law may change
so as to cause the Partnership to be treated as a corporation for federal income tax purposes or otherwise subject us to entity-level
taxation. For example, federal legislation has been proposed that would eliminate partnership tax treatment for certain publicly
traded partnerships. This proposed legislation is currently stalled in the House of Representatives of the 113th U.S.
Congress. Although such legislation would not apply to the Partnership as currently proposed, it could be amended prior to enactment
in a manner that does apply to the Partnership. In addition, the President of the United States has published a proposed “overhaul”
of federal tax law that would include the elimination of partnership tax treatment for certain publicly traded partnerships and
would also eliminate many of the tax benefits available to companies in the oil and gas industry. The President’s proposal
for tax reform would apply to the Partnership. Management is unable to predict whether any of these changes or other proposals
will ultimately be enacted. Any such changes could negatively impact the value of an investment in the Common Units.
In addition, because
of widespread state budget deficits and other reasons, several states, including Texas, are evaluating ways to subject partnerships
to entity-level taxation through the imposition of state income, franchise, margin and other forms of taxation. For example, since
2008, the Partnership is subject to a new entity level tax on any portion of its income that is generated in Texas. Specifically,
the Texas margin tax is imposed at a maximum effective rate of 0.7% of our gross income that is apportioned to Texas. Imposition
of such a tax on the Partnership by Texas, or any other state, will reduce the cash available for distribution to Unitholders.
The Partnership Agreement
provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects the Partnership to additional
amounts of entity-level taxation, the minimum quarterly distribution amount and the target distribution amounts may be adjusted
to reflect the impact of that law on the Partnership.
The Partnership prorates its items
of income, gain, loss and deduction between transferors and transferees of its Common Units each month based upon the ownership
of the Common Units on the first business day of each month, instead of on the basis of the date Common Units are transferred from
one party to another. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and
deduction among Unitholders.
We prorate our items
of income, gain, loss and deduction between transferors and transferees of Common Units each month based upon the ownership of
our Common Units on the first business day of each month, instead of on the basis of the date Common Units are actually transferred.
The use of this method may not be permitted under existing Treasury regulations, and, accordingly, our counsel is unable to opine
as to the validity of this method. If the IRS were to challenge this method or new Treasury regulations were issued, the Partnership
may be required to change the allocation of items of income, gain, loss and deduction among Unitholders.
An IRS contest of the Partnership’s
federal income tax positions may adversely affect the market for the Common Units, and the cost of any IRS contest will reduce
the cash available for distribution to Unitholders.
The Partnership has
not requested a ruling from the IRS with respect to its treatment as a partnership for federal income tax purposes or any other
tax matter affecting it. The IRS may adopt positions that differ from the positions which the Partnership takes with respect to
tax matters. It may be necessary to resort to administrative or court proceedings to sustain some or all of our counsel’s
conclusions or positions the Partnership takes. A court may not agree with all of our counsel’s conclusions or positions
we take. Any contest with the IRS may materially and adversely impact the market for Common Units and the price at which they trade.
In addition, the costs of any contest with the IRS will be borne indirectly by Unitholders and the General Partner because the
costs will reduce cash available for distribution to Partners.
Unitholders may be required to pay
taxes on their share of Partnership income even if they do not receive any cash distributions.
Because Unitholders
will be treated as partners to whom the Partnership will allocate taxable income which could be different in amount than the cash
we distribute, Unitholders may be required to pay any federal income taxes and, in some cases, state and local income taxes, on
their share of Partnership taxable income even if they receive no cash distributions from the Partnership. Unitholders have not
received cash distributions from the Partnership equal to their share of Partnership taxable income since August 2008 and may not
receive sufficient distributions in the future sufficient in amount to pay their share of Partnership taxable income.
Tax gain or loss on disposition of
Common Units could be more or less than expected.
If Unitholders sell
their Common Units, they will recognize a gain or loss equal to the difference between the amount realized and their tax basis
in those Common Units. Because distributions in excess of Unitholders’ allocable share of Partnership net taxable income
decrease the tax basis in their Common Units, the amount, if any, of such prior excess distributions with respect to the Common
Units they sell will, in effect, become taxable income to them if they sell such Common Units at a price greater than their tax
basis in those Common Units, even if the price they receive is less than their original cost. In addition, because the amount realized
includes a Unitholder’s share of Partnership nonrecourse liabilities, if Unitholders sell their Common Units, they may incur
a tax liability in excess of the amount of cash they receive from the sale.
The Partnership has been assessed
penalties by the Internal Revenue Service for failure to file timely its 2012 tax return and the failure to file electronically
its 2012 tax return.
During November 2013,
the Partnership received a notice from the IRS that indicated the Partnership was liable for penalties of approximately $296,000
in connection with the late filing of the 2012 federal partnership tax return (“2012 Tax Return”) and approximately
$142,000 in connection with failing to file the 2012 Tax Return electronically (“2012 IRS Penalties”). During
January 2014, the Partnership submitted an appeal to the IRS to have the 2012 IRS Penalties removed. On February 25, 2014, the
Partnership received written notice from the IRS that the appeal of the late filing penalty was approved and the appeal of the
failure to file the 2012 Tax Return electronically was denied. The Partnership believes that there existed reasonable cause for
the Partnership’s failure to file the 2012 Tax Return electronically and, as a result, the Partnership has appealed the decision
to deny. The IRS has yet to rule on this appeal. There can be no assurance that the Partnership’s request for relief from
the remaining 2012 IRS Penalties will be approved by the IRS or that the Partnership will have adequate financial resources to
pay the remaining 2012 IRS Penalties. The Partnership has accrued a reserve of $142,000 in connection with the remaining 2012 IRS
Penalties.
The Partnership is
required to deliver Schedules K-1 for the 2014 Tax Year to its Unitholders by April 15, 2015, unless the Partnership applies for
an automatic extension to September 15, 2015, which it intends to do. However, there is no certainty that the Schedules K-1 for
the 2014 Tax Year will be completed and delivered timely to Unitholders by the Partnership if there is a lack of operating capital.
Regional could be deemed a “terminal
operator” that handles “taxable fuels” pursuant to requirements of the Code and, in such event, will be subject
to administrative and reporting requirements that will further increase operating expenses.
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 that the above matter was under review. A telephonic meeting took place
in January 2013 whereby the appeals unit determined that Regional did not meet the conditions of a terminal operator which handled
taxable fuels and that the matter was dismissed. During March 2013, Regional received formal notification from the IRS that the
matter was dismissed with no further action required by Regional. 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.
Tax-exempt entities and non-U.S.
persons face unique tax issues from owning Common Units that may result in adverse tax consequences to them.
Investment in Common
Units by tax-exempt entities, such as individual retirement accounts (known as IRAs), other retirement plans and non-U.S. persons
raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal
income tax, including IRAs and other retirement plans, will be “unrelated business taxable income” and will be taxable
to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest applicable effective tax rate, and
non-U.S. persons will be required to file United States federal tax returns and pay tax on their share of our taxable income.
The Partnership will treat each purchaser
of Common Units as having the same tax benefits without regard to the actual Common Units purchased. The IRS may challenge this
treatment, which could adversely affect the value of the Common Units.
Because the Partnership
cannot match transferors and transferees of Common Units and because of other reasons, it will take depletion, depreciation and
amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those
positions could adversely affect the amount of tax benefits available to Unitholders. It also could affect the timing of these
tax benefits or the amount of gain from the sale of Common Units and could have a negative impact on the value of Common Units
or result in audit adjustments to Unitholders’ tax returns.
Unitholders will likely be subject
to state and local taxes and tax return filing requirements in states where they do not live as a result of investing in Common
Units.
In addition to federal
income taxes, Unitholders will likely be subject to other taxes, including state and local taxes, unincorporated business taxes
and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which the Partnership does business
or own property now or in the future, even if they do not live in any of those jurisdictions. Unitholders will likely be required
to file foreign, state and local income tax returns and pay state and local income taxes in some or all of these jurisdictions.
Furthermore, Unitholders may be subject to penalties for failure to comply with those requirements. The Partnership currently owns
assets in Virginia, which state imposes a personal income tax. As management makes acquisitions or expand our business, the Partnership
may own assets or do business in additional states that impose a personal income tax or that impose entity level taxes to which
the Partnership could be subject. It is a Unitholders responsibility to file all United States federal, foreign, state and local
tax returns.
A Unitholder whose Common Units are
loaned to a “short seller” to cover a short sale of Common Units may be considered as having disposed of those units.
If so, he would no longer be treated for tax purposes as a partner with respect to those Common Units during the period of the
loan and may recognize gain or loss from the disposition.
Because a Unitholder
whose Common Units are loaned to a “short seller” to cover a short sale of Common Units may be considered as having
disposed of the loaned units, he may no longer be treated for tax purposes as a partner with respect to those units during the
period of the loan to the short seller and the Unitholder may recognize gain or loss from such disposition. Moreover, during the
period of the loan to the short seller, any of our income, gain, loss or deduction with respect to those Common Units may not be
reportable by the Unitholder and any cash distributions received by the Unitholder as to those units could be fully taxable as
ordinary income. Our counsel has not rendered an opinion regarding the treatment of a Unitholder where Common Units are loaned
to a short seller to cover a short sale of Common Units; therefore, Unitholders desiring to assure their status as partners and
avoid the risk of gain recognition from a loan to a short seller are urged to modify any applicable brokerage account agreements
to prohibit their brokers from loaning their Common Units.
The Partnership may adopt certain
valuation methodologies that may result in a shift of income, gain, loss and deduction between the General Partner and the Unitholders.
The IRS may successfully challenge this treatment, which could adversely affect the value of Common Units.
When the Partnership
issues additional Common Units or engages in certain other transactions, the Partnership will determine the fair market value of
its assets and allocate any unrealized gain or loss attributable to its assets to the capital accounts of Unitholders and the holders
of the incentive distribution rights. The Partnership’s methodology may be viewed as understating the value of its assets.
In that case, there may be a shift of income, gain, loss and deduction between certain Unitholders and the General Partner, which
may be unfavorable to such Unitholders. Moreover, subsequent purchasers of Common Units may have a greater portion of their Internal
Revenue Code Section 743(b) adjustment allocated to Partnership tangible assets and a lesser portion allocated to Partnership intangible
assets. The IRS may challenge Partnership methods, or allocations of the Section 743(b) adjustment attributable to Partnership
tangible and intangible assets, and allocations of income, gain, loss and deduction between the General Partner and certain Unitholders.
A successful IRS challenge
to these methods or allocations could adversely affect the amount of taxable income or loss being allocated to Unitholders. It
also could affect the amount of gain from the Unitholders’ sale of Common Units and could have a negative impact on the value
of the Common Units or result in audit adjustments to the Unitholders’ tax returns without the benefit of additional deductions.
The sale or exchange of 50% or more
of Partnership capital and profits interests during any 12-month period will result in the termination of the Partnership for federal
income tax purposes.
If the Partnership
experiences a technical termination under Treas. Reg. § 1.708-1(b)(1)(B), the Partnership would be required to file separate
tax returns for each period, including Schedule K-1. The IRS has announced a relief procedure whereby a publicly traded partnership
that has technically terminated can request publicly traded partnership termination relief. If, upon application, the IRS grants
such relief, the partnership will have additional time to file its short period tax year returns to a maximum period which mirrors
the required due date of the partnership’s end of year tax return. This relief is based on the difficulty that publicly traded
partnerships have in identifying their limited partners which is dependent on information obtained from brokerage companies that
are not provided until after the end of the calendar year. There is no assurance that such relief would be granted and that the
extended filing due date granted will mirror the partnerships filing due date for its end of year tax return. If relief is not
granted as requested, the Partnership would be subject to additional costs for the preparation and filing of the additional tax
return and Schedule K-1.
Compliance with and changes in tax
laws could adversely affect our performance.
The Partnership is
subject to extensive tax laws and regulations, including federal, state, and foreign income taxes and transactional taxes such
as excise, sales/use, payroll, franchise, and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and
regulations are continuously being enacted that could result in increased tax expenditures in the future. Many of these tax liabilities
are subject to audits by the respective taxing authority. These audits may result in additional taxes as well as interest and penalties.
Item 1B. Unresolved Staff Comments.
None.
Item 3. Legal Proceedings.
VOSH Actions
On July 25, 2005, an
equipment failure during the loading of nitric acid from a railcar to a tanker truck resulted in a release of nitric acid and injury
to an employee of Regional. Cleanup costs totaled approximately $380,000 in 2005 and were covered entirely by reimbursement from
Regional’s insurance carrier. Several lawsuits against Regional were filed by property owners in the area. All of these suits
were settled for an aggregate amount of $115,000, which was within insurance coverage limits. The Virginia Department of Labor
and Industry, Occupational Safety and Health Compliance (“VOSH”) issued a citation against Regional on October
7, 2005 seeking a fine of $4,500. Regional requested withdrawal of the citation and disputed the basis for the citation and the
fine. On June 18, 2007, the Commissioner of Labor and Industry filed suit against Regional in the Circuit Court for the City of
Hopewell for collection of the unpaid fine. The citation arose from allegations that Regional had failed to evaluate properly the
provision and use of employer-supplied equipment. During September 2012, the Court dismissed the citations after a bench
trial. In January 2013, the final order in the matter was issued by the Court. VOSH did not request an appeal of the decision by
the required due date.
On November 27, 2005,
an employee of Regional died following inhalation of turpentine vapors. Under Virginia law, recovery by the deceased employee’s
estate was limited to a workers compensation claim, which was closed on April 20, 2007 for the amount of $11,000. The Virginia
Department of Labor and Industry, Occupational Safety and Health Compliance issued a citation against Regional on May 24, 2006
seeking a fine of $28,000. Regional requested withdrawal of the citation and disputed the basis for the citation and the fine.
The amount of the fine is not covered by insurance. On June 18, 2007, the Commissioner of Labor and Industry for the Commonwealth
of Virginia filed suit against Regional in the Circuit Court for the City of Hopewell for collection of the unpaid fine. There
were four citations involved in the case referenced above.
One of the citations
arose from the Commissioner's allegations that Regional had exposed this employee to levels of hydrogen sulfide gas in excess of
the levels permitted by applicable regulations. Another citation arose from the Commissioner's allegations that Regional had not
provided respiratory protection equipment needed to protect this employee from hazards in the workplace. The other two citations
arose from the Commissioner's allegations that Regional had not evaluated the need for respiratory equipment in this work environment
and had not evaluated the need to create a confined-space permit entry system for the employee's work in taking a sample of turpentine
from the top of the railcar. During September 2012, the Court dismissed the first two citations after a bench trial. The Court
subsequently dismissed the remaining two citations. In April 2013, the final order in the matter was issued by the Court.
VOSH did not request an appeal of the decision by the required due date.
TransMontaigne Dispute
Rio Vista Operating
Partnership L.P. (“RVOP”) is a subsidiary of the Partnership which held liquid petroleum gas assets located
in southern Texas and northern Mexico contributed (“LPG Assets”) to it by Penn Octane Corporation upon formation
of the Partnership. It sold all of the LPG Assets to TransMontaigne in two separate transactions. The first transaction included
the sale of substantially all of its U.S. assets, including a terminal facility and refined products tank farm located in Brownsville,
Texas and associated improvements, leases, easements, licenses and permits, an LPG sales agreement and its LPG inventory in August
2006. In a separate transaction, RVOP sold its remaining LPG Assets to affiliates of TransMontaigne, including Razorback L.L.C.
(“Razorback”) and TMOC Corp., in December 2007. These assets included the U.S. portion of two pipelines from
the Brownsville terminal to the U.S. border with Mexico, along with all associated rights-of-way and easements and all of the rights
for indirect control of an entity owning a terminal site in Matamoros, Mexico. The Purchase and Sale Agreement dated December 26,
2007 (“Purchase and Sale Agreement”) between Razorback and RVOP provided for working capital adjustments and
indemnification under certain circumstances.
In connection with
previous demands for indemnification by Razorback received by RVOP under the Purchase and Sale Agreement, RVOP and certain of its
affiliated parties (“Seller Affiliates”) and Razorback and certain of its affiliated parties (“Buyer
Affiliates”) executed a Compromise Settlement Agreement and General Release (“Settlement Agreement”)
effective as of October 14, 2013. Under the terms of the Settlement Agreement, the Seller Affiliates paid $125,000 to Razorback
in full satisfaction of all claims asserted by Razorback or Buyer Affiliates against RVOP or Seller Affiliates as of the date of
the Settlement Agreement or any future claims that may be asserted by Razorback or any of the Buyer Affiliates against RVOP or
any of the Seller’s Affiliates other than the claim asserted against Razorback by Cardenas Development Co. (“Cardenas
Claim”). RVOP remains responsible for any Losses (as defined in the Settlement Agreement) resulting from the Cardenas
Claim in an amount not to exceed $50,000 (“Contingent Payment”). In connection with the Settlement Agreement,
each of the parties released each other from any other future claims that may arise as a result of the Purchase and Sale Agreement
(except for the Contingent Payment). For the year ended December 31, 2013, RVOP has recorded other income of approximately $108,000
representing the reduction of accrued reserve amounts to reflect RVOP’s maximum remaining exposure under the Settlement Agreement
of $50,000.
SGR Energy LLC
On July 1, 2013, Regional
filed suit in the United States District Court for the Eastern District of Virginia, “Regional Enterprises, Inc. v. SGR Energy,
LLC, Civil Action No. 3:13v418” (“Litigation”) in connection with SGR Energy, LLC’s (“SGR”)
failure to make the required payments due to Regional under the terms of a services agreement between the parties pursuant to which
Regional stores and transports product for SGR. In connection with the Litigation, Regional was seeking payment of all amounts
owing under the services agreement including the costs associated with removal of the product stored at Regional’s facilities
on behalf of SGR and the cleanup of the facilities as provided for under the terms of the services agreement.
On August 16, 2013,
SGR filed an answer and counterclaim to the Litigation (“Counterclaim”), which denied certain claims made by
Regional in the Litigation and made counter claims against Regional including, breach of contract and tortuous interference with
contract. SGR was seeking actual and compensatory damages.
On August 20, 2013,
Regional and SGR entered into a Settlement and Mutual Release agreement (“Settlement Agreement”). Under the
terms of the Settlement Agreement, SGR agreed to make payments to Regional of all past due amounts in exchange for Regional agreeing
to release the product from storage. SGR also agreed to place proceeds to be received from the sale of the product in the amount
of $290,000 (“Escrow Amount”) into an escrow account to be distributed by an escrow agent (“Escrow
Agent”) in accordance with the Settlement Agreement.
The Escrow Amount was
to be used to secure SGR’s obligation to clean and vacate the tank by October 1, 2013, and the payment of the minimum rents
as prescribed under the services agreement, which provide for rents to continue until the time that SGR has satisfactorily completed
the cleanup of the facilities and vacated the tank. In connection with the Settlement Agreement, SGR and Regional agreed to dismiss
the Litigation and Counterclaim without prejudice by agreed stipulation. SGR did not make all of the payments required and did
not clean and vacate the tank as prescribed under the Settlement Agreement, and the Escrow Agent did not distribute the Escrow
Amount to Regional as prescribed under the Settlement Agreement.
On October 15, 2013,
Regional, SGR and the Escrow Agent entered into a final settlement and mutual release agreement (“Final Release”)
whereby the parties agreed that Regional would receive $250,000 of the Escrow Amount and SGR would receive $40,000 of the Escrow
Amount. In addition, Regional agreed to be responsible for cleaning the tank, although SGR agreed that it would accept responsibility
as the generator of any wastes which were collected and disposed of in connection with the cleaning of the facilities and the services
agreement was terminated. Under the terms of the Final Release, all parties provided full releases to each other. The Escrow Amount
received by Regional was sufficient to cover all the costs required to complete the cleaning of the tank, all amounts owing from
SGR as of the date of the Final Release, and to pay the costs of litigation which Regional incurred in connection with the aforementioned
litigation.
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 that the above matter was under review. A telephonic meeting took place
in January 2013 whereby the appeals unit determined that Regional did not meet the conditions of a terminal operator which handled
taxable fuels and that the matter was dismissed. During March 2013, Regional received formal notification from the IRS that the
matter was dismissed with no further action required by Regional. 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.
Other
The Partnership and
its subsidiaries may be involved with other proceedings, lawsuits and claims in the ordinary course of its business. We believe
that the liabilities, if any, ultimately resulting from such proceedings, lawsuits and claims should not materially affect our
consolidated financial results.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Partnership’s
Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities.
Common Units
The Partnership’s
Common Units are listed to trade on OTC Pink under the ticker symbol “ENGY”. The following table sets forth the reported
high “ask” and low “bid” quotations of the Common Units for the periods indicated. Such quotations reflect
inter-dealer prices, without retail mark-ups, mark-downs or commissions and may not necessarily represent actual transactions.
| | |
LOW | | |
HIGH | |
| The year ended December 31, 2014: | |
| | | |
| | |
| First Quarter | |
$ | 0.06 | | |
$ | 0.11 | |
| Second Quarter | |
$ | 0.05 | | |
$ | 0.14 | |
| Third Quarter | |
$ | 0.05 | | |
$ | 0.14 | |
| Fourth Quarter | |
$ | 0.05 | | |
$ | 0.30 | |
| | |
LOW | | |
HIGH | |
| The year ended December 31, 2013: | |
| | | |
| | |
| First Quarter | |
$ | 0.03 | | |
$ | 0.14 | |
| Second Quarter | |
$ | 0.04 | | |
$ | 0.14 | |
| Third Quarter | |
$ | 0.04 | | |
$ | 0.14 | |
| Fourth Quarter | |
$ | 0.06 | | |
$ | 0.28 | |
On March 5, 2015,
the closing bid price of the Common Units as reported on OTC Pink was $0.06 per Common Unit. On March 5, 2015, the Partnership
had 19,591,482 Common Units outstanding and approximately 255 holders of record of the Common Units.
Distributions
The Partnership Agreement
provides for minimum quarterly distributions to its Unitholders of $0.25 per Common Unit. The Partnership has not made distributions
to its Limited Partners or the General Partner in any amount since August 18, 2008 for the quarter ended June 30, 2008.
Since the Sale, the members of the General Partner have held more than 80% of the total issued and outstanding Common Units of
the Partnership and, therefore, control any Limited Partner vote on Partnership matters. In December 2010, the General Partner
and Unitholders holding more than a majority in interest of the Common Units of the Partnership approved an amendment to the Partnership
Agreement to provide that the Partnership was no longer obligated to make distributions of “Common Unit Arrearage”
or “Cumulative Common Unit Arrearages” pursuant to the terms of the Partnership Agreement in respect of any quarter
prior to the quarter beginning October 1, 2011. The impact of this amendment was that the Partnership was no longer obligated to
Unitholders for unpaid minimum quarterly distributions prior to the quarter beginning October 1, 2011 and Unitholders would only
be entitled to minimum quarterly distributions arising from the quarter beginning October 1, 2011 and thereafter. This amendment
was incorporated into the Partnership Agreement in April 2011.
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 more than 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 The ability of the Partnership to make distributions will be impacted by many factors including the ability
to stabilize operations at Regional, successfully complete an accretive acquisition, the financing terms of debt and/or equity
proceeds received to fund ongoing Company operations and/or an acquisition, and the overall success of the Partnership and its
operating subsidiaries.
The Partnership currently
does not have sufficient available cash to resume making any minimum quarterly distributions to its Partners. Furthermore, the
Partnership does not foresee the ability to make distributions to its Partners in the near future. Currently the General Partner’s
cash reserves are limited and the remaining available amounts (approximately $288,000 at March 15, 2015) are intended to be used
to fund the Partnership’s ongoing working capital requirements and expenses, including the necessary funding of working capital
for Regional. The use of Regional’s available cash from operations is restricted as a result of the payments required on
the Hopewell Note and the Penske Lease Agreement, funding of required upgrades to its facilities, funding of other working capital
deficits and the required ongoing maintenance of its facilities. 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. As a result, after Partnership expenses, there is no cash available for distribution to the Partners.
Securities Authorized for Issuance
Under Equity Compensation Plans
Please see “Item
11. Executive Compensation – Securities Authorized for Issuance under Equity Compensation Plans” for information
regarding the number of securities to be issued under outstanding options, warrants and other rights, the weighted-average exercise
price of outstanding options, warrants and rights, and the number of securities available for future issuance under equity compensation
plans.
Item 6. Selected Financial Data.
Not applicable
Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
The following discussion of the Partnership’s
liquidity and capital resources should be read in conjunction with the consolidated financial statements of the Partnership and
related notes thereto appearing elsewhere herein. References to specific years preceded by “fiscal” (e.g. fiscal 2014)
refer to the Partnership’s fiscal year ending December 31.
Current Assets and Operations
Regional Acquisition
On July 27 2007, the
Partnership acquired the business of Regional Enterprises, Inc., a Virginia corporation. 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 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 23
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 operated a trans-loading facility in Johnson City, Tennessee, with six rail car slots until March 31,
2013. Regional also provides transportation services to customers for products which don’t originate at any of Regional’s
terminal facilities. 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.
The Partnership funded
the acquisition of Regional using the proceeds of a $5 million loan from RB International Finance (USA) LLC, formerly known as
RZB Finance LLC (the “RZB Loan”), the proceeds from a $2.5 million loan from the Partnership, the issuance of
a $1 million note to the seller and available cash. The seller’s note was satisfied in full on August 27, 2009 in connection
with the settlement of a dispute regarding adjustments due on the purchase price of Regional by the Partnership. During March 2013,
Regional completed the Hopewell Loan and used proceeds from the Hopewell Loan to repay the RZB Loan in full. Please see “Item
8. Financial Statements and Supplementary Data - Note F to the Audited Consolidated Financial Statements” for further
details regarding the RZB Loan.
Recent Developments
On November 17,
2010, the Partnership, Penn Octane Corporation (the founding entity of the Partnership) 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,
as amended. At closing, the Partnership sold 12,724,019 Common Units to Central Energy, LP, an Affiliate of the members of the
General Partner, for $3,950,000 and Penn Octane sold 100% of the limited liability company interests in the General Partner to
Central Energy, LP for $150,000 (the “Sale”).
Since the Sale, the
General Partner’s management has regained and has maintained compliance with the Partnership’s securities and tax reporting
obligations. Since the second half of 2011, 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 several different midstream assets and entered into significant discussions for the purchase
of certain 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 acquisition opportunity, management
of the General Partner believed that the successful bids exceeded the value of the assets.
Since May 2009, the
Partnership’s sole operating subsidiary has been Regional. 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 corporate 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 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. Those funds were exhausted by
September 2012. During October 2012, the General Partner raised $600,000 for the purpose of covering general overhead by the sale
of membership interests to its existing members, which were sufficient in amount to cover such overhead for a six-month period
with the intent of completing an acquisition within that time frame. Management was unsuccessful in identifying an acquisition,
and by June 2013, the Partnership and Regional had exhausted all available cash resources.
On November 26, 2013,
the Partnership, the General Partner and CEGP Acquisition, LLC (“CEGP”) executed a definitive Purchase and Sale
Agreement (“PSA”) and certain other transaction documents providing for: (1) the sale of a 55% interest in the
General Partner to CEGP through the purchase of newly issued membership interests of the General Partner by CEGP and the issuance
of 3,000,000 Common Units to CEGP; (2) the issuance of performance warrants that provide the holders thereof with the opportunity,
but not the obligation, to acquire, in the aggregate, an additional 3,000,000 Common Units at an exercise price of $0.093478, subject
to adjustment, in the event the Partnership successfully completes one or more asset acquisition transactions with an aggregate
gross purchase price of at least $20 million within 12 months after closing which have now expired (“Performance Warrants”);
(3) amending and restating the Registration Rights Agreement; (4) amending and restating the Company Agreement; and (5) amending
and restating the Partnership Agreement. The aggregate purchase price for the 55% membership interest in the General Partner, the
issuance of the 3,000,000 Common Units and the Performance Warrants was $2,750,000 (the “Purchase Price”). At
the closing of the transaction, net proceeds of $2,350,000 were delivered to the General Partner and the Partnership (the Purchase
Price less credits totaling $400,000 for prior payments received on July 19, 2013 and August 19, 2013 by the Partnership in connection
with stand-still agreements in place until the execution of the PSA. Of the total Purchase Price, the amount of $280,434 was allocated
to the price paid for the 3,000,000 Common Units and $2,469,566 was allocated to the value of the 55% membership interest in the
General Partner, which was represented by 136,888.89 units issued to CEGP.
The PSA also provided,
as a condition to closing, (a) the execution of a general release of claims in favor of the General Partner by Messrs. Imad K.
Anbouba, Chief Executive Officer and President of the General Partner, and Carter R. Montgomery, Executive Vice President
of Corporate Development of the General Partner, in exchange for the payment of (1) 20% of the accrued but unpaid salaries
and business expenses of Messrs. Anbouba and Montgomery and (2) the severance payment of $240,000 owed to each such officer
under the terms of their respective employment agreements in connection with a “change of control” event, (b) the payment
to Mr. Ian T. Bothwell, Executive Vice President and Secretary of the General Partner for all accrued but unpaid salary
and business expenses, as well as all accrued and unpaid office rent associated with the agreement between the General Partner
and Rover Technologies, LLC, an affiliate of Mr. Bothwell, for the lease of office space in Manhattan Beach, California, where
he resides, as of the date of the PSA, (c) the termination of the existing Buy-Sell Agreement between The Cushing MLP Opportunity
Fund I, L.P. and Messrs. Anbouba and Montgomery, (d) the appointment of G. Thomas Graves III as Chairman of the Board of Directors
and John L. Denman, Jr. as the Chief Executive Officer and President of the General Partner, and (e) reconstituting the Board of
Directors of the General Partner to nine (9) members, five (5) of which are to be appointed by CEGP.
CEGP now holds 55%
of the issued and outstanding membership interests in the General Partner, and appoints five (5) of the nine (9) members of the
Board of the General Partner. As a result, CEGP controls the General Partner. In addition, CEGP holds 3,000,000 Common Units, which
represent 15.3% of the issued and outstanding Common Units of the Partnership. Prior to execution of the PSA, Messrs. Imad K. Anbouba
and Carter R. Montgomery and The Cushing MLP Opportunity Fund I, L.P. controlled the General Partner and had controlling authority
over the Partnership. CEGP is a Texas limited liability company controlled by Messrs. Denman and Graves. Upon the execution of
the PSA, Mr. Denman replaced Mr. Imad K. Anbouba as CEO and President of the General Partner, and Mr. Graves was appointed as the
Chairman of the Board of the General Partner.
Results of Operations
The results of operations
from continuing operations during the years ended December 2013 and 2014 reflect the results associated with Regional’s storage,
trans-loading and transportation business of refined petroleum and petrochemical products and all indirect income and expenses
of the Partnership. For the years ended December 31, 2012, 2013 and 2014, Regional’s revenues were divided as set forth below.
All dollar amounts are in thousands.
| Quarters For Year ended 2012 | |
Year ended | |
| | |
March 31 | | |
June 30 | | |
September 30 | | |
December 31 | | |
December 31, 2012 | |
| | |
Revenue | | |
% | | |
Revenue | | |
% | | |
Revenue | | |
% | | |
Revenue | | |
% | | |
Revenue | | |
% | |
| Hauling | |
$ | 838 | | |
| 64 | % | |
$ | 852 | | |
| 65 | % | |
$ | 981 | | |
| 67 | % | |
$ | 947 | | |
| 68 | % | |
$ | 3,564 | | |
| 65 | % |
| Storage | |
| 323 | | |
| 25 | % | |
| 358 | | |
| 27 | % | |
| 336 | | |
| 23 | % | |
| 337 | | |
| 24 | % | |
| 1,355 | | |
| 25 | % |
| Terminal | |
| 140 | | |
| 11 | % | |
| 99 | | |
| 8 | % | |
| 149 | | |
| 10 | % | |
| 107 | | |
| 8 | % | |
| 548 | | |
| 10 | % |
| Other | |
| — | | |
| 0 | % | |
| — | | |
| 0 | % | |
| — | | |
| 0 | % | |
| 3 | | |
| 0 | % | |
| 3 | | |
| 0 | % |
| Total | |
$ | 1,301 | | |
| 100 | % | |
$ | 1,309 | | |
| 100 | % | |
$ | 1,466 | | |
| 100 | % | |
$ | 1,394 | | |
| 100 | % | |
$ | 5,470 | | |
| 100 | % |
| Quarters For Year ended 2013 | |
Year ended | |
| | |
March 31 | | |
June 30 | | |
September 30 | | |
December 31 | | |
December 31, 2013 | |
| | |
Revenue | | |
% | | |
Revenue | | |
% | | |
Revenue | | |
% | | |
Revenue | | |
% | | |
Revenue | | |
% | |
| Hauling | |
$ | 778 | | |
| 59 | % | |
$ | 579 | | |
| 52 | % | |
$ | 499 | | |
| 48 | % | |
$ | 521 | | |
| 41 | % | |
$ | 2,362 | | |
| 50 | % |
| Storage | |
| 441 | | |
| 34 | % | |
| 442 | | |
| 39 | % | |
| 446 | | |
| 43 | % | |
| 488 | | |
| 38 | % | |
| 1,817 | | |
| 38 | % |
| Terminal | |
| 98 | | |
| 7 | % | |
| 87 | | |
| 8 | % | |
| 95 | | |
| 9 | % | |
| 248 | | |
| 19 | % | |
| 541 | | |
| 11 | % |
| Other | |
| — | | |
| 0 | % | |
| 11 | | |
| 1 | % | |
| 2 | | |
| 0 | % | |
| 27 | | |
| 2 | % | |
| 30 | | |
| 1 | % |
| Total | |
$ | 1,317 | | |
| 100 | % | |
$ | 1,119 | | |
| 100 | % | |
$ | 1,042 | | |
| 100 | % | |
$ | 1,284 | | |
| 100 | % | |
$ | 4,750 | | |
| 100 | % |
| Quarters For Year ended 2014 | |
Year ended | |
| | |
March 31 | | |
June 30 | | |
September 30 | | |
December 31 | | |
December 31, 2014 | |
| | |
Revenue | | |
% | | |
Revenue | | |
% | | |
Revenue | | |
% | | |
Revenue | | |
% | | |
Revenue | | |
% | |
| Hauling | |
$ | 552 | | |
| 43 | % | |
$ | 467 | | |
| 37 | % | |
$ | 744 | | |
| 51 | % | |
$ | 457 | | |
| 42 | % | |
$ | 2,220 | | |
| 44 | % |
| Storage | |
| 506 | | |
| 39 | % | |
| 544 | | |
| 44 | % | |
| 606 | | |
| 42 | % | |
| 566 | | |
| 53 | % | |
| 2,222 | | |
| 44 | % |
| Terminal | |
| 239 | | |
| 18 | % | |
| 239 | | |
| 19 | % | |
| 106 | | |
| 7 | % | |
| 51 | | |
| 5 | % | |
| 635 | | |
| 12 | % |
| Other | |
| — | | |
| 0 | % | |
| — | | |
| 0 | % | |
| — | | |
| 0 | % | |
| — | | |
| 0 | % | |
| — | | |
| 0 | % |
| Total | |
$ | 1,297 | | |
| 100 | % | |
$ | 1,250 | | |
| 100 | % | |
$ | 1,456 | | |
| 100 | % | |
$ | 1,074 | | |
| 100 | % | |
$ | 5,077 | | |
| 100 | % |
Set forth below are the
comparative results of Central’s operations for the years ended December 31, 2012, 2013 and 2014, including corporate overhead.
All numbers are in thousands.
Year Ended December 31, 2014 Compared With
Year Ended December 31, 2013
(All amounts in thousands)
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Change
Twelve Months Ended | |
| | |
Twelve
Months Ended | | |
Twelve
Months Ended | | |
December
31, 2014 versus | |
| | |
December
31, 2014 | | |
December
31, 2013 | | |
December
31, 2013 | |
| | |
Regional | | |
Corporate | | |
Total | | |
Regional | | |
Corporate | | |
Total | | |
Regional | | |
Corporate | | |
Total | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Revenues | |
$ | 5,077 | | |
$ | - | | |
$ | 5,077 | | |
$ | 4,750 | | |
$ | - | | |
$ | 4,750 | | |
$ | 327 | | |
$ | - | | |
$ | 327 | |
| Costs Of Goods Sold | |
| 4,102 | | |
| - | | |
| 4,102 | | |
| 3,986 | | |
| - | | |
| 3,986 | | |
| 116 | | |
| - | | |
| 116 | |
| Gross Profit | |
| 975 | | |
| - | | |
| 975 | | |
| 764 | | |
| - | | |
| 764 | | |
| 211 | | |
| - | | |
| 211 | |
| Selling, General and Administrative
Expenses | |
| 1,049 | | |
| 106 | | |
| 1,155 | | |
| 1,473 | | |
| (375 | ) | |
| 1,098 | | |
| (424 | ) | |
| 481 | | |
| 57 | |
| Operating Income (Loss) | |
| (74 | ) | |
| (106 | ) | |
| (180 | ) | |
| (709 | ) | |
| 375 | | |
| (334 | ) | |
| 635 | | |
| (481 | ) | |
| 154 | |
| Interest Expense, net | |
| (318 | ) | |
| (244 | ) | |
| (562 | ) | |
| (375 | ) | |
| (30 | ) | |
| (405 | ) | |
| 57 | | |
| (214 | ) | |
| (157 | ) |
| Income (Loss) Before Taxes | |
| (392 | ) | |
| (350 | ) | |
| (742 | ) | |
| (1,084 | ) | |
| 345 | | |
| (739 | ) | |
| 692 | | |
| (695 | ) | |
| (3 | ) |
| Provision (Benefit) For
Income Taxes | |
| (458 | ) | |
| - | | |
| (458 | ) | |
| (218 | ) | |
| - | | |
| (218 | ) | |
| 240 | | |
| - | | |
| 240 | |
| Net Income (Loss) | |
$ | 66 | | |
$ | (350 | ) | |
$ | (284 | ) | |
$ | (866 | ) | |
$ | 345 | | |
$ | (521 | ) | |
$ | 932 | | |
$ | (695 | ) | |
$ | 237 | |
Revenues. Regional’s
revenues for the year ended December 31, 2014 were $5.1 million compared with $4.8 million for the year ended December 31, 2013,
an increase of $0.3 million (6.9%). The increase in revenues was the result of an increase in storage revenues of $0.4 million
(22.3%). Storage revenues increased during the year ended December 31, 2014 due to Regional’s storage facilities being at
full utilization capacity during the last half of the year.
Cost of Goods Sold.
Regional’s cost of goods sold for the year ended December 31, 2014 was $4.1 million compared with $4.0 million for the year
ended December 31, 2013, an increase of $0.1 million (2.9%). The slight increase in cost of goods sold was in line with the increase
in revenues during the same period.
Selling, General and
Administrative Expenses. Selling, general and administrative expenses (“SG&A”) for Regional during the
year ended December 31, 2014 were $1.0 million compared with $1.5 million for the year ended December 31, 2013. The decrease was
the result of lower professional fees. During 2013, professional fees were incurred in connection with the closing and subsequent
financings under the Hopewell Loan, litigation costs and higher securities laws compliance costs in 2013.
The decrease in SG&A
expenses for Regional of $0.5 million during the year ended December 31, 2014 compared with the same period one year earlier was
principally due to the net reduction of tax penalties assessed as a result of the abatement of penalties totaling $1.0 million
during the year ended December 31, 2013. Excluding the abatement of penalties, SG&A was actually $0.5 million lower during
2014. The decrease was the result of lower professional fees during 2014 along with the write-off of approximately $0.3 million
of payables owed by RVOP that have passed the applicable statute of limitations and will not be paid.
Year Ended December 31, 2013 Compared With
Year Ended December 31, 2012
(all amounts in thousands)
| | |
| | |
| | |
Change
Twelve Months Ended | |
| | |
Twelve
Months Ended | | |
Twelve
Months Ended | | |
December
31, 2013 versus | |
| | |
December
31, 2013 | | |
December
31, 2012 | | |
December
31, 2012 | |
| | |
Regional | | |
Corporate/ | | |
| | |
Regional | | |
Corporate/ | | |
| | |
Regional | | |
Corporate/ | | |
| |
| | |
Enterprises | | |
Other | | |
Total | | |
Enterprises | | |
Other | | |
Total | | |
Enterprises | | |
Other | | |
Total | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Revenues | |
$ | 4,750 | | |
$ | - | | |
$ | 4,750 | | |
$ | 5,470 | | |
$ | - | | |
$ | 5,470 | | |
$ | (719 | ) | |
$ | - | | |
$ | (719 | ) |
| Costs Of Goods Sold | |
| 3,986 | | |
| - | | |
| 3,986 | | |
| 4,978 | | |
| - | | |
| 4,978 | | |
| (992 | ) | |
| - | | |
| (992 | ) |
| Gross Profit | |
| 764 | | |
| - | | |
| 764 | | |
| 491 | | |
| - | | |
| 491 | | |
| 273 | | |
| - | | |
| 273 | |
| Selling, General and Administrative
Expenses | |
| 1,473 | | |
| (375 | ) | |
| 1,098 | | |
| 1,281 | | |
| 670 | | |
| 1,951 | | |
| 192 | | |
| (1,044 | ) | |
| (852 | ) |
| Operating Income (Loss) | |
| (709 | ) | |
| 375 | | |
| (334 | ) | |
| (790 | ) | |
| (670 | ) | |
| (1,460 | ) | |
| 81 | | |
| 1,044 | | |
| 1,125 | |
| Interest Expense, Net | |
| (376 | ) | |
| (30 | ) | |
| (405 | ) | |
| (192 | ) | |
| (10 | ) | |
| (202 | ) | |
| (184 | ) | |
| (20 | ) | |
| (204 | ) |
| Gain On Sale Of Tractors | |
| - | | |
| - | | |
| - | | |
| 256 | | |
| - | | |
| 256 | | |
| (256 | ) | |
| - | | |
| (256 | ) |
| Income (Loss) Before Taxes | |
| (1,085 | ) | |
| 345 | | |
| (739 | ) | |
| (727 | ) | |
| (679 | ) | |
| (1,406 | ) | |
| (358 | ) | |
| 1,024 | | |
| 666 | |
| Provision (Benefit) For
Income Taxes | |
| (218 | ) | |
| - | | |
| (218 | ) | |
| (378 | ) | |
| - | | |
| (378 | ) | |
| 160 | | |
| - | | |
| 160 | |
| Net Income (Loss) | |
$ | (866 | ) | |
$ | 345 | | |
$ | (521 | ) | |
$ | (349 | ) | |
$ | (679 | ) | |
$ | (1,028 | ) | |
$ | (518 | ) | |
$ | 1,024 | | |
$ | 506 | |
Revenues. Regional’s
revenues for the year ended December 31, 2013 were $4.8 million compared with $5.5 million for the year ended December 31, 2012,
a decrease of $0.7 million (13.1%). The decrease in revenues was the result of a decrease in hauling revenues of $1.2 million (33.7%),
partially offset by an increase in storage revenues of $0.5 million (34.1%) during the year ended December 31, 2013. Hauling revenues
declined during the year ended December 31, 2013 due to increased competition, the reduction in available drivers, the reduction
of hauling revenues due to the closure of the Johnson City, TN facility, and the closure of certain customer facilities for maintenance.
The increase in storage revenues was due to higher tank utilization under contracts resulting from a storage tank being fully utilized
during the year ended December 31, 2013 although the same tank was idle throughout the year ended December 31, 2012. This increase
was partially offset by (i) reduced storage revenues associated with an asphalt storage tank being taken out of service in April
2012 due to leakage and not being put back into service until November 2013 after extensive repairs, and (ii) the transition of
one tank customer to another tank customer which effectively did not generate revenues during December 2013.
Cost of Goods Sold.
Regional’s cost of goods sold for the year ended December 31, 2013 were $4.0 million compared with $5.0 million for the year
ended December 31, 2012, a decrease of $1.0 million (19.1%). The cost of goods sold during the year ended December 31, 2012 included
higher costs associated with the cost of repairs to the asphalt storage tank, the cost of terminating the Penske Lease Agreement
with respect to five tractors, and maintenance and improvements to terminal assets over the year ended December 31, 2013. Costs
of goods sold related to storage and terminal services did not increase despite the increase in related revenues as the storage
and terminal business has mostly fixed costs to operate. The reduction in cost of goods sold was also attributable to the reduced
hauling revenues during the year ended December 31, 2013 compared with December 31, 2012, partially offset from increased prices
paid for fuel and the fixed cost portion of the newly entered Penske Truck Lease which was entered into in June 2012.
Selling, General and
Administrative Expenses. SG&A for Regional during the year ended December 31, 2013 was $1.5 million compared with $1.3
million for the year ended December 31, 2012. The increase was the result of higher professional fees incurred in connection with
the closing and subsequent financings under the Hopewell Loan, litigation costs and compliance costs, partially offset by reduction
of penalties and interest as a result of the abatement of tax penalties during the year ended December 31, 2013 compared with the
year ended December 31, 2012.
The decrease in SG&A
expenses for the Partnership of $1.0 million during the year ended December 31, 2013 compared with the same period one year earlier
was principally due to the net reduction of tax penalties assessed as a result of the abatement of penalties totaling $1.0 million
during the year ended December 31, 2013, decreased professional fees incurred by the Partnership and increased allocations of insurance
related costs to Regional by the Partnership during the year ended December 31, 2013, partially offset by increased salary and
payroll related expenses in connection with the CEGP Investment.
Liquidity and Capital Resources
Since May 2009, the Partnership’s
sole operating subsidiary has been Regional. 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
corporate 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 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. Those funds were exhausted by September
2012 without the completion of an acquisition.
In September 2012, the
Board of the General Partner recommended the issuance of 12,000 units representing membership interests in the General Partner
(“Units”) at a price of $50.00 per Unit, to raise $600,000 to fund the working capital needs of Central. This
recommendation was approved by the requisite number of members of the General Partner on September 14, 2012, pursuant to the terms
of the Company Agreement of the General Partner. As of October 30, 2012, the offered Units were fully subscribed. The offer of
the Units was made in accordance with Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”).
No placement agent or broker was involved in the transaction. By June 2013, management was unsuccessful in identifying an acquisition,
and the Central had exhausted all available cash resources from operations and advances made by the General Partner from the private
placement of the Units described above.
On November 26, 2013, the
Partnership, the General Partner and CEGP executed a definitive Purchase and Sale Agreement (“PSA”) and certain
other transaction documents which provided for: (1) the sale of a 55% interest in the General Partner to CEGP through the purchase
of newly issued membership interests of the General Partner by CEGP and the issuance of 3,000,000 Common Units to CEGP; (2) the
issuance of performance warrants that provide the holders thereof with the opportunity, but not the obligation, to acquire, in
the aggregate, an additional 3,000,000 Common Units at an exercise price of $0.093478, subject to adjustment, in the event the
Partnership successfully completes one or more asset acquisition transactions with an aggregate gross purchase price of at least
$20 million within 12 months after closing, which have now expired (“Performance Warrants”); (3) amending and
restating the Registration Rights Agreement; (4) amending and restating the Company Agreement; and (5) amending and restating the
Partnership Agreement. The aggregate purchase price for the 55% membership interest in the General Partner, the issuance of the
3,000,000 Common Units and the Performance Warrants was $2,750,000 (the “Purchase Price”). At the closing of
the transaction, net proceeds of $2,350,000 were delivered to the General Partner and the Partnership (the Purchase Price less
credits totaling $400,000 for prior payments received on July 19, 2013 and August 19, 2013 by the Partnership in connection with
stand-still agreements in place until the execution of the PSA. Of the total Purchase Price, the amount of $280,434 was allocated
to the price paid for the 3,000,000 Common Units and $2,469,566 was allocated to the value of the 55% membership interest in the
General Partner, which was represented by 136,888.89 units issued to CEGP.
By August 2014, the proceeds
from the CEGP Investment were essentially exhausted and the Board of the General Partner recommended the issuance of 15,000 Units
of the General Partner at a price of $50.00 per Unit, the proceeds of which were to be used to fund working capital needs of Central.
This recommendation was approved by the requisite number of members of the General Partner on August 7, 2014 pursuant to the terms
of the Company Agreement of the General Partner. As of November 3, 2014, the offered Units were fully subscribed. The offer and
sale of the Units was made in accordance with Section 4(2) of the Securities Act. No placement agent or broker was involved in
the transaction.
As of March 15, 2015, the
General Partner held approximately $288,000 of the proceeds from the private placement of the Units. The remaining amount of the
private placement has been used to pay Partnership expenses and fund working capital requirements of Regional. Advances from the
General Partner to the Partnership were made in the form of a loan as part of the Intercompany Demand Promissory Note made by the
Partnership to the General Partner. The Partnership has then loaned such proceeds to Regional to fund its working capital needs.
See “Advances from General Partner” below for a description of the intercompany notes.
Realization of Assets
The audited consolidated
balance sheets of Central have been prepared in conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of Central as a going concern. However, currently the General Partner’s cash reserves
are limited and the remaining available amounts (approximately $288,000 at March 15, 2015) are intended to be used to fund the
Partnership’s ongoing working capital requirements, including necessary funding of working capital for Regional. In connection
with the Hopewell Note, Regional is currently required to make equal monthly payments of $56,000 (principal and interest) starting
January 2015 until March 2016 at which time a balloon payment of $2,044,000 will be due. Regional also is required to make minimum
monthly payments under the Penske Lease Agreement of approximately $30,000 until May 2019. Payments under the Hopewell Note and
the Penske Lease Agreement could be accelerated in the event of a default. The amount of penalties related to the remaining 2012
Tax Return are $142,000 and will be required to be paid if the Partnership’s appeal is unsuccessful. Since the closing of
the CEGP Investment, Messrs. Denman, Graves and Weir have agreed to forego receipt of any compensation as a result of concerns
over the Partnership’s and the General Partner’s available cash resources. In addition, during December 2013, the President
of Regional agreed to have a portion of his annual salary paid on each anniversary of his employment agreement.
All of Central’s
assets are pledged as collateral for the Hopewell Loan, and therefore, Central is unable to obtain additional financing collateralized
by those assets without repayment of the Hopewell Loan. In addition, the Partnership has obligations under existing registration
rights agreements. These rights may be a deterrent to any future equity financings.
In view of the matters
described in the preceding paragraphs, recoverability of the recorded asset amounts shown in Central’s consolidated balance
sheet assumes that (1) the expected increase in revenues from recent contracts entered into by Regional, including the New Asphalt
Agreement, are realized as currently projected, (2) Regional does not experience any significant disruptions in storage revenues
resulting from the timing of termination of storage tank lease agreements and identifying replacement customers and/or disruptions
resulting from the performance of maintenance, improvements or repairs on its facilities, (3) Regional’s hauling revenues
remain at current levels, (4) obligations to the Partnership’s or Regional’s creditors are not accelerated, (5) there
is adequate funding available to Regional to complete required maintenance, improvements and repairs to its facilities, (6) the
Partnership’s and Regional’s operating expenses remain at current levels, (7) Regional obtains additional working capital
to meet its contractual commitments through future advances by the Partnership or a refinancing of the Hopewell Loan, and/or (8)
the Partnership is able to receive future distributions from Regional or future advances from the General Partner in amounts necessary
to fund working capital until an accretive acquisition or other financing transaction is completed by the Partnership.
There is no assurance that
the Partnership and/or Regional will be able to complete an accretive acquisition transaction or otherwise obtain sufficient working
capital to cover ongoing cash requirements. Without sufficient cash reserves, the Partnership’s ability to pursue additional
acquisition transactions will be adversely impacted. As of March 15, 2015, Central had only $288,000 of available cash to meet
its capital needs. Furthermore, despite significant effort, the Partnership has 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 an acquisition transaction cannot be completed or if additional funds cannot otherwise
be raised and cash flow from Regional’s operations is inadequate, the Partnership and/or Regional would be required to seek
other alternatives which could include the sale of assets, closure of operations and/or protection under the U.S. bankruptcy laws.
Tax Liabilities
The Partnership does not
file a consolidated tax return with Regional since this wholly-owned subsidiary is a state law corporation subject to federal and
state income taxation.
Federal Tax Liabilities
On February 18, 2013, in
response to the IRS’s demand for $160,000 of past due income taxes for the tax year December 2011 and remaining portions
due in connection with $55,000 of penalties and interest owed by Regional for the tax years ended December 2008 and December 2011,
Regional requested from the IRS an installment agreement arrangement and had agreed to make monthly installments of $5,000 until
the time that the installment agreement was approved. During June 2013, Regional filed its 2012 federal income tax return and filed
forms to request a refund of $160,000 of income taxes as a result of the carryback of losses incurred during the 2012 tax year
which effectively eliminated the $160,000 of taxes associated with the December 31, 2011 tax return. During August 2013, the IRS
confirmed to Regional that the recently filed 2012 tax return and application for refund were processed and such amounts were offset
against the amounts reflected as owing to the IRS described above.
Late Filings and Delivery of Schedules K-1
to Unitholders
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 also filed all of the previously delinquent required state partnership
tax returns for the years ended December 31, 2008 and 2009 during 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 IRS previously notified the Partnership that its calculation of
penalties for the delinquent 2008 and 2009 tax returns was approximately $2.5 million.
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 the 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. 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. On January 11, 2013, the Partnership submitted its appeal of the Notice. On February 8, 2013 and June 10, 2013, the
Partnership received notice from the IRS that its request to remove the 2008 and 2009 penalties, respectively, were granted.
During November 2013, the
Partnership received a notice from the IRS that indicated the Partnership was liable for penalties (“2012 IRS Penalties”)
of approximately $296,000 in connection with the late filing of the 2012 federal partnership tax return (“2012 Tax Return”)
and approximately $142,000 in connection with failing to file the 2012 Tax Return electronically. During January 2014, the Partnership
submitted an appeal to the IRS to have the 2012 IRS Penalties removed. On February 25, 2014, the Partnership received written notice
from the IRS that the appeal of the late filing penalty was approved and the appeal of the failure to file the 2012 Tax Return
electronically was denied. The Partnership believes that there existed reasonable cause for the Partnership’s failure to
file the 2012 Tax Return electronically and, as a result, the Partnership has appealed the decision to deny. The IRS has yet to
rule on this appeal. There can be no assurance that the Partnership’s request for relief from the remaining outstanding 2012
IRS Penalties will be approved by the IRS or that the Partnership will have adequate financial resources to pay the remaining outstanding
2012 IRS Penalties. The Partnership has accrued a reserve of $142,000 in connection with the remaining 2012 IRS Penalties.
State Tax Liabilities
During 2013, The Commonwealth
of Virginia, Department of Taxation (“VDOT”) notified Regional that approximately $62,000 and $63,000 of income
tax, penalties and interest related to the tax periods ended October 2006 and July 2007, respectively, were outstanding (“2006
and 2007 Taxes”) and $42,000 of income tax, penalties and interest related to the tax year ended December 31, 2011 (“2011
Taxes”) were also outstanding. During June 2013, Regional made arrangements with the VDOT to pay the 2011 Taxes due in
installments of $6,500 per month until such amounts were fully paid. VDOT had also included approximately $26,000 of sales taxes
owed by Regional as part of this payment arrangement. During June 2013, Regional filed its 2012 Virginia state income tax return
and filed forms to request a refund of $29,000 of state income taxes as a result of the carryback of losses incurred during the
2012 tax year which effectively eliminated the $29,000 of taxes associated with the 2011 Taxes. The VDOT has confirmed to Regional
that the payment amounts owed in connection with the 2011 Taxes were offset by the refund request referred to above and a portion
of the associated penalties and interest were removed. During September 2013, Regional received notice from the VDOT that the amounts
owed in connection with the 2006 and 2007 Taxes were reduced from $125,000 to $40,000. During January 2014, Regional made a payment
arrangement with the VDOT to pay the amounts due in connection with the 2006 and 2007 Taxes through monthly payments of $3,000
beginning February 2014 and continuing until all amounts have been paid. As of December 31, 2013, Regional has accrued $40,000
in connection with the 2006 and 2007 Taxes and $10,000 for estimated Virginia sales and use taxes for the period August 2012 through
December 2013.
During May 2013, the Partnership
received a notice from the State of California Franchise Tax Board (“CAFTB”) that indicated the Partnership
was liable for late filing penalties of approximately $316,000 in connection with the short tax year return (“Short Tax
Year Return”) filed for the period January 1, 2011 through May 26, 2011 as a result of a technical termination that occurred
under Section 708(b) of the Code. The Partnership had previously been granted an extension by the IRS to file the federal Short
Year Tax Return to the time that the Partnership’s 2011 federal tax return would have been due had a technical termination
not occurred. The Partnership filed a request with the CAFTB to have the penalties removed based on the hardship that the IRS had
considered in granting the Partnership its extension for filing the federal Short Tax Year Return. During September 2013, the Partnership
received confirmation from the CAFTB that the penalties were removed.
During the year ended December
31, 2013, the Partnership recorded a net reduction of tax penalties totaling $977,000 in SG&A which is comprised of $1,119,000
related to reductions of the prior accrual of penalties associated with delinquent 2008 and 2009 partnership federal and state
tax returns, partially offset by the additional reserve of $142,000 in connection with the remaining outstanding 2012 IRS Penalties.
The Partnership is required
to deliver Schedules K-1 for the 2014 Tax Year to its Unitholders by April 15, 2015 unless the Partnership applies for an automatic
extension to September 15, 2015, which it intends to do. Regional is required to file its federal and state income tax returns
for the 2014 Tax Year by March 16, 2015 unless the Partnership applies for an automatic extension to September 15, 2015, which
it has done.
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 the IRS’ appeals unit that the above matter was under review. A telephonic meeting took place
in January 2013 whereby the appeals unit determined that Regional did not meet the conditions of a terminal operator which handled
taxable fuels and that the matter was dismissed. During March 2013, Regional received formal notification from the IRS that the
matter was dismissed with no further action required by Regional. 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.
Debt Obligations
RZB Note
In connection with the
acquisition of Regional during July 2007, the Partnership funded a portion of the acquisition through a loan of $5,000,000 (“RZB
Loan”) from RB International Finance (USA) LLC, formerly known as RZB Finance LLC (“RZB”), dated July
26, 2007 (“Loan Agreement”). The RZB Loan was due on demand and if no demand, with a one-year maturity. In connection
with the RZB Loan, Regional granted to RZB a security interest in all of Regional’s assets, including a deed of trust on
real property owned by Regional, and the Partnership delivered to RZB a pledge of the outstanding capital stock of Regional.
The RZB Loan was converted
to a term loan in June 2009 in connection with the Sixth Amendment, Assumption of Obligations and Release Agreement between Regional,
the Partnership and RZB (the “Sixth Amendment”). The Sixth Amendment provided for an increase in the principal
amount of the RZB Loan to $4,250,000 as the result of an “incremental loan” of $250,000, established a monthly amortization
for the principal amount of the Loan, increased the annual interest rate to 8%, and extended the Maturity Date to April 30, 2012,
among other terms and conditions. Regional assumed all obligations of the Partnership under the RZB Loan and related collateral
agreements upon execution of the Sixth Amendment. The Maturity Date of the RZB Loan was extended to May 31, 2014 in connection
with the Seventh Amendment to the Loan Agreement among the parties dated May 21, 2010. 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 existing at the time of the Ninth Amendment and reduced required monthly amortization payments to
$50,000 per month beginning January 31, 2013. The Ninth Amendment also shortened the maturity date of the RZB Loan from May 31,
2014 to March 31, 2013. Regional made the January 31, 2013 monthly amortization payment but failed to make the February 28, 2013
monthly amortization payment. 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, all obligations unpaid
and outstanding under the Loan Agreement totaling $1,975,000 were paid in full from proceeds of the Hopewell Loan. RZB provided
Regional with a payoff letter and released all of the collateral previously held as security. The interest rate related to the
RZB Loan for the period January 1, 2013 through March 20, 2013, approximated 9.5%.
Hopewell Loan
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 would loan Regional up to $2,500,000 (“Hopewell Loan”).
Of this amount, $1,998,000 was advanced on March 20, 2013 and an additional $252,000 and $250,000 was advanced on March 26, 2013
and July 19, 2013, respectively. At the time the Hopewell Loan was obtained, William M. Comegys III was a member of the Board of
Directors of the General Partner, as well as the managing member of Hopewell. As a result of this affiliation, the terms of the
Hopewell Loan were reviewed by the Conflicts Committee of the Board of the General Partner. The committee determined that the Hopewell
Loan was on terms better than could have been obtained from a third-party lender.
The principal purpose of
the Hopewell Loan was to repay the entire amount due to RZB in connection with the RZB Loan, the outstanding balance of which totaled
$1,975,000 at the time of payoff, including principal, interest, legal fees and other expenses owed in connection with the RZB
Loan. The remaining amounts provided under the Hopewell Loan to Regional were used for working capital.
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 Hopewell Loan matures
on March 19, 2016 and carries a fixed annual rate of interest of 12%. Under the terms of the Hopewell Loan, Regional was required
to make interest payments only beginning April 2013 through December 2014 and then 14 equal monthly payments of $56,000 (principal
and interest) with a balloon payment of $2.044 million due on March 19, 2016. Per the Hopewell Loan Agreement, Regional is required
to provide annual audited and certified quarterly financial statements to Hopewell. The failure to provide those financial statements
as prescribed is an event of default, and Hopewell may, by written notice to Regional, declare the Hopewell Note immediately due
and payable.
In 2014 there were two
amendments made to the Hopewell Loan. Both amendments were for the extension of the date for principal payments to be made,
which ultimately began in January 2015. At February 28, 2015, Regional was current on all payments due and owing to Hopewell.
Advances from General Partner
In September 2012, the
Board of the General Partner recommended the issuance of 12,000 units representing membership interests in the General Partner
(“Units”) at a price of $50.00 per Unit, to raise $600,000 to fund the working capital needs of Central. This
recommendation was approved by the requisite number of members of the General Partner on September 14, 2012 pursuant to the terms
of the Company Agreement of the General Partner. As of October 30, 2012, the offered Units were fully subscribed. The offer of
the Units was made in accordance with Section 4(2) of the Securities Act. No placement agent or broker was involved in the transaction.
In August 2014, the Board
of the General Partner recommended the issuance of 15,000 Units at a price of $50.00 per Unit to raise $750,000 to fund working
capital needs. This recommendation was approved by the requisite percentage of members on August 7, 2014 pursuant to the terms
of the General Partner’s company agreement. On September 8, 2014, the General Partners offered 15,000 membership interests
at a value of $50.00 per interest to each of its members in accordance with the provisions of its company agreement. As of November
3, 2014, the offered membership interests were fully subscribed. The offer of the membership interests was made in accordance with
Section 4(2) of the Securities Act. No placement agent or broker was involved in the transaction.
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, and amended during March 2014 and November 2014. The
intercompany demand note provides for advances from time to time by the General Partner to the Partnership of up to $5,000,000.
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 10% per annum. At December 31, 2014, the total amount
owed to the General Partner by the Partnership, including accrued interest, was $4,615,000.
Regional Intercompany Obligations
In connection with the
Regional acquisition, on July 26, 2007, Regional issued to the Partnership a promissory note in the amount of $2,500,000 (“Central
Promissory Note”) in connection with the remaining funding needed to complete the acquisition of Regional. Interest on
the Central Promissory Note is 10% annually and such interest is payable quarterly. The Central Promissory Note is due on demand.
Regional has not made an interest payment on the Central Promissory Note since its inception. Interest is accruing but unpaid.
The balance on the note at December 31, 2014 is $4,359,000. The payment of this amount is subordinated to the payment of the Hopewell
Note by Regional.
In addition to the Central
Promissory Note, there have been other intercompany net advances made from time to time from the Partnership and/or RVOP to Regional,
including the $1.0 million advanced by the Partnership to Regional in connection with the third amendment to the RZB Loan Agreement
and allocations of corporate expenses, offset by actual cash payments made by Regional to the Partnership and/or RVOP. These intercompany
amounts were historically evidenced by book entries. Effective March 1, 2012, Regional and the Partnership entered into an intercompany
demand promissory note incorporating all advances made as of December 31, 2010 and since that date. The note bears interest at
the rate of 10% annually from January 1, 2011. At December 31, 2014, the intercompany balance owed by Regional to the Partnership
and/or RVOP is approximately $3,141,000, which includes interest. This amount is due to the Partnership and RVOP on demand; however,
as is the case with the Central Promissory Note, payment of these amounts is subordinated to payment of the Hopewell Note by Regional.
Allocated Expenses Charged to Subsidiary
Regional is charged for
direct expenses paid by the Partnership on its behalf, as well as its share of allocable overhead for expenses incurred by the
Partnership which are indirectly attributable for Regional related activities. For the years ended December 31, 2013 and 2014,
Regional recorded allocable expenses of $287,000 and $211,000, respectively.
Equipment Leases
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, 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 Maintenance
Agreement is 84 months from the date a vehicle is placed in service and subject to the agreement. Regional is obligated to maintain
liability insurance coverage on all vehicles naming Penske as a co-insured and indemnifying 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 (“Leased Tractors”)
to be acquired by Penske and leased to Regional, and the outsourcing of the maintenance of the Leased 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 Leased Tractor during each month. The
Maintenance Charge covers all scheduled maintenance, including tires, to keep the Leased 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 Leased Tractors by Regional.
The term of the Lease Agreement
is for seven years. The Leased 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 Leased 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 Leased Tractors leased based on a documented downturn in business.
On May 31, 2013, Regional notified Penske of its intent to terminate the lease arrangement effective June 15, 2013, for five tractors
as provided for in the Lease Agreement as a result of the decline in Regional’s transportation business. In January 2015,
Regional approached Penske about terminating the lease arrangement for an additional five tractors due to a continued decline in
its hauling business. Penske agreed to terminate the lease for the five tractors at a cost of $50,000 ($10,000 per tractor), which
amount is being paid in three monthly installments commencing in January 2015. As a result of these partial terminations, Regional
now leases 10 tractors pursuant to the Lease Agreement. Regional is obligated to maintain liability insurance coverage on all remaining
vehicles covered by the Lease Agreement on the same basis as in the Maintenance 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
Leased Tractors wherever located or, upon five (5) days written notice to Regional, either require Regional to purchase any or
all of the Leased Tractors or make the “alternative payment” described below. In addition, Regional is obligated
to pay all lease charges for all such Leased Tractors accrued and owing through the date of the notice from Penske as described
above.
The Lease Agreement can
also be terminated by either party upon 120 days’ written notice to the other party as to any Leased Tractor 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 Leased 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 Leased 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 Leased Tractor that is the subject of the termination or pay Penske the “alternative payment” as described above.
Penske’s ability to require Regional
to purchase the Leased Tractor fleet or make the “alternative payment” would place a substantial financial burden on
Regional.
Private Placements
On November 26, 2013, the
Partnership sold 3,000,000 Common Units to CEGP for $280,434 in cash pursuant to the terms of the Purchase and Sale Agreement dated
November 26, 2013, by and among the Partnership, the General Partner and CEGP. As a result, CEGP holds 15.3% of the issued and
outstanding Common Units of the Partnership. In addition, under the terms of the Purchase and Sale Agreement, the Partnership issued
the Performance Warrants to JLD Services, Ltd. and Mr. Graves for consideration of $500.00 each. The Performance Warrants expired
on November 26, 2014 without being exercised.
Reimbursement Agreements
Effective November 17,
2010, the Partnership moved its principal executive offices to Dallas, Texas. Pursuant to a month-to-month Reimbursement Agreement,
from November 2010 through December 2013, the Partnership reimbursed AirNow Compression Systems, LTD (“Airnow”),
an affiliate of Imad K. Anbouba, the General Partner’s Chief Executive Officer and President until November 2013, for the
monthly payment of allocable “overhead costs,” which included rent, utilities, telephones, office equipment and furnishings
attributable to the space utilized by employees of the General Partner. Effective December 31, 2013, in connection with the CEGP
Investment and the resulting change in control of the General Partner, the Partnership moved its principal executive offices to
another office location within Dallas, Texas that is leased from Katy Resources LLC (“Katy”), an entity controlled
by G. Thomas Graves III, the Chairman of the Board of the General Partner. As a result, the Reimbursement Agreement with Airnow
was terminated and the Partnership entered into a new reimbursement agreement with Katy on a month-to-month basis for reimbursement
of allocable “overhead costs” 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 limited liability company affiliated with Ian
Bothwell, the General Partner’s Executive Vice President and the President of Regional, located in Manhattan Beach, California.
Mr. Bothwell is a resident of California and lives in Manhattan Beach. Since June 2012, Regional has been directly charged for
its allocated portion of Rover Technologies LLC’s expenses. In connection with the CEGP Investment, the Partnership reimbursed
Rover Technologies LLC for the outstanding unpaid overhead costs associated with this agreement as of the closing date of the CEGP
Investment.
Off-Balance Sheet Arrangements
The Partnership and Regional
do not have any off-balance sheet arrangements.
New Accounting Pronouncements
In February 2013, the FASB
issued ASU 2013-12, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. This guidance
is the culmination of the board's redeliberation on reporting reclassification adjustments from accumulated other comprehensive
income. The standard requires that companies present information about reclassification adjustments from accumulated other comprehensive
income in their interim and annual financial statements in a single note or on the face of the financial statements. This ASU is
effective for interim and annual reporting periods beginning after December 15, 2012. The Company did not have any transactions
requiring application of this ASU for any reporting period beginning with the quarter ended March 31, 2013 through the year
ended December 31, 2013.
In July 2013, the Financial
Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2013-11, "Presentation of an Unrecognized
Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The ASU was
issued to eliminate diversity in practice in the presentation of unrecognized tax benefits when a net operating loss ("NOL")
carryforward, a similar tax loss or a tax credit carryforward exists. Under the new guidance, an entity should present an unrecognized
tax benefit as a reduction of the deferred tax asset for an NOL or similar tax loss or tax credit carryforward rather than as a
liability when the uncertain tax position would reduce the NOL or other carryforward under the tax law. The new standard is effective
for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. The
amendments in this ASU should be applied prospectively to all unrecognized tax benefits that exist at the effective date, but retrospective
application is permitted. The Company is currently evaluating the impact of adopting the provisions of ASU 2013-11, but does not
expect the standard to have a significant impact on its financial statements.
Critical Accounting Policies
The audited consolidated
financial statements of Central reflect the selection and application of accounting policies which require management to make significant
estimates and judgments. Please see “Note B – Summary of Significant Accounting Policies to the Audited Consolidated
Financial Statements included in “Item 8. Financial Statements and Supplemental Data.” We believe that the following
reflect the more critical accounting policies that affect its financial position and results of operations.
Impairment of long-lived assets
— The determination of whether impairment has occurred is based on an estimate of undiscounted cash flows attributable to
assets in future periods. If impairment has occurred, the amount of the impairment loss recognized will be determined by estimating
the fair value of the assets and recording a loss if the fair value is less than the carrying value. Assessments of impairment
are subject to management’s judgments and based on estimates that management is required to make.
Goodwill — Goodwill
represents the excess of the purchase price over the estimated fair value of identifiable net assets associated with acquisition
transactions. Under ASC 350, goodwill is not amortized. Central is required to make at least an annual test of the fair value of
the intangible to determine if impairment has occurred. The Company performs an annual impairment test for goodwill in the fourth
quarter of each calendar year. No impairment charges were incurred during the years ended December 31, 2013 and 2014.
Depreciation and amortization
expenses — Property, plant and equipment are carried at cost less accumulated depreciation and amortization. Depreciation
and amortization rates are based on management’s estimate of the future utilization and useful lives of the assets. Should
the nature of Central’s business change our future utilization and useful lives of depreciable and amortizable assets may
also change. This could result in increases or decreases in depreciation and amortization expense compared with historical amounts.
Unit-based compensation —
The Partnership utilizes unit-based awards as a form of compensation for employees, officers, manager and consultants of the General
Partner. During the quarter ended March 31, 2006, the Partnership adopted the provisions of ASC 718 for unit-based payments to
employees using the modified prospective application transition method. Under this method, previously reported amounts should not
be restated to reflect the provisions of ASC 718. ASC 718 requires measurement of all employee unit-based payment awards using
a fair-value method and recording of such expense in the consolidated financial statements over the requisite service period. The
fair value concepts have not changed significantly in ASC 718; however, in adopting this standard, companies must choose among
alternative valuation models and amortization assumptions. After assessing alternative valuation models and amortization assumptions,
Central will continue using both the Black-Scholes valuation model and straight-line amortization of compensation expense over
the requisite service period for each separately vesting portion of the grant. Central will reconsider use of this model if additional
information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future
periods have characteristics that cannot be reasonably estimated using this model. On May 26, 2014, the Board of the General Partner
authorized a grant of an aggregate of 525,000 Common Units to the members of the Board which resulted in the recording of unit-based
compensation in the amount of $47,250 during the year ended December 31, 2014. On the same date Central granted 1,200,000 options
to purchase Common Units to various employees. The Partnership recorded $22,500 for unit-based compensation related to the options.
On March 20, 2013, the Partnership agreed to issue a grant of 200,000 Common Units to an executive officer of the General Partner
which fully vested upon issuance. The Partnership recorded unit-based compensation of $16,000 during the year ended December 31,
2013 in connection with this issuance under the fair-value provisions of ASC 718. Please see “Item 11 – Executive
Compensation – Equity Compensation” for additional information regarding these Unit grants. The Partnership did
not record any unit-based payment expense for the year ended December 31, 2012.
Allowance for doubtful accounts
— The carrying value of trade accounts receivable is based on estimated fair value. The determination of fair value is subject
to management’s judgments and is based on estimates that management is required to make. Those estimates are made based on
the creditworthiness of customers and payment history. The Partnership has made no provisions for doubtful accounts since its inception.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary
Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting
Firm
To the Board of Directors of Central Energy
GP LLC, General Partner of Central Energy Partners LP
and the Unitholders of Central Energy Partners
LP
We have audited the accompanying consolidated
balance sheets of Central Energy Partners LP and Subsidiaries (“Central”) as of December 31, 2013 and December 31,
2014, and the related consolidated statement of operations, partners’ capital (deficit) and cash flows for the years ended
December 31, 2013 and 2014. These consolidated financial statements are the responsibility of Central’s management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
Central is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Central’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Central as of December 31, 2013
and December 31, 2014 and its consolidated statements of operations, partners’ capital and cash flows for the years ended
December 31, 2013 and 2014 in conformity with accounting principles generally accepted in the United States of America.
The accompanying
financial statements have been prepared assuming that the Central will continue as a going
concern. As discussed in Note M to the consolidated financial statements, Central has incurred recurring losses and has
a deficit in working capital that raise substantial doubt about
its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ MONTGOMERY COSCIA GREILICH, LLP
MONTGOMERY COSCIA GREILICH, LLP
Plano, Texas
March 31, 2015
Central Energy Partners LP and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
| | |
2013 | | |
2014 | |
| Current Assets: | |
| | | |
| | |
| Cash | |
$ | 103,000 | | |
$ | 67,000 | |
| Trade accounts receivable (less allowance for doubtful accounts of $0 at 2013 and 2014) | |
| 312,000 | | |
| 294,000 | |
| Prepaid expenses and other current assets | |
| 427,000 | | |
| 324,000 | |
| Total current assets | |
| 842,000 | | |
| 685,000 | |
| | |
| | | |
| | |
| Property, plant and equipment – net | |
| 3,158,000 | | |
| 3,470,000 | |
| Other assets | |
| 128,000 | | |
| 128,000 | |
| Goodwill | |
| 3,941,000 | | |
| 3,941,000 | |
| Total assets | |
$ | 8,069,000 | | |
$ | 8,224,000 | |
LIABILITIES AND PARTNERS’ CAPITAL (DEFICIT)
| | |
2013 | | |
2014 | |
| Current Liabilities: | |
| | | |
| | |
| Current maturities of long-term debt | |
$ | 188,000 | | |
$ | 388,000 | |
| Accounts payable | |
| 1,418,000 | | |
| 645,000 | |
| Taxes payable | |
| 40,000 | | |
| 7,000 | |
| Unearned revenue | |
| 168,000 | | |
| 40,000 | |
| Accrued liabilities | |
| 424,000 | | |
| 571,000 | |
| | |
| | | |
| | |
| Total current liabilities | |
| 2,238,000 | | |
| 1,651,000 | |
| | |
| | | |
| | |
| Long-term debt obligations | |
| 2,312,000 | | |
| 2,112,000 | |
| Due to General Partner | |
| 3,000,000 | | |
| 4,615,000 | |
| Deferred income taxes | |
| 845,000 | | |
| 387,000 | |
| | |
| | | |
| | |
| Commitments and contingencies | |
| - | | |
| - | |
| | |
| | | |
| | |
| Partners’ Deficit | |
| | | |
| | |
| Common Units | |
| (319,000 | ) | |
| (528,000 | ) |
| General Partner’s equity | |
| (7,000 | ) | |
| (13,000 | ) |
| Total partners’ deficit | |
| (326,000 | ) | |
| (541,000 | ) |
| Total liabilities and partners’ deficit | |
$ | 8,069,000 | | |
$ | 8,224,000 | |
The accompanying notes are an integral part
of these consolidated financial statements.
Central Energy Partners LP and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
| | |
Year ended
December 31,
2013 | | |
Year ended
December 31,
2014 | |
| Revenues | |
$ | 4,750,000 | | |
$ | 5,077,000 | |
| Cost of sales | |
| 3,986,000 | | |
| 4,102,000 | |
| Gross profit | |
| 764,000 | | |
| 975,000 | |
| Selling, general and administrative expenses and other | |
| | | |
| | |
| Legal and professional fees | |
| 582,000 | | |
| 197,000 | |
| Salaries and payroll related expenses | |
| 911,000 | | |
| 613,000 | |
| Other | |
| (395,000 | ) | |
| 345,000 | |
| | |
| 1,098,000 | | |
| 1,155,000 | |
| Operating loss | |
| (334,000 | ) | |
| (180,000 | ) |
| Other expense | |
| | | |
| | |
| Interest expense, net | |
| (405,000 | ) | |
| (562,000 | ) |
| Loss before taxes | |
| (739,000 | ) | |
| (742,000 | ) |
| Benefit for income taxes | |
| 218,000 | | |
| 458,000 | |
| Net loss | |
$ | (521,000 | ) | |
$ | (284,000 | ) |
| | |
| | | |
| | |
| Net loss allocable to the partners | |
$ | (521,000 | ) | |
$ | (284,000 | ) |
| Less General Partner’s interest in net loss | |
| (11,000 | ) | |
| (6,000 | ) |
| Net loss allocable to the common units | |
$ | (510,000 | ) | |
$ | (278,000 | ) |
| | |
| | | |
| | |
| Basic net loss per common unit | |
$ | (0.03 | ) | |
$ | (0.01 | ) |
| | |
| | | |
| | |
| Weighted average common units outstanding | |
| 16,319,633 | | |
| 19,372,732 | |
The accompanying notes are an integral part
of these consolidated financial statements.
Central Energy Partners LP and Subsidiaries
CONSOLIDATED STATEMENTS OF PARTNERS’
DEFICIT
| | |
Common Units | | |
| | |
| |
| | |
Units | | |
Amount | | |
General
Partner | | |
Total
Partners’
Deficit | |
| | |
| | |
| | |
| | |
| |
| Balance as of December 31, 2012 | |
| 15,866,482 | | |
| (104,000 | ) | |
| (3,000 | ) | |
| (107,000 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Issuance of Common Units - Compensation | |
| 200,000 | | |
| 15,000 | | |
| 1,000 | | |
| 16,000 | |
| | |
| | | |
| | | |
| | | |
| | |
| Sale of Common Units –CEGP Acquisition LLC | |
| 3,000,000 | | |
| 280,000 | | |
| - | | |
| 280,000 | |
| | |
| | | |
| | | |
| | | |
| | |
| General Partner contribution | |
| - | | |
| - | | |
| 6,000 | | |
| 6,000 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| - | | |
| (510,000 | ) | |
| (11,000 | ) | |
| (521,000 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Balance as of December 31, 2013 | |
| 19,066,482 | | |
| (319,000 | ) | |
| (7,000 | ) | |
| (326,000 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Issuance of Common Units - Compensation | |
| 525,000 | | |
| 69,000 | | |
| - | | |
| 69,000 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| - | | |
| (278,000 | ) | |
| (6,000 | ) | |
| (284,000 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Balance as of December 31, 2014 | |
| 19,591,482 | | |
| (528,000 | ) | |
| (13,000 | ) | |
| (541,000 | ) |
The accompanying notes are an integral part
of these consolidated financial statements.
Central Energy Partners LP and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | |
Year Ended
December 31,
2013 | | |
Year Ended
December 31,
2014 | |
| Cash flows from operating activities: | |
| | |
| |
| Net loss | |
$ | (521,000 | ) | |
$ | (284,000 | ) |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 537,000 | | |
| 562,000 | |
| Reduction in accrued tax penalties assessed | |
| (977,000 | ) | |
| - | |
| Unit based compensation | |
| 16,000 | | |
| 69,000 | |
| Changes in current assets and liabilities: | |
| | | |
| | |
| Trade accounts receivable | |
| 336,000 | | |
| 18,000 | |
| Prepaid and other current assets | |
| 358,000 | | |
| 103,000 | |
| Trade accounts payable | |
| (876,000 | ) | |
| (773,000 | ) |
| Unearned revenue | |
| 98,000 | | |
| (128,000 | ) |
| Accrued liabilities and other | |
| (837,000 | ) | |
| 147,000 | |
| Deferred income taxes, net | |
| (211,000 | ) | |
| (458,000 | ) |
| U.S. taxes payable | |
| (24,000 | ) | |
| (33,000 | ) |
| | |
| | | |
| | |
| Net cash provided by (used in) operating activities | |
| (2,101,000 | ) | |
| (777,000 | ) |
| | |
| | | |
| | |
| Cash flows from investing activities: | |
| | | |
| | |
| Capital expenditures | |
| (135,000 | ) | |
| (874,000 | ) |
| Other non-current assets | |
| (3,000 | ) | |
| - | |
| Proceeds from sale of assets | |
| 13,000 | | |
| - | |
| Net cash used in investing activities | |
| (125,000 | ) | |
| (874,000 | ) |
| | |
| | | |
| | |
| Cash flows from financing activities: | |
| | | |
| | |
| Issuance of related party debt | |
| 2,500,000 | | |
| - | |
| Change in amounts due to General Partner, net | |
| 1,491,000 | | |
| 1,615,000 | |
| Payment of debt | |
| (1,970,000 | ) | |
| - | |
| Sale of Common Units to CEGP Acquisition LLC | |
| 280,000 | | |
| - | |
| General Partner contribution | |
| 6,000 | | |
| - | |
| Net cash provided by financing activities | |
| 2,307,000 | | |
| 1,615,000 | |
| Net (decrease) increase in cash | |
| 81,000 | | |
| (36,000 | ) |
| Cash at beginning of period | |
| 22,000 | | |
| 103,000 | |
| Cash at end of period | |
$ | 103,000 | | |
$ | 67,000 | |
| | |
| | | |
| | |
| Supplemental disclosures of cash flow information: | |
| | | |
| | |
| Cash paid for: | |
| | | |
| | |
| Interest | |
$ | 300,000 | | |
$ | 317,000 | |
| Income Taxes | |
$ | 111,000 | | |
$ | 44,000 | |
The accompanying notes are an integral part
of these consolidated financial statements.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A — ORGANIZATION
Central Energy Partners LP (“Partnership”),
is a Delaware limited partnership, which was formed by Penn Octane Corporation (“Penn Octane”) on July 10, 2003.
The limited partnership interests in the Partnership (“Common Units”) represent 98% of the interest in the Partnership.
The General Partner is Central Energy GP LLC (“General Partner”) (see Note H — Partner’ Capital
- General Partner Interest), which holds the remaining 2% interest in the Partnership. The General Partner is entitled to receive
distributions from the Partnership on its General Partner interest and additional incentive distributions (see Note G – Partners’
Capital — Distributions of Available Cash) as provided in the Partnership’s partnership agreement (“Partnership
Agreement”). The General Partner has sole responsibility for conducting the Partnership’s business and for managing
the Partnership’s operations in accordance with the Partnership Agreement. Common Unitholders do not participate in the management
of the Partnership. The General Partner does not receive a management fee in connection with its management of the Partnership’s
business, but is entitled to be reimbursed for all direct and indirect expenses incurred on the Partnership’s behalf.
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, as amended. At closing, the Partnership sold 12,724,019 Common Units to
Central Energy, LP for $3,950,000 and Penn Octane sold 100% of the limited liability company interests in the General Partner (“GP
Interests”) to Central Energy, LP for $150,000 (“Sale”). As a result, Penn Octane no longer has any
interest in the General Partner or any control over the operations of the Partnership.
Central’s primary business objectives
are to achieve stable cash flows and to again make quarterly cash distributions to our Limited Partners. We are currently focused
on improving operations at Regional and growing its business through expanded customer relationships. In addition, management continues
to evaluate possible opportunities to expand storage capacity at Regional’s Hopewell, Virginia facility.
On November 26, 2013 (“Closing”),
the Partnership, the General Partner and CEGP Acquisition, LLC (“CEGP”) executed a definitive Purchase and Sale
Agreement (“PSA”) and certain other transaction documents which provided for (1) the sale of a 55% interest
in the General Partner to CEGP through the purchase of newly issued membership interests of the General Partner by CEGP and the
issuance of 3,000,000 Common Units to CEGP, (2) the issuance of performance warrants that provide the holders thereof with the
opportunity, but not the obligation, to acquire, in the aggregate, an additional 3,000,000 Common Units at an exercise price of
$0.093478, subject to adjustment, in the event the Partnership successfully completes one or more asset acquisition transactions
with an aggregate gross purchase price of at least $20 million within 12 months after closing (“Performance Warrants
”), (3) amending and restating the Registration Rights Agreement, (4) amending and restating the Company Agreement, and (5)
amending and restating the Partnership Agreement. The aggregate purchase price for the 55% membership interest in the General Partner,
the issuance of the 3,000,000 Common Units and the Performance Warrants was $2,750,000 (“Purchase Price”). At
the Closing, net proceeds of $2,350,000 were delivered to the General Partner and the Partnership (the Purchase Price less credits
for prior payments of $400,000 made to the General Partner and the Partnership in connection with stand-still agreements in place
until the execution of the PSA (“Stand-Still Payments”). Of the total Purchase Price, the amount of $280,434
was allocated to the price paid for the 3,000,000 Common Units. CEGP paid $240,434 to the Partnership at Closing from the Net Proceeds,
with the $40,000 balance of the purchase price for the 3,000,000 Common Units being a portion of the Stand-Still Payments. The
remaining amount of the Purchase Price, or $2,469,566, was allocated to the value of the 55% Membership Interest of the General
Partner, represented by 136,888.89 Units issued to CEGP, and $2,109,566 was paid to the General Partner at Closing from the Net
Proceeds with the balance of $360,000 being the attributed portion of the Stand-Still Payments.
Effective November 26, 2013, with the execution
of the PSA, CEGP now holds 55% of the issued and outstanding membership interests in the General Partner, and appoints five (5)
of the nine (9) members of the Board of the General Partner. As a result, CEGP controls the General Partner. In addition, CEGP
holds 3,000,000 Common Units, which represent 15.3% of the issued and outstanding Common Units of the Partnership. Prior to execution
of the PSA, Messrs. Imad K. Anbouba and Carter R. Montgomery and The Cushing Opportunity Fund I, L.P. (“Cushing Fund”)
controlled the General Partner and had controlling authority over the Partnership. CEGP is a Texas limited liability company controlled
by John L. Denman, Jr. and G. Thomas Graves III. Upon completion of the CEGP Investment, Mr. Denman replaced Mr. Anbouba as CEO
and President of the General Partner and Mr. Graves was appointed as the Chairman of the Board of the General Partner replacing
Mr. Jerry V. Swank.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A — ORGANIZATION - continued
In July 2007, the Partnership acquired the
business of Regional Enterprises, Inc. (“Regional”). 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
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 18 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
operated a trans-loading facility in Johnson City, Tennessee, with six rail car slots until March 31, 2013. Regional also provides
transportation services to customers for products which don’t originate at any of Regional’s terminal facilities.
For the 12 months ended December 31, 2013,
Suffolk Sales, SGR Energy LLC, and MeadWestvaco Specialty Chemicals, Inc., accounted for approximately 22%, 16% and 3% of Regional’s
revenues, respectively, and approximately 33%, 0% and 13% of Regional’s accounts receivable, respectively. Noble Oil Services,
Inc., accounted for 3% of Regional’s revenues and 18% of its accounts receivable.
For the 12 months ended December 31, 2014,
Suffolk Sales, Associated Asphalt Hopewell, LLC and MeadWestvaco Specialty Chemicals, Inc., accounted for approximately 21%, 20%
and 16% of Regional’s revenues, respectively, and approximately 23%, 0% and 38% of Regional’s accounts receivable,
respectively. Honeywell International, Inc. accounted for approximately 3% of Regional’s revenues and approximately 17% of
its accounts receivable.
The accompanying consolidated balance sheets
include goodwill in the amount of $3,941,000 at December 31, 2013 and 2014, resulting from the acquisition of Regional.
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying consolidated financial statements
include the Partnership and its only operating subsidiary, Regional. The Partnership has two other subsidiaries that have no operations
– Rio Vista Operating Partnership L.P. (see Note J – Commitments and Contingencies – TransMontaigne Dispute)
and Rio Vista Operating GP LLC. All significant intercompany accounts and transactions are eliminated. The Partnership and its
consolidated subsidiaries are hereinafter referred to as “Central” and/or the “Company”.
New Accounting Pronouncements
In February 2013, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-12, “Reporting
of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. This guidance is the culmination of the board's redeliberation
on reporting reclassification adjustments from accumulated other comprehensive income. The standard requires that companies present
information about reclassification adjustments from accumulated other comprehensive income in their interim and annual financial
statements in a single note or on the face of the financial statements. This ASU is effective for interim and annual reporting
periods beginning after December 15, 2012. The Company did not have any transactions requiring application of this ASU for
any reporting period beginning with the quarter ended March 31, 2013 through the year ended December 31, 2014.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES – Continued
New Accounting Pronouncements - continued
In July 2013, the FASB issued ASU No. 2013-11,
"Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward
Exists." The ASU was issued to eliminate diversity in practice in the presentation of unrecognized tax benefits when a net
operating loss ("NOL") carryforward, a similar tax loss or a tax credit carryforward exists. Under the new guidance,
an entity should present an unrecognized tax benefit as a reduction of the deferred tax asset for an NOL or similar tax loss or
tax credit carryforward rather than as a liability when the uncertain tax position would reduce the NOL or other carryforward under
the tax law. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15,
2013, with early adoption permitted. The amendments in this ASU should be applied prospectively to all unrecognized tax benefits
that exist at the effective date, but retrospective application is permitted. The Company is currently evaluating the impact of
adopting the provisions of ASU 2013-11, but does not expect the standard to have a significant impact on its financial statements.
A summary of the significant accounting policies
consistently applied in the preparation of the accompanying consolidated financial statements are as follows.
1. Property, Plant and Equipment
Property, plant and equipment are recorded
at historical cost. After being placed into service, assets are depreciated using the straight-line method over their estimated
useful lives as follows:
| Terminal Facility and improvements |
5–30 years |
| Automotive equipment |
5–20 years |
| Machinery and equipment |
5–10 years |
| Office equipment |
3–10 years |
Maintenance and repair costs are charged to
expense as incurred.
The Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined
that an impairment has occurred, the amount of the impairment is charged to operations.
2. Income Taxes
The Partnership’s operations are treated
as a partnership with each partner being separately taxed on its share of the Partnership’s federal taxable income. Therefore,
no provision for current or deferred federal income taxes has been provided for in the accompanying consolidated financial statements.
However, the Partnership is subject to the Texas margin tax. Accordingly, the Partnership reflects its tax positions associated
with the tax effects of the Texas margin tax in the accompanying consolidated balance sheets. See Note G for additional information
regarding the current and deferred tax provisions and obligations.
Regional accounts for income taxes in accordance
with Accounting Standards Circular (“ASC“) 740 “Income Taxes” (formerly SFAS No. 109, Accounting
for Income Taxes and FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of
FASB Statement No. 109”). ASC 740 requires the use of the asset and liability method whereby deferred tax assets and liability
account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. These differences
result in deferred tax assets and liabilities, which are included in the consolidated balance sheet.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
2. Income Taxes - continued
Regional then assesses the likelihood of realizing
benefits related to such assets by considering factors such as historical taxable income and Regional’s ability to generate
sufficient taxable income of the appropriate character within the relevant jurisdictions in future years. Based on the aforementioned
factors, if the realization of these assets is not likely a valuation allowance is established against the deferred tax assets.
Regional accounts for its position in tax uncertainties
under ASC 740-10. ASC 740-10 establishes standards for accounting for uncertainty in income taxes. ASC 740-10 provides several
clarifications related to uncertain tax positions. Most notably, a “more likely-than-not” standard for initial recognition
of tax positions, a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that
has a greater than 50 percent likelihood of realization. ASC 740-10 applies a two-step process to determine the amount of tax benefit
to be recognized in the financial statements. First, Regional must determine whether any amount of the tax benefit may be recognized.
Second, Regional determines how much of the tax benefit should be recognized (this would only apply to tax positions that qualify
for recognition.) No additional liabilities have been recognized as a result of the implementation. Regional has not taken a tax
position that, if challenged, would have a material effect on the financial statements or the effective tax rate during the years
ended December 31, 2013 and 2014.
3. Loss Per Common Unit
Net loss per Common Unit is computed on the
weighted average number of Common Units outstanding in accordance with ASC 260. During periods in which Central incurs losses from
continuing operations, giving effect to common unit equivalents is not included in the computation as it would be antidilutive.
See Note I – Unit Options.
4. Cash Equivalents
For purposes of the cash flow statement, the
Company considers cash in banks and securities purchased with a maturity of three months or less to be cash equivalents.
5. Use of Estimates
The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
6. Fair Value of Financial Instruments
The estimated fair value of the Company’s
financial instruments approximates their carrying value as reflected in the accompanying consolidated balance sheets due to (i)
the short-term nature of financial instruments included in the current assets and liabilities or (ii) for non-short term financial
instruments, the recording of such financial instruments at fair value.
7. Unit-Based Payment
The Partnership may issue options, warrants,
rights or appreciation rights with respect to Common Units for any Partnership purpose, including to non-employees for goods and
services and to acquire or extend debt, without approval of the Limited Partners. The Partnership applies the provisions of ASC
505 to account for such transactions.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
Unit-Based Payment – continued
ASC 505 requires that such transactions be
accounted for at fair value. If the fair value of the goods and services or debt related transactions are not readily measurable,
the fair value of the options, warrants, rights or appreciation rights is used to account for such transactions. Central recorded
unit-based payment costs of zero and $47,250 for non-employees for the years ended December 31, 2013 and 2014, respectively, under
the fair-value provisions of ASC 505.
The Partnership applies ASC 718 for options
to purchase Common Units and/or Common Units granted to employees and directors of the General Partner. During the quarter ended
March 31, 2006, Central adopted the provisions of ASC 718 for unit-based payments to employees using the modified prospective application
transition method. Under this method, previously reported amounts were not restated to reflect the provisions of ASC 718. ASC 718
requires measurement of all employee unit-based payment awards using a fair-value method and recording of such expense in the consolidated
financial statements over the requisite service period. The fair value concepts have not changed significantly in ASC 718; however,
in adopting this standard, companies must choose among alternative valuation models and amortization assumptions. After assessing
alternative valuation models and amortization assumptions, Central will continue using both the Black-Scholes valuation model and
straight-line amortization of compensation expense over the requisite service period for each separately vesting portion of the
grant. Central will reconsider use of this model if additional information becomes available in the future that indicates another
model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated
using this model.
As described in Note I, on May 26, 2014, the
Board of Directors of the General Partner authorized a grant of an aggregate of 525,000 Common Units to members of the Board of
the General Partner which resulted in the recording of unit-based compensation in the amount of $47,250 during the year ended December
31, 2014. On the same date, Central granted 1,200,000 options to purchase Common Units to various employees. The Partnership recorded
$22,500 for unit-based compensation related to the options. On March 20, 2013, the Partnership agreed to issue a grant of 200,000
Common Units to an executive officer of the General Partner which fully vested upon issuance. The Partnership recorded unit-based
compensation of $16,000 during the year ended December 31, 2013 in connection with this issuance under the fair-value provisions
of ASC 718.
8. Revenue Recognition
Regional records revenue for storage, transportation
and trans-loading as the services are performed and delivery occurs. Revenues are recorded based on the following criteria:
| (1) | Persuasive evidence of an arrangement existed and the price is determined |
| (3) | Collectability is reasonably assured |
9. Reclassifications
Certain reclassifications have been made to
prior year balances to conform to the current presentation.
10. Trade Accounts Receivable and Allowance
for Doubtful Accounts
Trade accounts receivable are accounted for
at fair value. Trade accounts receivable do not bear interest and are short-term in nature. An allowance for doubtful accounts
for trade accounts receivable is established when the fair value is less than the carrying value. Trade accounts receivable are
charged to the allowance when it is determined that collection is remote.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
11. Environmental Matters
Regional is subject to various federal, state
and local laws and regulations relating to the protection of the environment. Regional has established procedures for the ongoing
evaluation of its operations, to identify potential environmental exposures and to comply with regulatory policies and procedures.
Regional accounts for environmental contingencies in accordance with ASC 450. Environmental expenditures that relate to current
operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations,
and do not contribute to current or future revenue generation, are expensed. Liabilities for environmental contingencies are recorded
when environmental assessments and/or clean-ups are probable and the costs can be reasonably estimated. Central maintains insurance
which may cover in whole or in part certain types of environmental contingencies. For the years ended December 31, 2013 and 2014,
Regional had no environmental contingencies requiring specific disclosure or the recording of a liability.
12. Segment Information
The Company reports segment information in
accordance with ASC 280. Under ASC 280, all publicly traded companies are required to report certain information about the operating
segments, products, services and geographical areas in which they operate and their major customers. Operating segments are components
of the Company for which separate financial information is available that is evaluated regularly by management in deciding how
to allocate resources and assess performance. This information is reported on the basis that it is used internally for evaluating
segment performance. The Company had only one operating segment (transportation and terminaling business) during the years ended
December 31, 2013 and 2014. The following are amounts related to the transportation and terminaling business included in the accompanying
consolidated financial statements for the years ended December 31:
| | |
2013 | | |
2014 | |
| | |
| | |
| |
| Revenue from external customers | |
$ | 4,750,000 | | |
$ | 5,077,000 | |
| Interest expense | |
$ | 771,000 | | |
$ | 794,000 | |
| Depreciation and amortization | |
$ | 537,000 | | |
$ | 562,000 | |
| Income tax benefit | |
$ | 218,000 | | |
$ | 458,000 | |
| Net loss | |
$ | (1,261,000 | ) | |
$ | (410,000 | ) |
| Total assets | |
$ | 7,922,000 | | |
$ | 8,584,000 | |
13. Fair Value Measurements
Effective January 1, 2008, the Company adopted
the provisions of ASC 820, “Fair Value Measurements”, for financial assets and financial liabilities. ASC 820 defines
fair value, establishes a framework for measuring fair value under GAAP, and expands disclosure about fair value measurements.
ASC 820 applies to all financial instruments that are being measured and reported on a fair value basis. ASC 820 defines fair value
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs used in valuation methodologies
into the following three levels:
| · | Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities. |
| · | Level 2 Inputs – Observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities. |
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES – Continued
Fair Value Measurements - continued
| · | Level 3 Inputs – Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments
whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments
for which the determination of fair value requires significant management judgment or estimation. |
14. Subsequent Events
The Company has evaluated subsequent events
that occurred after December 31, 2014 through the filing of this Form 10-K. Any material subsequent events that occurred during
this time have been properly recognized or disclosed in the Company’s financial statements.
15. Business Combinations
The Partnership accounts for business combinations
in accordance with ASC 805, “Business Combinations”, which addresses the recognition and measurement of (i) identifiable
assets acquired, liabilities assumed, and any non-controlling interest in the acquire, and (ii) goodwill acquired or gain from
a bargain purchase. In addition, acquisition-related costs are accounted for as expenses in the period in which the costs are incurred
and the services are received.
Management is required to address the initial
recognition, measurement and subsequent accounting for assets and liabilities arising from contingencies in a business combination,
and requires that such assets acquired or liabilities assumed be initially recognized at fair value at the acquisition date if
fair value can be determined during the measurement period. If the acquisition date fair value cannot be determined, the asset
acquired or liability assumed arising from a contingency is recognized only if certain criteria are met. A systematic and rational
basis for subsequently measuring and accounting for the assets or liabilities is required to be developed depending on their nature.
16. Goodwill
Goodwill represents the excess of the purchase
price over the estimated fair value of identifiable net assets associated with acquisition transactions. Under ASC 350, goodwill
is not amortized. The Company is required to make at least an annual test of the fair value of the intangible to determine if impairment
has occurred. The Company performs an annual impairment test for goodwill in the fourth quarter of each calendar year. No impairment
charges were incurred during the years ended December 31, 2013 or 2014.
17. Concentration of Credit Risk
The balance sheet items that potentially subject
Central to concentrations of credit risk are primarily cash and cash equivalents and accounts receivable. Central maintains cash
balances in different financial institutions. Balances in accounts are insured up to Federal Deposit Insurance Corporation (“FDIC”)
limits of $250,000 per institution. At December 31, 2014, Central did not have any cash balances in financial institutions in excess
of FDIC insurance coverage. Concentrations of credit risk with Regional’s accounts receivable are mitigated by Regional’s
ongoing credit evaluations of its customers. The Company maintains an allowance for doubtful accounts based upon the expected collectability
of all accounts receivable.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C — LOSS PER COMMON UNIT
The following tables present reconciliations
from net loss per Common Unit to net income loss per Common Unit assuming dilution:
| | |
For the year ended December 31, 2013 | |
| | |
Loss
(Numerator) | | |
Units
(Denominator) | | |
Per-Unit
Amount | |
| Net loss available to the Common Units | |
$ | (510,000 | ) | |
| | | |
| | |
| Basic EPS | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | |
| Net loss available to the Common Units | |
$ | (510,000 | ) | |
| 16,319,633 | | |
$ | (0.03 | ) |
| Effect of Dilutive Securities | |
| | | |
| | | |
| | |
| Options | |
| - | | |
| - | | |
| - | |
| Diluted EPS | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | |
| Net loss available to the Common Units | |
| N/A | | |
| N/A | | |
| N/A | |
| | |
For the year ended December 31, 2014 | |
| | |
Loss
(Numerator) | | |
Units
(Denominator) | | |
Per-Unit
Amount | |
| Net loss available to the Common Units | |
$ | (278,000 | ) | |
| | | |
| | |
| Basic EPS | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | |
| Net loss available to the Common Units | |
$ | (278,000 | ) | |
| 19,372,733 | | |
$ | (0.01 | ) |
| Effect of Dilutive Securities | |
| | | |
| | | |
| | |
| Options | |
| - | | |
| - | | |
| - | |
| Diluted EPS | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | |
| Net loss available to the Common Units | |
| N/A | | |
| N/A | | |
| N/A | |
NOTE D — 401K
Regional sponsors a defined contribution retirement
plan (“401(k) Plan”) covering all eligible employees effective November 1, 1988. The 401(k) Plan allows eligible
employees to contribute, subject to Internal Revenue Service limitations on total annual contributions, up to 60% of their compensation
as defined in the 401(k) Plan, to various investment funds. Regional matches, on a discretionary basis, 50% of the first 6% of
employee contributions. Furthermore, Regional may make additional contributions on a discretionary basis at the end of the Plan
year for all eligible employees. Regional did not make any discretionary contributions for the years ended December 31, 2013 and
2014.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E — PROPERTY, PLANT AND EQUIPMENT
| | |
December 31,
2013 | | |
December 31,
2014 | |
| | |
| | |
| |
| Land | |
$ | 512,000 | | |
$ | 515,000 | |
| Terminal and improvements | |
| 4,955,000 | | |
| 5,826,000 | |
| Automotive equipment | |
| 1,297,000 | | |
| 1,297,000 | |
| | |
| 6,764,000 | | |
| 7,638,000 | |
| Less: accumulated depreciation and amortization | |
| (3,606,000 | ) | |
| (4,168,000 | ) |
| | |
$ | 3,158,000 | | |
$ | 3,470,000 | |
Depreciation expense of property, plant and
equipment from operations totaled $537,000 and $562,000 for the years ended December 31, 2013 and 2014, respectively.
NOTE F — DEBT OBLIGATIONS
| | |
December 31,
2013 | | |
December 31,
2014 | |
| Long-term debt obligations were as follows: | |
| | | |
| | |
| Hopewell Note | |
$ | 2,500,000 | | |
$ | 2,500,000 | |
| RZB Note | |
| - | | |
| - | |
| | |
| 2,500,000 | | |
| 2,500,000 | |
| Less current portion | |
| 188,000 | | |
| 388,000 | |
| | |
$ | 2,312,000 | | |
$ | 2,112,000 | |
RZB Loan
In connection with the acquisition of Regional
during July 2007, the Partnership funded a portion of the acquisition through a loan of $5,000,000 (“RZB Loan”)
from RB International Finance (USA) LLC, formerly known as RZB Finance LLC (“RZB”), dated July 26, 2007 (“Loan
Agreement”). The RZB Loan was due on demand and if no demand, with a one-year maturity. In connection with the RZB Loan,
Regional granted to RZB a security interest in all of Regional’s assets, including a deed of trust on real property owned
by Regional, and the Partnership delivered to RZB a pledge of the outstanding capital stock of Regional.
The RZB Loan was converted to a term loan in
June 2009 in connection with the Sixth Amendment, Assumption of Obligations and Release Agreement between Regional, the Partnership
and RZB (the “Sixth Amendment”). The Sixth Amendment provided for an increase in the principal amount of the
RZB Loan to $4,250,000 as the result of an “incremental loan” of $250,000, established a monthly amortization for the
principal amount of the Loan, increased the annual interest rate to 8%, and extended the Maturity Date to April 30, 2012, among
other terms and conditions. Regional assumed all obligations of the Partnership under the RZB Loan and related collateral agreements
upon execution of the Sixth Amendment. The Maturity Date of the RZB Loan was extended to May 31, 2014 in connection with the Seventh
Amendment to the Loan Agreement among the parties dated May 21, 2010. 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 existing at the time of the Ninth Amendment and reduced required monthly amortization payments to $50,000 per month beginning
January 31, 2013. The Ninth Amendment also shortened the maturity date of the RZB Loan from May 31, 2014 to March 31, 2013. Regional
made the January 31, 2013 monthly amortization payment but failed to make the February 28, 2013 monthly amortization payment. 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
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F — DEBT OBLIGATIONS - Continued
RZB Loan - continued
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, all obligations unpaid and outstanding under the RZB Loan Agreement totaling $1,975,000 were paid in full from
proceeds of the Hopewell Loan. RZB provided Regional with a payoff letter and released all of the collateral previously held as
security. The interest rate related to the RZB Loan for the period January 1, 2013 through March 20, 2013 approximated 9.5%.
Hopewell Loan
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 would loan Regional up to $2,500,000 (“Hopewell Loan”). Of this amount, $1,998,000
was advanced on such date and an additional $252,000 and $250,000 was advanced on March 26, 2013 and July 19, 2013, respectively.
At the time the Hopewell Loan was obtained, William M. Comegys III, was a member of the Board of Directors of the General Partner,
as well as the managing member of Hopewell. As a result of this affiliation, the terms of the Hopewell Loan were reviewed by the
Conflicts Committee of the Board of Directors of the General Partner. The committee determined that the Hopewell Loan was on terms
better than could be obtained from a third-party lender.
The principal purpose of the Hopewell Loan
was to repay the entire amounts due to RZB in connection with the RZB Loan, the outstanding balance of which totaled $1,975,000
at the time of payoff, including principal, interest, legal fees and other expenses owed in connection with the RZB Loan. The remaining
amounts provided under the Hopewell Loan to Regional were used for working capital.
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 Hopewell Loan matures on March 19, 2016
and carries a fixed annual rate of interest of 12%. Under the terms of the Hopewell Loan Regional was required to make interest
payments only beginning April 2013 through December 2014 and then 14 equal monthly payments of $56,000 (principal and interest)
with a balloon payment of $2.044 million due on March 19, 2016. Per the Hopewell Loan Agreement, Regional is required to provide
annual audited and certified quarterly financial statements to Hopewell. The failure to provide those financial statements as prescribed
is an event of default, and Hopewell may, by written notice to Regional, declare the Hopewell Note immediately due and payable.
In 2014 there were two amendments made to the
Hopewell Loan. Both amendments were for the extension of the date for principal payments to be made, which ultimately began
in January 2015. At February 28, 2015, Regional was current on all payments due and owing to Hopewell.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F — DEBT OBLIGATIONS - Continued
At December 31, 2014, maturities of
long-term debt were as follows:
| 2015 | |
$ | 388,000 | |
| 2016 | |
| 69,000 | |
| 2017 | |
| 2,043,000 | |
| 2018 | |
| - | |
| 2019 | |
| - | |
| Thereafter | |
| - | |
| | |
$ | 2,500,000 | |
NOTE G — INCOME TAXES
The tax effects of temporary differences and
carry-forwards that give rise to deferred tax assets and liabilities for Regional were as follows at:
| | |
December 31, 2013 | | |
December 31, 2014 | |
| | |
Assets | | |
Liabilities | | |
Assets | | |
Liabilities | |
| Depreciation (basis difference in fixed assets) | |
$ | - | | |
$ | 845,000 | | |
$ | - | | |
$ | 887,000 | |
| Accrued Expenses | |
| 14,000 | | |
| - | | |
| 15,000 | | |
| - | |
| Net operating loss carry-forward | |
| 407,000 | | |
| - | | |
| 984,000 | | |
| - | |
| Other | |
| - | | |
| - | | |
| 1,000 | | |
| - | |
| | |
| 421,000 | | |
| 845,000 | | |
| 1,000,000 | | |
| 887,000 | |
| Less: valuation allowance | |
| (421,000 | ) | |
| - | | |
| (500,000 | ) | |
| - | |
| | |
| - | | |
| | | |
| - | | |
| | |
| | |
$ | 0 | | |
$ | 845,000 | | |
$ | 500,000 | | |
$ | 887,000 | |
The valuation allowance increased by $79,000
for the year ended December 31, 2014.
Tax Expense for Regional, was as follows at:
| | |
December
31,
2013 | | |
December 31,
2014 | |
| Current Tax Expense | |
$ | 0 | | |
$ | 0 | |
| Deferred Tax Benefit | |
| (218,000 | ) | |
| (458,000 | ) |
| Total | |
$ | (218,000 | ) | |
$ | (458,000 | ) |
U.S. and State income taxes were entirely associated
with the taxable subsidiary of the Partnership – Regional.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G — INCOME TAXES - Continued
The ultimate realization of deferred tax assets
depends on various factors including the generation of taxable income in future periods. Regional has concluded that the allowable
sources of taxable income do not assure the realization of 100% of the deferred tax assets. Therefore, Regional has recorded a
valuation allowance in the amount of 50% of the deferred tax assets due to the uncertainty of realizing the deferred tax assets.
The tax years that remain open to examination
are 2012 to 2014.
A reconciliation of the U.S. federal statutory
tax rate to Central’s effective tax rate is as follows:
| | |
December 31,
2013 | | |
December 31,
2014 | |
| Net loss before taxes | |
$ | (739,000 | ) | |
$ | (692,000 | ) |
| Financial statement income taxed at partner level | |
| 740,000 | | |
| 176,000 | |
| Loss from Regional | |
| (1,479,000 | ) | |
| (868,000 | ) |
| Income tax expense at statutory rate (34%) | |
| (503,000 | ) | |
| (295,000 | ) |
| NOL valuation reserve | |
| 421,000 | | |
| 500,000 | |
| Permanent differences and other | |
| 22,000 | | |
| (35,000 | ) |
| Deferred and payables reclass | |
| (158,000 | ) | |
| (628,000 | ) |
| Income tax benefit | |
$ | (218,000 | ) | |
$ | (458,000 | ) |
The Partnership is taxed as a partnership under
Section 701 of the Internal Revenue Code of 1986, as amended (the “Code”). All of the Partnership’s subsidiaries
except for Regional are taxed at the partner level, therefore, the Partnership has no U.S. income tax expense or liability. The
Partnership’s significant basis differences between the tax bases and the financial statement bases of its assets and liabilities
are depreciation of fixed assets. Compensation expense may or may not be recognized for tax purposes depending on the exercise
of related options prior to their expiration.
Tax Liabilities
The Partnership does not file a consolidated
tax return with Regional since this wholly-owned subsidiary is a corporation subject to federal and state income taxes.
Federal Tax Liabilities
In January 2013, the Internal Revenue Service
(the “IRS”) demanded the payment of $160,000 of past due income taxes for the tax year December 2011 and remaining
portions due in connection with $55,000 of penalties and interest owed by Regional for the tax years ended December 2008 and December
2011. On February 18, 2013, Regional requested from the IRS an installment agreement arrangement for the payment of such past-due
taxes and penalties and paid monthly installments of $5,000 until the time that the installment agreement was approved. During
June 2013, Regional filed its 2012 federal income tax return and filed forms to request a refund of $160,000 of income taxes as
a result of the carryback of losses incurred during the 2012 tax year which effectively eliminated the $160,000 of taxes associated
with the December 31, 2011 tax return. During August 2013, the IRS confirmed to Regional that the recently filed 2012 tax return
and application for refund were processed and such amounts were offset against the amounts reflected as owing to the IRS described
above.
Late Filings and Delivery of Schedules K-1
to Unitholders
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 also filed all of the previously delinquent required state partnership tax
returns for the years ended December 31, 2008 and 2009 during 2011. The 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 IRS previously notified the Partnership that its calculation of penalties for the
delinquent 2008 and 2009 tax returns was approximately $2.5 million.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G — INCOME TAXES - Continued
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 the 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. 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.
On January 11, 2013, the Partnership submitted its appeal of the Notice. On February 8, 2013 and June 10, 2013, the Partnership
received notice from the IRS that its request to remove the 2008 and 2009 penalties, respectively, were granted.
During November 2013, the Partnership received
a notice from the IRS that indicated the Partnership was liable for penalties (“2012 IRS Penalties”) of approximately
$296,000 in connection with the late filing of the 2012 federal partnership tax return (“2012 Tax Return”) and
approximately $142,000 in connection with failing to file the 2012 Tax Return electronically. During January 2014, the Partnership
submitted an appeal to the IRS to have the 2012 IRS Penalties removed. On February 25, 2014, the Partnership received written notice
from the IRS that the appeal of the late filing penalty was approved and the appeal of the failure to file the 2012 Tax Return
electronically was denied. The Partnership believes that there existed reasonable cause for the Partnership’s failure to
file the 2012 Tax Return electronically and, as a result, the Partnership has appealed the decision to deny. The IRS has yet to
rule on the appeal. During the year ended December 31, 2013, Central accrued a reserve of $142,000 in connection with the remaining
2012 IRS Penalties.
There can be no assurance that the Partnership’s
request for relief from the remaining outstanding 2012 IRS Penalties will be approved by the IRS or that the Partnership will have
adequate financial resources to pay the remaining outstanding 2012 IRS Penalties.
State Tax Liabilities
During 2013, The Commonwealth of Virginia,
Department of Taxation (“VDOT”) notified Regional that approximately $62,000 and $63,000 of income tax, penalties
and interest related to the tax periods ended October 2006 and July 2007, respectively, were outstanding (“2006 and 2007
Taxes”) and $42,000 of income tax, penalties and interest related to the tax year ended December 31, 2011 (“2011
Taxes”) were also outstanding. During June 2013, Regional made arrangements with the VDOT to pay the 2011 Taxes due in
installments of $6,500 per month until such amounts were fully paid. The VDOT had also included approximately $26,000 of sales
taxes owed by Regional as part of this payment arrangement. During June 2013, Regional filed its 2012 Virginia state income tax
return and filed forms to request a refund of $29,000 of state income taxes as a result of the carryback of losses incurred during
the 2012 tax year which effectively eliminated the $29,000 of taxes associated with the 2011 Taxes. The VDOT has confirmed to Regional
that the payment amounts owed in connection with the 2011 Taxes were offset by the refund request referred to above and a portion
of the associated penalties and interest were removed. During September 2013, Regional received notice from the VDOT that the amounts
owed in connection with the 2006 and 2007 Taxes were reduced from $125,000 to $40,000. During January 2014, Regional made a payment
arrangement with the VDOT to pay the amounts due in connection with the 2006 and 2007 Taxes through monthly payments of $3,000
beginning February 2014 and continuing until all amounts have been paid. As of December 31, 2013, Regional has accrued $40,000
in connection with the 2006 and 2007 Taxes and $10,000 for estimated Virginia sales and use taxes for the period August 2012 through
December 2013.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G — INCOME TAXES - Continued
During May 2013, the Partnership received a
notice from the State of California Franchise Tax Board (“CAFTB”) that indicated the Partnership was liable
for late filing penalties of approximately $316,000 in connection with the short tax year return (“Short Tax Year Return”)
filed for the period January 1, 2011 through May 26, 2011 as a result of a technical termination that occurred under Section 708(b)
of the Code. The Partnership had previously been granted an extension by the IRS to file the federal Short Year Tax Return to the
time that the Partnership’s 2011 federal tax return would have been due had a technical termination not occurred. The Partnership
filed a request with the CAFTB to have the penalties removed based on the hardship that the IRS had considered in granting the
Partnership its extension for filing the federal Short Tax Year Return. During September 2013, the Partnership received confirmation
from the CAFTB that the penalties were removed.
Included in selling, general, administrative
expenses and other during the year ended December 31, 2013, the Partnership recorded a net reduction of tax penalties totaling
$977,000 which is comprised of $1,119,000 related to reductions of the prior accrual of penalties associated with delinquent 2008
and 2009 partnership federal and state tax returns, partially offset by the additional reserve of $142,000 in connection with the
remaining outstanding 2012 IRS Penalties.
The Partnership is required to deliver Schedules
K-1 for the 2014 Tax Year to its Unitholders by April 15, 2015 unless the Partnership applies for an automatic extension to September
15, 2015, which it intends to do. Regional is required to file its federal and state income tax returns for the 2014 Tax Year by
March 16, 2015 unless the Partnership applies for an automatic extension to September 15, 2015, which it has done.
NOTE H — PARTNERS’ CAPITAL
General Partner Interest
The General Partner owns a 2% general partner
interest in the Partnership (“GP Interests”). The General Partner generally has unlimited liability for the
obligations of the Partnership, such as its debts and environmental liabilities, except for those contractual obligations of the
Partnership that are expressly made without recourse to the General Partner. Losses incurred by Regional are allocated to the capital
accounts of Unitholder’s of the Partnership in the accompanying consolidated financial statements based on the overall Unitholder’s
ownership interest in the Partnership even though such losses will not be recognized in the Unitholder’s Partnership capital
accounts until the Partnership’s investment in Regional is realized. The Partnership Agreement provides that capital accounts
of Unitholder’s of the Partnership cannot reflect a deficit balance, and that the General Partner shall be allocated any
amount of losses not allocated to the Unitholder’s individual capital accounts.
CEGP Investment
On November 26, 2013 (“Closing”),
the Partnership, the General Partner and CEGP Acquisition, LLC (“CEGP”) executed a definitive Purchase and Sale
Agreement (“PSA”) and certain other transaction documents which provided for (1) the sale of a 55% interest
in the General Partner to CEGP through the purchase of newly issued membership interests of the General Partner by CEGP and the
issuance of 3,000,000 Common Units to CEGP, (2) the issuance of performance warrants that provide the holders thereof with the
opportunity, but not the obligation, to acquire, in the aggregate, an additional 3,000,000 Common Units at an exercise price of
$0.093478, subject to adjustment, in the event the Partnership successfully completes one or more asset acquisition transactions
with an aggregate gross purchase price of at least $20 million within 12 months after closing (“Performance Warrants
”), (3) amending and restating the Registration Rights Agreement, (4) amending and restating the Company Agreement, and (5)
amending and restating the Partnership Agreement. The aggregate purchase price for the 55% membership interest in the General Partner,
the issuance of the 3,000,000 Common Units and the Performance Warrants was $2,750,000 (“Purchase Price”). At
the Closing, net proceeds of $2,350,000 were delivered to the General Partner and the Partnership (the Purchase Price less credits
for prior payments of $400,000 made to the General Partner and the Partnership in connection with stand-still agreements in place
until the execution of the PSA (“Stand-Still Payments”).
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H – PARTNERS’ CAPITAL –
Continued
CEGP Investment - continued
Of the total Purchase Price, the amount of
$280,434 was allocated to the price paid for the 3,000,000 Common Units. CEGP paid $240,434 to the Partnership at Closing from
the Net Proceeds, with the $40,000 balance of the purchase price for the 3,000,000 Common Units being a portion of the Stand-Still
Payments. The remaining amount of the Purchase Price, or $2,469,566, was allocated to the value of the 55% Membership Interest
of the General Partner, represented by 136,888.89 units issued to CEGP, and $2,109,566 was paid to the General Partner at Closing
from the Net Proceeds with the balance of $360,000 being the attributed portion of the Stand-Still Payments.
In addition to the conditions set forth above,
the PSA provided, as a condition to closing, (a) the execution of a general release of claims in favor of the General Partner by
Messrs. Imad K. Anbouba, Chief Executive Officer and President of the General Partner, and Carter R. Montgomery, Executive
Vice President of Corporate Development of the General Partner, in exchange for the payment of (1) 20% of the accrued but
unpaid salaries and business expenses of Messrs. Anbouba and Montgomery and (2) the severance payment of $240,000 owed to
each such officer under the terms of their respective employment agreements in connection with a “change of control”
event, (b) the payment to Mr. Ian T. Bothwell, Executive Vice President and Secretary of the General Partner for all
accrued but unpaid salary and business expenses, as well as all accrued and unpaid office rent associated with the agreement between
the General Partner and Rover Technologies, LLC, an affiliate of Mr. Bothwell, for the lease of office space in Manhattan
Beach, California, where he resides, as of the date of the PSA, (c) the termination of the existing Buy-Sell Agreement between
Cushing and Messrs. Anbouba and Montgomery, (d) the appointment of G. Thomas Graves III as Chairman of the Board of Directors and
John L. Denman, Jr. as the Chief Executive Officer and President of the General Partner, and (e) reconstituting the Board of Directors
of the General Partner to nine (9) members, five (5) of which are to be appointed by CEGP.
With the completion of the CEGP Investment,
CEGP now holds 55% of the issued and outstanding membership interests in the General Partner, and appoints five (5) of the nine
(9) members of the Board of the General Partner. As a result, CEGP controls the General Partner. In addition, CEGP holds 3,000,000
Common Units, which represent 15.3% of the issued and outstanding Common Units of the Partnership. Prior to execution of the PSA,
Messrs. Imad K. Anbouba and Carter R. Montgomery and the Cushing Fund controlled the General Partner and had controlling authority
over the Partnership. CEGP is a Texas limited liability company controlled by John L. Denman, Jr. and G. Thomas Graves III. Upon
completion of the CEGP Investment, Mr. Denman replaced Mr. Anbouba as CEO and President of the General Partner and Mr. Graves was
appointed as the Chairman of the Board replacing Mr. Jerry V. Swank. As a result of the issuance of new membership interests in
the General Partner described above, Messrs. Imad K. Anbouba and Carter R. Montgomery and the Cushing Fund respective interests
in the General Partner were reduced from 30.17%, 30.17% and 25.0% to 13.58%, 13.58% and 11.25%.
General Partner Capital Raise
In August 2014, the Board of Directors of the
General Partner recommended a capital call of $750,000 to fund working capital needs. This recommendation was approved by the requisite
percentage of members on August 7, 2014 pursuant to the terms of the General Partner’s company agreement. On September 8,
2014, the General Partners offered 15,000 membership interests at a value of $50.00 per interest to each of its members in accordance
with the provisions of its company agreement. As of November 3, 2014, the offered membership interests were fully subscribed. The
offer of the membership interests was made in accordance with Section 4(2) of the Securities Act of 1933, as amended, and Regulation
D. No placement agent or broker was involved in the transaction.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H – PARTNERS’ CAPITAL –
Continued
Common Units
The Common Units represent limited partner
interests in the Partnership and 98% of its outstanding capital. The holders of Common Units (“Unitholders”)
are entitled to participate in the Partnership’s distributions and exercise the rights or privileges available to limited
partners under the Partnership Agreement. The Unitholders have only limited voting rights on matters affecting the Partnership.
Unitholders have no right to elect the General Partner or its directors on an annual or other continuing basis. CEGP, as the “Majority
Member” of the General Partner, has the right to appoint five (5) persons to serve as directors of the General Partner, including
not less than two (2) persons who qualify as “independent” under the rules and regulations of the SEC. Each of Messrs.
Imad K. Anbouba and Carter R. Montgomery and the Cushing Fund, as the “Appointing Minority Members”, each have the
right to appoint one (1) person to serve as a director of the General Partner. In addition, the Appointing Minority Members collectively
have the right to appoint one (1) person to serve as a director from time to time, which person qualifies as “independent”
under the rules and regulations of the SEC. Although the General Partner has a fiduciary duty to manage the Partnership in a manner
beneficial to the Partnership and its Unitholders, the directors of the General Partner also have a fiduciary duty to manage the
General Partner in a manner beneficial to the holders of the membership interests in the General Partner.
The General Partner generally may not be removed
except upon the vote of the holders of at least 80% of the outstanding Common Units; provided, however, if at any time any person
or group, other than the General Partner and its affiliates, or a direct or subsequently approved transferee of the General Partner
or its affiliates, acquires, in the aggregate, beneficial ownership of 20% or more of any class of units of the Partnership then
outstanding, that person or group will lose voting rights on all of its units and the units may not be voted on any matter and
will not be considered to be outstanding when sending notices of a meeting of Unitholders, calculating required votes, determining
the presence of a quorum or for other similar purposes, unless such provision is waived by the General Partner. (The General Partner
has waived this provision with respect to the 7,413,013 Common Units held by the Cushing Fund as described below.) In addition,
the Partnership Agreement contains provisions limiting the ability of holders of Common Units to call meetings or to acquire information
about Central’s operations, as well as other provisions limiting the Unitholders ability to influence the manner or direction
of management.
Private Placement of Common Units
In connection with the CEGP Investment, the
Partnership sold 3,000,000 Common Units to CEGP for $280,434 in cash. In addition, under the terms of the PSA, the Partnership
issued the Performance Warrants to JLD Services, Ltd. and Mr. G. Thomas Graves III, for consideration of $500.00 each (see Note
I – Unit Options).
Distributions of Available Cash
The Partnership Agreement provides that all
Unitholders have the right to receive distributions from the Partnership of “available cash” as defined in the Partnership
Agreement in an amount equal to at least the minimum distribution of $0.25 per quarter per Common Unit, plus any arrearages in
the payment of the minimum quarterly distribution on the Common Units from prior quarters subject to any reserves determined by
the General Partner. The General Partner has a right to receive a distribution corresponding to its 2% General Partner interest
and the incentive distribution rights described below. The distributions are to be paid within 45 days after the end of each calendar
quarter.
The Partnership has not made any distributions
since August 18, 2008 for the quarter ended June 30, 2008. Since the Sale in November 2010, the members of the General Partner
have held more than 80% of the total issued and outstanding Common Units of the Partnership and, therefore, control any Limited
Partner vote on Partnership matters. In December 2010, the General Partner and Limited Partners holding more than a majority of
the issued and outstanding Common Units of the Partnership approved an amendment to the Partnership Agreement to provide that the
Partnership was no longer obligated to make distributions of “Common Unit Arrearage” or “Cumulative Common Unit
Arrearages” pursuant to the terms of the Partnership Agreement in respect of any quarter prior to the quarter beginning October
1, 2011. The impact of this amendment is that the Partnership was not obligated to Unitholders for unpaid minimum quarterly distributions
prior to the quarter beginning October 1, 2011 and Unitholders would only be entitled to minimum quarterly distributions arising
from the quarter beginning October 1, 2011 and thereafter. This amendment was incorporated into the Partnership Agreement in April
2011.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H – PARTNERS’ CAPITAL –
Continued
Distributions of Available Cash –
continued
Based on Central’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.
The ability of the Partnership to make distributions will be impacted by many factors including the ability to stabilize operations
at Regional, to successfully complete an accretive acquisition, the financing terms of debt and/or equity proceeds received to
fund ongoing Company operations and/or an acquisition, and overall success of the Partnership and its operating subsidiaries. The
impact of this amendment is that the Partnership is not obligated to Unitholders for unpaid minimum quarterly distributions until
such time as the Board of Directors of the General Partner reinstates the obligation to make minimum quarterly distributions. Unitholders
will only be entitled to minimum quarterly distributions arising from and after the date established by the Board of Directors
for making such distributions.
The Partnership does not have any available
cash to resume making minimum quarterly distributions to its Partners. Furthermore, the Partnership does not foresee the ability
to make quarterly distributions for the foreseeable future. The Partnership’s current cash flow will not support the minimum
quarterly distribution of $0.25 per Common Unit as set forth in the Partnership Agreement. As a result, the General Partner anticipates
adjusting the current minimum quarterly distribution in connection with any future acquisition of assets to more accurately reflect
the cash flows of the Partnership and the additional Common Units or other securities issued in connection with such acquisition.
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.
Incentive Distribution Rights
In addition to its 2% General Partner interest,
the General Partner is currently the holder of incentive distribution rights which entitled the holder to an increasing portion
of cash distributions as described in the Partnership Agreement. As a result, cash distributions from the Partnership are shared
by the Unitholders and the General Partner based on a formula whereby the General Partner receives disproportionately more distributions
per percentage interest than the holders of the Common Units as annual cash distributions exceed certain milestones.
The General Partner has the right, at any time
when Unitholders have received distributions for each of the four most recently completed quarters and the amount of each such
distribution did not exceed the adjusted operating surplus of the Partnership for such quarter, to reset the minimum quarterly
distribution and the target distribution levels based on the average of the distributions actually made for the two most recent
quarters immediately preceding the reset election. Following a reset election, the minimum quarterly distribution will be adjusted
to equal the reset minimum quarterly distribution, and the target distribution levels will be reset to correspondingly higher levels
based on percentage increases above the reset minimum quarterly distribution.
If the General Partner elects to reset the
target distribution levels, the holder of the incentive distribution rights will be entitled to receive their proportionate share
of a number of Common Units derived by dividing (i) the average amount of cash distributions made by the Partnership for the two
full quarters immediately preceding the reset election by (ii) the average of the cash distributions made by the Partnership in
respect of each Common Unit for the same period. Our General Partner will also be issued the number of general partner units necessary
to maintain its 2% general partner’s interest in the Partnership that existed immediately prior to the reset election at
no cost to the General Partner.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H – PARTNERS’ CAPITAL -
Continued
Incentive Distribution Rights –
continued
We anticipate that our General Partner would
exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive
to cash distributions per Common Unit without such conversion. It is possible, however, that our General Partner could exercise
this reset election at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives
related to its incentive distribution rights and may, therefore, desire to be issued Common Units rather than retain the right
to receive distributions based on the initial target distribution levels. This risk could be elevated if our incentive distribution
rights have been transferred to a third party. As a result, a reset election may cause our Unitholders to experience a reduction
in the amount of cash distributions that they would have otherwise received had we not issued new Common Units and general partner
interests in connection with resetting the target distribution levels. Additionally, our General Partner has the right to transfer
our incentive distribution rights at any time, and such transferee shall have the same rights as the General Partner relative to
resetting target distributions if our General Partner concurs that the tests for resetting target distributions have been fulfilled.
NOTE I — UNIT OPTIONS
Incentive Plans
On March 9, 2005, the General Partner established
the 2005 Equity Incentive Plan of Rio Vista Energy Partners L.P. (“2005 Plan”). The 2005 Plan permits the grant
of options, appreciation rights, restricted common units and phantom units of Common Units of the Partnership to any person who
is an employee or director of, or consultant to, the Partnership or the General Partner or any affiliate of the Partnership (the
“Partnership Entities”). The plan provides anti-dilution protection as determined by the Compensation Committee
for a combination, exchange or extra-ordinary distribution of Common Units, or reorganization, recapitalization or any similar
event affecting the Common Units or other securities of the Partnership. There were 750,000 Common Units authorized for issuance
as awards under the 2005 Plan. The 2005 Plan remains available for the grant of awards until March 9, 2015, or such earlier date
as the Board of the General Partner may determine. As the result of the grant of Common Units to non-executive directors of the
General Partner as described below, there are 47,310 Common Units remaining for issuance under the 2005 Plan as of December 31,
2014.
On March 26, 2014, the Board of Directors of
the General Partner authorized and approved the 2014 Long-Term Incentive Plan of Central Energy Partners, LP (“2014 Plan”).
The 2014 Plan permits the grant of incentive and non-incentive Common Unit Options, Common Unit Appreciation Rights, Restricted
Common Unit Grants, Common Units, Common Unit Value Equivalents and Substitute Awards to employees and directors of the Partnership
Entities. The Compensation Committee may grant the recipient of an award, other than a Common Unit grant, the right to receive
an amount equal to the minimum quarterly distributions associated with the Common Units which are the subject of an award. All
awards, except an outright grant of Common Units, are subject to forfeiture upon termination of an executive officer, employee
or director for any reason unless the Compensation Committee establishes other criteria in the award grant. The 2014 Plan provides
anti-dilution protection for the recipient of an award in the case of a reorganization, combination, exchange or extra-ordinary
distribution of Common Units, a merger, consolidation or combination of the Partnership with another entity, or a “change
of control” of the Partnership or the General Partner. The 2014 Plan remains in effect until December 31, 2023, unless sooner
terminated by the Board of Directors of the General Partner in accordance with its terms. The 2014 Plan authorizes the issuance
of up to 3,300,000 Common Units, subject to amendment to increase the amount of authorized Common Units. As a result of the grant
of Common Units to executive officers of the General Partner, Regional, and directors of the General Partner as summarized below,
there are 1,950,000 Common Units remaining for issuance under the 2014 Plan as of December 31, 2014.
Each of the 2005 Plan and the 2014 Plan are
administered by the Compensation Committee of the Board. In addition, the Board may exercise any authority of the Compensation
Committee under the 2005 Plan. The Compensation Committee has broad discretion in issuing awards under either plan and amending
or terminating either plan. Under the terms of the Partnership Agreement, no approval of either the 2005 Plan or the 2014 Plan
by the Limited Partners of the Partnership is required.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I — UNIT OPTIONS - Continued
Incentive Plans – continued
Grant of Restricted Common Unit Options
to Executive Officers
On March 26, 2014, the Board of Directors of
the General Partner approved the recommendation of the Board’s Compensation Committee to grant restricted Common Units (the
“Restricted Units”) to the executive officers of the General Partner and Regional. The Compensation Committee
finalized the terms of the Restricted Common Unit Restricted Unit Agreement, the form of which is attached to this Report (the
“Restricted Unit Agreement”), and delivered such Restricted Unit Agreements to each of the executive officers
on May 16, 2014, granting the number of Restricted Units as set forth in the following table:
| Award Recipient |
|
Number of Restricted Units |
| |
|
|
| John L. Denman, Jr. |
|
500,000 |
| |
|
|
| G. Thomas Graves, III |
|
300,000 |
| |
|
|
| Douglas W. Weir |
|
250,000 |
| |
|
|
| Ian T. Bothwell |
|
75,000 |
| |
|
|
| Daniel P. Matthews |
|
75,000 |
The grant of the Restricted Units is made in
consideration of the services to be rendered by an executive officer to the Partnership Entities. The Restricted Unit Agreement
provides the award recipient the right to purchase the designated number of Common Units at an exercise price established by the
final trade price of a Common Unit on the date of grant (May 16, 2014) or, if no trade occurred on the date of grant, the average
bid and asked price on that date as quoted by OTC Pink. There was no trade in the Common Units on May 16, 2014, and the average
bid and asked price on that date was $0.09. Each grant of Restricted Units expires on May 16, 2019.
The Restricted Units are awards of Common Units
that are subject to restrictions on transferability and a substantial risk of forfeiture and are intended to retain and motivate
members of management of the Partnership Entities. Award recipients have all the rights of a Unitholder in the Partnership with
respect to the Restricted Units, including the right to receive distributions thereon if and when distributions are made by the
Partnership to other Unitholders. The Restricted Units vest and the forfeiture restrictions lapse in substantially equal one-third
(1/3) increments on each of May 16, 2015, May 16, 2016, and May 16, 2017.
If an award recipient’s service with
the Partnership Entities is terminated prior to full vesting of the Restricted Units due to death or “disability” (as
defined in the Restricted Unit Agreement) or if the award recipient’s employment with the Partnership Entities is terminated
for “good reason” (as defined in the Restricted Unit Agreement) or by a Partnership Entity without “cause”
(as defined in the Restricted Unit Agreement), then all Restricted Units will immediately vest in full as of the date of such termination.
If an award recipient’s service with a Partnership Entity is terminated prior to full vesting of the Restricted Units for
any other reason, then the award recipient will forfeit all unvested Restricted Units to the Partnership. In the event of an award
recipient’s termination from service without “cause” or for “good reason” within two (2) years
following the occurrence of a change of control, all unvested Restricted Units will become immediately vested in full. The Restricted
Units are subject to anti-dilution protections as provided in the Restricted Unit Agreement. The Partnership is obligated to register
the Restricted Units with the U.S. Securities and Exchange Commission (the “Commission”) pursuant to a Form
S-8 registration statement.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I — UNIT OPTIONS - Continued
Incentive Plans – continued
Grant of Common Units to Directors under
the 2005 Plan
At meetings held on December 19, 2013 and March
26, 2014, the Board of Directors of the General Partner approved the recommendation of its Compensation Committee to grant 375,000
Common Units to its non-executive directors under the 2005 Plan. The Compensation Committee finalized the terms of the Common Unit
Grant Agreement (the “Grant Agreement”) and delivered such Grant Agreements to each of the non-executive directors
on May 16, 2014, granting the number of Common Units as set forth in the following table:
| Award Recipient |
|
Number of Common Units |
| |
|
|
| Alan D. Bell |
|
75,000 |
| |
|
|
| Alexander C. Chae |
|
75,000 |
| |
|
|
| William M. Comegys III |
|
75,000 |
| |
|
|
| Robert H. Lutz |
|
75,000 |
| |
|
|
| Michael T. Wilhite |
|
75,000 |
The Common Units have been awarded to each
of the directors for their service to the Partnership Entities in lieu of cash compensation. The Common Units awarded to each director
have the value per Common Unit as established by the final trade price of a Common Unit on May 16, 2014 or, if no trade occurred
on that date, the average bid and asked price on such date. The award recipient is the owner of the Common Units effective May
16, 2014 until such date as the Common Units are sold by such recipient and shall have all of the rights of a Unitholder of the
Partnership. The Common Units are subject to anti-dilution protections as provided in the
Restricted Unit Agreements. The Partnership
is obligated to register the Common Units with the Commission pursuant to a Form S-8 registration statement.
Grant of Common Units to Directors under
the 2014 Plan
On March 26, 2014, the Board of Directors of
the General Partner approved the recommendation of its Compensation Committee to grant 75,000 Common Units to each of Imad K. Anbouba,
a director of the General Partner and its former Chief Executive Officer, and Swank Investment Partners LP, an affiliate of The
Cushing
MLP Opportunity Fund I, L.P., which is the
largest holder of Common Units and for which Daniel L. Spears, one of the directors of the General Partner, serves as portfolio
manager. The Compensation Committee finalized the terms of the Common Unit Grant Agreements for such awards, the form of which
is attached to this Report, and delivered such grant agreements to each of Mr. Anbouba and Swank Investment Partners on May 16,
2014. These grant agreements have the same terms and conditions as the Grant Agreements issued under the 2005 Plan.
Options and Warrants Outstanding
A summary of the status of the Partnership’s
options and warrants for the years ended December 31, 2013 and 2014, and changes during the years ending on these dates are presented
below. There were no options or warrants granted during the year ended December 31, 2013, except for the Performance Warrants.
There were 1,200,000 options issued in 2014 as previously described.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I — UNIT OPTIONS - Continued
Incentive Plans – continued
| | |
2013 | | |
2014 | |
| Options | |
Common
Units | | |
Weighted
Average
Exercise Price | | |
Common
Units | | |
Weighted
Average
Exercise Price | |
| Outstanding at beginning of year | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
| Granted | |
| 3,000,000 | | |
$ | 0.09 | | |
| 4,200,000 | | |
$ | 0.09 | |
| Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
| Expired | |
| - | | |
| - | | |
| 3,000,000 | | |
$ | 0.09 | |
| Outstanding at end of year | |
| - | | |
| - | | |
| 1,200,000 | | |
$ | 0.09 | |
| Options exercisable at end of year | |
| - | | |
| - | | |
| - | | |
| - | |
NOTE J — COMMITMENTS AND CONTINGENCIES
Legal Proceedings
VOSH Actions
On July 25, 2005, an equipment failure during
the loading of nitric acid from a railcar to a tanker truck resulted in a release of nitric acid and injury to an employee of Regional.
Cleanup costs totaled approximately $380,000 in 2005 and were covered entirely by reimbursement from Regional’s insurance
carrier. Several lawsuits against Regional were filed by property owners in the area. All of these suits were settled for an aggregate
amount of $115,000, which was within insurance coverage limits. The Virginia Department of Labor and Industry, Occupational Safety
and Health Compliance (“VOSH”) issued a citation against Regional on October 7, 2005 seeking a fine of $4,500.
Regional requested withdrawal of the citation and disputed the basis for the citation and the fine. On June 18, 2007, the Commissioner
of Labor and Industry filed suit against Regional in the Circuit Court for the City of Hopewell for collection of the unpaid fine.
The citation arose from allegations that Regional had failed to evaluate properly the provision and use of employer-supplied equipment.
During September 2012, the Court dismissed the citations after a bench trial. In January 2013, the final order in the matter was
issued by the Court. VOSH did not request an appeal of the decision by the required due date.
On November 27, 2005, an employee of Regional
died following inhalation of turpentine vapors. Under Virginia law, recovery by the deceased employee’s estate was limited
to a workers compensation claim, which was closed on April 20, 2007 for the amount of $11,000. The Virginia Department of Labor
and Industry, Occupational Safety and Health Compliance issued a citation against Regional on May 24, 2006 seeking a fine of $28,000.
Regional requested withdrawal of the citation and disputed the basis for the citation and the fine. The amount of the fine is not
covered by insurance. On June 18, 2007, the Commissioner of Labor and Industry for the Commonwealth of Virginia filed suit against
Regional in the Circuit Court for the City of Hopewell for collection of the unpaid fine. There were four citations involved in
the case referenced above.
One of the citations arose from the Commissioner's
allegations that Regional had exposed this employee to levels of hydrogen sulfide gas in excess of the levels permitted by applicable
regulations. Another citation arose from the Commissioner's allegations that Regional had not provided respiratory protection equipment
needed to protect this employee from hazards in the workplace. The other two citations arose from the Commissioner's allegations
that Regional had not evaluated the need for respiratory equipment in this work environment and had not evaluated the need to create
a confined-space permit entry system for the employee's work in taking a sample of turpentine from the top of the railcar. During
September 2012, the Court dismissed the first two citations after a bench trial. The Court subsequently dismissed the remaining
two citations. In April 2013, the final order in the matter was issued by the Court. VOSH did not request an appeal of the
decision by the required due date.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J — COMMITMENTS AND CONTINGENCIES
- Continued
Legal Proceedings - continued
TransMontaigne Dispute
Rio Vista Operating Partnership L.P. (“RVOP”)
is a subsidiary of the Partnership which held liquid petroleum gas assets located in southern Texas and northern Mexico contributed
(“LPG Assets”) to it by Penn Octane Corporation upon formation of the Partnership. It sold all of the LPG Assets
to TransMontaigne in two separate transactions. The first transaction included the sale of substantially all of its U.S. assets,
including a terminal facility and refined products tank farm located in Brownsville, Texas and associated improvements, leases,
easements, licenses and permits, an LPG sales agreement and its LPG inventory in August 2006. In a separate transaction, RVOP sold
its remaining LPG Assets to affiliates of TransMontaigne, including Razorback L.L.C. (“Razorback”) and TMOC
Corp., in December 2007. These assets included the U.S. portion of two pipelines from the Brownsville terminal to the U.S. border
with Mexico, along with all associated rights-of-way and easements and all of the rights for indirect control of an entity owning
a terminal site in Matamoros, Mexico. The Purchase and Sale Agreement dated December 26, 2007 (“Purchase and Sale Agreement”)
between Razorback and RVOP provided for working capital adjustments and indemnification under certain circumstances.
In connection with previous demands for indemnification
by Razorback received by RVOP under the Purchase and Sale Agreement, RVOP and certain of its affiliated parties (“Seller
Affiliates”) and Razorback and certain of its affiliated parties (“Buyer Affiliates”) executed a Compromise
Settlement Agreement and General Release (“Settlement Agreement”) effective as of October 14, 2013. Under the
terms of the Settlement Agreement, the Seller Affiliates paid $125,000 to Razorback in full satisfaction of all claims asserted
by Razorback or Buyer Affiliates against RVOP or Seller Affiliates as of the date of the Settlement Agreement or any future claims
that may be asserted by Razorback or any of the Buyer Affiliates against RVOP or any of the Seller’s Affiliates other than
the claim asserted against Razorback by Cardenas Development Co. (“Cardenas Claim”). RVOP remains responsible
for any Losses (as defined in the Settlement Agreement) resulting from the Cardenas Claim in an amount not to exceed $50,000 (“Contingent
Payment”). In connection with the Settlement Agreement, each of the parties released each other from any other future
claims that may arise as a result of the Purchase and Sale Agreement (except for the Contingent Payment). For the year ended December
31, 2013, RVOP recorded other income of approximately $108,000 representing the reduction of accrued reserve amounts to reflect
RVOP’s maximum remaining exposure under the Settlement Agreement of $50,000.
SGR Energy LLC
On July 1, 2013, Regional filed suit in the
United States District Court for the Eastern District of Virginia, “Regional Enterprises, Inc. v. SGR Energy, LLC, Civil
Action No. 3:13v418” (“Litigation”) in connection with SGR Energy, LLC’s (“SGR”)
failure to make the required payments due to Regional under the terms of a services agreement between the parties pursuant to which
Regional stored and transported product for SGR. In connection with the Litigation, Regional was seeking payment of all amounts
owing under the services agreement including the costs associated with removal of the product stored at Regional’s facilities
on behalf of SGR and the cleanup of the facilities as provided for under the terms of the services agreement.
On August 16, 2013, SGR filed an answer and
counterclaim to the Litigation (“Counterclaim”), which denied certain claims made by Regional in the Litigation
and made counter claims against Regional including, breach of contract and tortuous interference with contract. SGR was seeking
actual and compensatory damages.
On August 20, 2013, Regional and SGR entered
into a Settlement and Mutual Release agreement (“Settlement Agreement”). Under the terms of the Settlement Agreement,
SGR agreed to make payments to Regional of all past due amounts in exchange for Regional agreeing to release the product from storage.
SGR also agreed to place proceeds to be received from the sale of the product in the amount of $290,000 (“Escrow Amount”)
into an escrow account to be distributed by an escrow agent (“Escrow Agent”) in accordance with the Settlement
Agreement.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J — COMMITMENTS AND CONTINGENCIES
- Continued
Legal Proceedings – continued
The Escrow Amount was to be used to secure
SGR’s obligation to clean and vacate the tank by October 1, 2013 and the payment of the minimum rents as prescribed under
the services agreement, which provide for rents to continue until the time that SGR has satisfactorily completed the cleanup of
the facilities and vacated the tank. In connection with the Settlement Agreement, SGR and Regional agreed to dismiss the Litigation
and Counterclaim without prejudice by agreed stipulation. SGR did not make all of the payments required and did not clean and vacate
the tank as prescribed under the Settlement Agreement and the Escrow Agent did not distribute the Escrow Amount to Regional as
prescribed under the Settlement Agreement.
On October 15, 2013, Regional, SGR and the
Escrow Agent entered into a final settlement and mutual release agreement (“Final Release”) whereby the parties
agreed that Regional would receive $250,000 of the Escrow Amount and SGR would receive $40,000 of the Escrow Amount. In addition,
Regional agreed to be responsible for cleaning the tank, although SGR agreed that it would accept responsibility as the generator
of any wastes which were collected and disposed of in connection with the cleaning of the facilities and the services agreement
was terminated. Under the terms of the Final Release, all parties provided full releases to each other. The Escrow Amount received
by Regional was sufficient to cover all the costs required to complete the cleaning of the tank, all amounts owing from SGR as
of the date of the Final Release, and to pay the costs of litigation which Regional incurred in connection with the aforementioned
litigation.
Other
Central is involved with other proceedings,
lawsuits and claims in the ordinary course of its business. Central believes that the liabilities, if any, ultimately resulting
from such proceedings, lawsuits and claims should not materially affect its consolidated financial results.
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 the IRS’ appeals unit that the above matter was under review. A telephonic meeting took place in January 2013 whereby
the appeals unit determined that Regional did not meet the conditions of a terminal operator which handled taxable fuels and that
the matter was dismissed. During March 2013, Regional received formal notification from the IRS that the matter was dismissed with
no further action required by Regional. 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.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J — COMMITMENTS AND CONTINGENCIES
- Continued
Leases
Penske Truck Lease
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, 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 Maintenance Agreement is 84 months from the date a vehicle
is placed in service and subject to the agreement. Regional is obligated to maintain liability insurance coverage on all vehicles
subject to the Maintenance Agreement naming Penske as a co-insured and indemnifying 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. Regional, in certain instances, continues to perform minor maintenance to its
owned tractor and tanker fleet.
On February 17, 2012, Regional entered into
a Vehicle Lease Service Agreement with Penske for the purpose of leasing 20 new Volvo tractors (“Leased Tractors”)
to be acquired by Penske and leased to Regional, and the outsourcing of the maintenance of the Leased 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 Leased Tractor during each month. The
Maintenance Charge covers all scheduled maintenance, including tires, to keep the Leased 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 Leased Tractors
by Regional. In connection with the delivery of the Leased Tractors, Regional sold its remaining owned tractor fleet, except for
several owned tractor units which were retained to be used for terminal site logistics.
The term of the Lease Agreement is for seven
years. The Leased 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 Leased 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 Leased Tractors based on a documented downturn in business. On May 31, 2013, Regional notified
Penske of its intent to terminate the lease arrangement effective June 15, 2013, for five Leased Tractors as provided in the Lease
Agreement due to a decline in Regional’s transportation business. . In January 2015, Regional approached Penske about terminating
the lease arrangement for an additional five tractors due to a continued decline in its hauling business. Penske agreed to terminate
the lease for the five tractors at a cost of $50,000 ($10,000 per tractor), which amount is being paid in three monthly installments
commencing in January 2015. As a result of these partial terminations, Regional now leases 10 tractors pursuant to the Lease Agreement.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J — COMMITMENTS AND CONTINGENCIES
- Continued
Leases – continued
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 Leased Tractors wherever
located or, upon five (5) days written notice to Regional, either require Regional to purchase any or all of the Leased Tractors
or make the “alternative payment” described below. In addition, Regional is obligated to pay all lease charges
for all such Leased Tractors accrued and owing through the date of the notice from Penske as described above. Penske’s ability
to require Regional to purchase the Leased Tractors 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 Leased Tractor 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 Leased 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 Leased 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 Leased
Tractor that is the subject of the termination or pay Penske the “alternative payment” as described above.
Other
Regional has several leases for parking and
other facilities which are short-term in nature and can be terminated by the lessors or Regional upon giving 60 days’ notice
of cancellation. Rent expense for all operating leases was $454,000 and $418,000 for the years ended December 31, 2013 and 2014,
respectively.
Tank Storage and Terminal Services Agreements
On November 30, 2000, Regional renewed a Storage
and Product Handling Agreement with a customer with an effective date of December 1, 2000 (“Asphalt Agreement”).
The Asphalt Agreement provides for the pricing, terms and conditions under which the customer will purchase terminal services and
facility usage from Regional for the storage and handling of the customer’s asphalt products. The Asphalt Agreement was amended
on October 15, 2002 with an effective date of December 1, 2002 (“Amended Asphalt Agreement”). The term of the
Amended Asphalt Agreement was five years with an option by the customer for an additional five-year renewal term, which the customer
exercised in July 2007. After the additional five-year term, the Amended Asphalt Agreement has been renewed automatically for successive
one-year terms through November 30, 2013. During July 2013, Regional provided written notice in accordance with the Asphalt Agreement
that it did not intend to renew the Asphalt Agreement under the existing terms.
On March 19, 2012, one of the storage tanks
(“Storage Tank”) leased under the Amended Asphalt Agreement was discovered to have a leak. During April 2012,
after removal of the existing product from the Storage Tank, the customer of the Storage Tank was notified by Regional that the
Storage Tank was no longer available for use until necessary repairs were completed. Lost revenue with respect to the Storage Tank
totaled approximately $250,000 and $0 during the years ended December 31, 2013 and 2014, respectively, bringing the total lost
revenue to $475,000. The repairs to the Storage Tank were completed at a total cost of $350,000 (of which $75,000 was incurred
during the year ended December 31, 2013) and the tank was placed back in service during November 2013. Regional’s insurance
providers have notified Regional that the incident did not fall within insurance coverage limits.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J — COMMITMENTS AND CONTINGENCIES
– Continued
Tank Storage and Terminal Services Agreements
- continued
On October 31, 2013, Regional and a new customer
entered into an agreement (“New Asphalt Agreement”) with a commencement date of December 1, 2013 or the date
that Regional completes certain rail upgrades as more fully described in the New Asphalt Agreement, whichever was later. The New
Asphalt Agreement provides for the pricing, terms and conditions under which the customer will purchase terminal services and facility
usage from Regional for the storage and handling of the customer’s asphalt products. In connection with the New Asphalt Agreement,
Regional is required to fund during the first nine months of the New Asphalt Agreement up to $465,000 (which amount has been fully
expended) for refurbishment of certain assets and modifications to the existing facilities to provide for greater efficiencies
and extended logistical capabilities (“Regional Upgrade Commitment”). To date, Regional has installed and implemented
the necessary upgrades to its terminal automation system, completed the refurbishment of the two smaller idle tanks, and completed
modifications to its rail terminal to accommodate an additional five railcars. Regional is in discussions with Norfolk Southern
to acquire additional land and track necessary to accommodate a further five railcars and is in discussions with the local gas
supply company to finalize the design and installation of the necessary pipeline and equipment to supply natural gas to the company’s
hot oil heater and steam boiler. The Regional Upgrade Commitment is insufficient to complete all of the Asphalt Upgrades. As a
result, per the terms of the New Asphalt Agreement, the parties are in discussions to (a) determine if any of the Asphalt Upgrades
should be modified and (b) reach mutually satisfactory arrangements for the assumption of any additional funding commitments by
either party. The term of the New Asphalt Agreement is four years from the commencement date and automatically extends for additional
2-year periods unless either party provides 180 days written notice to cancel. During the term of the New Asphalt Agreement, Regional
agrees to provide up to five storage tanks and certain related equipment improvements and modifications, including 10 additional
rail siding slots, to the customer on an exclusive basis as well as access to Regional’s barge docking facility. The New
Asphalt Agreement commenced on January 1, 2014.
On November 16, 1998, Regional renewed a Terminal
Agreement with a customer with an effective date of November 1, 1998, as amended on April 5, 2001, October 11, 2001 and August
1, 2003 (“Fuel Oil Agreement”). The Fuel Oil Agreement provided for the pricing, terms and conditions under
which Regional provided terminal facilities and services to the customers for the delivery of fuel oil. Pursuant to the Fuel Oil
Agreement, Regional agreed to provide three storage tanks, certain related pipelines and equipment, and at least two tractor tankers
to the customer on an exclusive basis, as well as access to Regional’s barge docking facility. Under the terms of the Fuel
Oil Agreement, the customer paid an annual tank rental plus a product transportation fee calculated on a per 100 gallon basis,
each subject to annual adjustment for inflation. Regional agreed to deliver a minimum daily quantity of fuel oil on behalf of the
customer. During December 2008, the customer and Regional negotiated a new Fuel Oil Agreement whereby Regional was only required
to provide two storage tanks through May 2009 and one storage tank through November 30, 2011, which was subsequently extended through
February 28, 2014. The Fuel Oil Agreement was not extended upon the expiration.
During May 2014, Regional entered into a services
agreement with a customer with an effective date of May 22, 2014 and a termination date of November 30, 2015 (“Fuel Blend
Agreement”). The Fuel Blend Agreement provided for the pricing, terms, and conditions under which Regional provided terminal
facilities and services to the customer for the receipt, storage and distribution of a fuel blend oil. Pursuant to the Fuel Blend
Agreement, Regional provided one storage tank, certain related pipelines and equipment, necessary tractor tankers, as well as access
to Regional’s barge docking and rail facilities. In connection with the Fuel Blend Agreement, the customer was required to
provide Regional a security deposit of $320,000 of which Regional received $140,000 and Regional was granted a “possessory
lien” in any existing inventory in the tank to be used to secure obligations owing to Regional, including outstanding payments
owing to Regional and tank cleanup costs in connection with an event of a default. In exchange for use of Regional’s facilities
and services, the customer was required to pay a base monthly fee, a minimum incremental monthly fee and to reimburse Regional
for certain other terminal related costs.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J — COMMITMENTS AND CONTINGENCIES
– Continued
Tank Storage and Terminal Services Agreements
- continued
During October 2014, Regional notified the
customer that it was in default under the Fuel Blend Agreement and that it was terminating the Fuel Blend Agreement. The customer
has not paid any amounts due to Regional, including base monthly fees since September 2014. The customer has also failed to remove
the contents of the tank. Regional has applied the amount of the security deposit received towards outstanding amounts due from
the customer. Regional is currently taking steps to sell and/or remove the inventory held on the tank in a commercially reasonable
manner and will use any proceeds received from such sale/removal, if any, towards amounts due from the customer. At December 31,
2014, the financial statements do not reflect any allowance for amounts still owed by the customer in connection with the Fuel
Blend Agreement, including the default, as Regional estimates that the total amounts which may be received from the sale of the
inventory, if any, will be negligible. Regional is currently exploring its legal options with respect to collecting all amounts
due from the customer in connection with the default.
Regional believes that it will be successful
in the sale/removal of the inventory from the tank in a commercially reasonable manner and as a result has not reserved any amounts
at December 31, 2014 associated with disposal of the inventory. Regional is in discussion with several customers to lease the tank
once the product in the tank has been removed.
On September 27, 2007, Regional entered into
a terminal agreement with a customer with an effective date of June 1, 2008 and an expiration date of May 30, 2013 (“Hydroxide
Agreement”). The Hydroxide Agreement provided for the pricing, terms, and conditions under which Regional will provide
terminal facilities and services to the customer for the receipt, storage and distribution of sodium hydroxide. On May 21, 2013,
the Hydroxide Agreement was extended to August 31, 2013. On July 11, 2013, the parties entered into a new terminal agreement effective
June 28, 2013 and an expiration date of June 27, 2016, subject to being automatically renewed in one-year increments unless terminated
upon 120 days advance written notice by either party (“New Hydroxide Agreement”). Under the terms of the New
Hydroxide Agreement, either party may cancel the agreement at any time by providing 120 days advance written notice after the one
year anniversary of the effective date.
Pursuant to the New Hydroxide Agreement, Regional
agrees to provide two storage tanks, certain related pipelines and equipment, as well as access to Regional’s barge docking
and rail facilities. In exchange for use of Regional’s facilities and services, the customer pays an annual fixed tank rental
fee and variable fees based on excess of certain minimum levels of thru-put, plus a product transportation fee calculated on a
per run basis, each subject to annual adjustment for inflation. Regional also contracts with this customer to provide other transportation
and trans-loading services of specialty chemicals.
On March 1, 2012, Regional entered into a services
agreement with a customer with an effective date of March 1, 2012 and a termination date of February 28, 2015, subject to being
automatically renewed in one-year increments unless terminated upon 180 days advance written notice by either party (“SGR
Agreement”). The SGR Agreement provided for the pricing, terms, and conditions under which Regional would provide terminal
facilities and services to the customer for the receipt, storage and distribution of No. 6 oil. Pursuant to the SGR Agreement,
Regional provided one storage tank, certain related pipelines and equipment, necessary tractor tankers, as well as access to Regional’s
barge docking and rail facilities. In exchange for use of Regional’s facilities and services, the customer paid an annual
tank rental amount, plus loading and unloading fees. As part of the lease, Regional insulated the tank and made other modifications
to the tank and barge line. During October 2013, the SGR Agreement was terminated (see Note J – Legal Proceedings –
SGR Energy LLC).
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J — COMMITMENTS AND CONTINGENCIES
– Continued
Tank Storage and Terminal Services Agreements
- continued
During January 1, 2013, Regional entered into
a services agreement with a customer with an effective date of January 1, 2013 and a termination date of December 31, 2015 (“Asphalt
Additive Agreement”). The customer has the sole discretion to extend the term of the Asphalt Additive Agreement prior
to expiration for up to two successive one-year terms upon providing Regional 90 days advance written notice prior to expiration
of the Asphalt Additive Agreement. The Asphalt Additive Agreement provides for the pricing, terms, and conditions under which Regional
will provide terminal facilities and services to the customer for the receipt, storage and distribution of an asphalt additive.
Pursuant to the agreement, Regional agrees to provide one storage tank, certain related pipelines and equipment, necessary tractor
tankers, as well as access to Regional’s barge docking and rail facilities. In exchange for use of Regional’s facilities
and services, the customer pays an annual tank rental amount, plus loading and unloading fees.
During November 2013, Regional entered into
a services agreement with a customer with an effective date of November 1, 2013 and a termination date of April 30, 2014 (“Second
Asphalt Additive Agreement”). The Second Asphalt Additive Agreement automatically renews for 90 days unless either party
provides 60 days written notice to terminate prior to expiration, which is still in effect as of December 31, 2014. The Second
Asphalt Additive Agreement provides for the pricing, terms, and conditions under which Regional will provide terminal facilities
and services to the customer for the receipt, storage and distribution of an asphalt additive. Pursuant to the agreement, Regional
agrees to provide one storage tank, certain related pipelines and equipment, necessary tractor tankers, as well as access to Regional’s
barge docking and rail facilities. In exchange for use of Regional’s facilities and services, the customer pays an annual
tank rental amount, plus loading and unloading fees. In connection with the Second Asphalt Additive Agreement, Regional has the
right of first refusal to provide trucking services to the customer, provided Regional’s rates are competitive.
Employment Agreements
Messrs. Imad K. Anbouba and Carter R. Montgomery
During December 2010, the Board of Directors
of the General Partner approved employment agreements with each of Messrs. Imad K. Anbouba and Carter R. Montgomery, Executive
Officers of the General Partner. Each of the employment agreements provided, among other things, Messrs. Anbouba and Carter the
right to receive an annual salary of $80,000. In addition, in the event of a change of control of the General Partner, each of
Messrs. Montgomery and Carter were entitled to receive (i) all accrued and unpaid salary, expenses, vacation, bonuses and incentives
awarded prior to termination date (and all non-vested benefits shall become immediately vested), (ii) severance pay equal to 36
months times the employee’s current base monthly salary and (iii) for a period of 24 months following termination, continuation
of all employee benefit plans and health insurance as provided prior to termination.
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.
The Partnership had also failed to reimburse expenses to Messrs. Anbouba and Montgomery since September 2011.
In connection with the CEGP Investment, as
a condition to Closing, Messrs. Anbouba, Chief Executive Officer and President of the General Partner, and Montgomery, Executive
Vice President of Corporate Development of the General Partner, executed a general release of claims in favor of the General Partner
in exchange for the payment of (1) 20% of the accrued but unpaid salaries and business expenses of Messrs. Anbouba and Montgomery
and (2) the severance payment of $240,000 owed to each such officer under the terms of their respective employment agreements
as a result of a “change of control” event which occurred when CEGP acquired 55% of the membership interests of the
General Partner.
Mr. Ian T. Bothwell
On March 20, 2013, the Board approved an employment
agreement with Mr. Ian T. Bothwell, Executive Vice President, Chief Financial Officer and Secretary of the General Partner and
President of Regional (“Executive”). The general provisions of the employment agreement (“Agreement”)
include:
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J — COMMITMENTS AND CONTINGENCIES
– Continued
Employment Agreements – continued
| · | the term of employment is for a period of two years unless terminated as more fully described in
the Agreement; provided, that on the second anniversary and each annual anniversary thereafter, the Agreement shall be deemed to
be automatically extended, upon the same terms and conditions, for successive periods of one year, unless either party provides
written notice of its intention not to extend the term of the Agreement at least 90 days’ prior to the applicable renewal
date; |
| · | the Executive will serve as Executive Vice President, Chief Financial Officer and Secretary of
the General Partner and President of Regional; |
| · | the Executive will receive an annual salary of $275,000 (“Base Salary”) which
may be adjusted from time to time as determined by the Board of Directors of the General Partner (as more fully described in the
Agreement, Regional will pay a minimum of 75% of the Base Salary); |
| · | for each calendar year of the employment term, the Executive shall be eligible to receive a discretionary
bonus to be determined by the General Partner’s Board of Directors in its sole and absolute discretion; |
| · | the Executive shall be entitled to five weeks of paid vacation during each 12-month period of employment
beginning upon the effective date of the Agreement; |
| · | the Executive will be entitled to other customary benefits including participation in pension plans,
health benefit plans and other compensation plans as provided by the General Partner; |
| · | the Agreement terminates (a) upon death, (b) at any time upon notice from the General Partner for
cause as more fully defined in the Agreement, (c) by the General Partner, without cause, upon 15 days advance notice to the Executive,
or (d) by the Executive at any time for Good Reason (as more fully defined in the Agreement) or (e) by Executive without Good Reason
(as more fully defined in the Agreement) upon 15 days advance notice to the General Partner; |
| · | the Executive will be granted 200,000 Common Units of the Partnership under the General Partner’s
2005 Plan which shall vest immediately upon such grant as set forth in a separate Unit Grant Agreement between the Executive and
the General Partner. All of the terms and conditions of such grant shall be governed by the terms and conditions of the 2005 Plan
and the Unit Grant Agreement; and |
| · | in addition to any grants of Common Units or other securities of the Partnership as the Compensation
Committee of the Board may determine from time to time pursuant to one or more of the Partnership’s benefit plans, the General
Partner shall provide to the Executive one or more future grants of Common Units (“Contingent Grants”) of the
Partnership equal to the number of common units determined by dividing (1) one and one-half percent (1.5%) of the gross amount
paid for each of the next one or more acquisitions completed by the Partnership, and/or an affiliate of the Partnership during
the term of this Agreement, which gross amount shall not exceed $100 million (each an “Acquisition”), by (2) the average
value per common unit assigned to the equity portion of any consideration issued by the Partnership and/or an affiliate of the
Partnership to investors in connection with each Acquisition including any provisions for adjustment to equity as offered to investors,
if applicable. |
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J — COMMITMENTS AND CONTINGENCIES
– Continued
Employment Agreements – continued
In the event the General Partner does not extend
this Agreement after the second anniversary date of this Agreement for any reason other than as provided in the Agreement, the
Partnership shall issue to Executive the number of Common Units of the Partnership determined by dividing (1) the amount calculated
by multiplying three-quarters of one percent (0.75%) times the sum determined by subtracting the gross amount paid for each of
the Acquisitions completed by the Partnership and/or an affiliate of the Partnership during the term of Executive’s employment
by the General Partner from $100 million by (2) the average value per Common Unit assigned to the equity portion of any consideration
issued by the Partnership and/or an Affiliate of the Partnership to investors in connection with each Acquisition including any
provisions for adjustment to equity as offered to investors, if applicable. The Common Units subject to issuance under this bullet
point will be issued pursuant to a Unit Grant Agreement, which grant will be governed by the terms and conditions of the 2005 Plan
(or its successor) and the Unit Grant Agreement.
The right to receive the Common Units pursuant
to this bullet point will not terminate until fully issued in the event the Executive is (a) terminated by the General Partner
without Cause, (b) the Executive resigns for Good Reason, (c) due to a termination resulting from Change in Control of the General
Partner, or (d) a termination resulting from Death or Disability of the Executive as more fully described in the Agreement.
In the event that the parties decide not to
renew the Agreement, the General Partner terminates the Agreement for cause or the Executive terminates the Agreement without good
reason, the Executive shall be entitled to receive all accrued and unpaid salary, expenses, vacation, bonuses and incentives awarded
prior to the termination date (Accrued Amounts). In the event the Executive is terminated pursuant to clauses (a), (b) and (c)
in the last bullet point above, then the Executive shall be entitled to receive the Accrued amounts together with (i) severance
pay equal to two (2) times the sum of (1) the Executive’s Base Salary in the year in which the termination date occurs and
(2) the amount of the Annual and Anniversary Bonus for the year prior to the year in which the termination date occurs and (ii)
for a period of up to 18 months following termination, continuation of all employee benefit plans and health insurance as provided
prior to termination. The Agreement also contains restrictions on the use of “confidential information” during and
after the term of the Agreement and restrictive covenants that survive the termination of the Agreement including (i) a covenant
not to compete, (ii) a non-solicitation covenant with respect to employees and customers and (iii) a non-disparagement covenant,
all as more fully described in the Agreement.
On December 19, 2013, the Board of the General
Partner approved an amendment to the Agreement which provided for the following:
| · | The right to receive the Contingent Grant will occur only after the Partnership has completed one
or more Acquisitions in which the gross purchase price exceeds $35 million. |
| · | An increase of the gross amount of Acquisitions to be used in calculating the Contingent Grant
from $100 million to $200 million. |
| · | The Executive’s right to receive the full amount of the Contingent Grant will not terminate
until fully issued, except where Executive is terminated for “cause” as defined in the amendment. |
| · | The Executive shall receive an amount of $40,769 by December 14, 2014 in connection with interest
owed for past due advances made to Regional by Executive to cover operating expenses, which advances were paid to Executive in
connection with the CEGP Investment. |
| · | The Executive shall defer 25% of his base annual salary until each anniversary date of the Agreement
at which time such amount shall be paid in full. |
Since the closing of the CEGP Investment, Messrs.
Denman, Graves and Weir have agreed to forego receipt of any compensation as a result of concerns over the Partnership’s
and the General Partner’s available cash resources. In addition, during December 2013, the President of Regional agreed to
have a portion of his annual salary paid on each anniversary of his employment agreement.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J — COMMITMENTS AND CONTINGENCIES
– Continued
Payment of Compensation
Central has looked at several different financing
scenarios to date, each involving the acquisition of additional assets, to meet its future capital needs. None of these acquisitions
has been successfully completed. Management continues to seek acquisition opportunities for Central to expand its assets and generate
additional cash from operations.
Partnership Tax Treatment
The Partnership is not a taxable entity for
U.S. tax purposes (see below) and incurs no U.S. federal income tax liability. Regional is a state law corporation and as such
is subject to U.S. federal and state corporate income tax. Each Unitholder of the Partnership is required to take into account
that Unitholder’s share of items of income, gain, loss and deduction of the Partnership in computing that Unitholder’s
federal income tax liability, even if no cash distributions are made to the Unitholder by Partnership. Distributions by Partnership
to a Unitholder are generally not taxable unless the amount of cash distributed is in excess of the Unitholder’s adjusted
basis in Partnership.
Central believes that a portion of Regional’s
income could be considered as “qualifying income”. Central believes that income derived from the storage of asphalt,
No. 2 Oil, No. 6 Oil, Fuel Blend, and/or asphalt additives could constitute “qualifying income.” Central 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. Central will evaluate the potential alternatives to determine the most efficient tax structure and operational
feasibility of such proposed changes before determining whether any of Regional’s assets will be reorganized to the Partnership
level.
Section 7704 of the Internal Revenue Code (“Code”)
provides that publicly traded partnerships shall, as a general rule, be taxed as corporations despite the fact that they are not
classified as corporations under Section 7701 of the Code. Section 7704 of the Code provides an exception to this general rule
for a publicly traded partnership if 90% or more of its gross income for every taxable year consists of “qualifying income”.
For purposes of this exception, “qualifying income” includes income and gains derived from the exploration, development,
mining or production, processing, refining, transportation (including pipelines and ships) or marketing of any mineral or natural
resource. Other types of “qualifying income” include interest (other than from a financial business or interest based
on profits of the borrower), dividends, real property rents, gains from the sale of real property, including real property held
by one considered to be a “dealer” in such property, and gains from the sale or other disposition of capital assets
held for the production of income that otherwise constitutes “qualifying income”. Non-qualifying income which is held
and taxed through a taxable entity (such as Regional), is excluded from the calculation in determining whether the publicly traded
partnership meets the qualifying income test. The Partnership estimates that more than 90% of its gross income (excluding Regional)
was “qualifying income.”
No ruling has been or will be sought from the
IRS and the IRS has made no determination as to the Partnership’s classification as a partnership for federal income tax
purposes or whether the Partnership’s operations generate a minimum of 90% of “qualifying income” under Section
7704 of the Code.
If the Partnership was classified as a corporation
in any taxable year, either as a result of a failure to meet the Qualifying Income Exception or otherwise, the Partnership’s
items of income, gain, loss and deduction would be reflected only on the Partnership’s tax return rather than being passed
through to the Partnership’s Unitholders, and the Partnership’s net income would be taxed at corporate rates.
If the Partnership was treated as a corporation
for federal income tax purposes, the Partnership would pay tax on income at corporate rates, which is currently a maximum of 35%.
Distributions to Unitholders would generally be taxed again as corporate distributions, and no income, gains, losses, or deductions
would flow through to the Unitholders. Because a tax would be imposed upon the Partnership as a corporation, the cash available
for distribution to Unitholders would be substantially reduced and the Partnership’s ability to make minimum quarterly distributions
would be impaired.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J — COMMITMENTS AND CONTINGENCIES
– Continued
Partnership Tax Treatment – continued
Consequently, treatment of the Partnership
as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to Unitholders and therefore
would likely result in a substantial reduction in the value of the Partnership’s Common Units.
Current law may change so as to cause the Partnership
to be taxable as a corporation for federal income tax purposes or otherwise subject the Partnership to entity-level taxation. The
Partnership Agreement provides that, if a law is enacted or existing law is modified or interpreted in a manner that subject the
Partnership to taxation as a corporation or otherwise subjects the Partnership to entity-level taxation for federal, state or local
income tax purposes, then the minimum quarterly distribution amount and the target distribution amount will be adjusted to reflect
the impact of that law on the Partnership.
NOTE K — RELATED PARTY TRANSACTIONS
The General Partner has a legal duty to manage
the Partnership in a manner beneficial to the Partnership’s Unitholders. However, the General Partner also has a
legal duty to manage its affairs in a manner that benefit its members. This can create a conflict of interest between the Unitholders
of the Partnership and the members of the General Partner. The Partnership Agreement provides certain requirements for the resolution
of conflicts, but also limits the liability and reduces the fiduciary duties of the General Partner to the Unitholders. The Partnership
Agreement also restricts the remedies available to Unitholders for actions that might otherwise constitute breaches of the General
Partner’s fiduciary duty.
Advances from General Partner
In August 2014, the Board of Directors of the
General Partner recommended a capital call of $750,000 to fund working capital needs. This recommendation was approved by the requisite
percentage of members on August 7, 2014 pursuant to the terms of the General Partner’s company agreement. On September 8,
2014, the General Partners offered 15,000 membership interests at a value of $50.00 per interest to each of its members in accordance
with the provisions of its company agreement. As of November 3, 2014, the offered membership interests were fully subscribed. The
offer of the membership interests was made in accordance with Section 4(2) of the Securities Act of 1933, as amended, and Regulation
D. No placement agent or broker was involved in the transaction.
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, and amended during March 2014 and November 2014. The intercompany
demand note provides for advances from time to time by the General Partner to the Partnership of up to $5,000,000. 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 10% per annum. At December 31, 2014, the total amount owed to
the General Partner by the Partnership, including accrued interest, was $4,615,000.
Regional Acquisition Funding
In connection with the Regional acquisition,
on July 26, 2007 Regional issued to the Partnership a promissory note in the amount of $2,500,000 (“Central Promissory
Note”) in connection with the remaining funding needed to complete the acquisition of Regional. Interest on the Central
Promissory Note is 10% annually and such interest is payable quarterly. The Central Promissory Note is due on demand. Regional
has not made an interest payment on the Central Promissory Note since its inception. Interest is accruing but unpaid. The balance
on the note at December 31, 2014 is $4,359,000. The payment of this amount is subordinated to the payment of the Hopewell Note
by Regional.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K — RELATED PARTY TRANSACTIONS
– Continued
Intercompany Loans and Receivables
Allocated Expenses Charged to Subsidiary
Regional is charged for direct expenses paid
by the Partnership on its behalf, as well as its share of allocable overhead for expenses incurred by the Partnership which are
indirectly attributable for Regional related activities. For the years ended December 31, 2013 and 2014, Regional recorded allocable
expenses of $287,000 and $211,000, respectively.
Other Advances
In addition to the Central Promissory Note,
there have been other intercompany net advances made from time to time from the Partnership and/or RVOP to Regional, including
the $1.0 million advanced by the Partnership to Regional in connection with the third amendment to the RZB Loan Agreement and allocations
of corporate expenses, offset by actual cash payments made by Regional to the Partnership and/or RVOP. These intercompany amounts
were historically evidenced by book entries. Effective March 1, 2012, Regional and the Partnership entered into an intercompany
demand promissory note incorporating all advances made as of December 31, 2010 and since that date. The note bears interest at
the rate of 10% annually from January 1, 2011. At December 31, 2014, the intercompany balance owed by Regional to the Partnership
and/or RVOP is approximately $3,141,000, which includes interest. This amount is due to the Partnership and RVOP on demand; however,
as is the case with the Central Promissory Note, payment of these amounts is also subordinated to payment of the Hopewell Note
by Regional.
Reimbursement Agreements
Effective November 17, 2010, the Partnership
moved its principal executive offices to Dallas, Texas. Pursuant to a month-to-month Reimbursement Agreement, from November 2010
through December 2013, the Partnership reimbursed AirNow Compression Systems, LTD (“Airnow”), an affiliate of
Imad K. Anbouba, the General Partner’s Chief Executive Officer and President until November 2013 for the monthly payment
of allocable “overhead costs,” which included rent, utilities, telephones, office equipment and furnishings attributable
to the space utilized by employees of the General Partner. Effective December 31, 2013, in connection with the CEGP Investment
and the resulting change in control of the General Partner, the Partnership moved its principal executive offices to another office
location within Dallas, Texas that is leased from Katy Resources LLC (“Katy”), an entity controlled by C Thomas
Graves III, the Chairman of the Board of the General Partner. As a result, the Reimbursement Agreement with Airnow was terminated
and the Partnership entered into a new reimbursement agreement with Katy on a month to month basis for reimbursement of allocable
“overhead costs” 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 limited liability company affiliated
with Ian Bothwell, the General Partner’s Executive Vice President and Secretary, located in Manhattan Beach, California.
Mr. Bothwell is a resident of California and lives in Manhattan Beach. Since June 2012, Regional has been directly charged for
its allocated portion of Rover Technologies LLC’s expenses. In connection with the CEGP Investment, the Partnership reimbursed
Rover Technologies LLC for the outstanding unpaid overhead costs as of the date of the CEGP Investment.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L — REGISTRATION RIGHTS AGREEMENTS
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 Common Units of the Partnership. On May 26, 2011, Central Energy,
LP distributed 12,724,019 Common Units to its limited partners pursuant to the terms of the Central Energy, LP partnership agreement.
As a result, Central Energy, LP no longer holds any Common Units of the Partnership. The limited partners of Central Energy, LP,
which are also the members of the General Partner, are referred to herein as the “Purchasers.” The Registration
Rights Agreement provides the Purchasers with shelf registration rights and piggyback registration rights, with certain restrictions,
with respect to the Common Units held by them (“Registrable Securities”).The Partnership is required to file
a shelf registration statement with the SEC on behalf of the Purchasers as soon as practicable after April 15, 2012 and maintain
an effective shelf registration statement with respect to the Registrable Securities 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. The piggyback registration rights permit a Purchaser to elect to participate in an underwritten offering of the Partnership’s
securities other than a registration statement filed in connection with the registration of the Partnership’s securities
relating solely to (1) employee benefit plans or (2) a Rule 145 transaction. The amount of Registrable Securities that the Purchasers
can offer for sale in a piggyback registration is subject to certain restrictions as set forth in the Registration Rights Agreement.
In connection with the CEGP Investment, CEGP
and each of the Warrant Purchasers were added as a Holder of Registrable Securities to the Registration Rights Agreement. In order
to include CEGP and the Warrant Purchasers as parties to the Registration Rights Agreement, the parties agreed to amend and restate
the Registration Rights Agreement in its entirety. The Amended and Restated Registration Rights Agreement (“Registration
Rights Agreement”) was approved by more than the needed majority of the parties to the agreement on November 20, 2013,
and Registration Rights Agreement became effective upon its execution by all parties on November 26, 2013. The major changes incorporated
into the Registration Rights Agreement include the following:
| · | The holders of Registrable Securities were redefined to include CEGP, each Warrant Purchaser and
the members of the General Partner holding Common Units. |
| · | The holders were granted two demand registration rights, with certain restrictions, and piggyback
registration rights with respect to Common Units held by each of them. |
| · | The Partnership is required to file a shelf registration statement with the SEC on behalf of the
holders within 180 days after it becomes eligible to use Form S-3 and maintain as effective such shelf registration statement with
respect to the Registrable Securities 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) three years from the date on which the shelf registration statement was first filed. At the present time the Partnership
is not eligible to file a registration statement using Form S-3 since its market capitalization does not meet the threshold established
by the SEC. |
| · | The demand registration rights permit the holders of at least 3,000,000 of the Registrable Securities
to demand that the Partnership file a registration statement to register such holders’ Registrable Securities and those of
all other holders who elect to sell Registrable Securities, subject to certain conditions including the right of the Partnership
to postpone a demand registration in the event that such demand would (i) materially interfere with a significant acquisition,
merger, consolidation or reorganization involving the Partnership, (ii) require the premature disclosure of material information
regarding the Registrant, or (iii) render the Partnership unable to comply with requirements of the Securities Act or the Exchange
Act of 1934 and the rules and regulations promulgated thereunder. The piggyback registration rights permit a holder to elect to
participate in an underwritten offering of the Partnership’s Common Units or other registrable securities. The amount of
Registrable Securities that the holders can offer for sale in a piggyback registration is subject to certain restrictions as set
forth in the Registration Rights Agreement. |
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L — REGISTRATION RIGHTS AGREEMENTS
– Continued
We are required to pay all costs associated
with the shelf registration, any piggyback registration or an underwritten offer except for the underwriting fees, discounts and
selling commission, transfer taxes (if any) applicable to the sale of the Registrable Securities, and fees and disbursements of
legal counsel for any Purchaser. We are also indemnifying the Purchasers and their respective directors, officers, employees, agents,
managers and underwriters, pursuant to an applicable underwriting agreement with such underwriter, from any losses, claims, damages,
expenses or liabilities (1) arising from any untrue statement or alleged untrue statement of a material fact contained in the shelf
registration statement or any other registration statement relating to the Registrable Securities or (2) the omission or alleged
omission to state in such registration statement a material fact required to be stated therein or necessary to make the statements
therein not misleading.
The Registration Rights Agreement also prohibits
us from entering into a similar agreement which would be inconsistent with the rights granted in the Registration Statement or
provide any other holder of the Partnership’s securities rights that are more favorable than those granted to Purchasers
without the prior written approval of Purchasers holding a majority of the Registrable Securities.
Given our current financial condition, as well
as the current bid/ask price of the Common Units, we do not anticipate filing the shelf registration statement for the foreseeable
future. We will seek to amend the Registration Rights Agreement to extend such filing requirement to a later date.
NOTE M — REALIZATION OF ASSETS
The audited consolidated balance sheets of
Central have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate
continuation of Central as a going concern. However, currently the General Partner’s cash reserves are limited and the remaining
available amounts (approximately $288,000 at March 15, 2015) are intended to be used to fund the Partnership’s ongoing working
capital requirements, including necessary funding of working capital for Regional. In connection with the Hopewell Note, Regional
is currently required to make equal monthly payments of $56,000 (principal and interest) each month starting January 2015 until
March 2016 at which time a balloon payment of $2,044,000 will be due. Regional also is required to make minimum monthly payments
under the Penske Lease Agreement of approximately $30,000 until May 2019. Payments under the Hopewell Note and the Penske Lease
Agreement could be accelerated in the event of a default. The amount of penalties related to the remaining 2012 Tax Return are
$142,000 and will be required to be paid if the Partnership’s appeal is unsuccessful. Since the closing of the CEGP Investment,
Messrs. Denman, Graves and Weir have agreed to forego receipt of any compensation as a result of concerns over the Partnership’s
and the General Partner’s available cash resources. In addition, during December 2013, the President of Regional agreed to
have a portion of his annual salary paid on each anniversary of his employment agreement.
All of Central’s assets are pledged as
collateral for the Hopewell Loan, and therefore, Central is unable to obtain additional financing collateralized by those assets
without repayment of the Hopewell Loan. In addition, the Partnership has obligations under existing registration rights agreements.
These rights may be a deterrent to any future equity financings.
In view of the matters described in the preceding
paragraphs, recoverability of the recorded asset amounts shown in the accompanying consolidated balance sheet assumes that (1)
the expected increase in revenues from recent contracts entered into by Regional, including the New Asphalt Agreement are realized
as currently projected, (2) Regional does not experience any significant disruptions in storage revenues resulting from the timing
of termination of storage tank lease agreements and identifying replacement customers and/or disruptions resulting from the performance
of maintenance, improvements or repairs on its facilities, (3) Regional’s hauling revenues remain at current levels, (4)
obligations to the Partnership’s or Regional’s creditors are not accelerated, (5) there is adequate funding available
to Regional to complete required maintenance, improvements and repairs to its facilities, (6) the Partnership’s and Regional’s
operating expenses remain at current levels, (7) Regional obtains additional working capital to meet its contractual commitments
through future advances by the Partnership or a refinancing of the Hopewell Loan, and/or (8) the Partnership is able to receive
future distributions from Regional or future advances from the General Partner in amounts necessary to fund working capital until
an acquisition or other financing transaction is completed by the Partnership.
CENTRAL ENERGY PARTNERS LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M — REALIZATION OF ASSETS - Continued
There is no assurance that the Partnership
and/or Regional will be able to complete an accretive acquisition transaction or otherwise obtain sufficient working capital to
cover ongoing cash requirements. Without sufficient cash reserves, the Partnership’s ability to pursue additional acquisition
transactions will be adversely impacted. As of March 15, 2015, Central had only $288,000 of available cash to meet its capital
needs. Furthermore, 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 an acquisition transaction cannot be completed or if additional funds cannot otherwise be raised, the Partnership
and/or Regional would be required to seek other alternatives which could include the sale of assets, closure of operations and/or
protection under the U.S. bankruptcy laws.
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure controls are
procedures that are designed with the objective of ensuring that information required to be disclosed in our reports under the
Securities Exchange Act of 1934, as amended (“Exchange Act”), such as this Annual Report, is reported in accordance
with the rules of the SEC. Disclosure controls are also designed with the objective of ensuring that such information is accumulated
appropriately and communicated to management, including the chief executive officer and chief financial officer, as appropriate,
to allow for timely decisions regarding required disclosures.
As of the end of the period
covered by this Annual Report, we carried out an evaluation, under the supervision and with the participation of our General Partner’s
management, including our General Partner’s chief executive officer and its chief financial officer, of the effectiveness
of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Based
on its assessment and those criteria, management concluded that Central’s disclosure controls and procedures were not effective
as of December 31, 2014.
Internal Control Over Financial Reporting
Our General Partner’s
internal control environment is limited in such a manner that there is less than the desired internal control over financial reporting
and accounting, except as it relates to Regional and therefore, a system of checks and balances is lacking. As a result of this
material weakness, our management concluded that our disclosure controls and procedures were not effective as of December 31, 2014.
The lack of sufficient personnel, the inability to complete an acquisition since 2008 and the continued financial difficulties
encountered by Central was and continues to be the major reason that Central has been unable to comply with the reporting requirements
of the Exchange Act and related regulations promulgated by the SEC as they relate to the disclosures of financial information and
now continues to be an ongoing risk of maintaining compliance in the near future.
During the years ended
2012, 2013 and 2014, the General Partner’s accounting department was comprised only of the chief financial officer while
it sought to identify an acquisition opportunity that might include an accounting function to bolster the General Partner’s
and Regional’s accounting capabilities. This has not occurred. As a result, the lack of sufficient personnel continues to
be an issue with respect to establishing the desired internal control over financial reporting and accounting. The General Partner
does not expect to be able to take the steps necessary to improve its internal control over financial reporting given its current
financial condition absent the acquisition of a company with the necessary accounting functions and personnel to resolve its dilemma.
During June 2012 through December 2012, Regional’s controller was required to take several medical leave of absences and
ultimately resigned during April 2013. Regional’s assistant controller who was recently hired in January 2013, has assumed
the accounting role. During the year ended December 31, 2014, there were no other changes in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Despite the lack of accounting
personnel, the management of the General Partner believes the Partnership’s audited consolidated financial statements included
in this Annual Report fairly present in all material respects its financial position, results of operations and cash flows for
the periods presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Management’s Report on Internal
Control over Financial Reporting
Management of the General
Partner is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act. The Partnership’s internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP. The Partnership’s internal control over financial reporting includes those policies and
procedures that:
| • | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Partnership; |
| • | provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with GAAP, and that receipts and expenditures of the Partnership are being made only in accordance
with authorizations of management and directors of the General Partner; and |
| • | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Partnership’s assets that could have a material effect on the financial statements. |
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Section
404 of the Sarbanes-Oxley Act of 2002, management assessed the effectiveness of the Partnership’s internal control over financial
reporting as of December 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its assessment and those criteria,
management concluded that the Partnership’s internal control over financial reporting was not effective as of December 31,
2014.
This Annual Report does
not include an attestation report of the Partnership’s registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the Partnership’s registered public accounting
firm under rules of the SEC since the Partnership is classified as a “small reporting company” under such rules.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and
Corporate Governance
The Partnership does not
have directors, managers or officers. The Board of Directors and officers of the General Partner perform all management functions
for the Partnership. Officers of the General Partner are appointed by its Board of Directors. Other than distributions attributable
to its General Partner interest and incentive distribution rights, the General Partner does not receive a management fee or other
compensation in connection with its management of the Partnership’s business. Pursuant to the Partnership Agreement, the
General Partner is entitled to receive reimbursement for all direct and indirect expenses it incurs on the Partnership’s
behalf, including compensation attributable to employees providing services to or for the Partnership, and general and administrative
expenses. The General Partner has sole responsibility for conducting the Partnership’s business and for managing its operations.
Directors of the General Partner
Prior to closing the CEGP
Investment, the Board of Directors of the General Partner (the “Board”), was composed of seven individuals –
Imad K. Anbouba, Carter R. Montgomery, Jerry V. Swank, Daniel L. Spears, David M. Laney, Michael T. Wilhite and William M. Comegys
III. Messrs. Comegys, Laney and Wilhite were each deemed “independent” directors, as determined by Rule 10a-3 of the
Exchange Act.
In connection with the
CEGP Investment, the Company Agreement of the General Partner was amended to incorporate certain amendments, including changes
to the constitution of and appointment of persons to the Board. Under the terms of the revised Company Agreement of the General
Partner (the “GP Agreement”), CEGP, as the “Majority Member” of the General Partner, has the right
to appoint five (5) persons to serve as directors of the General Partner, including not less than two (2) persons who qualify as
“independent” under the rules and regulations of the SEC. Each of Messrs. Imad K. Anbouba and Carter R. Montgomery
and the Cushing Fund, as the “Appointing Minority Members”, have the right to appoint one (1) person to serve as a
director of the General Partner. In addition, the Appointing Minority Members collectively have the right to appoint one (1) person
to serve as a director of the General Partner, which person qualifies as “independent” under the rules and regulations
of the SEC. Each person appointed to serve as a director serves at the pleasure of the appointing member or members of the General
Partner or until he or she earlier resigns as a director. Each director can be removed, with or without cause, by the appointing
member or members. This method of appointing directors can only be changed by amending the GP Agreement, which requires the approval
of members holding 80% of the issued and outstanding membership interests of the General Partner.
On November 26, 2013, the
Members of the General Partner, having the authority to appoint members to its Board pursuant to the terms of the revised GP Agreement,
voted by written consent to appoint the following persons to the Board of the General Partner: G. Thomas Graves III, John L. Denman,
Jr., David M. Laney, Alexander C. Chae, Alan D. Bell, Imad K. Anbouba, Carter R. Montgomery, Daniel L. Spears, and Michael T. Wilhite,
Jr. Each of Messrs. Bell, Chae, Laney, Denman and Graves were appointed by CEGP as the Majority Member of the General Partner.
Messrs. Anbouba, Montgomery, Spears and Wilhite were appointed by the Appointing Minority Members. There are no other agreements
between the directors and General Partner or the Partnership regarding their service as directors of the General Partner.
Messrs. William M. Comegys
III and Jerry V. Swank resigned as directors of the Board effective November 26, 2013. Mr. Comegys also resigned his positions
as a member of the Audit Committee, Compensation Committee and Conflict Committee, as well as his Chairmanship of the Conflicts
Committee. Mr. Swank also resigned as the Chairman of the Board.
At a meeting of the Board
of the General Partner held on December 19, 2013, Messrs. Bell, Wilhite and Laney were appointed to serve on the Board’s
Audit Committee with Mr. Bell assuming the role of Chairman of the Committee. Messrs. Laney, Spears and Wilhite were appointed
to serve on the Board’s Compensation Committee with Mr. Laney continuing his role as Chairman of the committee. Mr. Denman
was appointed to serve as an ex-officio member of the committee. Messrs. Wilhite, Bell and Chae were appointed to serve on the
Board’s Conflict Committee with Mr. Wilhite assuming the role of Chairman of the committee. Mr. Denman was also appointed
to serve as an ex-officio member of the committee.
On January 17, 2014, Messrs.
Carter R. Montgomery and David M. Laney resigned as directors of the Board effective immediately due to other business commitments.
Mr. Laney also resigned his positions as a member of the Audit Committee and Compensation Committee and as Chairman of the Compensation
Committee.
On March 26, 2014, CEGP
appointed Mr. Robert H. Lutz to serve as a director of the General Partner until he resigns or is removed as a director by CEGP,
and Mr. Montgomery appointed Mr. William M. Comegys, III, a former director of the General Partner, as his replacement to serve
on the Board until his resignation or his removal as a director by Mr. Montgomery. At the same meeting, Mr. Comegys was appointed
to replace Mr. Laney on the Audit Committee and Mr. G. Thomas Graves was appointed to replace Mr. Laney as a member and Chairman
of the Compensation Committee. In addition, Alan D. Bell was appointed to serve as a member of the Compensation Committee.
The Board has determined
that each of Messrs. Alan D. Bell, Alexander C. Chae, William M. Comegys III, Robert H. Lutz, and Michael T. Wilhite are “independent”
as determined by the requirements of the NASDAQ Stock Market, Section 10A(3) and Section 10C of the Exchange Act and the rules
and regulations promulgated thereunder, as applicable.
At its quarterly meeting
held on November 11, 2014, the Board of Directors of the General Partner reconstituted its Audit Committee and its Compensation
Committee. Mr. Robert H. Lutz agreed to serve on the Audit Committee to replace Mr. William M. Comegys III, who agreed to serve
as Chairman and a member of the Compensation Committee. The Board has determined that each of Messrs. Lutz and Comegys are “independent”
directors and each meet the respective requirements of Section 10A(3) and Section 10C of the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder and is qualified to act in their respective positions. As a result of these actions,
the members of the Audit Committee include Messrs. Alan D. Bell (Chairman), Robert H. Lutz and Michael T. Wilhite. The members
of the Compensation Committee are Messrs. Alan D. Bell, William M. Comegys III (Chairman), Daniel L Spears and Michael T. Wilhite,
Jr.
The following table shows information for the
current members of the Board of Directors of the General Partner.
| Name of Director |
|
Age |
|
Position with the General Partner |
|
Director
Since |
| |
|
|
|
|
|
|
| Imad K. Anbouba |
|
60 |
|
Director |
|
2010 |
| |
|
|
|
|
|
|
| Alan D. Bell |
|
69 |
|
Director (1)(2)(3) |
|
2013 |
| |
|
|
|
|
|
|
| Alexander C. Chae |
|
53 |
|
Director (3) |
|
2013 |
| |
|
|
|
|
|
|
| William M. Comegys, III |
|
65 |
|
Director(2) |
|
2014 |
| |
|
|
|
|
|
|
| John L. Denman, Jr. |
|
54 |
|
Director and Chief Executive Officer and President(4) |
|
2013 |
| |
|
|
|
|
|
|
| G. Thomas Graves III |
|
65 |
|
Chairman of the Board of Directors |
|
2013 |
| |
|
|
|
|
|
|
| Robert H. Lutz |
|
63 |
|
Director(1) |
|
2014 |
| |
|
|
|
|
|
|
| Daniel L. Spears |
|
42 |
|
Director (2) |
|
2011 |
| |
|
|
|
|
|
|
| Michael T. Wilhite, Jr. |
|
44 |
|
Director (1)(2)(3) |
|
2011 |
| (1) | Member of the Audit Committee |
| (2) | Member of the Compensation Committee |
| (3) | Member of the Conflicts Committee |
| (4) | Ex-officio member of the Compensation and Conflicts Committees. |
All directors hold office until their successors
are duly appointed or until their earlier resignation or removal.
Mr. Imad K. Anbouba was elected
as a member of the Board of Directors of the General Partner in November 2010. Since November 1999, Mr. Anbouba has been the President
of MarJam Global Holdings, Inc., headquartered in Dallas, Texas (“Marjam”). Marjam is focused on business development
activities and investments in the oil & gas, mid-stream and chemical sectors of the energy industry. Since July 2005, Mr. Anbouba
has also been President and General Partner of AirNow Industrial Compression Services, LTD, which has offices in Dallas, Texas
and Madill, Oklahoma (“AirNow”). AirNow provides large-capacity, electric motor driven, industrial air compressors
to various users, including refineries, petrochemical facilities, nuclear and power plants, on a rental basis. Since June 2007,
Mr. Anbouba has served as Vice Chairman, developer and co-founder of Qatar Chlorine, a manufacturing and distribution company based
in the country of Qatar. Since March 2009, Mr. Anbouba has also served as President and General Partner of Total Compression Systems,
LLC, which has offices in Dallas and Midland, Texas, and Eunice, New Mexico (“Total”). Total provides gas engine and
electric motor driven, gas compressors to companies in the oil & gas and petrochemical industries. Mr. Anbouba is a petroleum
engineer with over 30 years of experience in the oil and gas and petrochemical industries. He attended Centenary College of Louisiana
and holds a degree in Petroleum Engineering from Louisiana Tech University. Mr. Anbouba was appointed to the Board because of his
expertise in the mid-stream sector of the oil and gas industry.
Alan D. Bell was employed by
Ernst & Young LLP from 1973 to his retirement in 2006. He has served on the Board of Directors of Approach Resources, Inc.,
a publicly-traded energy company based in Fort Worth, Texas, since August 2010 and Jones Energy, Inc., a publicly-traded oil and
gas company based in Austin, Texas, since July 2013. He serves as Chairman of the Audit Committee of the Board of Directors of
each of these companies. He previously served on the Board of Directors of Dune Energy, Inc. from May 2007 to January 2012 and
Toreador Resources Corporation from August 2006 to June 2009. Mr. Bell graduated from the Colorado School of Mines with a degree
in Petroleum Engineering and from Tulane University with a Master of Business Administration degree. Mr. Bell is a member of the
American Institute of Certified Public Accountants, the Texas Society of Certified Public Accountants, the National Association
of Corporate Directors, the Institute of Certified Management Accountants, the Association of Certified Fraud Examiners and the
Society of Petroleum Engineers. Mr. Bell was appointed to the Board due to his experience as a partner in an independent public
accounting firm and service as a director of several public companies.
Mr. Alexander C. Chae has been
a partner in the law firm of Gardere Wynne Sewell LLC since 1998 and has represented a variety of public and private energy and
master limited partnership clients over his career. Gardere Wynne Sewell LLC represented CEGP in connection with the CEGP Investment.
Mr. Chae received a Bachelor of Science Degree from Vanderbilt University in 1984 and received a Juris Doctor degree from the University
of Missouri School of Law in 1990. Mr. Chae is the Secretary and a member of the Executive Committee for the Board of Directors
of the Asia Society Texas Center, an Advisory Board Member of the Rice University Chao Center for Asian Studies, a Board member
of the Forge for Families Inc., and a Board member of the DeCamera Society. Mr. Chae was appointed to the Board due to his experience
as an attorney and in conflict resolution.
Mr. William M. Comegys, III,
is an attorney engaged in commercial real estate, general corporate, and oil and gas law in Shreveport, Louisiana. Mr. Comegys
currently serves as the Managing Partner of Comsite, LLC, a company engaged in oil and gas exploration in the Ark-La-Tex area,
and Comex, LLC, a company engaged in oil and gas exploration in Mississippi. He also serves as the Managing Director of Briarfield
Plantation, a partnership engaged in commercial farming operations in Caddo Parish, Louisiana. During the past five years, Mr.
Comegys also served on the Board of Managers of Ensight Energy Partners III, LLC, a Delaware limited liability company, engaged
in oil and gas exploration in the States of Louisiana, Mississippi and Texas. Mr. Comegys received his undergraduate and law degrees
from Louisiana State University. Mr. Comegys was appointed to the Board due to his experience in the oil and gas industry and as
an executive of a number of companies.
Mr. John L. (“Jack”) Denman,
Jr. has served as the President and a financial principal of Legacy Operating Company, LLC, a private oil and gas exploration
company that is engaged in exploration and re-entry production projects located on the Northeast Texas Gulf Coast, since January
2013. Prior to that time, he was Chief Executive Officer of Team Flo Control, LP, an oil field services company specializing in
flow-back, perforating and snubbing of oil and gas wells from April 2009 to May 2011, when the company was sold. His experience
as a chief executive in the midstream sector began in 1991; since that time he has successfully organized and sold seven different
companies which included transactions with Energy Transfer Partners, LP, Ferrellgas Partners, LP, and with Superior Energy Services,
Inc. Mr. Denman is actively engaged in various private equity ventures that range from banking to real estate development. In 1982,
Mr. Denman received a Bachelor of Engineering Degree, Civil Engineering Honors Program, Cum Laude, from Vanderbilt University and,
in 1986, he earned his Master of Business Administration Degree, University of Texas at Austin. Mr. Denman was appointed to the
Board due to his experience in the oil field services industry and as an executive of a number of successful companies.
Mr. G. Thomas Graves III has
35 years of experience in the oil and gas exploration and production industry, principally employed by publicly traded companies.
For more than the past five years, Mr. Graves has served as the Chief Executive Officer and Chairman of Katy Resources, L.L.C.,
a privately owned, closely held independent oil and gas operating company that manages more than 1,200 property interests in seven
states, and as Chief Executive Officer of Triple TTT Partners L.L.P, a privately-held independent oil and gas operating company
with over 1,100 property interests in five states. Prior to Katy Resources and Triple TTT Partners, he served as President and
Chief Executive Officer of Toreador Resources Corporation, a NASDAQ-NMS-listed oil and gas exploration and development company
operating in the United States, France, Turkey, Romania, Hungary and Trinidad from 1993 to 2007. From 1978 to 1993, Mr. Graves
was an executive officer of Triton Energy Corporation, a NYSE-listed company with exploration and production operations in multiple
countries around the world. From 1989 to 1993, he was Senior Vice President of Triton and Chairman of Triton Europe plc., a London
Stock Exchange listed company with operations in the U. K., the Netherlands, the North Sea, France, Italy, and North Africa. From
1986 until 2001, Mr. Graves served as lead director of Input/Output, Inc., an affiliate of Triton, a developer and manufacturer
of seismic equipment that trades on the NYSE. Mr. Graves is a graduate of the University of Texas at Austin where he received a
Bachelor of Arts degree and a Master of Business Administration degree. Mr. Graves was appointed to the Board due to his experience
in operating publicly-traded companies in the oil and gas industry.
Robert H. Lutz has served as
President of the general partner of Buffalo Oil and Gas, LP, a privately-held oil and gas company, for five years. In addition,
Mr. Lutz is an investor in a variety of privately-held businesses in a number of industries, including oil and gas exploration,
electric power generation, manufacturing, distribution, and real estate development. Mr. Lutz received his Bachelor of Business
Administration and Master of Business Administration from New Mexico State University. Mr. Lutz was appointed to the Board due
to his considerable experience in managing and operating businesses in the oil and gas exploration and electric power generation
industries.
Daniel L. Spears has served as
a partner and portfolio manager at Swank Capital since 2006. Prior to that he was an investment banker in the Natural Resources
Group at Banc of America Securities LLC for eight years and before that was in the Global Energy and Power Investment Banking Group
at Salomon Smith Barney. Mr. Spears currently serves as independent Chairman of Emerald Oil, Inc. where he serves on the Audit
and Compensation Committees and as the Chairman of the Nomination Committee. Mr. Spears received his Bachelor of Science degree
in Economics from The Wharton School of the University of Pennsylvania. Mr. Spears was appointed to the Board due to his experience
in the financial aspects of funding and analyzing master limited partnerships and in various oil and gas industry sectors.
Michael T. Wilhite, Jr. has served
on the Board of Directors of Mustang Drilling, Inc., a private oil and gas exploration company since 1996. During that time he
has overseen all accounting, finance and tax matters for the company. During the last six years he has also been responsible for
all legal matters related to the company. He received his undergraduate degree in accounting and a Masters in Finance from Baylor
University and his legal degree from Texas Wesleyan School of Law. Mr. Wilhite was appointed to the Board due to his accounting
experience and his operating experience in companies in the oil and gas industry.
There are no family relationships
between any director or officer of the General Partner and any other director or officer of the General Partner.
Information Regarding the Board of Directors
The business of the Partnership
is managed under the direction of the Board of our General Partner. The Board currently consists of nine members. The Board conducts
its business through meetings of the Board and its committees. During 2014, the Board held four meetings. Mr. Spears attended 50%
of the meetings of the Board. No other member of the Board attended less than 75% of the meetings of the Board and each committee
of the Board of Directors of which he was a member during 2014.
Communication with the Board of Directors
Unitholders and other interested
parties may communicate with the Board of the General Partner by sending written communication in an envelope addressed to “Board
of Directors” in care of the Chairman of the Board, Central Energy Partners LP, 4809 Cole Avenue, Suite 108, Dallas, Texas
75205.
Audit Committee
The GP Agreement provides
for an audit committee (the “Audit Committee”) which is responsible for: (1) approving or disapproving,
as the case may be, any matters regarding the business and affairs of the Company and the Partnership related to accounting matters
as directed by the charter of the Audit Committee; (2) assisting the Board in monitoring (I) the integrity of the Partnership’s
financial statements, (II) the qualifications and independence of the Partnership’s independent accountants, (III) retaining
the Partnership’s and General Partner’s independent accountants and other financial advisors as it may deem necessary
from time to time, (IV) the performance of the Partnership’s and the General Partner’s internal audit functions
and the independent accountants, and (V) the Partnership’s and General Partner’s compliance with legal and regulatory
requirements imposed as a result of the Partnership being registered under Section 12(g) of the Exchange Act; and (3) performing
such other functions as the Board may assign from time to time, or as may be specified in the charter of the Audit Committee. Each
director serving on the Audit Committee must be “independent” as defined in Section 10A(3) of the Exchange Act.
On June 29, 2011,
Messrs. Comegys, Laney and Wilhite were appointed to serve on the Audit Committee of the Board of Directors. Mr. Wilhite was
appointed to serve as the Chairman of the Committee. Subsequent to the CEGP Investment, Messrs. Bell, Lutz and Wilhite were appointed
to serve on the Audit Committee with Mr. Bell elected to serve as Chairman of the committee. The Board of Directors has determined
that each of Messrs. Bell, Lutz and Wilhite meet the Audit Committee independence requirements under the rules and regulations
of the SEC. The Board of Directors has also determined that Messrs. Bell and Wilhite meet the definition of an “audit committee
financial expert” as defined in the rules and regulations of the SEC.
In 2014, the Audit Committee
met four times. The primary activity of the Audit Committee at these meetings was to review and approve the annual and quarterly
financial statements prepared by the General Partner on behalf of the Partnership and review the Partnership’s Reports on
Forms 10-Q for the quarterly periods ended March 31, 2014, June 30, 2014, and September 30, 2014 and approve the annual financial
statements prepared by the General Partner on behalf of the Partnership and review the Partnership’s Report on Form 10-K
for the annual period ended December 31, 2013. In addition, the committee conducted a review of the audit service needs of the
Partnership and the General Partner, and made the decision to retain the services of Montgomery Coscia Greilich LLP for the fiscal
year 2014.
The Board of Directors
has adopted a written charter for the Audit Committee, a copy of which is available on the Partnership’s website at www.centralenergylp.com.
Compensation Committee
The GP Agreement provides
for a compensation committee (the “Compensation Committee”) responsible
for: (1) reviewing and approving goals and objectives underlying the compensation of the Chief Executive Officer of
the General Partner (“CEO”), evaluating the CEO’s performance in accordance with those goals and objectives,
and determining and approving the CEO’s compensation; (2) recommending to the Board the compensation of executive officers
other than the CEO, subject to Board approval; (3) administering any incentive compensation and equity-based plans, subject
to Board approval; (4) preparing the compensation report required by the rules and regulations of the SEC; and (5) performing
such other functions as may be specified in a written charter for the Compensation Committee, including reviewing and approving
employment contracts of executive officers of the General Partner.
On June 29, 2011, the Board
of the General Partner appointed Messrs. Comegys, Laney and Wilhite to serve on the Compensation Committee. Mr. Laney was appointed
to serve as the Chairman of the Compensation Committee. Subsequent to the CEGP Investment, Messrs. Laney, Spears and Wilhite were
appointed to serve on the Compensation Committee. Mr. Denman was also appointed as an ex-officio member of the committee.
Mr. Laney was elected to continue as the Chairman of the committee. Mr. Laney resigned his position as a member and Chairman of
the Compensation Committee effective January 17, 2014. At a meeting of the Board held on March 26, 2014, Mr. G. Thomas Graves was
appointed to replace Mr. Laney as a member and as Chairman of the Compensation Committee and Mr. Bell was appointed to serve on
the committee. On November 11, 2014 Mr. William M. Comegys III was appointed to serve as Chairman as a replacement for Mr. Graves.
Mr. Wilhite and Mr. Bell are “independent” within the meaning of Rule10C-1 promulgated by the SEC under the Exchange
Act. Neither Mr. Spears nor Mr. Comegys are independent within the meaning of Rule 10C-1. The rule, as promulgated, does not apply
to limited partnerships.
In 2014, the Compensation
Committee met three times. The purpose of the meetings was to (i) review and recommend approval of the Employment Agreement of
Mr. Ian Bothwell, the Executive Vice President and Secretary of the General Partner and an amendment to such Employment Agreement
and (ii) evaluate and make recommendations to the Board of Directors with respect to incentive compensation to members of the Board
of Directors and executive officers of the General Partner. Please see ‘Item 13 – Certain Relationships and Related
Transactions, and Director Independence – Employment Agreements – Mr. Ian K. Bothwell” for additional details
regarding Mr. Bothwell’s Employment Agreement as amended. Please see “Item 11. Executive Compensation – Compensation
of Members of the Board and Executive Officers” and “ – Securities Authorized for Issuance under Executive
Compensation Plans” below for additional information regarding incentive compensation granted to members of the Board
of Directors of the General Partner and its executive officers.
The second meeting was
to review and propose as the “2014 Long-Term Incentive Plan of Central Energy Partners LP” (the “2014 Plan”)
for the purpose of providing long-term incentive compensation to the executive officers, employees and directors of the Company
since the existing equity incentive plan is to expire in 2015 and the number of Common Units available under such plan is limited.
For more information see ‘Note I – Unit Options’.
The Board of Directors
has adopted a written charter for the Compensation Committee, a copy of which is available on the Partnership’s website at
www.centralenergylp.com.
None of the executive officers
of the General Partner serves as a member of the compensation committee, or other committee serving an equivalent function, of
any other entity that has one or more of its executive officers serving as a member of the Board of the General Partner or its
Compensation Committee.
Conflicts Committee
The Partnership Agreement
and the GP Agreement each provide for a conflicts committee (the “Conflicts Committee”) to be composed of no
less than three members of the Board of Directors of the General Partner, at least two of whom the Board of Directors has determined
to be “independent”. The purpose of the Conflicts Committee is to: (a) approve or disapprove, as the case may
be, any matters regarding the business and affairs of the General Partner and the Partnership required to be considered by, or
submitted to, the Conflicts Committee pursuant to the terms of the Partnership Agreement, (b) approve or disapprove, as the
case may be, the entering into of any material transaction between the General Partner and any member of the General Partner or
any Affiliate of such member, other than transactions in the ordinary course of business, (c) approving any of the following
actions: (1) make or consent to a general assignment for the benefit of the creditors of the Partnership; (2) file or consent to
the filing of any bankruptcy, insolvency or reorganization petition for relief under the United States Bankruptcy Code naming the
Partnership, or otherwise seek, with respect to the Partnership, relief from debts or protection from creditors generally; (3)
file or consent to the filing of a petition or answer seeking for the Partnership a liquidation, dissolution, arrangement, or similar
relief under any law; (4) file an answer or other pleading admitting or failing to contest the material allegations of a petition
filed against the General Partner or the Partnership in a proceeding of the type described in any of clauses (1)-(3); (5) seek,
consent to, or acquiesce in the appointment of a receiver, liquidator, conservator, assignee, trustee, sequestrator, custodian
or any similar official for the Partnership or for all or any substantial portion of such entity’s properties; (6) sell all
or substantially all of the assets of the Partnership; (VII) dissolve or liquidate the Partnership, other than in accordance with
Article XII of the Partnership Agreement; and (8) merge or consolidate the Partnership; (d) amending (1) the definition
of “Independent Director” in Section 6.2(b) of the GP Agreement, (2) the requirement that at least
two (2) of the directors of the Conflicts Committee be Independent Directors, or (e) performing such other functions as the
Board may assign from time to time, or as may be specified in a written charter of the Conflicts Committee.
On August 11, 2012, the
Board of Directors of the General Partner appointed Messrs. Anbouba, Comegys, Laney, Montgomery and Wilhite to serve on the Conflicts
Committee. Mr. Comegys was appointed to serve as the Chairman of the Committee. Subsequent to the CEGP Investment, Messrs. Bell,
Chae and Wilhite were appointed to serve on the Conflicts Committee, with Mr. Wilhite appointed to serve as Chairman of the committee.
The Conflicts Committee
met two times in 2014. The purpose of the meetings was to evaluate the terms and conditions of a proposed purchase of assets under
contract with an Affiliate of Messrs. Laney and Montgomery. The committee approved the execution of a letter of intent with such
affiliated entity, subject to certain modifications of the terms of the letter of intent intended to reduce the possible conflicts
between the Partnership and the affiliated entity.
The written charter of
the Conflicts Committee and its responsibilities are set forth in Section 6.2(f)(iii)(A) of the GP Agreement, a copy of which is
available on the Partnership’s website at www.centralenergylp.com.
Executive Officers of the General Partner
The names of the General
Partners’ executive officers at December 31, 2014, and certain information about each of them are set forth below.
| Name of Executive Officer |
|
Age |
|
Position with the General Partner or Regional |
|
Officer Since |
| |
|
|
|
|
|
|
| John L. Denman, Jr. |
|
54 |
|
Chief Executive Officer and President |
|
Since 11/26/2013 |
| |
|
|
|
|
|
|
| Ian T. Bothwell |
|
55 |
|
Executive Vice President and Secretary President of Regional Enterprises, Inc. |
|
Since 11/17/2010 |
| |
|
|
|
|
|
|
| Douglas W. Weir |
|
57 |
|
Chief Financial Officer |
|
Since 12/19/2013 |
| |
|
|
|
|
|
|
| Daniel P. Matthews |
|
54 |
|
Vice President and General Manager of Regional |
|
Since 07/27/2007 |
For biographical information of Messrs. Denman,
please see “Directors of the General Partner” above.
On November 26, 2013, Mr.
Imad K. Anbouba tendered his resignation as the Chief Executive Officer and President of the General Partner, and Mr. Carter R.
Montgomery tendered his resignation as the Executive Vice President of Corporate Development of the General Partner. By Written
Consent, effective November 26, 2013, the Board accepted the resignations of Messrs. Anbouba and Montgomery and appointed John
L. Denman, Jr. as the Chief Executive Officer and President of the General Partner.
The General Partner has
not executed an employment agreement with any of Messrs. Denman, Graves or Weir at this time, and it is not contemplated that such
an agreement will be executed in the foreseeable future. Each of Messrs. Denman, Graves and Weir has agreed to waive any salary
from the General Partner until such time as Central is in better financial condition and able to absorb the cost of such salaries.
Ian T. Bothwell was elected Treasurer
of the General Partner in 2003. In 2004, Mr. Bothwell was elected to serve as Chief Financial Officer, Vice President and Assistant
Secretary of the General Partner. He was elected Vice President, Treasurer, Chief Financial Officer, and Assistant Secretary of
Penn Octane in October 1996. In November 2006, he was appointed Acting Chief Executive Officer and Acting President of the General
Partner and of Penn Octane, from which positions he resigned in November 2011. In November 2010, he was appointed Executive Vice
President, Chief Financial Officer and Secretary of the General Partner. He also served as a director of Penn Octane from March
1997 until July 2004. Since July 2007, Mr. Bothwell has served as President and a director of Regional Enterprises, Inc. Since
April 2007, Mr. Bothwell has served as the President and controlling member of Rover Technologies, LLC, a company formed to provide
management solutions to the public transportation industry. Mr. Bothwell received his Bachelor of Science in Business Administration
from Boston University.
Douglas W. Weir was elected Senior
Vice President of the General Partner on December 19, 2013 and was named as Chief Financial Officer on May 1, 2014. Mr. Weir served
as a Property Accountant for Texas Oil and Gas Corporation from 1980 to 1983 and as the Controller of Berea Oil and Gas Corp. from
1986 to 1990. From 1991 to June 2007, he served as Senior Vice President, CFO and Treasurer of Toreador Resources Corporation,
a publicly-traded oil and gas exploration company. From July 2007 to the present, he has served as the Chief Financial Officer
and Principal of Katy Resources, LLC, a Dallas, Texas based private oil and gas company. He holds a Bachelor in Business Administration
degree in Accounting from the University of Texas, Arlington and is a Certified Public Accountant.
Daniel P. Matthews has served
in various capacities with Regional Enterprises, Inc. since 1998 when he was hired as the Terminal Manager at the Hopewell, Virginia
facility. He served in this capacity until April 2005 when he was promoted to Vice President of Operations. In July 2007, he was
promoted to his current position of Vice President and General Manager of the company. From 1978 through 1998, Mr. Matthews served
a distinguished career with the U.S. Army in the aviation branch retiring as a senior non-commissioned officer and master aircraft
technician.
Involvement in Certain Legal Proceedings
None of the directors or executive
officers of the General Partner has, to the best of our knowledge, during the past ten years:
| |
• |
Had any petition under the federal bankruptcy laws or any state insolvency law filed by or against, or had a receiver, fiscal agent, or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time hereof, or any corporation or business association of which he was an executive officer at or within two years before the time hereof; |
| |
|
|
| |
• |
Been convicted in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| |
|
|
| |
• |
Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities: |
| |
|
|
| |
◦ |
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; |
| |
|
|
| |
◦ |
Engaging in any type of business practice; or |
| |
|
|
| |
◦ |
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws; |
| |
|
|
| |
• |
Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days the right of such person to engage in any activity described in (i) above, or to be associated with persons engaged in any such activity; |
| |
|
|
|
|
| |
• |
Been found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, where the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated; or |
| |
|
|
| |
• |
Been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, where the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended, or vacated. |
Code of Business Conduct
The General Partner has
adopted a code of conduct that applies to the General Partner’s executive officers, including its principal executive officer,
principal financial officer and principal accounting officer. A copy of the code of conduct is available on the Partnership’s
website at www.centralenergylp.com. These standards were adopted by the Board to promote transparency and integrity. The
standards apply to the Board, executives and employees. Waivers of the requirements of the Code of Ethics or associated polices
with respect to members of the Board or executive officers are subject to approval of the full Board.
Our Code of Ethics includes
the following:
| • | Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest
between personal and professional relationships; |
| • | Full, fair, accurate, timely
and understandable disclosure in reports and documents that the Company files with, or
submits to, the SEC and in other public communications; |
| • | Compliance with applicable governmental
laws, rules and regulations; |
| • | The prompt internal reporting
of violations of this Code; and |
| • | Accountability for adherence
to this Code. |
On an annual basis, each director and executive
officer will be obligated to complete a Director and Officer Questionnaire which requires disclosure of any transactions with
the Company in which the director or executive officer, or any member of his or her immediate family, have a direct or indirect
material interest. Pursuant to the Code of Ethics, the Conflict Committee and the Board are charged with resolving any conflict
of interest involving management, the Board and employees on an ongoing basis.
Insider Trading Policy
The Board of the General
Partner has adopted an Insider Trading Policy on August 11, 2011. A copy of the policy is available on the Partnership’s
website at www.centralenergylp.com. This policy establishes the guidelines and rules for trading or causing the trading
of (i) any current or future securities issued by the Partnership, including the Common Units, and (ii) the securities of other
publicly-traded companies while an officer, director or employee of the General Partner, the Partnership or any subsidiary of
the Partnership (collectively, referred to in the policy as the “companies”) are in possession of confidential, non-public
information. The policy prohibits the trading of securities of the Partnership in certain circumstances by all officers, directors
and employees of the companies and the trading by “covered persons,” which includes all directors of the companies,
officers of the General Partner and subsidiaries of the Partnership at the level of vice president and above (including the Chief
Financial Officer of the General Partner and the Controller of any subsidiary of the Partnership or the General Partner) and certain
other employees, in special circumstances as outlined in the policy. The policy requires the designation of a compliance officer,
which is G. Thomas Graves, Chairman of the Board of the General Partner, to perform certain tasks imposed by the policy.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Exchange
Act requires the General Partner’s directors and executive officers, and persons who own more than 10% of a registered class
of the Partnership’s equity securities, to file initial reports of ownership and reports of changes in ownership with the
SEC. Such persons are required by the SEC to furnish the Partnership with copies of all Section 16(a) forms they file. Based solely
on its review of the copies of Forms 3, 4 and 5 filed with the SEC, the Partnership is aware that Mr. Ian Bothwell, Executive Vice
President and Secretary of the General Partner failed to timely report the purchase of Common Units acquired on each of November
19, 2013, November 20, 2013 and January 15, 2014. A Form 4 reporting each of these purchases was filed with the SEC on March 10,
2014.
Item 11. Executive Compensation.
The Partnership does not
have any directors, managers or officers. The Board and officers of the General Partner perform all management functions for the
Partnership. Officers of the General Partner are appointed by its Board of Directors as described under the caption “Directors
of the General Partner” above. All officers of the General Partner are paid directly by the General Partner. The General
Partner is entitled to receive reimbursement for all direct and indirect expenses it incurs on the Partnership’s behalf,
including general and administrative expenses. The direct expenses include the salaries and benefit costs related to employees
of the General Partner who provide services to the Partnership. The General Partner has sole discretion in determining the amount
of these expenses.
Compensation of Members of the Board
and Executive Officers
Each member of the Board
of the General Partner has agreed to serve without cash remuneration. On December 19, 2013 March 26, 2014, the Board authorized
the issuance of 75,000 Common Units to each of Messrs. Bell, Wilhite, Chae, Comegys and Lutz pursuant to the terms of the 2005
Equity Incentive Plan of the Partnership as compensation for their service on the Board. The grant of Common Units was effective
on May 26, 2014.
The following table below
sets forth a summary of compensation paid to each of the named executive officers of the General Partner for the last two fiscal
years ended December 31, 2014. Each of Messrs. Denman, Graves and Weir have waived any payment of cash compensation until such
time as Central has sufficient cash flow to make such payments.
Name and
Principal
Position | |
Year | |
Salary
($) | | |
Bonus
($) | | |
Stock
Awards
($) | | |
Option
Awards
($) | | |
Non-equity
Incentive Plan
Compensation
($) | | |
All
Other
Consideration
($) | | |
Total
Actually
Received ($) | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Imad K. Anbouba | |
2013 | |
| 72,330 | (1) | |
| | | |
| | | |
| | | |
| | | |
| 101,993 | (4) | |
| 274,323 | |
| CEO & President | |
2014 | |
| -0- | | |
| | | |
| | | |
| | | |
| | | |
| -0- | | |
| -0- | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| G. Thomas Graves | |
2013 | |
| -0- | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| -0- | |
| Chairman of the Board | |
| |
| -0- | | |
| | | |
| | | |
| 5,512 | (5) | |
| | | |
| | | |
| -0- | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| John L. Denman, Jr. – | |
2013 | |
| -0- | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| -0- | |
| CEO & President | |
2014 | |
| -0- | | |
| | | |
| | | |
| 9,188 | (5) | |
| | | |
| | | |
| -0- | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Carter R. Montgomery | |
2013 | |
| 72,330 | (1) | |
| | | |
| | | |
| | | |
| | | |
| 87,745 | (4) | |
| 260,075 | |
| EVP – Corporate Development | |
2014 | |
| -0- | | |
| | | |
| | | |
| | | |
| | | |
| -0- | | |
| -0- | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Ian T. Bothwell - | |
2013 | |
| 275,000 | (2) | |
| | | |
| 16,000
| (3) | |
| | | |
| | | |
| 40,769
| (2) | |
| 437,094 | |
| EVP, CFO & Secretary | |
2014 | |
| 275,000 | (2) | |
| | | |
| | | |
| 1,378 | (5) | |
| | | |
| | | |
| 206,250 | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Douglas W. Weir – | |
2013 | |
| -0- | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| -0- | |
| Senior Vice President | |
2014 | |
| -0- | | |
| | | |
| | | |
| 4,594 | (5) | |
| | | |
| | | |
| -0- | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Daniel P. Matthews - | |
2013 | |
| 150,200 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 150,200 | |
| VP of Regional | |
2014 | |
| 150,200 | | |
| | | |
| | | |
| 1,378 | (5) | |
| | | |
| | | |
| 150,200 | |
| (1) | On May 9, 2012, Mr. Anbouba was appointed Chief Executive Officer and President of the General
Partner, and Mr. Montgomery was appointed Executive Vice President – Corporate Development. Effective November 1, 2011, each
of Messrs. Anbouba and Montgomery agreed to waive the payment of any salary until such time as the financial performance of Central
was sufficient to make such payments. In connection with the CEGP Investment, each of Messrs. Anbouba and Montgomery resigned as
officers of the Company effective November 26, 2013. |
| (2) | Effective January 1, 2012, Mr. Bothwell agreed to defer receiving any compensation until such time
as the financial performance of Central was sufficient to make such payments. Beginning June 2012, Mr. Bothwell began receiving
a portion of his ongoing salary. In connection with the CEGP Investment, Mr. Bothwell received a payment of $216,123, representing
all accrued and unpaid salary owing through October 2013. In addition, Mr. Bothwell’s employment agreement provides for (i)
the payment of $40,769 in connection with interest owed for past due advances made to Regional by Executive to cover operating
expenses, payable on December 14, 2014, and (ii) the deferral of 25% of Mr. Bothwell’s salary beginning November 2013, which
amount is payable on each anniversary date of the employment agreement in the form of a “bonus.” |
| (3) | Mr. Bothwell received a grant of 200,000 Common Units during 2013 pursuant to the terms of Mr.
Bothwell’s employment agreement. The closing price of the Common Units on the date of the grant was $0.08 per Common Unit. |
| (4) | Represents the net additional payment made to each person at the closing of the CEGP Investment.
The payment represents the portion of all accrued and unpaid salary and a severance payment made pursuant to the terms of such
person’s employment agreement in the event of a change in control of the Partnership. These payments were made in satisfaction
of a full release from each such person for any claims, existing or potential, against the General Partner, the Partnership, each
person or entity involved in the CEGP Investment, and each of their respective representatives. The total amount of all cash compensation
received by Messrs. Anbouba and Montgomery in connection with the CEGP Investment was $274,323 and $260,075, respectively. |
| (5) | On March 26, 2014, the Board of the General Partners approved an authorization by its Compensation
Committee to grant Common Unit options under its 2014 Plan to each of its executive officers. The authorization entitles each of
Messrs. Bothwell, Denman, Graves, Matthews and Weir to receive grants of non-qualified Common Unit options of 75,000, 500,000,
300,000, 75,000 and 250,000 Common Units, respectively. The options are to vest over a three-year period pro rata commencing on
the first anniversary date of the effective date of the grant. Each of the Common Unit options became effective on May 26, 2014
with an exercise price of $0.09 per unit. |
Securities Authorized for Issuance under
Equity Compensation Plans
On March 9, 2005, the General
Partner established the 2005 Equity Incentive Plan of Rio Vista Energy Partners L.P. (“2005 Plan”). The 2005
Plan permits the grant of options, appreciation rights, restricted common units and phantom units of Common Units of the Partnership
to any person who is an employee or director of, or consultant to, the Partnership or the General Partner or any affiliate of the
Partnership (the “Partnership Entities”). The plan provides anti-dilution protection as determined by the Compensation
Committee for a combination, exchange or extra-ordinary distribution of Common Units, or reorganization, recapitalization or any
similar event affecting the Common Units or other securities of the Partnership. There were 750,000 Common Units authorized for
issuance as awards under the 2005 Plan. The 2005 Plan remains available for the grant of awards until March 9, 2015, or such earlier
date as the Board of the General Partner may determine. As the result of the grant of Common Units to non-executive directors of
the General Partner as described below, there are 47,310 Common Units remaining for issuance under the 2005 Plan as of December
31, 2014.
On March 26, 2014, the
Board of Directors of the General Partner authorized and approved the 2014 Long-Term Incentive Plan of Central Energy Partners,
LP (“2014 Plan”). The 2014 Plan permits the grant of incentive and non-incentive Common Unit Options, Common
Unit Appreciation Rights, Restricted Common Unit Grants, Common Units, Common Unit Value Equivalents and Substitute Awards to employees
and directors of the Partnership Entities. The Compensation Committee may grant the recipient of an award, other than a Common
Unit grant, the right to receive an amount equal to the minimum quarterly distributions associated with the Common Units which
are the subject of an award. All awards, except an outright grant of Common Units, are subject to forfeiture upon termination of
an executive officer, employee or director for any reason unless the Compensation Committee establishes other criteria in the award
grant. The 2014 Plan provides anti-dilution protection for the recipient of an award in the case of a reorganization, combination,
exchange or extra-ordinary distribution of Common Units, a merger, consolidation or combination of the Partnership with another
entity, or a “change of control” of the Partnership or the General Partner. The 2014 Plan remains in effect until December
31, 2023, unless sooner terminated by the Board of Directors of the General Partner in accordance with its terms. The 2014 Plan
authorizes the issuance of up to 3,300,000 Common Units, subject to amendment to increase the amount of authorized Common Units.
As a result of the grant of Common Units to executive officers of the General Partner, Regional, and directors of the General Partner
as summarized below, there are 1,950,000 Common Units remaining for issuance under the 2014 Plan as of December 31, 2014.
Each of the 2005 Plan and
the 2014 Plan are administered by the Compensation Committee of the Board of the General Partner. In addition, the Board may exercise
any authority of the Compensation Committee under the 2005 Plan. The Compensation Committee has broad discretion in issuing awards
under either plan and amending or terminating either plan. Under the terms of the Partnership Agreement, no approval of either
the 2005 Plan or the 2014 Plan by the Limited Partners of the Partnership is required.
The following table sets
forth the number of Common Units available for issuance by the Partnership pursuant to the 2005 Plan and the 2014 Plan as of December
31, 2014, and other options and warrants and rights granted as of that date.
| Plan category | |
Number of
securities to
be issued
upon
exercise of
outstanding
options,
warrants and
rights
(a) | | |
Weighted-
average
exercise
price of
outstanding
options,
warrants and
rights (per
unit)
(b) | | |
Number of
securities
remaining
available
for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column
(a))
(c) | |
| Equity compensation plans approved by security holders | |
| — | | |
| — | | |
| — | |
| | |
| | | |
| | | |
| | |
| Equity compensation plans not approved by security holders(1) | |
| 1,200,000 | (1) | |
$ | 0.09 | | |
| 1,997,310 | (2) |
| | |
| | | |
| | | |
| | |
| Total | |
| 1,200,000 | (1) | |
$ | 0.09 | | |
| 1,997,310 | (2) |
| (1) | Represents Common Unit grants and options authorized by the Compensation Committee described under
“Compensation of Members of the Board and Executive Officers” above. |
| (2) | Represents 47,310 Common Units available for issuance under the Partnership’s 2005 Plan and
1,950,500 Common Units available for issuance under the Partnership’s 2014 Plan. |
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Unitholder Matters.
Security Ownership of Certain Beneficial
Owners and Management
The following table sets
forth the number of Partnership Common Units beneficially owned as of March 15, 2015 by each person known by the Partnership
to own beneficially more than 5% of its outstanding Common Units.
| Name and Address of Beneficial Owner | |
Amount and
Nature of
Beneficial
Ownership | | |
Percent of
Class | |
| | |
| | |
| |
| The Cushing MLP Opportunity Fund I, L.P. | |
| 7,413,013 | | |
| 37.84 | % |
| | |
| | | |
| | |
| CEGP LLC | |
| 3,000,000 | | |
| 15.31 | % |
| | |
| | | |
| | |
| Sanctuary Capital LLC | |
| 1,017,922 | | |
| 5.20 | % |
The following table sets
forth the number of Common Units of the Partnership beneficially owned as of March 15, 2015, by each director of the General
Partner, each named executive officer, and all directors and named executive officers as a group. The address of each person in
the table below is c/o Central Energy Partners LP, 4809 Cole Avenue, Suite 108, Dallas, Texas 75205.
| Name of Beneficial Owner | |
Amount and
Nature of
Beneficial
Ownership(1) | | |
Percent of
Class | |
| | |
| | | |
| | |
| Imad K. Anbouba | |
| 0 | | |
| 0.00 | % |
| | |
| | | |
| | |
| Alan D. Bell | |
| 75,000 | | |
| 0.38 | % |
| | |
| | | |
| | |
| Ian T. Bothwell | |
| 761,440 | | |
| 3.89 | % |
| | |
| | | |
| | |
| Alexander C. Chae | |
| 75,000 | | |
| 0.38 | % |
| | |
| | | |
| | |
| William M. Comegys III | |
| 393,100 | | |
| 2.01 | % |
| | |
| | | |
| | |
| John L. Denman, Jr. | |
| 3,000,000 | (2) | |
| 15.31 | % |
| | |
| | | |
| | |
| G. Thomas Graves, III | |
| 3,000,000 | (2) | |
| 15.31 | % |
| | |
| | | |
| | |
| Robert H. Lutz | |
| 75,000 | | |
| 0.38 | % |
| | |
| | | |
| | |
| Daniel P. Matthews | |
| 0 | | |
| 0.00 | % |
| | |
| | | |
| | |
| Daniel L. Spears(3) | |
| 7,413,013 | | |
| 37.84 | % |
| | |
| | | |
| | |
| Douglas W. Weir | |
| 0 | | |
| 0.00 | % |
| | |
| | | |
| | |
| Michael T. Wilhite, Jr.(4) | |
| 838,441 | | |
| 4.28 | % |
| | |
| | | |
| | |
| All Directors and Named Executive Officers as a group (12 persons) | |
| 12,630,994 | | |
| 64.47 | % |
| (1) | Beneficial ownership is determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to securities. Common Units which are purchasable under
options which are currently exercisable, or which will become exercisable no later than 60 days after March 15, 2014, are deemed
outstanding for computing the percentage of the person holding such warrants but are not deemed outstanding for computing the percentage
of any other person. Except as indicated by footnote and subject to community property laws where applicable, the persons named
in the table have sole voting and investment power with respect to all Common Units shown as beneficially owned by them. |
| (2) | Includes 3,000,000 Common Units held by JLD Services, Ltd., a Texas limited liability company.
Messrs. Denman and Graves are control persons of such entity and each may be deemed to be the beneficial owner of the Partnership’s
Common Units held by such company. Messrs. Denman and Graves each disclaim beneficial ownership of such Common Units except to
the extent of his pecuniary interest therein and nothing in this report shall be deemed an admission of beneficial ownership of
such Common Units for purposes of Section 16 of the Exchange Act or any other purpose. |
| (3) | Includes 7,413,013 Common Units held by The Cushing MLP Opportunity Fund I, L.P., a Delaware limited
partnership. Mr. Spears is the portfolio manager of The Cushing MLP Opportunity Fund I, L.P. and he may be deemed to be the beneficial
owner of the issuer’s Common Units held by such fund. Mr. Spears disclaims beneficial ownership of such Common Units except
to the extent of his pecuniary interest therein and nothing in this report shall be deemed an admission of beneficial ownership
of such Common Units for purposes of Section 16 of the Exchange Act or for any other purpose. |
| (4) | Mr. Wilhite is Vice President and General Counsel of Mustang Drilling, Inc. and may be deemed to
be the beneficial owner of the issuer’s Common Units held by such company. Mr. Wilhite disclaims beneficial ownership
of such Common Units except to the extent of his pecuniary interest therein and nothing in this report shall be deemed an admission
of beneficial ownership of such Common Units for purposes of Section 16 of the Exchange Act or for any other purpose. |
Distributions and Incentive Distribution
Rights
All Unitholders of the
Partnership have the right to receive distributions of “available cash” as defined in the Partnership Agreement in
an amount equal to at least the minimum distribution of $0.25 per quarter per unit, plus any arrearages in the payment of the minimum
quarterly distribution on the units in respect of any quarter commencing with a quarter established by the Board of Directors of
the General Partner. The General Partner has a right to receive a distribution corresponding to its 2% General Partner interest
and its incentive distribution rights.
Limited Partners
Pursuant to the terms of
the Partnership Agreement, Limited Partners are entitled to receive a minimum quarterly distribution of $0.25 per Common Unit.
Due to the lack of distributable cash, the Partnership has not made minimum quarterly distributions to its Unitholders or the General
Partner since August 18, 2008 for the quarter ended June 30, 2008. 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. Furthermore, 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. Please see “Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”
for additional information regarding Central’s current financial condition.
In December 2010, the General
Partner and Unitholders holding more than a majority in interest of the Common Units of the Partnership approved an amendment to
the Partnership Agreement to provide that the Partnership was no longer obligated to make distributions of “Common Unit Arrearage”
or “Cumulative Common Unit Arrearages” pursuant to the terms of the Partnership Agreement in respect of any quarter
prior to the quarter beginning October 1, 2011. The impact of this amendment was that the Partnership was no longer obligated to
Unitholders for unpaid minimum quarterly distributions prior to the quarter beginning October 1, 2011 and Unitholders would only
be entitled to minimum quarterly distributions arising from the quarter beginning October 1, 2011 and thereafter. This amendment
was incorporated into the Partnership Agreement in April 2011. Since the Sale, the members of the General Partner have held more
than 80% of the total issued and outstanding Common Units of the Partnership and, therefore, control any Limited Partner vote on
Partnership matters.
Based on Central’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 more than 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. The ability of the Partnership to make distributions will be impacted by many factors including the ability
to stabilize operations at Regional, to successfully complete an accretive acquisition, the financing terms of debt and/or equity
proceeds received to fund ongoing Company operations and/or an acquisition and the overall success of the Partnership and its operating
subsidiaries.
The Partnership currently
does not have sufficient available cash to resume making any minimum quarterly distributions to its Partners. Furthermore, the
Partnership does not foresee the ability to make distributions to its Partners in the near future. Currently the General Partner’s
cash reserves are limited and the remaining available amounts (approximately $288,000 at March 15, 2015) are intended to be used
to fund the Partnership’s ongoing working capital requirements and expenses, including the necessary funding of working capital
for Regional. The use of Regional’s available cash from operations is restricted as a result of the payments required on
the Hopewell Note and the Penske Lease Agreement, funding of required upgrades to its facilities, funding of other working capital
deficits and the required ongoing maintenance of its facilities. 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. As a result, after Partnership expenses, there is no cash available for distribution to the Partners.
In the event the Company
completes an accretive acquisition, management anticipates adjusting the current minimum quarterly distribution in connection with
any future acquisition of assets to more accurately reflect he cash flows of the partnership and the additional Common Units or
other securities issued in connection with such acquisition. 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.
General Partner
In addition to its 2% General
Partner interest, the General Partner is currently the holder of incentive distribution rights which entitle the holder to an increasing
portion of cash distributions as described in the Partnership Agreement. As a result, cash distributions from the Partnership are
shared by the holders of Common Units and the General Partner based on a formula whereby the General Partner receives disproportionately
more distributions per percentage interest than the holders of the Common Units as annual cash distributions exceed certain milestones.
The General Partner has
the right, at any time when Unitholders have received distributions for each of the four most recently completed quarters and the
amount of each such distribution did not exceed the adjusted operating surplus of the Partnership for such quarter, to reset the
minimum quarterly distribution and the target distribution levels based on the average of the distributions actually made for the
two most recent quarters immediately preceding the reset election. Following a reset election, the minimum quarterly distribution
will be adjusted to equal the reset minimum quarterly distribution, and the target distribution levels will be reset to correspondingly
higher levels based on percentage increases above the reset minimum quarterly distribution.
If the General Partner
elects to reset the target distribution levels, the holder of the incentive distribution rights will be entitled to receive their
proportionate share of a number of Common Units derived by dividing (i) the average amount of cash distributions made by the Partnership
for the two full quarters immediately preceding the reset election by (ii) the average of the cash distributions made by the Partnership
in respect of each Common Unit for the same period. Our General Partner will also be issued the number of general partner units
necessary to maintain its 2% general partner’s interest in the Partnership that existed immediately prior to the reset election
at no cost to the General Partner. We anticipate that our General Partner would exercise this reset right in order to facilitate
acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per Common Unit without
such conversion. It is possible, however, that our General Partner could exercise this reset election at a time when it is experiencing,
or expects to experience, declines in the cash distributions it receives related to its incentive distribution rights and may,
therefore, desire to be issued Common Units rather than retain the right to receive distributions based on the initial target distribution
levels. This risk could be elevated if our incentive distribution rights have been transferred to a third party. As a result, a
reset election may cause our Unitholders to experience a reduction in the amount of cash distributions that they would have otherwise
received had we not issued new Common Units and general partner interests in connection with resetting the target distribution
levels. Additionally, our General Partner has the right to transfer our incentive distribution rights at any time, and such transferee
shall have the same rights as the General Partner relative to resetting target distributions if our General Partner concurs that
the tests for resetting target distributions have been fulfilled.
Item 13. Certain Relationships and Related
Transactions, and Director Independence
Certain Relationships and Related Transactions
Policy for Reviewing Any Related Party Transaction
The Conflict Committee
of the Board of the General Partner is responsible for reviewing, and approving or rejecting, any related party transaction between
the Partnership or the General Partner on one hand and any member, director or executive officer or any Affiliate of any such person
or entity on the other hand. Please see “Item 10. – Directors, Executive Officers and Corporate Governance –
Conflicts Committee” for additional information regarding the responsibilities of the Conflicts Committee.
Employment Agreements
Messrs. Imad K. Anbouba
and Carter R. Montgomery
During December 2010, the
Board of Directors of the General Partner approved employment agreements with each of Messrs. Imad K. Anbouba and Carter R. Montgomery,
Executive Officers of the General Partner. Each of the employment agreements provided, among other things, Messrs. Anbouba and
Carter the right to receive an annual salary of $80,000. In addition, in the event of a change of control of the General Partner,
each of Messrs. Montgomery and Carter were entitled to receive (i) all accrued and unpaid salary, expenses, vacation, bonuses and
incentives awarded prior to termination date (and all non-vested benefits shall become immediately vested), (ii) severance pay
equal to 36 months times the employee’s current base monthly salary and (iii) for a period of 24 months following termination,
continuation of all employee benefit plans and health insurance as provided prior to termination.
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. The Partnership had also failed to reimburse expenses to Messrs. Anbouba and Montgomery since September 2011.
In connection with the
CEGP Investment, as a condition to Closing, Messrs. Anbouba, Chief Executive Officer and President of the General Partner, and
Montgomery, Executive Vice President of Corporate Development of the General Partner, executed a general release of claims in favor
of the General Partner in exchange for the payment of (1) 20% of the accrued but unpaid salaries and business expenses of
Messrs. Anbouba and Montgomery and (2) the severance payment of $240,000 owed to each such officer under the terms of their
respective employment agreements as a result of a “change of control” event which occurred when CEGP acquired 55% of
the membership interests of the General Partner.
Mr. Ian T. Bothwell
On March 20, 2013, the Board of Directors approved
the entering into an employment agreement with Mr. Ian T. Bothwell, Executive Vice President, Chief Financial Officer and Secretary
of the General Partner and President of Regional (“Executive”). The general provisions of the employment agreement
(“Agreement”) include:
| · | the term of employment is for a period of two years unless terminated as more fully described in
the Agreement; provided, that on the second anniversary and each annual anniversary thereafter, the Agreement shall be deemed to
be automatically extended, upon the same terms and conditions, for successive periods of one year, unless either party provides
written notice of its intention not to extend the term of the Agreement at least 90 days’ prior to the applicable renewal
date; |
| · | the Executive will serve as Executive Vice President, Chief Financial Officer and Secretary of
the General Partner and President of Regional; |
| · | the Executive will receive an annual salary of $275,000 (“Base Salary”) which
may be adjusted from time to time as determined by the Board of Directors of the General Partner (as more fully described in the
Agreement, Regional will pay a minimum of 75% of the Base Salary); |
| · | for each calendar year of the employment term, the Executive shall be eligible to receive a discretionary
bonus to be determined by the General Partner’s Board of Directors in its sole and absolute discretion; |
| · | the Executive shall be entitled to five weeks of paid vacation during each 12-month period of employment
beginning upon the effective date of the Agreement; |
| · | the Executive will be entitled to other customary benefits including participation in pension plans,
health benefit plans and other compensation plans as provided by the General Partner; |
| · | the Agreement terminates (a) upon death, (b) at any time upon notice from the General Partner for
cause as more fully defined in the Agreement, (c) by the General Partner, without cause, upon 15 days advance notice to the Executive,
or (d) by the Executive at any time for Good Reason (as more fully defined in the Agreement) or (e) by the Executive without Good
Reason (as more fully defined in the Agreement) upon 15 days advance notice to the General Partner; |
| · | the Executive is granted 200,000 common units of the Partnership under the Partnership’s
2005 Plan which shall vest immediately upon such grant as set forth in a separate Unit Grant Agreement between the Executive and
the General Partner. All of the terms and conditions of such grant shall be governed by the terms and conditions of the 2005 Plan
and the Unit Grant Agreement; and |
| · | in addition to any grants of Common Units or other securities of the Partnership as the Compensation
Committee of the Board may determine from time to time pursuant to one or more of the Partnership’s benefit plans, the General
Partner shall provide to the Executive one or more future grants of Common Units (“Contingent Grants”) of the
Partnership equal to the number of common units determined by dividing (1) one and one-half percent (1.5%) of the gross amount
paid for each of the next one or more acquisitions completed by the Partnership, and/or an affiliate of the Partnership during
the term of this Agreement, which gross amount shall not exceed $100 million (each an “Acquisition”), by (2) the average
value per common unit assigned to the equity portion of any consideration issued by the Partnership and/or an affiliate of the
Partnership to investors in connection with each Acquisition including any provisions for adjustment to equity as offered to investors,
if applicable. |
In the event the General
Partner does not extend this Agreement after the second anniversary date of this Agreement for any reason other than as provided
in the Agreement, the Partnership shall issue to Executive the number of Common Units of the Partnership determined by dividing
(1) the amount calculated by multiplying three-quarters of one percent (0.75%) times the sum determined by subtracting the gross
amount paid for each of the Acquisitions completed by the Partnership and/or an affiliate of the Partnership during the term of
Executive’s employment by the General Partner from $100 million by (2) the average value per Common Unit assigned to the
equity portion of any consideration issued by the Partnership and/or an Affiliate of the Partnership to investors in connection
with each Acquisition including any provisions for adjustment to equity as offered to investors, if applicable. The Common Units
subject to issuance under this bullet point will be issued pursuant to a Unit Grant Agreement, which grant will be governed by
the terms and conditions of the 2005 Plan (or its successor) and the Unit Grant Agreement. The right to receive the Common Units
pursuant to this bullet point will not terminate until fully issued in the event the Executive is (a) terminated by the General
Partner without Cause, (b) the Executive resigns for Good Reason, (c) due to a termination resulting from Change in Control of
the General Partner, or (d) a termination resulting from Death or Disability of the Executive as more fully described in the Agreement.
All Common Units issued pursuant to this bullet point will be registered pursuant to a Form S-8 registration statement to be filed
by the Partnership or an amendment to the current Form S-8 registration statement on file with the SEC if still deemed effective
by the SEC.
In the event that the parties
decide not to renew the Agreement, the General Partner terminates the Agreement for cause or the Executive terminates the Agreement
without good reason, the Executive shall be entitled to receive all accrued and unpaid salary, expenses, vacation, bonuses and
incentives awarded prior to the termination date (Accrued Amounts). In the event the Executive is terminated pursuant to clauses
(a), (b) and (c) in the last bullet point above, then the Executive shall be entitled to receive the Accrued amounts together with
(i) severance pay equal to two (2) times the sum of (1) the Executive’s Base Salary in the year in which the termination
date occurs and (2) the amount of the Annual and Anniversary Bonus for the year prior to the year in which the termination date
occurs and (ii) for a period of up to 18 months following termination, continuation of all employee benefit plans and health insurance
as provided prior to termination.
The Agreement also contains
restrictions on the use of “confidential information” during and after the term of the Agreement and restrictive covenants
that survive the termination of the Agreement including (i) a covenant not to compete, (ii) a non-solicitation covenant with respect
to employees and customers and (iii) a non-disparagement covenant, all as more fully described in the Agreement.
On December 19, 2013, the
Board of the General Partner approved an amendment to the Agreement which provided for the following:
| · | The right to receive the Contingent Grant will occur only after the Partnership has completed one
or more Acquisitions in which the gross purchase price exceeds $35 million. |
| · | An increase of the gross amount of Acquisitions to be used in calculating the Contingent Grant
from $100 million to $200 million. |
| · | The Executive’s right to receive the full amount of the Contingent Grant will not terminate
until fully issued, except where Executive is terminated for “cause” as defined in the amendment. |
| · | The Executive shall receive an amount of $40,769 by December 14, 2014 in connection with interest
owed for past due advances made to Regional by Executive to cover operating expenses, which advances were paid to Executive in
connection with the CEGP Investment. |
| · | The Executive shall defer 25% of his base annual salary until each anniversary date of the Agreement
at which time such amount shall be paid in full. |
Intercompany Loans
In connection with the
Regional acquisition, on July 26, 2007 Regional issued to the Partnership a promissory note in the amount of $2,500,000 (“Central
Promissory Note”) in connection with the remaining funding needed to complete the acquisition of Regional. Interest on
the Central Promissory Note is 10% annually and such interest is payable quarterly. The Central Promissory Note is due on demand.
Regional has not made an interest payment on the Central Promissory Note since its inception. Interest is accruing but unpaid.
The balance on the note at December 31, 2014 is $4,359,000. The payment of this amount is subordinated to the payment of the Hopewell
Note by Regional.
In addition to the Central
Promissory Note, there have been other intercompany net advances made from time to time from the Partnership and/or RVOP to Regional,
including the $1.0 million advanced by the Partnership to Regional in connection with the third amendment to the RZB Loan Agreement
and allocations of corporate expenses, offset by actual cash payments made by Regional to the Partnership and/or RVOP. These intercompany
amounts were historically evidenced by book entries. Effective March 1, 2012, Regional and the Partnership entered into an intercompany
demand promissory note incorporating all advances made as of December 31, 2010 and since that date. The note bears interest at
the rate of 10% annually from January 1, 2011. At December 31, 2013, the intercompany balance owed by Regional to the Partnership
and/or RVOP is approximately $3,141,000, which includes interest. This amount is due to the Partnership and RVOP on demand; however,
as is the case with the Central Promissory Note, payment of these amounts is also subordinated to payment of the Hopewell Note
by Regional.
In September 2012, the
Board of the General Partner recommended the issuance of 12,000 units representing membership interests in the General Partner
(“Units”) at a price of $50.00 per Unit, to raise $600,000 to fund the working capital needs of Central. This
recommendation was approved by the requisite number of members of the General Partner on September 14, 2012 pursuant to the terms
of the Company Agreement of the General Partner. As of October 30, 2012, the offered Units were fully subscribed. The offer of
the Units was made in accordance with Section 4(2) of the Securities Act. No placement agent or broker was involved in the transaction.
In August 2014, the Board
of the General Partner recommended the issuance of 15,000 Units at a price of $50.00 per Unit to raise $750,000 to fund working
capital needs. This recommendation was approved by the requisite percentage of members on August 7, 2014 pursuant to the terms
of the General Partner’s company agreement. On September 8, 2014, the General Partners offered 15,000 membership interests
at a value of $50.00 per interest to each of its members in accordance with the provisions of its company agreement. As of November
3, 2014, the offered membership interests were fully subscribed. The offer of the membership interests was made in accordance with
Section 4(2) of the Securities Act. No placement agent or broker was involved in the transaction.
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, and amended during March 2014 and November 2014. The
intercompany demand note provides for advances from time to time by the General Partner to the Partnership of up to $5,000,000.
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 10% per annum. At December 31, 2014, the total amount
owed to the General Partner by the Partnership, including accrued interest, was $4,615,000.
Reimbursement Agreements
Effective November 17,
2010, the Partnership moved its principal executive offices to Dallas, Texas. Pursuant to a month-to-month Reimbursement Agreement,
from November 2010 through December 2013, the Partnership reimbursed AirNow Compression Systems, LTD (“Airnow”),
an affiliate of Imad K. Anbouba, the General Partner’s Chief Executive Officer and President until November 2013 for the
monthly payment of allocable “overhead costs,” which included rent, utilities, telephones, office equipment and furnishings
attributable to the space utilized by employees of the General Partner. Effective December 31, 2013, in connection with the CEGP
Investment and the resulting change in control of the General Partner, the Partnership moved its principal executive offices to
another office location within Dallas, Texas that is leased from Katy Resources LLC (“Katy”), an entity controlled
by C Thomas Graves III, the Chairman of the Board of the General Partner. As a result, the Reimbursement Agreement with Airnow
was terminated and the Partnership entered into a new reimbursement agreement with Katy on a month to month basis for reimbursement
of allocable “overhead costs” 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 limited liability company affiliated
with Ian Bothwell, the General Partner’s Executive Vice President and Secretary, located in Manhattan Beach, California.
Mr. Bothwell is a resident of California and lives in Manhattan Beach. Since June 2012, Regional has been directly charged for
its allocated portion of Rover Technologies LLC’s expenses. In connection with the CEGP Investment, the Partnership reimbursed
Rover Technologies LLC for the outstanding unpaid overhead costs as of the date of the CEGP Investment.
Management Fee Paid by Regional
Regional is charged for
direct expenses paid by the Partnership on its behalf, as well as its share of allocable overhead for expenses incurred by the
Partnership which are indirectly attributable for Regional related activities. For the years ended December 31, 2013 and 2014,
Regional recorded allocable expenses of $287,000 and $211,000, respectively.
Hopewell Loan
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 would loan Regional up to $2,500,000 (“Hopewell Loan”),
of which $1,998,000 was advanced on such date and an additional $252,000 and $250,000 was advanced on March 26, 2013 and July 19,
2013, respectively. At the time the Hopewell Loan was obtained, William M. Comegys III, was a member of the Board of Directors
of the General Partner, as well as the managing member of Hopewell. As a result of this affiliation, the terms of the Hopewell
Loan were reviewed by the Conflicts Committee of the Board of Directors of the General Partner. The committee determined that the
Hopewell Loan was on terms better than could be obtained from a third-party lender.
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, legal fees and other expenses owed in connection with the Loan Agreement.
The remaining amounts provided under the Hopewell Loan to Regional were used for working capital.
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 Hopewell Loan matures
in three years and carries a fixed annual rate of interest of 12%. Under the terms of the Hopewell Loan, as amended, Regional was
required to make interest payments only beginning April 2013 through December 2014 and then 14 equal monthly payments of $56,000
(principal and interest) with a balloon payment of $2.044 million due on March 19, 2016. Per the Hopewell Loan Agreement, Regional
is required to provide annual audited and certified quarterly financial statements to Hopewell. The failure to provide those financial
statements as prescribed is an event of default, and Hopewell may, by written notice to Regional, declare the Hopewell Note immediately
due and payable.
In 2014 there were two amendments made to the
Hopewell Loan. Both amendments were for the extension of the date for principal payments to be made, which ultimately began
in January 2015. At February 28, 2015, Regional was current on all payments due and owing to Hopewell.
Item 14. Principal Accountant Fees and Services.
Central has been billed
as follows for the professional services of Montgomery Coscia Greilich, LLP rendered during the year ended December 31, 2013
and 2014:
| | |
2013 | | |
2014 | |
| | |
| | |
| |
| Audit Fees | |
$ | 129,030 | | |
$ | 78,272 | |
| Audit — Related Fees | |
$ | - | | |
$ | - | |
| Tax Fees(1) | |
$ | 99,172 | | |
$ | 111,152 | |
| All Other Fees | |
$ | - | | |
$ | 15,518 | |
| (1) | Represents fees billed for tax compliance, tax advice and tax planning services. |
The General Partner’s
Audit Committee approves the engagement of the Central’s independent auditor to perform audit-related services. The Audit
Committee does not formally approve specific amounts to be spent on non-audit related services which in the aggregate do not exceed
amounts to be spent on audit-related services. In determining the reasonableness of audit fees, the Audit Committee considers historical
amounts paid and the scope of services to be performed. The Audit Committee has determined that the professional services rendered
by our accountants are compatible with maintaining the principal accountant’s independence. The Audit Committee gave prior
approval to all audit services in 2013 and 2014.
PART IV
Item 15. Exhibits and Financial Statement
Schedules
| a. | | Financial Statements and Financial Statement Schedules. |
The following documents
are filed as part of this report:
| (1) | | Consolidated Financial Statements: |
Central Energy Partners LP
Report of Independent Public Accounting
Firm
Consolidated Balance Sheet as of
December 31, 2013 and 2014
Consolidated Statements of Operations
for each of the two years in the period ended December 31, 2014
Consolidated Statement of Partners’
Capital for each of the two years in the period ended December 31, 2014
Consolidated Statements of Cash Flows
for each of the two years in the period ended December 31, 2014
Notes to Consolidated Financial Statements
| (2) | | Financial Statement Schedules: |
The following Exhibits are incorporated by
reference to previously filed reports, as noted:
| Exhibit No. |
|
|
| 2.1 |
|
Distribution Agreement, dated September 16, 2004, by and among Penn Octane Corporation, Rio Vista Energy Partners L.P. and its Subsidiaries. (Incorporated by reference to Rio Vista’s Registration Statement on Form 10 filed August 26, 2004, SEC File No. 000-50394). |
| |
|
|
| 2.2 |
|
Amended and Restated Purchase and Sale Agreement, dated August 15, 2006, by and between Rio Vista Operating Partnership L.P. and TransMontaigne Product Services Inc. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2006, filed on November 20, 2006, SEC File No. 000-50394). |
| |
|
|
| 2.3 |
|
Agreement and Plan of Merger, dated July 27, 2007, by and among Rio Vista Energy Partners L.P., Regional Enterprises, Inc., Regional Enterprises, Inc. (also known as Regional Enterprises, Inc.); the shareholders; and W. Gary Farrar, Jr. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 2.4 |
|
Articles of Merger of Regional Enterprises, Inc. and Regional Enterprises, Inc., dated July 27 2007. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| Exhibit No. |
|
|
| 2.5 |
|
Asset Purchase Agreement, dated October 1, 2007, by and between Rio Vista Penny LLC and G M Oil Properties, Inc. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K, filed on November 26, 2007, SEC File No. 000-50394). |
| |
|
|
| 2.6 |
|
Amendment to Asset Purchase Agreement, dated November 16, 2007, by and between Rio Vista Penny LLC and G M Oil Properties, Inc. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K, filed on November 26, 2007, SEC File No. 000-50394). |
| |
|
|
| 2.7 |
|
Asset Purchase Agreement, dated as of October 1, 2007, by and between Rio Vista Penny LLC, Penny Petroleum Corporation and Gary Moores. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K, filed on November 26, 2007, SEC File No. 000-50394). |
| |
|
|
| 2.8 |
|
Amendment to Asset Purchase Agreement, dated October 25, 2007, by and among Rio Vista Energy Partners L.P., Rio Vista Penny LLC, Penny Petroleum Corporation and Gary Moores. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K, filed on November 26, 2007, SEC File No. 000-50394). |
| |
|
|
| 2.9 |
|
Second Amendment to Asset Purchase Agreement, dated November 16, 2007, by and among Rio Vista Energy Partners L.P., Rio Vista Penny LLC, Penny Petroleum Corporation and Gary Moores. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K, filed on November 26, 2007, SEC File No. 000-50394). |
| |
|
|
| 2.10 |
|
Stock Purchase Agreement, dated October 2, 2007, by and between Rio Vista GO, GO LLC, Outback Production Inc., Gary Moores and Bill Wood. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K, filed on November 26, 2007, SEC File No. 000-50394). |
| |
|
|
| 2.11 |
|
Amendment to Membership Interest Purchase and Sale Agreement, dated November 16, 2007, by and between Rio Vista Energy Partners L.P., Rio Vista GO LLC, Outback Production Inc., GO LLC, and Gary Moores and Bill Wood. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K, filed on November 26, 2007, SEC File No. 000-50394). |
| |
|
|
| 2.12 |
|
Purchase and Sale Agreement, dated December 26, 2007, by and among Rio Vista Operating Partnership L.P., Penn Octane International, LLC, TMOC Corp., TLP MEX L.L.C. and RAZORBACK L.L.C. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K, filed on January 3, 2008, SEC File No. 000-50394). |
| |
|
|
| 2.13 |
|
Securities Purchase and Sale Agreement between Central Energy, LLC, Rio Vista Energy Partners L.P. and Penn Octane Corporation dated May 25, 2010. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on May 28, 2010, SEC File No. 000-50394.) |
| |
|
|
| 2.14 |
|
Third Amendment to Securities Purchase and Sale Agreement between Central Energy, LLC, Rio Vista Energy Partners L.P. and Penn Octane Corporation, effective July 21, 2010 and dated August 9, 2010. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on August 13, 2010, SEC File No. 000-50394.) |
| |
|
|
| 2.15 |
|
Fourth Amendment to Securities Purchase and Sale Agreement between Central Energy, LLC, Rio Vista Energy Partners L.P. and Penn Octane Corporation, dated November 17, 2010. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on November 23, 2010, SEC File No. 000-50394.) |
| Exhibit No. |
|
|
| 3.1 |
|
Certificate of Limited Partnership of Rio Vista Energy Partners L.P., filed July 10, 2003. (Incorporated by reference to Rio Vista’s Registration Statement on Form 10 filed August 26, 2004, SEC File No. 000-50394). |
| |
|
|
| 3.2 |
|
Amendment of Certificate of Limited Partnership of Rio Vista Energy Partners L.P., filed September 17, 2003. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004, filed on November 22, 2004, SEC File No. 000-50394). |
| |
|
|
| 3.3 |
|
First Amended and Restated Limited Partnership Agreement of Rio Vista Energy Partners L.P., dated September 16, 2004. (Incorporated by reference to Rio Vista’s Registration Statement on Form 10, filed August 26, 2004, SEC File No. 000-50394). |
| |
|
|
| 3.4 |
|
First Amendment to the First Amended and Restated Agreement of Limited Partnership of Rio Vista Energy Partners L.P., dated October 26, 2005. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2005, filed on November 21, 2005, SEC File No. 000-50394). |
| |
|
|
| 3.5 |
|
Certificate of Formation of Rio Vista GP LLC. (Incorporated by reference to Rio Vista’s Registration Statement on Form 10 filed August 26, 2004, SEC File No. 000-50394). |
| |
|
|
| 3.6 |
|
Rio Vista GP LLC Amended and Restated Limited Liability Company Agreement, dated September 16, 2004. (Incorporated by reference to Rio Vista’s Registration Statement on Form 10 filed August 26, 2004, SEC File No. 000-50394). |
| |
|
|
| 3.7 |
|
First Amendment to Amended and Restated Limited Liability Company Agreement of Rio Vista GP LLC, dated October 2, 2006. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2005, filed on April 6, 2006, SEC File No. 000-50394). |
| |
|
|
| 3.8 |
|
First Amendment to the Amended and Restated Limited Liability Company Agreement of Rio Vista GP, LLC dated December 28, 2010. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on January 4, 2011, SEC File No. 000-50394.) |
| |
|
|
| 3.9 |
|
Amendment to Certificate of Formation of Rio Vista GP, LLC dated December 28, 2010. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on January 4, 2011, SEC File No. 000-50394.) |
| |
|
|
| 3.10 |
|
Second Amendment to the First Amended and Restated Agreement of Limited Partnership of Rio Vista Energy Partners L.P. dated December 28, 2010. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on January 4, 2011, SEC File No. 000-50394.) |
| |
|
|
| 3.11 |
|
Amendment to Certificate of Limited Partnership of Rio Vista Energy Partners, L.P. dated December 28, 2010. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on January 4, 2011, SEC File No. 000-50394.) |
| |
|
|
| 3.12 |
|
Second Amended and Restated Limited Liability Company Agreement of Central Energy GP LLC, dated April 12, 2011. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010 and filed on April 15, 2011, SEC File No. 000-50394.) |
| Exhibit No. |
|
|
| 3.13 |
|
Second Amended and Restated Agreement of Limited partnership of Central Energy Partners LP, dated April 12, 2011. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010 and filed on April 15, 2011, SEC File No. 000-50394.) |
| |
|
|
| 3.14 |
|
Amendment to Second Amended and Restated Agreement of Limited Partnership of the Partnership dated March 28, 2012. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2011 and filed on March 30, 2012, SEC File No. 000-50394.) |
| |
|
|
| 3.15 |
|
Third Amended and Restated Agreement of Limited Partnership of Central Energy Partners LP dated November 26, 2013. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on December 2, 2013, SEC File No. 000-50394.) |
| |
|
|
| 3.16 |
|
Third Amended and Restated Limited Liability Company Agreement of Central Energy GP LLC dated November 26, 2013. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on December 2, 2013, SEC File No. 000-50394.) |
| |
|
|
| 4.1 |
|
Specimen Unit Certificate for Common Units. (Incorporated by reference to Rio Vista’s Registration Statement on Form 10 filed August 26, 2004, SEC File No. 000-50394). |
| |
|
|
| 4.2 |
|
Forms of Warrants to Purchase Common Units to be issued to Penn Octane warrant holders. (Incorporated by reference to Rio Vista’s Registration Statement on Form 10 filed August 26, 2004, SEC File No. 000-50394). |
| |
|
|
| 4.3 |
|
Registration Rights Agreement, dated December 3, 2007, by and among Rio Vista Energy Partners L.P., Rio Vista GP LLC, Standard General Fund L.P., Credit Suisse Management LLC and Structured Finance Americas LLC. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K, filed on December 4, 2007, SEC File No. 000-50394). |
| |
|
|
| 4.4 |
|
Registration Rights Agreement dated as of May 27, 2009 by and between Rio Vista Energy Partners L.P. and TCW Energy X Blocker, L.L.C. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on June 2, 2009, SEC File No. 000-50394.) |
| |
|
|
| 4.5 |
|
Registration Rights Agreement dated as of August 1, 2011 by and among Central Energy Partners LP and the limited partners of Central Energy, LP. (Incorporated by reference to the Partnership’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2011 and filed on August 15, 2011, SEC File No. 000-50394.) |
| |
|
|
| 4.6 |
|
Specimen Common Unit Certificate of Central Energy Partners LP (Incorporated by reference to the Partnership’s Quarterly Report on Form 10-Q filed on May 15, 2012, SEC File No. 000-50394.) |
| |
|
|
| 4.7 |
|
Amended and Restated Registration Rights Agreement by and among Central Energy Partners LP, the Group I Investors, CEGP Acquisition, LLC, JLD Investors, Ltd, and G. Thomas Graves III, dated November 26, 2013. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on December 2, 2013, SEC File No. 000-50394.) |
| |
|
|
| 4.8 |
|
Warrant Agreement issued by Central Energy Partners LP to JLD Services, Ltd. dated November 26, 2013. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on December 2, 2013, SEC File No. 000-50394.) |
| Exhibit No. |
|
|
| 4.9 |
|
Warrant Agreement issued by Central Energy Partners LP to G. Thomas Graves III dated November 26, 2013. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on December 2, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.1 |
|
Contribution, Conveyance and Assumption Agreement, dated September 16, 2004, by and among Penn Octane Corporation, Rio Vista GP LLC, Rio Vista Energy Partners L.P., Rio Vista Operating GP LLC and Rio Vista Operating Partnership L.P. (Incorporated by reference to Rio Vista’s Registration Statement on Form 10, filed August 26, 2004, SEC File No. 000-50394). |
| |
|
|
| 10.2 |
|
Omnibus Agreement, dated September 16, 2004, by and among Penn Octane Corporation, Rio Vista GP LLC, Rio Vista Energy Partners, L.P. and Rio Vista Operating Partnership L.P. (Incorporated by reference to Rio Vista’s Registration Statement on Form 10, filed August 26, 2004, SEC File No. 000-50394). |
| |
|
|
| 10.3 |
|
Amendment No. 1 to Omnibus Agreement, dated September 16, 2004, by and among Penn Octane Corporation, Rio Vista GP LLC, Rio Vista Energy Partners L.P. and Rio Vista Operating Partnership L.P. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004, filed on November 22, 2004, SEC File No. 000-50394). |
| |
|
|
| 10.4 |
|
Purchase Contract, dated October 1, 2004, by and between Penn Octane Corporation and Rio Vista Operating Partnership L.P. (Incorporated by reference to Rio Vista’s Registration Statement on Form 10, filed August 26, 2004, SEC File No. 000-50394). |
| |
|
|
| 10.5 |
|
Form of Unit Purchase Option between Penn Octane Corporation and Shore Capital LLC. (Incorporated by reference to Rio Vista’s Registration Statement on Form 10, filed August 26, 2004, SEC File No. 000-50394). |
| |
|
|
| 10.6 |
|
Form of Unit Purchase Option between Penn Octane Corporation and Jerome B. Richter. (Incorporated by reference to Rio Vista’s Registration Statement on Form 10, filed August 26, 2004, SEC File No. 000-50394). |
| |
|
|
| 10.7 |
|
Rio Vista Energy Partners L.P. Unit Option Agreement, dated July 10, 2003, granted to Shore Capital LLC. (Incorporated by reference to Rio Vista’s Registration Statement on Form 10, filed August 26, 2004, SEC File No. 000-50394). |
| |
|
|
| 10.8 |
|
Form of RVGP Voting Agreement by and among Rio Vista GP LLC, Penn Octane Corporation and the members of Rio Vista GP LLC. (Incorporated by reference to Rio Vista’s Registration Statement on Form 10 filed August 26, 2004, SEC File No. 000-50394). |
| |
|
|
| 10.9 |
|
Conveyance Agreement, dated December 31, 2004 from Penn Octane Corporation in favor of Rio Vista Operating Partnership L.P. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004, filed on November 22, 2004, SEC File No. 000-50394). |
| |
|
|
| 10.10 |
|
Guaranty & Agreement between Rio Vista Energy Partners L.P. and RZB Finance LLC, dated September 15, 2004. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004, filed on November 22, 2004, SEC File No. 000-50394). |
| Exhibit No. |
|
|
| 10.11 |
|
Guaranty & Agreement, dated September 15, 2004, between Rio Vista Operating Partnership L.P. and RZB Finance LLC. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004, filed on November 22, 2004, SEC File No. 000-50394). |
| |
|
|
| 10.12 |
|
General Security Agreement, dated September 15, 2004, between Rio Vista Energy Partners L.P. and RZB Finance LLC. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004, filed on November 22, 2004, SEC File No. 000-50394). |
| |
|
|
| 10.13 |
|
General Security Agreement, dated September 15, 2004, between Rio Vista Operating Partnership L.P. and RZB Finance LLC. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004, filed on November 22, 2004, SEC File No. 000-50394). |
| |
|
|
| 10.14* |
|
Rio Vista Energy Partners L.P. 2005 Equity Incentive Plan (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2004, filed on April 12, 2005, SEC File No. 000-50394). |
| |
|
|
| 10.15 |
|
Promissory Note, dated August 15, 2005, between Rio Vista Operating Partnership L.P. and TransMontaigne Product Services Inc. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2005, filed on August 19, 2005, SEC File No. 000-50394). |
| |
|
|
| 10.16 |
|
Security Agreement, dated August 15, 2005, between Rio Vista Operating Partnership L.P. and TransMontaigne Product Services Inc. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2005, filed on August 19, 2005, SEC File No. 000-50394). |
| |
|
|
| 10.17 |
|
Amended and Restated Consulting Agreement, dated November 15, 2005, by and among Penn Octane Corporation, Rio Vista Energy Partners and Jerome B. Richter. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2005, filed on November 21, 2005, SEC File No. 000-50394). |
| |
|
|
| 10.18 |
|
Unit Purchase Option, dated February 6, 2007, between Shore Trading LLC and Penn Octane Corporation. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2006, filed on April 17, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.19 |
|
Consent to Transfer of Units, Acknowledgement of Representation, and Waiver of Conflicts, dated February 6, 2007, by and among Penn Octane Corporation, Rio Vista GP LLC and Shore Trading LLC. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2006, filed on April 17, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.20 |
|
Consulting Agreement entered into on March 5, 2007, with an effective date of November 15, 2006 by and between Penn Octane Corporation and Rio Vista Energy Partners L.P. and JBR Capital Resources, Inc. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2006, filed on April 17, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.21 |
|
Letter Agreement, dated March 5, 2007, by and between Penn Octane Corporation, Rio Vista Energy Partners L.P. and JBR Capital Resources, Inc. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2006, filed on April 17, 2007, SEC File No. 000-50394). |
| Exhibit No. |
|
|
| 10.22* |
|
Form of Rio Vista GP LLC Chairman Services Agreement. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2006, filed on April 17, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.23* |
|
Form of Rio Vista GP LLC Managers Services Agreement. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2006, filed on April 17, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.24* |
|
Form of Rio Vista GP LLC Manager and Officer Indemnification Agreement. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2006, filed on April 17, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.25* |
|
Form of Nonqualified Unit Option Agreement under the 2005 Rio Vista Energy Partners L.P. Equity Incentive Plan. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2006, filed on April 17, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.26 |
|
Consulting Agreement, dated November 1, 2006, by and among Penn Octane Corporation And Rio Vista Energy Partners L.P. and Ricardo Canney. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.27 |
|
Consulting Agreement, dated July 2, 2007, by and between Rio Vista Energy Partners, L.P. and CEOcast, Inc. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.28 |
|
Employment and Non-Competition Agreement, dated July 27, 2007, by and between Regional Enterprises, Inc. and W. Gary Farrar, III. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.29 |
|
Escrow Agreement, dated July 27, 2007, by and among Rio Vista Energy Partners L.P., Regional Enterprises, Inc., W. Gary Farrar, Jr., and First Capital Bank. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.30 |
|
Loan Agreement, dated July 26, 2007, by and between Rio Vista Energy Partners L.P., and RZB Finance LLC (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.31 |
|
Guaranty and Agreement, dated July 26, 2007, by and between Regional Enterprises, Inc., and RZB Finance LLC. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.32 |
|
Guaranty and Agreement, dated July 26, 2007, by and between Penn Octane Corporation, and RZB Finance LLC. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| Exhibit No. |
|
|
| 10.33 |
|
Guaranty and Agreement, dated July 26, 2007, by and between Rio Vista Operating Partnership L.P. and RZB Finance LLC Dated As Of July 26, 2007. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.34 |
|
$5,000,000 Promissory Note, dated July 26, 2007, issued by Rio Vista Energy Partners L.P. to RZB Finance LLC. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.35 |
|
General Security Agreement, dated July 26, 2007, by and between RZB Finance LLC and Regional Enterprises, Inc. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.36 |
|
Pledge Agreement, dated July 26, 2007, by and between: Rio Vista Energy Partners L.P., and RZB Finance LLC. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.37 |
|
First Amendment to Line Letter, dated July 26, 2007, by and between RZB Finance LLC and Penn Octane Corporation. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.38 |
|
Debt Assumption Agreement, dated July 26, 2007, by and between Rio Vista Energy Partners L.P. and Regional Enterprises, Inc. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.39 |
|
$5,000,000 Debt Assumption Note, dated July 26, 2007, issued by Regional Enterprises, Inc. to Rio Vista Energy Partners L.P. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.40 |
|
$2,500,000 Promissory Note, dated July 26, 2007, issued by Regional Enterprises, Inc. to Rio Vista Energy Partners L.P. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.41 |
|
Environmental Indemnity Agreement, dated July 26, 2007, by and between Regional Enterprises, Inc. and RZB Finance LLC. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.42 |
|
Reaffirmation of Security Agreements, dated July 26, 2007, by and among Rio Vista Energy Partners L.P., Penn Octane Corporation Rio Vista Operating Partnership L.P., and RZB Finance LLC. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on August 20, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.43 |
|
Binding Letter of Intent, dated September 12, 2007, by and between TransMontaigne Partners L.P. and Rio Vista Operating Partnership L.P. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on November 19, 2007, SEC File No. 000-50394). |
| Exhibit No. |
|
|
| 10.44 |
|
Restated and Amended Promissory Note, dated September 12, 2007, by and between Rio Vista Operating Partnership L.P. and TransMontaigne Product Services, Inc. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on November 19, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.45 |
|
Restated and Amended Security Agreement, dated September 12, 2007, by and among Rio Vista Operating Partnership, L.P., TransMontaigne Product Services, Inc. and TransMontaigne Partners L.P. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on November 19, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.46 |
|
First Priority Equity Interest Pledge Agreement, dated September 12, 2007, by and among Rio Vista Operating Partnership, L.P., Penn Octane International, LLC, TransMontaigne Product Services, Inc. and TransMontaigne Partners L.P., with the acknowledgment of Penn Octane de Mexico, S. de R.L. de C.V. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on November 19, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.47 |
|
First Priority Equity Interest Pledge Agreement, dated September 12, 2007, by and among Rio Vista Operating Partnership, L.P., Penn Octane International, LLC, TransMontaigne Product Services, Inc. and TransMontaigne Partners L.P., with the acknowledgment of Termatsal, S. de R.L. de C.V. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on November 19, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.48 |
|
Assignment Agreement, dated September 12, 2007, by and among Rio Vista Operating Partnership, L.P., TransMontaigne Partners L.P. and TransMontaigne Product Services, Inc. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed on November 19, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.49 |
|
Unit Purchase Agreement, dated November 29, 2007, by and among Rio Vista Energy Partners L.P., Rio Vista GP LLC, Standard General Fund L.P., Credit Suisse Management LLC and Structured Finance Americas LLC. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K, filed on December 4, 2007, SEC File No. 000-50394). |
| |
|
|
| 10.50 |
|
Guaranty made as of November 19, 2007 by Rio Vista Eco LLC, Rio Vista GO LLC, GO LLC and MV Pipeline Company in favor of TCW Asset Management Company as administrative agent for Holders. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2007, filed on April 15, 2008, SEC File No. 000-50394). |
| |
|
|
| 10.51 |
|
Security Agreement dated as of November 19, 2007 by Rio Vista Penny LLC in favor of TCW Asset Management Company, as administrative agent. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2007, filed on April 15, 2008, SEC File No. 000-50394). |
| |
|
|
| 10.52 |
|
Assumption Agreement dated November 19, 2007 by and among GM Oil Properties, Inc., Rio Vista Penny LLC, TCW Asset Management Company, as administrative agent and the holders party to the Note Purchase Agreement. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2007, filed on April 15, 2008, SEC File No. 000-50394). |
| Exhibit No. |
|
|
| 10.53 |
|
Rio Vista Energy Partners L.P. Common Unit Purchase Warrant issued to TCW Energy Funds X Holdings, L.P. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2007, filed on April 15, 2008, SEC File No. 000-50394). |
| |
|
|
| 10.54 |
|
Promissory note dated November 19, 2007 issued by Rio Vista to Gary Moores. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2007, filed on April 15, 2008, SEC File No. 000-50394). |
| |
|
|
| 10.55 |
|
Note Purchase Agreement between Rio Vista Penny LLC, TCW Asset Management Company and TCW Energy Fund X Investors dated November 19, 2007. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2007, filed on April 15, 2008, SEC File No. 000-50394). |
| |
|
|
| 10.56 |
|
First Amendment to Note Purchase Agreement dated as of September 29, 2008 by and among Rio Vista Penny LLC, TCW Asset Management Company, and the Holders party to the Original Note Purchase Agreement. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008, filed on November 17, 2008, SEC File No. 000-50394). |
| |
|
|
| 10.57 |
|
Amended and Restated Management Services Agreement, dated and effective as of September 29, 2008, is made by and among Rio Vista Operating LLC, Rio Vista Energy Partners L.P., and Rio Vista Penny LLC. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008, filed on November 17, 2008, SEC File No. 000-50394). |
| |
|
|
| 10.58 |
|
Promissory Note dated April 15, 2008 between Rio Vista Energy Partners L.P. and Jerome B. Richter. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008, filed on November 17, 2008, SEC File No. 000-50394). |
| |
|
|
| 10.59 |
|
Amendment to Promissory Note dated June 27, 2008 issued by Rio Vista to Gary Moores. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2008, filed April 14, 2009, SEC File No. 000-50394.) |
| |
|
|
| 10.60 |
|
Second Amendment to Promissory Note dated January 20, 2009 issued by Rio Vista to Gary Moores. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2008, filed April 14, 2009, SEC File No. 000-50394.) |
| |
|
|
| 10.61 |
|
Second Amendment to Loan Agreement dated as of July 2008 between RZB Finance LLC and Rio Vista. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2008, filed April 14, 2009, SEC File No. 000-50394.) |
| |
|
|
| 10.62 |
|
Third Amendment to Loan Agreement dated as of December 2008 between RZB Finance LLC and Rio Vista. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2008, filed April 14, 2009, SEC File No. 000-50394.) |
| |
|
|
| 10.63 |
|
Fourth Amendment to Loan Agreement dated as of February 28, 2009 between RZB Finance LLC and Rio Vista. . (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2008, filed April 14, 2009, SEC File No. 000-50394.) |
| Exhibit No. |
|
|
| 10.64 |
|
Fifth Amendment to Loan Agreement dated as of March 31, 2009 between RZB Finance LLC and Rio Vista. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2008, filed April 14, 2009, SEC File No. 000-50394.) |
| |
|
|
| 10.65 |
|
Letter agreement to extend payments and other requirements pursuant to Note Purchase Agreement dated December 30, 2008 between Rio Vista Penny LLC and TCW Asset Management Company. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2008, filed April 14, 2009, SEC File No. 000-50394.) |
| |
|
|
| 10.66 |
|
Letter agreement to extend payments and other requirements pursuant to Note Purchase Agreement dated February 28, 2009 between Rio Vista Penny LLC and TCW Asset Management Company. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2008, filed April 14, 2009, SEC File No. 000-50394.) |
| |
|
|
| 10.67 |
|
Letter agreement to extend payments and other requirements pursuant to Note Purchase Agreement dated March 23, 2009 between Rio Vista Penny LLC and TCW Asset Management Company. (Incorporated by reference to Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2008, filed April 14, 2009, SEC File No. 000-50394.) |
| |
|
|
| 10.68 |
|
Letter Agreement to extend payments and other requirements pursuant to Note Purchase Agreement dated April 13, 2009 between Rio Vista Penny LLC and TCW Asset Management Company. (Incorporated by reference to Rio Vista’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed on May 20, 2009, SEC File No. 000-50394.) |
| |
|
|
| 10.69 |
|
Settlement Agreement dated as of May 27, 2009 by and between Rio Vista Energy Partners L.P., Rio Vista ECO, LLC, TCW Asset Management Company, as administrative agent, and TCW Energy X Blocker, L.L.C. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on June 2, 2009, SEC File No. 000-50394.) |
| |
|
|
| 10.70 |
|
Sixth Amendment, Assumption of Obligations and Release Agreement dated as of June 12, 2009 among RZB Finance LLC, Rio Vista Energy Partners L.P. and Regional Enterprises Inc. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on June 19, 2009, SEC File No. 000-50394.) |
| |
|
|
| 10.71 |
|
The press release of Rio Vista Energy Partners L.P. dated November 14, 2009, announcing the delay in filing the December 31, 2009 quarterly financial statements on Form 10-Q. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on August 17, 2009, SEC File No. 000-50394.) |
| |
|
|
| 10.72 |
|
The press release of Rio Vista Energy Partners L.P. dated November 14, 2009, announcing its receipt of the NASDAQ Determination Letter which denied Rio Vista’s plan for regaining compliance with NASDAQ Marketplace Rule 5250(c)(1). (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on October 2, 2009, SEC File No. 000-50394.) |
| Exhibit No. |
|
|
| 10.73 |
|
The press release of Rio Vista Energy Partners
L.P. dated November 23, 2009 announcing that its receipt of the NASDAQ letter indicating that Rio Vista’s failure to file
the December 31, 2009 quarterly report on Form 10-Q would serve as additional basis for delisting Rio Vista securities from NASDAQ
and the delinquent filing would be shared with the Listing Qualifications Panel in connection with Rio Vista’s appeal of
NASDAQ decision to delist Rio Vista securities from the NASDAQ Capital market. (Incorporated by reference to Rio Vista’s
Current Report on Form 8-K filed on November 23, 2009, SEC File No. 000-50394.)
|
| 10.74 |
|
Seventh Amendment dated as of May 21, 2010 between RZB Finance LLC and Regional Enterprises Inc. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on May 28, 2010, SEC File No. 000-50394.) |
| |
|
|
| 10.75 |
|
Conditional Acceptance of Settlement Offer and Release dated as of November 17, 2010, by and among each of Ian T. Bothwell, Bruce I. Raben, Ricardo Rodriquez, Murray J. Feiwell, Nicholas J. Singer and Douglas L. manner, on the one hand, and Rio Vista Energy partners L.P. on the other. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on November 23, 2010, SEC File No. 000-50394.) |
| |
|
|
| 10.76 |
|
Mutual Release dated as of November 17, 2010 by and among Penn Octane Corporation, Rio Vista Energy Partners, L.P. and Rio Vista GP, LLC. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on November 23, 2010, SEC File No. 000-50394.) |
| |
|
|
| 10.77 |
|
Release dated as of November 17, 2010 by Rio Vista Energy Partners, L.P., Rio Vista GP, LLC and Central Energy, LP, and the persons identified on Schedule I attached thereto. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on November 23, 2010, SEC File No. 000-50394.) |
| |
|
|
| 10.78 |
|
Termination Agreement dated as of November 17, 2010 among Penn Octane Corporation, Rio Vista GP, LLC, Rio Vista Energy Partners, L.P. and Rio Vista Operating Partnership L.P. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on November 23, 2010, SEC File No. 000-50394.) |
| |
|
|
| 10.79* |
|
Employment Agreement between Rio Vista GP, LLC and Imad K. Anbouba dated December 28, 2010. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on January 4, 2011, SEC File No. 000-50394.) |
| |
|
|
| 10.80* |
|
Employment Agreement between Rio Vista GP, LLC and Carter R. Montgomery dated December 28, 2010. (Incorporated by reference to Rio Vista’s Current Report on Form 8-K filed on January 4, 2011, SEC File No. 000-50394.) |
| |
|
|
| 10.81 |
|
Installment Agreement dated November 17, 2010 by and between Regional Enterprises, Inc. and the Internal Revenue Service. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010 and filed on April 15, 2011, SEC File No. 000-50394.) |
| |
|
|
| 10.82 |
|
Buy-Sell Agreement dated April 13, 2011 by and among Imad K. Anbouba, Carter R. Montgomery and The Cushing MLP Opportunity Fund I, L.P. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010 and filed on April 15, 2011, SEC File No. 000-50394.) |
| Exhibit No. |
|
|
| 10.83 |
|
Reimbursement Agreement effective November 17, 2010, by and between Central Energy GP LLC and AirNow Industrial Compressions Systems, LTD. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010 and filed on April 15, 2011, SEC File No. 000-50394.) |
| |
|
|
| 10.84 |
|
Reimbursement Agreement effective January 1, 2011 by and between Central Energy GP LLC and Rover Technologies LLC. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010 and filed on April 15, 2011, SEC File No. 000-50394.) |
| |
|
|
| 10.85* |
|
Employment Agreement of Donald P. Matthews dated November 22, 2011. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on November 28, 2011, SEC File No. 000-50394.) |
| |
|
|
| 10.86 |
|
Form of Vehicle Lease Service Agreement by and between Regional Enterprises, Inc. and Penske Truck Leasing Co., L.P. dated January 18, 2012. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on February 24, 2012, SEC File No. 000-50394.) |
| |
|
|
| 10.87 |
|
Vehicle Maintenance Agreement by and between Regional Enterprises, Inc. and Penske Truck Leasing Co., L.P. dated January 18, 2012. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on February 24, 2012, SEC File No. 000-50394.) |
| |
|
|
| 10.88 |
|
Executed Vehicle Lease Service Agreement by and between Regional Enterprises, Inc. and Penske Truck Leasing Co., L.P. dated February 17, 2012. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on October 11, 2012, SEC File No. 000-50394.) |
| |
|
|
| 10.89 |
|
Intercompany Demand Promissory Note between Central Energy GP LLC and Central Energy Partners LP dated March 1, 2012. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2011 filed on March 30, 2012, SEC File No. 000-50394.) |
| |
|
|
| 10.90 |
|
Intercompany Demand Promissory Note between Central Energy Partners LP and Regional Enterprises, Inc. dated March 1, 2012. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2011 filed on March 30, 2012, SEC File No. 000-50394.) |
| |
|
|
| 10.91 |
|
Response and Notice of Default and Reservation of Rights dated September 14, 2012 from RB International Finance (USA) LLC (“RBI”) in connection with the Loan Agreement dated as of July 26, 2007 (as amended, supplemented or otherwise modified from time to time) between Regional Enterprises, Inc. (as successor by assumption of obligations to the Partnership) and RBI. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on September 21, 2012, SEC File No. 000-50394.) |
| |
|
|
| 10.92 |
|
Notice of Default, Demand for Payment and Reservation of Rights dated October 4, 2012 from RB International Finance (USA) LLC (“RBI”) in connection with the Loan Agreement dated as of July 26, 2007 (as amended, supplemented or otherwise modified from time to time) between Regional Enterprises, Inc. (as successor by assumption of obligations to the Partnership) and RBI. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on October 11, 2012, SEC File No. 000-50394.) |
| Exhibit No. |
|
|
| 10.93 |
|
Limited Waiver and Ninth Amendment dated as of November 1, 2012 between RB International Finance (USA) LLC and Regional Enterprises, Inc. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on November 30, 2012, SEC File No. 000-50394.) |
| |
|
|
| 10.94 |
|
Notice of Default, Demand for Payment and Reservation of Rights dated March 1, 2013. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 7, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.95 |
|
Term Loan and Security Agreement between Regional Enterprises, Inc., as Borrower, and Hopewell Investment Partners LLC, as Lender, dated March 20, 2013. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.96 |
|
Promissory Note dated March 20, 2013 in an amount of up to $2,500,000 issued by Regional Enterprises, Inc., as Borrower, to Hopewell Investment Partners LLC, as Lender. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.97 |
|
First Lien Mortgage, Security Agreement, Assignment of Rents, Leases and Fixture Filing by and from Regional Enterprises, Inc., as Mortgagor, to Hopewell Investment Partners LLC, as Mortgagee, dated as of March 20, 2013. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.98 |
|
Pledge Agreement dated March 20, 2013 by Central Energy Partners LP to Hopewell Investment Partners LLC. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.99 |
|
Assignment of Leases and Rents from Regional Enterprises, Inc. to Hopewell Investment Partners LLC. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.100 |
|
Environmental Certificate (With Covenants, Representations and Warranties) from Regional Enterprises, Inc. and Central Energy Partners LP to Hopewell Investment Partners LLC. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.101 |
|
Unlimited Guaranty dated March 20, 2013 from Central Energy Partners LP to Hopewell Investment Partners LLC. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.102* |
|
Employment Contract of Ian T. Bothwell. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on March 26, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.103 |
|
Purchase and Sale Agreement by and among Central Energy GP LLC, Central Energy Partners LP and CEGP Acquisition, LLC, dated November 26, 2013. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on December 2, 2013, SEC File No. 000-50394.) |
| |
|
|
| 10.104 |
|
Reimbursement Agreement effective Decemb er 1, 2013 by and between Central Energy GP LLC and Kayt Resources, LLC. (Incorporated by reference to the Partnership’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 filed on May 15, 2014, SEC File No. 000-50394.) |
| Exhibit No. |
|
|
| 10.105* |
|
First Amendment to Employment Agreement of Ian T. Bothwell effective December 19, 2013. (Incorporated by reference to the Partnership’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 filed on May 15, 2014, SEC File No. 000-50394.) |
| |
|
|
| 10.106* |
|
Central Energy Partners LP 2014 Incentive Compensation Plan of the Registrant. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2013 filed on March 31, 2014, SEC File No. 000-50394.) |
| |
|
|
| 10.107 |
|
Amended and Restated Intercompany Demand Promissory Note dated March 15, 2014. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2013 filed on March 31, 2014, SEC File No. 000-50394.) |
| |
|
|
| 10.108 |
|
Second Amended and Restated Intercompany Demand Promissory Note dated November 11, 2014. (Incorporated by reference to the Partnership’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 filed on November 14, 2014, SEC File No. 000-50394.) |
| |
|
|
| 16.1 |
|
Letter of Burton McCumber & Cortez, L.L.P. regarding Change of Certifying Accountant (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on October 18, 2011 and the Current Report on Form 8-K/A filed on October 26, 2011, SEC File No. 000-50394). |
| |
|
|
| 17.1 |
|
Letter of Resignation of Jerry V. Swank as a Director and Chairman of the Board of Directors of Central Energy GP LLC. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on December 2, 2013, SEC File No. 000-50394.) |
| |
|
|
| 17.2 |
|
Letter of Resignation of William M. Comegys III as a Director, a member of the Audit Committee, Compensation Committee and Conflicts Committee and Chairman of the Conflicts Committee of the Board of Directors of Central Energy GP LLC. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed on December 2, 2013, SEC File No. 000-50394.) |
| |
|
|
| 17.3 |
|
Letter of Resignation of Carter R. Montgomery as a Director of the Registrant. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2013 filed on March 31, 2014, SEC File No. 000-50394.) |
| |
|
|
| 17.4 |
|
Letter of Resignation of David M. Laney as a Director, a member of the Audit Committee and Compensation Committee and as Chairman of the Compensation Committee. (Incorporated by reference to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2013 filed on March 31, 2014, SEC File No. 000-50394.) |
| |
|
|
| * |
|
indicates management contract or compensatory plan or arrangement. |
The following Exhibits
are filed as part of this Report on Form 10-K:
| 10.109 |
|
Form of Eighth Amendment dated as of November 9, 2010 between RZB Finance LLC and Regional Enterprises Inc. |
| |
|
|
| 10.110 |
|
Form of Common Unit Grant Agreement for Directors issued pursuant to Rio Vista Energy Partners L.P. 2005 Equity Incentive Plan |
| |
|
|
| 10.111 |
|
Form of Common Unit Grant Agreement for Directors issued pursuant to Central Energy Partners LP 2014 Long-Term Incentive Plan |
| 10.112 |
|
Form of Restricted Common Unit Option Agreement for Officers issued pursuant to Central Energy Partners LP 2014 Long-Term Incentive Plan |
| |
|
|
| 21 |
|
Subsidiaries of Partnership |
| |
|
|
| 23.1 |
|
Consent of Montgomery Coscia Greilich, LLP |
| |
|
|
| 24.1 |
|
Power of Attorney |
| |
|
|
| 31.1 |
|
Certification Pursuant to Rule 13a-14(a) / 15d – 14(a) of the Exchange Act |
| |
|
|
| 31.2 |
|
Certification Pursuant to Rule 13a-14(a) / 15d – 14(a) of the Exchange Act |
| |
|
|
| 32 |
|
Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes — Oxley Act of 2002 |
| |
|
|
| 101. INS |
|
XBRL Instance Document |
| |
|
|
| 101. CAL |
|
XBRL Taxonomy Extension Calculation Link base Document |
| |
|
|
| 101. DEF |
|
XBRL Taxonomy Extension Definition Link base Document |
| |
|
|
| 101. LAB |
|
XBRL Taxonomy Label Link base Document |
| |
|
|
| 101. PRE |
|
XBRL Extension Presentation Link base Document |
| |
|
|
| 101. SCH |
|
XBRL Taxonomy Extension Scheme Document |
All of the Exhibits are
available from the SEC’s website at www.sec.gov. In addition, the Partnership will furnish a copy of any Exhibit upon
payment of a fee (based on the estimated actual cost which shall be determined at the time of the request) together with a request
addressed to G. Thomas Graves III, Chairman of the Board, Central Energy Partners LP, 4809 Cole Avenue, Suite 108, Dallas, Texas
75205.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the following persons on behalf of the Partnership and in the capacities and
on the dates indicated.
| |
CENTRAL ENERGY PARTNERS LP |
| |
|
|
| |
By: |
CENTRAL ENERGY GP LLC |
| |
|
GENERAL PARTNER |
| March 31, 2015 |
|
By: |
/s/ John L. Denman, Jr. |
| |
|
|
John L. Denman, Jr. |
| |
|
|
Chief Executive Officer and President |
| |
|
|
|
| March 31, 2015 |
|
By: |
/s/ Douglas W. Weir |
| |
|
|
Douglas W. Weir, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the following persons on behalf of the Partnership and in the capacities and
on the dates indicated. Each capacity refers to the signer’s position with Central Energy GP LLC, the General Partner of
the Partnership.
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| /s/ John L. Denman, Jr. |
|
Director and Chief Executive Officer |
|
March 31, 2015 |
| John L. Denman, Jr. |
|
|
|
|
| |
|
|
|
|
| /s/G. Thomas Graves, III |
|
Director and Chairman of the Board |
|
March 31, 2015 |
| G. Thomas Graves, III |
|
|
|
|
| |
|
|
|
|
| /s/ Imad K. Anbouba |
|
Director |
|
March 31, 2015 |
| Imad K. Anbouba |
|
|
|
|
| |
|
|
|
|
| /s/ Alan D. Bell |
|
Director |
|
March 31, 2015 |
| Alan D. Bell |
|
|
|
|
| |
|
|
|
|
| /s/ Alexander C. Chae |
|
Director |
|
March 31, 2015 |
| Alexander C. Chae |
|
|
|
|
| |
|
|
|
|
| /s/ William M. Comegys, III |
|
Director |
|
March 31, 2015 |
| William M. Comegys, III |
|
|
|
|
| |
|
|
|
|
| /s/ Daniel L. Spears |
|
Director |
|
March 31, 2015 |
| Daniel L. Spears |
|
|
|
|
| |
|
|
|
|
| /s/ Robert H. Lutz |
|
Director |
|
March 31, 2015 |
| Robert H. Lutz |
|
|
|
|
| |
|
|
|
|
| /s/ Michael T. Wilhite, Jr. |
|
Director |
|
March 31, 2015 |
| Michael T. Wilhite, Jr. |
|
|
|
|
EXHIBIT INDEX
| Exhibit No. |
|
|
| |
|
|
| 10.109 |
|
Form of Eighth Amendment dated as of November 9, 2010 between RZB Finance LLC and Regional Enterprises Inc. |
| |
|
|
| 10.110 |
|
Form of Common Unit Grant Agreement for Directors issued pursuant to Rio Vista Energy Partners L.P. 2005 Equity Incentive Plan |
| |
|
|
| 10.111 |
|
Form of Common Unit Grant Agreement for Directors issued pursuant to Central Energy Partners LP 2014 Long-Term Incentive Plan |
| |
|
|
| 10.112 |
|
Form of Restricted Common Unit Option Agreement for Officers issued pursuant to Central Energy Partners LP 2014 Long-Term Incentive Plan |
| |
|
|
| 21 |
|
Subsidiaries of the Partnership |
| |
|
|
| 23.1 |
|
Consent of Montgomery Coscia Greilich, LLP |
| |
|
|
| 24.1 |
|
Power of Attorney |
| |
|
|
| 31.1 |
|
Certification Pursuant to Rule 13a-14(a) / 15d — 14(a) of the Exchange Act |
| |
|
|
| 31.2 |
|
Certification Pursuant to Rule 13a-14(a) / 15d — 14(a) of the Exchange Act |
| |
|
|
| 32 |
|
Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes — Oxley Act of 2002 |
| |
|
|
| 101. INS |
|
XBRL Instance Document |
| |
|
|
| 101. CAL |
|
XBRL Taxonomy Extension Calculation Link base Document |
| |
|
|
| 101. DEF |
|
XBRL Taxonomy Extension Definition Link base Document |
| |
|
|
| 101. LAB |
|
XBRL Taxonomy Label Link base Document |
| |
|
|
| 101. PRE |
|
XBRL Extension Presentation Link base Document |
| |
|
|
| 101. SCH |
|
XBRL Taxonomy Extension Scheme Document |
Exhibit 10.109
EIGHTH AMENDMENT
This EIGHTH AMENDMENT
dated as of November 9, 2010 (this “Eighth Amendment”), is between RB International Finance (USA) LLC (formerly
known as RZB Finance LLC) (the “Lender”) and Regional Enterprises, Inc., a Virginia corporation (as successor by assumption
of obligations to Rio Vista Energy Partners L.P., the “Borrower”).
WITNESSETH:
WHEREAS, Lender and the
Borrower are parties to the Loan Agreement dated as of July 26, 2007 (as amended, supplemented or otherwise modified from time
to time prior to the date hereof, the “Loan Agreement”; capitalized terms used herein having the meanings given thereto
in the Loan Agreement unless otherwise defined herein);
WHEREAS, the Borrower
has requested the Lender to agree to certain amendments to the Loan Agreement; and
WHEREAS, the Lender is
willing to agree to such amendments, subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration
of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
Section 1. Amendments.
Subsection 7.1(F)(i) of
the Loan Agreement is hereby amended and restated in its entirety, effective on the Effective Date referred to in Section 2 hereof,
as follows:
“(i) (v) RVEP ceases to own and
control directly 100% of the capital stock of the Borrower, (w) Rio Vista GP, LLC ceases to be the sole general partner of RVEP,
(x) POC, Central Energy, LP, a Delaware limited partnership (“CE LP”) or Central Energy, LLC, a Delaware limited liability
company (“CE LLC”) ceases to own and control directly or indirectly, at least 51% of the membership interests of Rio
Vista GP, LLC, (y) Carter R. Montgomery and Imad Anbouba cease to own and control at least 100% of the membership interests of
CE LLC, the sole general partner of CE LP or (z) CE LLC ceases to be the sole general partner of CE LP; or”
Section 2. Effectiveness.
This Eighth Amendment shall
become effective on the date (the “Effective Date”) on which Lender shall have received:
(a) this
Eighth Amendment duly executed by the Borrower and the Lender;
(b) a
Consent, duly executed by RVEP, substantially in the form of Exhibit A hereto;
(c) (i)
payment of all of Lender’s out of pocket costs and expenses;
(ii) payment
to the Lender of all accrued and unpaid interest and fees owing under the Loan Agreement immediately prior to giving effect to
this Eighth Amendment; and
(iii) payment
to the Lender of a non-refundable amendment fee in the amount of $5,000 in cash; and
(d) such
corporate, partnership or other authorization documents of RVEP and the Borrower, as required by Lender.
Section
3. Effect of Amendment; Ratification; Representations;
etc.
(a) On
and after the date hereof, when counterparts of this Eighth Amendment shall have been executed by all parties hereto, this
Eighth Amendment shall be a part of the Loan Agreement, all references to the Loan Agreement in the Loan Agreement and the
other Loan Documents shall be deemed to refer to the Loan Agreement as amended by this Eighth Amendment, and the term “this
Agreement”, and the words “hereof”, “herein”, “hereunder” and words of similar import,
as used in the Loan Agreement, shall mean the Loan Agreement as amended hereby.
(b) Except
as expressly set forth herein, this Eighth Amendment shall not constitute an amendment, waiver or consent with respect to any provision
of the Loan Agreement, as amended hereby, and the Loan Agreement, as amended hereby, is hereby ratified, approved and confirmed
in all respects.
(c) In
order to induce Lender to enter into this Eighth Amendment, the Borrower represents and warrants to Lender that before and after
giving effect to the execution and delivery of this Eighth Amendment:
(i) the
representations and warranties of the Borrower set forth in the Loan Agreement (other than Section 4.17, to the extent of the exception
in clause (ii) below) and in the other Loan Documents are true and correct as if made on the date hereof; and
(ii) no
Default or Event of Default has occurred and is continuing, except for the Events of Default that have occurred and are continuing
as a result of the failure by the Borrower to deliver to the Lender on or prior to (x) September 30, 2010, the annual audited financial
statements for the Fiscal Year ended December 31, 2009, required to be delivered pursuant to Section 5.1(A) of the Credit Agreement
and (y) the date that was 30 days after the month ended September 30, 2010, the monthly financial statements for such month, required
to be delivered pursuant to Section 5.1(J) of the Credit Agreement.
(d) The
Borrower hereby represents and warrants to Lender that:
(i) as
of the date hereof (before giving effect to the principal payment required under Section 2(c)(iii) above), the principal
amount outstanding of the Loan is $3,470,000;
(ii) interest
and fees have accrued thereon as provided in the Loan Agreement; and
(iii) the
obligation of the Borrower to repay the Loan and the other Obligations, together with all interest and fees accrued thereon, is
absolute and unconditional, and there exists no right of set off or recoupment, counterclaim or defense of any nature whatsoever
to the payment of the Obligations.
(e) The
Borrower hereby agrees and acknowledges that in accordance with Section 1(g) of the Third Amendment to Loan Agreement dated as
of January 27, 2009 between the Borrower and the Lender, notwithstanding anything to the contrary contained in the Loan Agreement
or any of the other Loan Documents, no Loans shall be LIBOR Loans and Loans shall not be converted into LIBOR Loans under any circumstances.
(f) This
Eighth Amendment is a Loan Document.
Section 4. Release;
Covenant not to Sue.
(a) EACH
OF THE BORROWER AND RVEP (IN ITS OWN RIGHT AND ON BEHALF OF ITS OFFICERS, EMPLOYEES, INDEPENDENT CONTRACTORS, ATTORNEYS AND AGENTS)
HEREBY REPRESENTS, ACKNOWLEDGES AND AGREES THAT IT DOES NOT HAVE ANY DEFENSES, COUNTERCLAIMS, OFFSETS, CROSS-COMPLAINTS, CLAIMS
OR DEMANDS OF ANY KIND OR NATURE WHATSOEVER INCLUDING, WITHOUT LIMITATION, ANY SUCH DEFENSES, COUNTERCLAIMS, OFFSETS, CROSS-COMPLAINTS,
CLAIMS OR DEMANDS THAT CAN BE ASSERTED (I) TO REDUCE OR ELIMINATE ALL OR ANY PART OF THE OBLIGATIONS OR (II) TO SEEK AFFIRMATIVE
RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM THE LENDER OR ANY OF ITS PREDECESSORS, SUCCESSORS AND ASSIGNS, OFFICERS, EMPLOYEES,
INDEPENDENT CONTRACTORS, ATTORNEYS AND AGENTS (COLLECTIVELY WITH THE LENDER, THE "“RELEASED PARTIES”). EACH OF THE
BORROWER AND RVEP HEREBY UNCONDITIONALLY AND IRREVOCABLY, VOLUNTARILY AND KNOWINGLY WAIVES, REMISES, ACQUITS, AND FULLY AND FOREVER
RELEASES AND DISCHARGES THE RELEASED PARTIES FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, OR
EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT,
OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS EIGHTH AMENDMENT IS EXECUTED,
WHICH THE BORROWER OR RVEP MAY NOW OR HEREAFTER HAVE AGAINST ANY OF THE RELEASED PARTIES (COLLECTIVELY, THE “RELEASED CLAIMS”)
AND IRRESPECTIVE OF WHETHER ANY SUCH RELEASED CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE,
INCLUDING, WITHOUT LIMITATION, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER LOAN DOCUMENTS, AND NEGOTIATION
AND EXECUTION OF THIS EIGHTH AMENDMENT.
(b) EACH
OF THE BORROWER AND RVEP AGREES NEVER TO COMMENCE, VOLUNTARILY AID IN ANY WAY, FOMENT, PROSECUTE OR CAUSE TO BE COMMENCED OR PROSECUTED
AGAINST ANY OF THE RELEASED PARTIES ANY ACTION OR OTHER PROCEEDING BASED UPON ANY OF THE RELEASED CLAIMS WHICH MAY HAVE ARISEN
AT ANY TIME ON OR PRIOR TO THE DATE OF THIS EIGHTH AMENDMENT AND WERE IN ANY MANNER RELATED TO ANY OF THE LOAN DOCUMENTS.
Section 5. New
York Law.
This Eighth Amendment shall
be construed in accordance with and governed by the laws of the State of New York, without regard to New York conflicts of laws
principles.
Section 6. Severability.
If any provision hereof
is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intentions
of the parties hereto as nearly as may be possible, and (ii) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction.
Section 7. Counterparts.
This Eighth Amendment may
be executed by the parties hereto individually or in any combination, in one or more counterparts, each of which shall be an original
and all of which shall together constitute one and the same agreement. Signatures of the parties may appear on separate counterparts.
IN WITNESS WHEREOF, the
parties hereto have caused this Eighth Amendment to be duly executed as of the day and year first above written.
| REGIONAL ENTERPRISES, INC. |
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RB International Finance (USA) LLC (formerly known as RZB Finance LLC) |
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EXHIBIT A
CONSENT
The undersigned refers to
the Loan Agreement dated as of July 26, 2007 (as amended, supplemented or otherwise modified from time to time, the “Loan
Agreement”) between Regional Enterprises, Inc. (as successor by assumption of obligations to Rio Vista Energy Partners L.P.
(“RVEP”), the “Borrower”) and RB International Finance (USA) LLC (formerly known as RZB Finance LLC) (the
“Lender”). Terms used but not defined herein have the meanings given to them in the Loan Agreement.
The undersigned has executed
one or more Loan Documents to which it remains a party, including, without limitation, (i) the Pledge Agreement dated as of July
26, 2007 between RVEP and the Lender (as amended, supplemented or otherwise modified from time to time, the “Pledge Agreement”)
and (ii) the Agreement of Subordination and Assignment dated June 15, 2009 between the Borrower and RVEP (as amended, supplemented
or otherwise modified from time to time, the “Subordination Agreement”). In order to induce the Lender to enter into
the Eighth Amendment dated as of November 9, 2010 (the “Eighth Amendment”), the undersigned hereby consents to the
Eighth Amendment (including, without limitation, the terms of Section 7 thereof), ratifies each Loan Document to which it is a
party (including, without limitation, the Pledge Agreement and the Subordination Agreement) and confirms that all of its obligations
under such Loan Documents are and shall remain in full force and effect, after giving effect to the Eighth Amendment, and shall
and do apply to the Loan and all other obligations and liabilities now and at any time hereafter outstanding under the Loan Agreement.
IN WITNESS WHEREOF, the undersigned
has caused this Consent to be duly executed.
Date: November 9, 2010
| RIO VISTA ENERGY PARTNERS L.P. |
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| By: Rio Vista GP LLC, its General Partner |
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Name: Ian Bothwell |
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Title: |
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Exhibit 10.110
RIO VISTA ENERGY PARTNERS L.P.
2005 EQUITY INCENTIVE PLAN
COMMON UNIT GRANT AGREEMENT
FOR
DIRECTORS
This Common Unit Grant
Agreement (this “Agreement”) is made and entered into by and between Central Energy Partners LP, a Texas
limited partnership (the “Company”), and _______________ (the “Grantee”). This
Agreement is entered into as of the __ day of _______, 2014 (the “Grant Date”). Capitalized terms used
in this Agreement but not otherwise defined herein shall have the meanings ascribed to such terms in the Plan (as defined below),
unless the context requires otherwise.
WHEREAS, the Company
has adopted the RIO VISTA ENERGY PARTNERS L.P. 2005 EQUITY INCENTIVE PLAN (the “Plan”) pursuant to which
awards of Common Units may be granted; and
WHEREAS, the Board
of Directors of the Company (the “Board”) has approved the recommendation of its Compensation Committee
(the “Committee”) to grant to its directors restricted Common Units of Central Energy Partners LP, a
Delaware limited partnership formerly known as Rio Vista Energy Partners L.P. (the “Partnership”);
NOW, THEREFORE,
in consideration for the Grantee’s agreement to provide continuing services to the Company as a member of the Board, the
Company and the Grantee, intending to be legally bound, agree as follows:
1. Grant
of Units. Pursuant to Section 7(a)(iiii) of the Plan, the Company hereby issues to the Grantee on the Grant Date a Unit
Option Award consisting of _______ Common Units of the Company (the “Unit Grant”) on the terms and conditions
and subject to the restrictions set forth in this Agreement and the Plan.
2. Consideration.
The grant of the Common Units is made in consideration of the services to be rendered by the Grantee to the Company as a director
of Central Energy GP LLC, the general partner of the Company (the “General Partner”).
3. Vesting.
The Common Units will vest in full effective on the Grant Date.
4. Valuation.
The Value of the Common Units which are the subject of the Unit Grant shall have the value per Common Unit as established by the
final trade price of a Common Unit on the Grant Date or, if no trade occurred on the Grant Date, the average bid and asked price
on that date as quoted by OTC Pink.
5. Rights
as Unitholder.
5.1 The
Grantee shall be the record owner of the Grant Units effective on the Grant Date until such Common Units are sold or otherwise
disposed of, and shall be entitled to all of the rights of a unitholder of the Company including, without limitation, the right
to vote such Common Units and receive all distributions paid with respect to such Common Units in accordance with the terms of
the Third Amended and Restated Agreement of Limited Partnership of the Company (the “Company Agreement”).
5.2 The
Company shall issue certificates or other evidence of the Grantee’s ownership of the Common Units granted pursuant to this
Agreement as soon as practicable after the execution of this Agreement.
6. No
Right to Continued Service. Neither the Plan nor this Agreement shall confer upon the Grantee any right to be retained as a
Director of the General Partner. Further, nothing in the Plan or this Agreement shall be construed to limit the discretion of the
Company to terminate the Grantee’s service to the General Partner at any time, with or without cause.
7. Tax
Liability and Withholding.
7.1 The
Grantee shall be required to pay to the Company the amount of any required withholding taxes in respect of the Common Units issued
as part of the Unit Grant and to take all such other action as the Committee deems necessary to satisfy all obligations for the
payment of such withholding taxes. The Committee may permit the Grantee to satisfy any federal, state or local tax withholding
obligation by tendering a cash payment to the Company.
7.2 Notwithstanding
any action the Company takes with respect to any or all income tax, social insurance, payroll tax, or other tax-related withholding
(“Tax-Related Items”), the ultimate liability for all Tax-Related Items is and remains the Grantee’s
responsibility, and the Company (a) makes no representation or undertakings regarding the treatment of any Tax-Related Items in
connection with the grant of the Common Units or the subsequent sale of any Common Units; and (b) does not commit to structure
the Common Units to reduce or eliminate the Grantee’s liability for Tax-Related Items.
8. Adjustment
of Common Units.
8.1 In
order to prevent dilution of the Common Units granted under this Agreement, the Exercise Price and the number of Common Units issued
pursuant to this Agreement shall be subject to adjustment from time to time as provided in this subsection 8.1. If the Company
shall, at any time or from time to time after the Grant Date, (i) make a distribution or dividend upon the Common Units or any
other securities of the Company, which distribution or dividend is payable in the form of Common Units or in Options or Convertible
Securities, or (ii) subdivide (by any split, recapitalization or otherwise) its outstanding Common Units into a greater number
of units, the Exercise Price in effect immediately prior to any such distribution, dividend or subdivision shall be proportionately
reduced and the number of Common Units issued pursuant to this Agreement shall be proportionately increased. If the Company at
any time combines (by combination, reverse stock split or otherwise) its outstanding Common Units into a smaller number of units,
the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Common
Units issued pursuant to the terms of this Agreement shall be proportionately decreased. Any adjustment under this subsection 8.1
shall become effective at the close of business on the date the dividend, subdivision or combination becomes effective.
8.2 In
the event of any (i) capital reorganization of the Company, (ii) reclassification of the units of the Company (other than as a
result of a unit dividend or subdivision, split-up or combination of units), (iii) consolidation or merger of the Company
with or into another Person, (iv) sale of all or substantially all of the Company's assets to another Person, or (v) similar transaction
(other than any such transaction covered by subsection 8.1 above, in each case which entitles the holders of Common Units to receive
(either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Units, this
Agreement shall, immediately after such reorganization, reclassification, consolidation, merger, sale or similar transaction, remain
outstanding and shall thereafter, in lieu of or in addition to (as the case may be) the Common Units issued pursuant to this Agreement,
be exercisable for the kind and number of units or other securities or assets of the Company or of the successor Person resulting
from such transaction to which the Grantee would have been entitled upon such reorganization, reclassification, consolidation,
merger, sale or similar transaction. The provisions of this subsection shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales or similar transactions. The Company shall not effect any such reorganization, reclassification,
consolidation, merger, sale or similar transaction unless, prior to the consummation thereof, the successor Person (if other than
the Company) resulting from such reorganization, reclassification, consolidation, merger, sale or similar transaction, shall assume,
by written instrument substantially similar in form and substance to this Agreement and satisfactory to the Grantee, the obligation
to deliver to the Grantee such shares of stock, securities or assets which, in accordance with the foregoing provisions.
9. Section
83(b) Election. The Grantee may make an election under Code Section 83(b) (a “Section 83(b) Election”)
with respect to the Common Units. Any such election must be made within thirty (30) days after the Grant Date. If the Grantee elects
to make a Section 83(b) Election, the Grantee shall provide the Company with a copy of an executed version and satisfactory evidence
of the filing of the executed Section 83(b) Election with the U.S. Internal Revenue Service. The Grantee agrees to assume full
responsibility for ensuring that the Section 83(b) Election is actually and timely filed with the U.S. Internal Revenue Service
and for all tax consequences resulting from the Section 83(b) Election.
10. Registration
of Common Units. The Company shall register the Common Units with the U.S. Securities and Exchange Commission (the “SEC”)
pursuant to a Form S-8 registration statement to be filed by the Company or an amendment to the current Form S-8 registration
statement of the Company filed with the SEC if still deemed effective by the SEC. Until such time as (1) the Company determines
whether its current Form S-8 is effective or (2) the Company files a Form S-8 registration statement with the SEC
that has been declared effective, a legend may be placed on any certificate(s) or other document(s) delivered to the Grantee
indicating restrictions on transferability of the Common Units pursuant to this Agreement or any other restrictions that the Committee
may deem advisable under the rules, regulations and other requirements of the SEC, any applicable federal or state securities laws
or any stock exchange on which the Common Units are listed or quoted.
11. Copy
of Plan. By the execution of this Agreement, the Grantee acknowledges receipt of a copy of the Plan. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under any applicable law, then such provision will be deemed to be modified
to the minimum extent necessary to render it legal, valid and enforceable; and if such provision cannot be so modified, then this
Agreement will be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties
will be construed and enforced accordingly.
12. Compliance
with Law. The issuance and transfer of the Common Units shall be subject to compliance by the Company and the Grantee with
all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on
which the Company’s Common Units may be listed. No Common Units shall be issued or transferred unless and until any then
applicable requirements of state and federal laws and regulatory agencies have been fully complied with to the satisfaction of
the Company and its counsel.
13. Notices.
Any notice required to be delivered to the Company under this Agreement shall be in writing and addressed to the Chief Financial
Officer of the Company at the Company’s principal offices located at 4809 Cole Avenue, Suite 108, Dallas, Texas 75205. Any
notice required to be delivered to the Grantee under this Agreement shall be in writing and addressed to the Grantee at the Grantee’s
address as shown in the records of the Company. Either party may designate another address in writing (or by such other method
approved by the Company) from time to time.
14. Governing
Law. This Agreement will be construed and interpreted in accordance with the laws of the State of Delaware without regard
to conflict of law principles.
15. Interpretation.
Any dispute regarding the interpretation of this Agreement shall be submitted by the Grantee or the Company to the Committee for
review. The resolution of such dispute by the Committee shall be final and binding on the Grantee and the Company. Neither the
Company nor the members of the Committee or the Board shall be liable for any act, omission or determination taken or made
in good faith with respect to this Agreement or the Restricted Units granted hereunder.
16. Common
Units Subject to Plan. This Agreement is subject to the Plan. The terms and provisions of the Plan as it may be amended from
time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein
and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.
17. Successors
and Assigns. The Company may assign any of its rights under this Agreement. This Agreement will be binding upon and inure to
the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement
will be binding upon the Grantee and the Grantee’s beneficiaries, executors, administrators and the person(s) to whom the
Common Units may be transferred by will or the laws of descent or distribution.
18. Severability.
The invalidity or unenforceability of any provision of the Plan or this Agreement shall not affect the validity or enforceability
of any other provision of the Plan or this Agreement, and each provision of the Plan and this Agreement shall be severable and
enforceable to the extent permitted by law.
19. Discretionary
Nature of Plan. The Plan is discretionary and may be amended, cancelled or terminated by the Company at any time, in its discretion.
The Unit Grant does not create any contractual right or other right to receive any Common Units or other Awards in the future.
Future awards, if any, will be at the sole discretion of the Company. Any amendment, modification, or termination of the Plan shall
not constitute a change or impairment of the terms and conditions of the Grantee’s employment with the Company.
20. Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute
one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic
mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial
appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.
21. Section
409A. This Agreement is intended to comply with Section 409A of the Code or an exemption thereunder and shall be construed
and interpreted in a manner that is consistent with the requirements for avoiding additional taxes or penalties under Section 409A
of the Code. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under
this Agreement comply with Section 409A of the Code and in no event shall the Company be liable for all or any portion of any taxes,
penalties, interest or other expenses that may be incurred by the Director on account of non-compliance with Section 409A of the
Code.
22. Amendments.
This Agreement may be amended only by a written agreement executed by the Company and the Grantee, except that the Committee may
unilaterally waive any conditions or rights under, amend any terms of, or alter this Agreement provided no such change materially
reduces the rights or benefits of the Officer with respect to the Restricted Units without his consent.
23. Acceptance.
The Grantee hereby acknowledges receipt of a copy of the Plan and this Agreement. The Grantee has read and understands the terms
and provisions thereof, and accepts the Common Units subject to all of the terms and conditions of the Plan and this Agreement.
The Grantee acknowledges that there may be adverse tax consequences upon the grant of the Common Units, and that the Grantee has
been advised to consult a tax advisor prior to such grant, vesting or disposition.
IN WITNESS WHEREOF, the
parties hereto have executed this Agreement as of the date first above written.
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CENTRAL ENERGY PARTNERS LP |
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Central Energy GP LLC |
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John L. Denman, Jr., |
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Chief Executive Officer |
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[Name of Director] |
Exhibit 10.111
CENTRAL ENERGY PARTNERS LP
2014 LONG-TERM INCENTIVE PLAN
COMMON UNIT GRANT AGREEMENT
FOR
DIRECTORS
This Common Unit Grant
Agreement (this “Agreement”) is made and entered into by and between Central Energy Partners LP, a Texas
limited partnership (the “Company”), and _______________ (the “Grantee”). This
Agreement is entered into as of the __ day of ________, 2014 (the “Grant Date”). Capitalized terms used
in this Agreement but not otherwise defined herein shall have the meanings ascribed to such terms in the Plan (as defined below),
unless the context requires otherwise.
WHEREAS, the Company
has adopted the CENTRAL ENERGY PARTNERS LP 2014 LONG-TERM INCENTIVE PLAN (the “Plan”) pursuant to which
awards of Common Units may be granted; and
WHEREAS, the Board
of Directors of the Company (the “Board”) has approved the recommendation of its Compensation Committee
(the “Committee”) to grant to its directors restricted Common Units of Central Energy Partners LP, a
Delaware limited partnership (the “Partnership”);
NOW, THEREFORE,
in consideration for the Grantee’s agreement to provide continuing services to the Company as a member of the Board, the
Company and the Grantee, intending to be legally bound, agree as follows:
1. Grant
of Units. Pursuant to Section 6.4 of the Plan, the Company hereby issues to the Grantee on the Grant Date a Unit Option
Award consisting of _______ Common Units of the Company (the “Unit Grant”) on the terms and conditions
and subject to the restrictions set forth in this Agreement and the Plan.
2. Consideration.
The grant of the Common Units is made in consideration of the services to be rendered by the Grantee to the Company as a director
of Central Energy GP LLC, the general partner of the Company (the “General Partner”).
3. Vesting.
The Common Units will vest in full effective on the Grant Date.
4. Valuation.
The Value of the Common Units which are the subject of the Unit Grant shall have the value per Common Unit as established by the
final trade price of a Common Unit on the Grant Date or, if no trade occurred on the Grant Date, the average bid and asked price
on that date as quoted by OTC Pink.
5. Rights
as Unitholder.
5.1 The
Grantee shall be the record owner of the Grant Units effective on the Grant Date until such Common Units are sold or otherwise
disposed of, and shall be entitled to all of the rights of a unitholder of the Company including, without limitation, the right
to vote such Common Units and receive all distributions paid with respect to such Common Units in accordance with the terms of
the Third Amended and Restated Agreement of Limited Partnership of the Company (the “Company Agreement”).
5.2 The
Company shall issue certificates or other evidence of the Grantee’s ownership of the Common Units granted pursuant to this
Agreement as soon as practicable after the execution of this Agreement.
6. No
Right to Continued Service. Neither the Plan nor this Agreement shall confer upon the Grantee any right to be retained as a
Director of the General Partner. Further, nothing in the Plan or this Agreement shall be construed to limit the discretion of the
Company to terminate the Grantee’s service to the General Partner at any time, with or without cause.
7. Tax
Liability and Withholding.
7.1 The
Grantee shall be required to pay to the Company the amount of any required withholding taxes in respect of the Common Units issued
as part of the Unit Grant and to take all such other action as the Committee deems necessary to satisfy all obligations for the
payment of such withholding taxes. The Committee may permit the Grantee to satisfy any federal, state or local tax withholding
obligation by tendering a cash payment to the Company.
7.2 Notwithstanding
any action the Company takes with respect to any or all income tax, social insurance, payroll tax, or other tax-related withholding
(“Tax-Related Items”), the ultimate liability for all Tax-Related Items is and remains the Grantee’s
responsibility, and the Company (a) makes no representation or undertakings regarding the treatment of any Tax-Related Items in
connection with the grant of the Common Units or the subsequent sale of any Common Units; and (b) does not commit to structure
the Common Units to reduce or eliminate the Grantee’s liability for Tax-Related Items.
8. Adjustment
of Common Units.
8.1 In
order to prevent dilution of the Common Units granted under this Agreement, the Exercise Price and the number of Common Units issued
pursuant to this Agreement shall be subject to adjustment from time to time as provided in this subsection 8.1. If the Company
shall, at any time or from time to time after the Grant Date, (i) make a distribution or dividend upon the Common Units or any
other securities of the Company, which distribution or dividend is payable in the form of Common Units or in Options or Convertible
Securities, or (ii) subdivide (by any split, recapitalization or otherwise) its outstanding Common Units into a greater number
of units, the Exercise Price in effect immediately prior to any such distribution, dividend or subdivision shall be proportionately
reduced and the number of Common Units issued pursuant to this Agreement shall be proportionately increased. If the Company at
any time combines (by combination, reverse stock split or otherwise) its outstanding Common Units into a smaller number of units,
the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Common
Units issued pursuant to the terms of this Agreement shall be proportionately decreased. Any adjustment under this subsection 8.1
shall become effective at the close of business on the date the dividend, subdivision or combination becomes effective.
8.2 In
the event of any (i) capital reorganization of the Company, (ii) reclassification of the units of the Company (other than as a
result of a unit dividend or subdivision, split-up or combination of units), (iii) consolidation or merger of the Company
with or into another Person, (iv) sale of all or substantially all of the Company's assets to another Person, or (v) similar transaction
(other than any such transaction covered by subsection 8.1 above, in each case which entitles the holders of Common Units to receive
(either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Units, this
Agreement shall, immediately after such reorganization, reclassification, consolidation, merger, sale or similar transaction, remain
outstanding and shall thereafter, in lieu of or in addition to (as the case may be) the Common Units issued pursuant to this Agreement,
be exercisable for the kind and number of units or other securities or assets of the Company or of the successor Person resulting
from such transaction to which the Grantee would have been entitled upon such reorganization, reclassification, consolidation,
merger, sale or similar transaction. The provisions of this subsection shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales or similar transactions. The Company shall not effect any such reorganization, reclassification,
consolidation, merger, sale or similar transaction unless, prior to the consummation thereof, the successor Person (if other than
the Company) resulting from such reorganization, reclassification, consolidation, merger, sale or similar transaction, shall assume,
by written instrument substantially similar in form and substance to this Agreement and satisfactory to the Grantee, the obligation
to deliver to the Grantee such shares of stock, securities or assets which, in accordance with the foregoing provisions.
9. Section
83(b) Election. The Grantee may make an election under Code Section 83(b) (a “Section 83(b) Election”)
with respect to the Common Units. Any such election must be made within thirty (30) days after the Grant Date. If the Grantee elects
to make a Section 83(b) Election, the Grantee shall provide the Company with a copy of an executed version and satisfactory evidence
of the filing of the executed Section 83(b) Election with the U.S. Internal Revenue Service. The Grantee agrees to assume full
responsibility for ensuring that the Section 83(b) Election is actually and timely filed with the U.S. Internal Revenue Service
and for all tax consequences resulting from the Section 83(b) Election.
10. Registration
of Common Units. The Company shall register the Common Units with the U.S. Securities and Exchange Commission (the “SEC”)
pursuant to a Form S-8 registration statement to be filed by the Company or an amendment to the current Form S-8 registration
statement of the Company filed with the SEC if still deemed effective by the SEC. Until such time as (1) the Company determines
whether its current Form S-8 is effective or (2) the Company files a Form S-8 registration statement with the SEC
that has been declared effective, a legend may be placed on any certificate(s) or other document(s) delivered to the Grantee
indicating restrictions on transferability of the Common Units pursuant to this Agreement or any other restrictions that the Committee
may deem advisable under the rules, regulations and other requirements of the SEC, any applicable federal or state securities laws
or any stock exchange on which the Common Units are listed or quoted.
11. Copy
of Plan. By the execution of this Agreement, the Grantee acknowledges receipt of a copy of the Plan. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under any applicable law, then such provision will be deemed to be modified
to the minimum extent necessary to render it legal, valid and enforceable; and if such provision cannot be so modified, then this
Agreement will be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties
will be construed and enforced accordingly.
12. Compliance
with Law. The issuance and transfer of the Common Units shall be subject to compliance by the Company and the Grantee with
all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on
which the Company’s Common Units may be listed. No Common Units shall be issued or transferred unless and until any then
applicable requirements of state and federal laws and regulatory agencies have been fully complied with to the satisfaction of
the Company and its counsel.
13. Notices.
Any notice required to be delivered to the Company under this Agreement shall be in writing and addressed to the Chief Financial
Officer of the Company at the Company’s principal offices located at 4809 Cole Avenue, Suite 108, Dallas, Texas 75205. Any
notice required to be delivered to the Grantee under this Agreement shall be in writing and addressed to the Grantee at the Grantee’s
address as shown in the records of the Company. Either party may designate another address in writing (or by such other method
approved by the Company) from time to time.
14. Governing
Law. This Agreement will be construed and interpreted in accordance with the laws of the State of Delaware without regard to
conflict of law principles.
15. Interpretation.
Any dispute regarding the interpretation of this Agreement shall be submitted by the Grantee or the Company to the Committee for
review. The resolution of such dispute by the Committee shall be final and binding on the Grantee and the Company. Neither the
Company nor the members of the Committee or the Board shall be liable for any act, omission or determination taken or made
in good faith with respect to this Agreement or the Restricted Units granted hereunder.
16. Common
Units Subject to Plan. This Agreement is subject to the Plan. The terms and provisions of the Plan as it may be amended from
time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein
and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.
17. Successors
and Assigns. The Company may assign any of its rights under this Agreement. This Agreement will be binding upon and inure to
the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement
will be binding upon the Grantee and the Grantee’s beneficiaries, executors, administrators and the person(s) to whom the
Common Units may be transferred by will or the laws of descent or distribution.
18. Severability.
The invalidity or unenforceability of any provision of the Plan or this Agreement shall not affect the validity or enforceability
of any other provision of the Plan or this Agreement, and each provision of the Plan and this Agreement shall be severable and
enforceable to the extent permitted by law.
19. Discretionary
Nature of Plan. The Plan is discretionary and may be amended, cancelled or terminated by the Company at any time, in its discretion.
The Unit Grant does not create any contractual right or other right to receive any Common Units or other Awards in the future.
Future awards, if any, will be at the sole discretion of the Company. Any amendment, modification, or termination of the Plan shall
not constitute a change or impairment of the terms and conditions of the Grantee’s employment with the Company.
20. Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute
one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic
mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial
appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.
21. Section
409A. This Agreement is intended to comply with Section 409A of the Code or an exemption thereunder and shall be construed
and interpreted in a manner that is consistent with the requirements for avoiding additional taxes or penalties under Section 409A
of the Code. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under
this Agreement comply with Section 409A of the Code and in no event shall the Company be liable for all or any portion of any taxes,
penalties, interest or other expenses that may be incurred by the Director on account of non-compliance with Section 409A of the
Code.
22. Amendments.
This Agreement may be amended only by a written agreement executed by the Company and the Grantee, except that the Committee may
unilaterally waive any conditions or rights under, amend any terms of, or alter this Agreement provided no such change materially
reduces the rights or benefits of the Officer with respect to the Restricted Units without his consent.
23. Acceptance.
The Grantee hereby acknowledges receipt of a copy of the Plan and this Agreement. The Grantee has read and understands the terms
and provisions thereof, and accepts the Common Units subject to all of the terms and conditions of the Plan and this Agreement.
The Grantee acknowledges that there may be adverse tax consequences upon the grant of the Common Units, and that the Grantee has
been advised to consult a tax advisor prior to such grant, vesting or disposition.
IN WITNESS WHEREOF, the
parties hereto have executed this Agreement as of the date first above written.
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CENTRAL ENERGY PARTNERS LP |
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By: |
Central Energy GP LLC |
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By: |
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John L. Denman, Jr., |
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Chief Executive Officer |
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[Name of Director] |
Exhibit 10.112
CENTRAL ENERGY PARTNERS LP
2014 LONG-TERM INCENTIVE PLAN
RESTRICTED COMMON UNIT OPTION AGREEMENT
FOR
OFFICERS
This Restricted Common Unit Option Agreement
(this “Agreement”) is made and entered into by and between CENTRAL ENERGY PARTNERS LP, a Delaware limited
partnership (the “Partnership”), and _________________________ (the “Officer”).
This Agreement is entered into as of the ___ day of ______, 2014 (the “Date of Grant”).
Capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings ascribed to such terms in the
Plan (as defined below), unless the context requires otherwise.
WITNESSETH:
WHEREAS, the Partnership has adopted
the CENTRAL ENERGY PARTNERS LP 2014 LONG-TERM INCENTIVE PLAN (the “Plan”) to attract, retain and motivate
employees, officers, directors and consultants; and
WHEREAS, the Board of Directors of Central
Energy GP LLC, the sole general partner of the Partnership (the “Board”), has approved the recommendation
of its Compensation Committee (the “Committee”) to grant employees and officers of Central Energy GP
LLC (the “General Partner”) and any other entity which is an affiliate (within the meaning of such term
under the Exchange Act and the rules promulgated thereunder) of the Partnership and the General Partner (collectively, the “Partnership
Entities”) restricted Common Units of the Partnership as part of their compensation for services performed for the
Partnership Entities ; and
WHEREAS, the Board has approved the
recommendation of the Committee to grant to the Officer an option to acquire Common Units of the Partnership on the terms and conditions
set forth in this Agreement (the “Unit Option”)
NOW, THEREFORE, in consideration of
the Officer’s agreement to continue providing services to the Partnership Entities, the Partnership and the Officer agree
as follows:
SECTION 1. Grant.
The Partnership hereby grants to the Officer
an option to purchase up to _____________ Common Units of the Partnership (“Common Unit”) at an exercise
price established by the final trade price of a Common Unit on the Date of Grant or, if no trade occurred on the Date of Grant,
the average bid and asked price on that date as quoted by OTC Pink, expiring on the fifth anniversary of the Date of Grant (the
“Unit Option”), subject to the terms and conditions set forth in the Plan, which is incorporated herein
by reference, and in this Agreement, including, without limitation, those restrictions described in Section 2 (the “Restricted
Units”).
The grant of the Unit Option is
made in consideration of the services to be rendered by the Officer to the Partnership Entities. The Unit Option shall become vested
and exercisable with respect to the Restricted Units in accordance with the vesting schedule set forth in Section 4 until
the Unit Option is 100% vested. The Unit Option will expire on the Expiration Date set forth above, or earlier as provided in this
Agreement or the Plan.
SECTION 2. Restricted Units.
The Restricted Units are restricted
in that they may be forfeited to the Partnership and in that they may not, except as otherwise provided in Section 5,
be transferred or otherwise disposed of by the Officer until such restrictions are removed or expire as described in Section 4
of this Agreement. The Partnership shall issue in the Officer’s name the Restricted Units and shall retain the Restricted
Units until the restrictions on such Restricted Units expire or until the Restricted Units are forfeited as described in Section 4
of this Agreement. The Officer agrees that the Partnership will hold the Restricted Units pursuant to the terms of this Agreement
until such time as the Restricted Units are either delivered to the Officer or forfeited pursuant to this Agreement.
[SECTION 3. Rights of Officer;
Unit Distribution Rights.
Effective as of the Date of Grant,
the Officer shall be treated for all purposes as a Unitholder with respect to all of the Restricted Units granted to him pursuant
to Section 1 (except that the Officer shall not be treated as the owner of the Restricted Units for federal income
tax purposes until the Restricted Units vest (unless the Officer makes an election under section 83(b) of the Code, in which case
the Officer shall be treated as the owner of the Restricted Units for all purposes on the Date of Grant)) and shall, except as
provided herein, have all of the rights and obligations of a Unitholder with respect to all such Restricted Units, including any
right to vote with respect to such Restricted Units and to receive any UDRs thereon if, as, and when declared and paid by the Partnership.
Notwithstanding the preceding provisions of this Section 3, the Restricted Units shall be subject to the restrictions
described herein, including, without limitation, those described in Section 2.]
SECTION 4. Forfeiture and Expiration
of Restrictions.
(a) Vesting Schedule.
Subject to the terms and conditions of this Agreement, the restrictions described in Section 2 shall lapse and the
Restricted Units shall become vested and non-forfeitable (“Vested Units”), provided the Officer has continuously
provided services to the Partnership Entities, without interruption, from the Date of Grant through each applicable vesting date
(each, a “Vesting Date”), in accordance with the following schedule:
| Vesting Date | |
Cumulative Vested
Percentage | |
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| On ______________, 2015 | |
| 33 | % |
| On ______________, 2016 | |
| 66 | % |
| On ______________, 2017 | |
| 100 | % |
(b) Termination
of Service.
(i) Termination
For Cause or Without Good Reason. If, at any time prior to the final Vesting Date, the Officer ceases providing services to
the Partnership Entities by reason of the Officer’s voluntary termination of service without Good Reason or if the Officer’s
service relationship is terminated by a Partnership Entity for Cause, then all Restricted Units granted pursuant to this Agreement
that have not yet vested as of the date of the Officer’s termination shall become null and void as of the date of such termination,
shall be forfeited to the Partnership and the Officer shall cease to have any rights with respect thereto; provided,
however, that the portion, if any, of the Restricted Units for which forfeiture restrictions have lapsed as of the Officer’s
date of termination shall survive.
(ii) Termination
due to Death or Disability. If, at any time prior to the final Vesting Date, the Officer ceases providing services to the Partnership
Entities by reason of the Officer’s death or Disability, then all Restricted Units granted pursuant to this Agreement that
remain unvested as of the date of the Officer’s termination shall immediately become fully vested and non-forfeitable as
of the date of such termination.
(iii) Termination
Without Cause or For Good Reason. If, at any time prior to the final Vesting Date, the Officer ceases providing services to
the Partnership Entities by reason of a termination of the Officer’s services by the Officer for Good Reason or by a Partnership
Entity without Cause, then all Restricted Units granted pursuant to this Agreement that remain unvested as of the date of the Officer’s
termination shall immediately become fully vested and non-forfeitable as of the date of such termination.
(c) Termination
Following a Change of Control. In the event of termination of the Officer’s service relationship with the Partnership
Entities by the Officer for Good Reason or by a Partnership Entity without Cause, in either case within two (2) years following
a Change of Control and prior to the final Vesting Date, all restrictions described in Section 2 shall lapse and all
Restricted Units granted pursuant to this Agreement shall become immediately vested and non-forfeitable.
(d) Definitions.
For purposes of this Agreement, the following terms shall have the meanings set forth below:
(i) Cause.
The term “Cause” means (A) a determination made in good faith by two-thirds (2/3) of the Board that the
Officer (1) failed to perform the duties assigned to him by the Chief Executive Officer [the Board] and such failure has continued
for thirty (30) days following delivery by the appropriate Partnership Entity of written notice to the Officer of such failure,
(2) has engaged in acts or omissions against one or more Partnership Entities constituting dishonesty, breach of fiduciary obligation,
or intentional wrongdoing or misfeasance, or (3) has acted intentionally or in bad faith in a manner that results in a material
detriment to the assets, business or prospects of a Partnership Entity; or (B) the Officer has been convicted of a felony or misdemeanor
involving moral turpitude. Notwithstanding anything contained herein or in the Plan to the contrary, no failure to perform by the
Officer after a notice of termination is given shall constitute Cause.
(ii) Change
of Control. “Change of Control” means, the occurrence of one of the following:
(A) the consummation
of an agreement to acquire or a tender offer for beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
by any “person” or “group” (within the meaning of those terms as used in Sections 13(d) and 14(d)(2) of
the Exchange Act) such that afterwards such person or group has 40% or more of either (i) the then outstanding common equity securities
of the Partnership (the “Outstanding Equity”) or (ii) the combined voting power of the then outstanding
voting securities of the Partnership (the “Outstanding Voting Securities”); provided, however,
that for purposes of this subsection (A), the following transactions shall not constitute a Change of Control: (1) any acquisition
directly from the Partnership, (2) any acquisition by the Partnership, (3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Partnership Entities or any of its affiliates, or (4) any acquisition by any entity pursuant
to a transaction that complies with clauses (1), (2) or (3) of subsection (D) below; or
(B) the acquisition
of beneficial ownership by any person or group of 40% or more of the combined voting power of the then outstanding voting securities
of the General Partner (the “GP Outstanding Voting Securities”); provided, however, that for purposes
of this subsection (B), the following transactions shall not constitute a Change of Control: (1) any acquisition by the Partnership
Entities or any of their respective affiliates, (2) any transaction that is subject to subsection (D) below, or (3) any acquisition
of beneficial ownership of GP Outstanding Voting Securities solely by virtue of an acquisition of Outstanding Equity or Outstanding
Voting Securities; or
(C) the limited
partners of the Partnership approve, in one or a series of transactions, a plan of complete liquidation of the Partnership; or
(D) the consummation
of a reorganization, merger or consolidation involving the Partnership or a sale or other disposition by the Partnership of all
or substantially all of its assets or an acquisition of assets of another entity (a “Business Combination ”),
in each case, unless following such Business Combination: (1) the Outstanding Equity and Outstanding Voting Securities immediately
prior to such Business Combination represent or are converted into or exchanged for securities that represent or are convertible
into more than 50% of, respectively, the then outstanding equity securities and the combined voting power of the then outstanding
voting securities, as the case may be, of the entity resulting from such Business Combination or the resulting public parent thereof
(including, without limitation, any entity that as a result of such transaction owns the Partnership, or all or substantially all
of the assets of the Partnership either directly or through one or more subsidiaries), as the case may be; (2) no Person (excluding
any employee benefit plan (or related trust) of the Partnership or the entity resulting from the Business Combination or the resulting
public parent thereof, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding
equity securities of the entity resulting from such Business Combination or the resulting public parent thereof, as the case may
be, or the combined voting power of the then outstanding voting securities of such entity, except to the extent that such ownership
existed with respect to the Partnership prior to the Business Combination; and (3) at least a majority of the members of the board
of directors or similar governing entity of the entity resulting from such Business Combination or the resulting public parent
thereof, as the case may be, were members of the Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; provided, however, that clauses (1), (2) and (3) of this subsection
(D) shall not apply if the entity resulting from the Business Combination or the resulting public parent thereof, as the case may
be, is a limited partnership unless 100% of the combined voting power of the voting securities of the general partner thereof is
owned, directly or indirectly, by such limited partnership; or
(E) individuals
who constitute the Incumbent Board cease for any reason to constitute at least a majority of the Board.
(iii) Disability.
The term “Disability” means (A) that the Officer is entitled to receive long-term disability benefits
under the Partnership’s long-term disability plan, or (B) if there is no such plan, the Officer’s inability, due to
a physical or mental impairment of sufficient severity that, in the opinion of the Board, the Officer is unable to continue performing
the duties and responsibilities assigned to the Officer prior to such impairment.
(iv) Good
Reason. The term “Good Reason” means the occurrence of any of the following events or conditions:
(A) a change in the Officer’s status, title, position or responsibilities (including reporting responsibilities) which
represents a substantial reduction of the status, title, position or responsibilities as in effect immediately prior thereto, the
assignment to the Officer of any duties or responsibilities that are inconsistent with such status, title, position or responsibilities,
or any removal of the Officer from or failure to reappoint or re-elect the Officer to any of such positions, except in connection
with the termination of the Officer’s services for Cause, due to the Officer’s Disability or death, or by the Officer
voluntarily without Good Reason, (B) a reduction in the Officer’s annual base salary that is not mutually agreed by
the Officer and a Partnership Entity, (C) the failure by the Partnership Entities to continue in effect any material compensation
or benefit plan in which the Officer was participating as of the Date of Grant or to provide the Officer with compensation and
benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit
plan, program and practice as in effect immediately prior to the Date of Grant (or as in effect following the Date of Grant, if
greater), (D) any material breach by a Partnership Entity of any provision of the Plan or of any provision of the Officer’s
employment agreement, if any, or (E) any purported termination of the Officer’s employment for Cause by a Partnership
Entity that does not otherwise comply with the terms of the Plan, this Agreement or the Officer’s employment agreement, if
any. In the case of the Officer’s allegation of Good Reason. The Officer shall provide notice to the Committee of the event
alleged to constitute Good Reason within 90 days of the occurrence of such event, and the Partnership Entities shall have
the opportunity to remedy the alleged Good Reason event within 30 days from receipt of notice of such allegation from the
Officer.
SECTION 5. Limitations on Transfer.
The Officer agrees that he shall
not dispose of (meaning, without limitation, sell, transfer, pledge, exchange, hypothecate or otherwise dispose of) any Restricted
Units hereby acquired prior to the applicable Vesting Dates, including pursuant to a domestic relations order issued by a court
of competent jurisdiction, unless such transfer is expressly approved in writing by the Committee. Any attempted disposition of
the Restricted Units in violation of the preceding sentence shall be null and void.
SECTION 6. Non-Transferability of Agreement.
This Agreement and all rights under
this Agreement shall not be transferable by the Officer other than by will or pursuant to applicable laws of descent and distribution.
Any rights and privileges of the Officer in connection herewith shall not be transferred, assigned, pledged or hypothecated by
the Officer or by any other person or persons, in any way, whether by operation of law, or otherwise, and shall not be subject
to execution, attachment, garnishment or similar process. In the event of any such occurrence, the Restricted Units shall automatically
be forfeited.
SECTION 7. Adjustment of
Restricted Units.
(a) In order to prevent
dilution of the purchase rights granted under this Agreement, the Exercise Price and the number of Restricted Units issuable upon
exercise of the Unit Option shall be subject to adjustment from time to time as provided in this subsection. If the Partnership
shall, at any time or from time to time after the Date of Grant, (i) make a distribution upon the Common Units or a dividend upon
any other securities of the Partnership, which distribution or dividend is payable in the form of n Units or in Options or Convertible
Securities, or (ii) subdivide (by any stock split, recapitalization or otherwise) its outstanding Common Units into a greater number
of units, the Exercise Price in effect immediately prior to any such dividend, distribution or subdivision shall be proportionately
reduced and the number of Restricted Units issuable upon exercise of the Unit Option shall be proportionately increased. If the
Partnership at any time combines (by combination, reverse stock split or otherwise) its outstanding Common Units into a smaller
number of units, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the
number of Restricted Units issuable upon exercise of the Unit Option shall be proportionately decreased. Any adjustment under this
subsection shall become effective at the close of business on the date the dividend, subdivision or combination becomes effective.
(b) In the event of any
(i) capital reorganization of the Partnership, (ii) reclassification of the Common Units or other securities of the Partnership
(other than as a result of a unit dividend or subdivision, split-up or combination of units), (iii) consolidation or merger
of the Partnership with or into another Person, (iv) sale of all or substantially all of the Partnership's assets to another Person,
or (v) other similar transaction (other than any such transaction covered by subsection (a) above, in each case which entitles
the holders of Common Units to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect
to or in exchange for Common Units, this Agreement shall, immediately after such reorganization, reclassification, consolidation,
merger, sale or similar transaction, remain outstanding and shall thereafter, in lieu of or in addition to (as the case may be)
the number of Restricted Units then exercisable under this Agreement, be exercisable for the kind and number of units or other
securities or assets of the Partnership or of the successor Person resulting from such transaction to which the Officer would have
been entitled upon such reorganization, reclassification, consolidation, merger, sale or similar transaction as if the Officer
had exercised the Unit Option granted by this Agreement in accordance with its terms immediately prior to the time of such reorganization,
reclassification, consolidation, merger, sale or similar transaction and acquired the applicable number of Restricted Units then
issuable hereunder as a result of such exercise; and, in such case, appropriate adjustment (consistent with adjustments made for
the benefit of holders of the Common Units) shall be made with respect to the Officer's rights under the Unit Option granted by
this Agreement to insure that the provisions of this subsection (b) shall thereafter be applicable, as nearly as possible, to this
Agreement in relation to any units, securities or assets thereafter acquirable upon exercise of the Unit Option set forth in this
Agreement. The provisions of this subsection shall similarly apply to successive reorganizations, reclassifications, consolidations,
mergers, sales or similar transactions. The Partnership shall not effect any such reorganization, reclassification, consolidation,
merger, sale or similar transaction unless, prior to the consummation thereof, the successor Person (if other than the Partnership)
resulting from such reorganization, reclassification, consolidation, merger, sale or similar transaction, shall assume, by written
instrument substantially similar in form and substance to this Agreement and satisfactory to the Officer, the obligation to deliver
to the Officer such shares of stock, securities or assets which, in accordance with the foregoing provisions, such Officer shall
be entitled to receive upon exercise of the Unit Option granted by this Agreement.
SECTION 8. Manner of Exercise.
(a) To exercise the Unit
Option, the Officer (or in the case of exercise after the Officer's death or incapacity, the Officer's executor, administrator,
heir or legatee, as the case may be) must deliver to the Partnership an executed stock option exercise agreement in such form as
is approved by the Committee from time to time (the "Exercise Agreement"), which shall set forth, inter
alia:
(i) the Officer's
election to exercise the vested portion of the Unit Option;
(ii) the number
of shares of Restricted Units being purchased; and
(iii) any representations,
warranties and agreements regarding the Officer's investment intent and access to information as may be required by the Partnership
to comply with applicable securities laws.
(b) The entire exercise
price of the Unit Option shall be payable in full at the time of exercise in cash by (i) certified or bank check or (ii) wire transfer
of immediately available funds at the time the Unit Option is exercised.
(c) Prior to the issuance
of Restricted Units upon the exercise of the Unit Option, the Officer must make arrangements satisfactory to the Partnership to
pay or provide for any applicable federal, state and local withholding obligations of the Partnership. The Officer may satisfy
any federal, state or local tax withholding obligation relating to the exercise of the Option by tendering a cash payment or authorizing
the Partnership to withhold such payment from compensation paid to the Officer.
(d) Provided that the Exercise
Agreement and payment are in form and substance satisfactory to the Partnership, the Partnership shall cause to be issued the number
of Restricted Units set forth in the Exercise Agreement registered in the name of the Officer or the Officer's legal representative,
and shall deliver certificates representing the Common Units with the appropriate restrictive legends affixed thereto.
SECTION 9. Cash-out.
In the event of a Change in Control, the Committee
may, in its discretion and upon at least ten (10) days' advance notice to the Officer, cancel the Unit Option and pay to the Officer
the value of the Unit Option based upon the price per share of Common Units received or to be received by other holders of Common
Units or other securities of the Partnership in the Change of Control event. Notwithstanding the foregoing, if at the time of a
Change in Control the Exercise Price of the Unit Option equals or exceeds the price paid for a Common Unit in connection with the
Change in Control, the Committee may cancel the Unit Option without the payment of consideration therefor.
SECTION 10. Registration of Common Units.
The Partnership shall register the
Restricted Units with the SEC pursuant to a Form S-8 registration statement to be filed by the Partnership or an amendment
to the current Form S-8 registration statement of the Partnership filed with the SEC if still deemed effective by the SEC.
Until such time as (1) the Partnership determines whether its current Form S-8 is effective or (2) the Partnership
files a Form S-8 registration statement with the SEC that has been declared effective, a legend may be placed on any
certificate(s) or other document(s) delivered to the Officer indicating restrictions on transferability of the Restricted Units
pursuant to this Agreement or any other restrictions that the Committee may deem advisable under the rules, regulations and other
requirements of the SEC, any applicable federal or state securities laws or any stock exchange on which the Common Units are listed
or quoted.
SECTION 11. Copy of Plan.
By the execution of this Agreement,
the Officer acknowledges receipt of a copy of the Plan. If any provision of this Agreement is held to be illegal, invalid or unenforceable
under any applicable law, then such provision will be deemed to be modified to the minimum extent necessary to render it legal,
valid and enforceable; and if such provision cannot be so modified, then this Agreement will be construed as if not containing
the provision held to be invalid, and the rights and obligations of the parties will be construed and enforced accordingly.
SECTION 12. Tax Liability and
Withholding.
Notwithstanding any action the Partnership
takes with respect to any or all income tax, social insurance, payroll tax, or other tax-related withholding ("Tax-Related
Items"), the ultimate liability for all Tax-Related Items is and remains the Officer's responsibility, and the Partnership
(a) makes no representation or undertakings regarding the treatment of any Tax-Related Items in connection with the grant, vesting,
or exercise of the Unit Option or the subsequent sale of any shares acquired on exercise; and (b) does not commit to structure
the Unit Option to reduce or eliminate the Officer's liability for Tax-Related Items.
SECTION 13. Confidential Information.
The Officer understands and acknowledges that
during the Employment Term he will have access to and learn about Confidential Information (as defined below).
(a) For purposes of this
Agreement, “Confidential Information” includes, but is not limited to, all information not generally known to
the public, in spoken, printed, electronic or any other form or medium, relating directly or indirectly to: business processes,
practices, methods, policies, plans, operations, strategies, agreements, contracts, transactions, potential transactions, manuals,
records, supplier information, vendor information, financial information, accounting information, accounting records, marketing
information, pricing information, staffing and personnel information, employee lists, supplier lists, vendor lists, and security
procedures of the Partnership, the Partnership Entities and their respective affiliates or any existing or prospective customer,
supplier, investor or other associated third party, or of any other Person or entity that has entrusted information to the Partnership
in confidence.
(b) The Officer understands
that the above list is not exhaustive, and that Confidential Information also includes other information that is marked or otherwise
identified as confidential or proprietary, or that would otherwise appear to a reasonable Person to be confidential or proprietary
in the context and circumstances in which the information is known or used. The Officer further understands and agrees that Confidential
Information includes information developed by him in the course of his employment by the Partnership as if the Partnership furnished
the same Confidential Information to the Officer in the first instance. Confidential Information shall not include information
that is generally available to and known by the public at the time of disclosure to the Officer; provided, that such disclosure
is through no direct or indirect fault of the Officer or Person(s) acting on the Officer’s behalf.
(c) The Officer understands
and acknowledges that the Partnership has invested, and continues to invest, substantial time, money and specialized knowledge
into developing its resources, creating a customer base, generating customer and potential customer lists, training its employees,
and improving its offerings in the field of propane storage and distribution, mid-stream services, and the storage and distribution
of bulk liquids, including hazardous materials and petroleum products. The Officer understands and acknowledges that as a result
of these efforts, the Partnership has created, and continues to use and create Confidential Information. This Confidential Information
provides the Partnership with a competitive advantage over others in the marketplace.
(d) The Officer
agrees and covenants: (i) to treat all Confidential Information as strictly confidential; (ii) not to directly or indirectly disclose,
publish, communicate or make available Confidential Information, or allow it to be disclosed, published, communicated or made
available, in whole or part, to any entity or person whatsoever (including other employees of the Partnership) not having a need
to know and authority to know and use the Confidential Information in connection with the business of the Partnership Entities
and, in any event, not to anyone outside of the direct employ of the Partnership Entities except as required in the performance
of the Officer’s authorized employment duties to the Partnership Entities (and then, such disclosure shall be made only
within the limits and to the extent of such duties or consent); and (iii) not to access or use any Confidential Information, and
not to copy any documents, records, files, media or other resources containing any Confidential Information, or remove any such
documents, records, files, media or other resources from the premises or control of Partnership Entities, except as required in
the performance of the Officer’s authorized employment duties to the Partnership Entities (and then, such disclosure shall
be made only within the limits and to the extent of such duties or consent). Nothing herein shall be construed to prevent disclosure
of Confidential Information as may be required by applicable law or regulation, or pursuant to the valid order of a court of competent
jurisdiction or an authorized government agency; provided, that the disclosure does not exceed the extent of disclosure
required by such law, regulation or order. The Officer shall promptly provide written notice of any such order to the Chief Executive
Officer of the General Partner [Board]. The Officer understands and acknowledges that his obligations under this Agreement with
regard to any particular Confidential Information shall commence immediately upon the Officer first having access to such Confidential
Information and shall continue during and after his employment by a Partnership Entity until such time as such Confidential Information
has become public knowledge other than as a result of the Officer’s breach of this Agreement or breach by those acting in
concert with the Officer or on the Officer’s behalf.
SECTION 14. Non-Competition and Non-Solicitation.
(a) In consideration of
the Option, unless otherwise addressed pursuant to the terms and conditions of an employment agreement between the Officer and
any Partnership Entity, the Officer agrees and covenants not to:
(i) contribute
his or her knowledge, directly or indirectly, in whole or in part, as an employee, officer, owner, manager, advisor, consultant,
agent, partner, director, shareholder, volunteer, intern or in any other similar capacity to an entity engaged in the same or similar
business as any of the Partnership Entities for a period of three (3) years following the Officer’s termination of Continuous
Service;
(ii) directly
or indirectly, solicit, hire, recruit, attempt to hire or recruit, or induce the termination of employment of any employee of one
or more of the Partnership Entities for three (3) years following the Officer's termination of Continuous Service; or
(iii) directly
or indirectly, solicit, contact (including, but not limited to, e-mail, regular mail, express mail, telephone, fax, and instant
message), attempt to contact or meet with the current, former or prospective customers of any of the Partnership Entities for purposes
of offering or accepting goods or services similar to or competitive with those offered by any of the Partnership Entities for
a period of three (3) years following the Officer's termination of Continuous Service.
(b) In the event of a breach
or threatened breach of any of the covenants contained in subsection (a) above:
(i) notwithstanding
any other provision of this Agreement, any unvested portion of the Unit Option shall be forfeited effective as of the date of such
breach, unless sooner terminated by operation of another term or condition of this Agreement or the Plan; and
(ii) the Officer
hereby consents and agrees that the Partnership shall be entitled to seek, in addition to other available remedies, a temporary
or permanent injunction or other equitable relief against such breach or threatened breach from any court of competent jurisdiction,
without the necessity of showing any actual damages or that money damages would not afford an adequate remedy, and without the
necessity of posting any bond or other security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal
remedies, monetary damages or other available forms of relief.
SECTION 15. Compliance with Laws.
The exercise of the Unit Option and the issuance
and transfer of Restricted Units shall be subject to compliance by the Partnership and the Officer with all applicable requirements
of federal and state securities laws and with all applicable requirements of any stock exchange on which the Partnership's Common
Units may be listed. No Restricted Units shall be issued pursuant to this Agreement unless and until any then applicable requirements
of state or federal laws and regulatory agencies have been fully complied with to the satisfaction of the Partnership and its legal
counsel. The Officer understands that the Partnership is under no obligation to register the Restricted Units with the SEC, any
state securities commission, or any stock exchange to effect such compliance.
SECTION 16. Notices.
Whenever any notice is required
or permitted hereunder, such notice must be in writing and personally delivered or sent by mail. Any such notice required or permitted
to be delivered hereunder shall be deemed to be delivered on the date on which it is personally delivered or, whether actually
received or not, on the third business day (on which banking institutions in the State of Texas are open) after it is deposited
in the United States mail, certified or registered, postage prepaid, addressed to the person who is to receive it at the address
which such person has theretofore specified by written notice delivered in accordance herewith. The Partnership or the Officer
may change at any time and from time to time by written notice to the other, the address which it or he previously specified for
receiving notices. The Partnership and the Officer agree that any notices shall be given to the Partnership or to the Officer at
the following addresses:
| Partnership: |
|
Central Energy GP LLC |
| |
|
Attn: Douglas W. Weir |
| |
|
4809 Cole Avenue, Suite 108 |
| |
|
Dallas, Texas 75205 |
| |
|
Phone: (214) 526-9700 |
| |
|
|
| Officer: |
|
At the Officer’s current address as shown in the Partnership’s records. |
SECTION 17. Discretionary Nature of the
Plan.
The Plan is discretionary and may be amended,
cancelled or terminated by the Partnership at any time, in its discretion. The Unit Option does not create any contractual right
or other right to receive any Common Units or other Awards in the future. Future awards, if any, will be at the sole discretion
of the Partnership. Any amendment, modification, or termination of the Plan shall not constitute a change or impairment of the
terms and conditions of the Grantee’s employment with any Partnership Entity.
SECTION 18. General Provisions.
(a) Administration.
This Agreement shall at all times be subject to the terms and conditions of the Plan. The Committee shall have sole and complete
discretion with respect to all matters reserved to it by the Plan and decisions of the Committee with respect thereto and with
respect to this Agreement shall be final and binding upon the Officer and the Partnership. In the event of any conflict between
the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control.
(b) Continuation
of Service. This Agreement shall not be construed to confer upon the Officer any right to continue in the service of the Partnership
Entities.
(c) Governing Law.
This Agreement shall be interpreted and administered under the laws of the State of Delaware, without giving effect to any conflict
of laws provisions.
(d) Amendments.
This Agreement may be amended only by a written agreement executed by the Partnership and the Officer, except that the Committee
may unilaterally waive any conditions or rights under, amend any terms of, or alter this Agreement provided no such change materially
reduces the rights or benefits of the Officer with respect to the Restricted Units without his consent.
(e) Binding Effect.
This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Partnership and upon any person
lawfully claiming under the Officer.
(f) Interpretation.
Any dispute regarding the interpretation of this Agreement shall be submitted by the Officer or the Partnership to the Committee
for review. The resolution of such dispute by the Committee shall be final and binding on the Officer and the Partnership.
(g) Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute
one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic
mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial
appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.
(h) No Liability
for Good Faith Determinations. Neither the Partnership Entities nor the members of the Committee or the Board shall be
liable for any act, omission or determination taken or made in good faith with respect to this Agreement or the Restricted Units
granted hereunder.
(i) No Guarantee
of Interests. Neither the Board nor the Partnership Entities guarantee the Units from loss or depreciation.
(j) Insider Trading
Policy. The terms of the Partnership’s Insider Trading Policy with respect to Common Units are incorporated herein by
reference.
(k) Acceptance.
The Officer hereby acknowledges receipt of a copy of the Plan and this Agreement. The Officer has read and understands the terms
and provisions thereof, and accepts the Restricted Units subject to the Unit Option and all of the terms and conditions of the
Plan and this Agreement. The Officer acknowledges that there may be adverse tax consequences upon the exercise of the Unit Option
to acquire the Restricted Units, and that the Officer has been advised to consult a tax advisor prior to such grant, vesting or
disposition.
IN WITNESS WHEREOF, the Partnership
has caused this Agreement to be executed by its officer thereunto duly authorized, and the Officer has set his hand as to the date
and year first above written.
| |
CENTRAL ENERGY GP LLC |
| |
|
| |
By: |
|
| |
|
Name: |
| |
|
|
|
| |
|
Title: |
| |
|
|
|
| |
|
|
| |
|
|
| |
Officer |
Exhibit 21
Subsidiaries of the Partnership
| Name of Subsidiary |
|
State of Organization |
|
Trade Name |
| |
|
|
|
|
| Regional Enterprises, Inc. |
|
Virginia |
|
None |
| Rio Vista Operating Partnership L.P. |
|
Delaware |
|
None |
| Rio Vista Operating GP LLC |
|
Delaware |
|
None |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
We hereby consent to the incorporation by reference
in this Annual Report on Form 10-K of Central Energy Partners LP for the year ended December 31, 2014 of our report dated March
31, 2015 included in its Registration Statement on Form S-3 (No. 333-149238) and Form S-8 (No. 333-149248) relating to the financial
statements and financial statement schedules for the year ended December 31, 2014 listed in the accompanying index.
| |
/s/ MONTGOMERY COSCIA GREILICH, LLP |
| |
|
| |
MONTGOMERY COSCIA GREILICH, LLP |
| |
|
| Plano, Texas |
|
| March 31, 2015 |
|
Exhibit 24.1
POWER OF ATTORNEY
Each person whose signature appears below constitutes
and appoints John L. Denman, Jr. and Douglas W. Weir, and each of them, either one of whom may act without joinder of the other,
his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K, and to file the same,
with all, exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each, and every act and thing requisite
and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, and each of them, or the substitute or substitutes of any
or all of them, may lawfully do or cause to be done by virtue hereof.
| /s/ G. Thomas Graves III |
|
|
|
|
| G. Thomas Graves, III |
|
Director |
|
March 24, 2015 |
| |
|
|
|
|
| /s/ Imad K. Anbouba |
|
|
|
|
| Imad K. Anbouba |
|
Director |
|
March 24, 2015 |
| |
|
|
|
|
| /s/ Alan D. Bell |
|
|
|
|
| Alan D. Bell |
|
Director |
|
March 24, 2015 |
| |
|
|
|
|
| /s/ Alexander C. Chae |
|
|
|
|
| Alexander C. Chae |
|
Director |
|
March 24, 2015 |
| |
|
|
|
|
| /s/ William M. Comegys, III |
|
|
|
|
| William M. Comegys, III |
|
Director |
|
March 24, 2015 |
| |
|
|
|
|
| /s/ Daniel L. Spears |
|
|
|
|
| Daniel L. Spears |
|
Director |
|
March 24, 2015 |
| |
|
|
|
|
| /s/ Robert H. Lutz |
|
|
|
|
| Robert H. Lutz |
|
Director |
|
March 24, 2015 |
| |
|
|
|
|
| /s/ Michael T. Wilhite, Jr. |
|
|
|
|
| Michael T. Wilhite, Jr. |
|
Director |
|
March 24, 2015 |
Exhibit 31.1
CERTIFICATION
I, John L. Denman, Jr., Chief Executive Officer
of Central Energy GP LLC, the General Partner of Central Energy Partners LP, certify that:
| 1. | I have reviewed this report on Form 10-K of Central Energy Partners LP; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the Partnership
as of, and for, the periods presented in this report; |
| 4. | The Partnership’s other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a - 15(e) and 15d - 15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the Partnership and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the Partnership, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial
reports to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the Partnership’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the Partnership’s internal control over financial
reporting that occurred during the Partnership’s most recent fiscal quarter (the Partnership’s fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Partnership’s
internal control over financial reporting. |
| 5. | The Partnership’s other certifying officers and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the Partnership’s auditors and the audit committee of Partnership’s
Board of Managers of Managers or persons performing: |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the Partnership’s ability to record, process, summarize
and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the Partnership’s internal control over financial reporting. |
Date: March 31, 2015
| |
/s/ John L. Denman, Jr. |
|
| |
John L. Denman, Jr., |
|
| |
Chief Executive Officer |
|
| |
of Central Energy GP LLC, |
|
| |
the General Partner of |
|
| |
Central Energy Partners LP |
|
Exhibit 31.2
CERTIFICATION
I, Douglas W. Weir, Chief Financial Officer,
certify that:
| 1. | I have reviewed this report on Form 10-K of Central Energy Partners LP; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the Partnership
as of, and for, the periods presented in this report; |
| 4. | The Partnership’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d - 15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the Partnership and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the Partnership, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial
reports to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the Partnership’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the Partnership’s internal control over financial
reporting that occurred during the Partnership’s most recent fiscal quarter (the Partnership’s fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Partnership’s
internal control over financial reporting. |
| 5. | The Partnership’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the Partnership’s auditors and the audit committee of Partnership’s
Board of Managers of Managers or persons performing: |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the Partnership’s ability to record, process, summarize
and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the Partnership’s internal control over financial reporting. |
Date: March 31, 2015
| |
/s/ Douglas W. Weir |
|
| |
Douglas W. Weir, |
|
| |
Chief Financial Officer |
|
| |
of Central Energy GP LLC, |
|
| |
the General Partner of |
|
| |
Central Energy Partners LP |
|
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the Annual Report of Central
Energy Partners LP (“Central Energy”) on Form 10-K for the year ended December 31, 2014 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), the undersigned, John L. Denman, Jr., Chief Executive Officer
of Central Energy GP LLC, the General Partner of Central Energy and Ian T. Bothwell, Chief Financial Officer of Central Energy
GP LLC, the General Partner of Central Energy, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: March 31, 2015 |
/s/ John L. Denman, Jr. |
|
| |
John L. Denman, Jr. |
|
| |
Chief Executive Officer of |
|
| |
Central Energy GP LLC, the |
|
| |
General Partner of |
|
| |
Central Energy Partners LP |
|
| |
|
|
| |
/s/ Douglas W. Weir |
|
| |
Douglas W. Weir, |
|
| |
Chief Financial Officer of |
|
| |
Central Energy GP LLC, the |
|
| |
General Partner of |
|
| |
Central Energy Partners LP |
|
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