AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 2003
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
ENTERPRISE PRODUCTS PARTNERS L.P.
ENTERPRISE PRODUCTS OPERATING L.P.
(Name of registrant as specified in its charter)
---------------------
DELAWARE 76-0568219
DELAWARE 76-0568220
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
RICHARD H. BACHMANN
2727 NORTH LOOP WEST 2727 NORTH LOOP WEST
HOUSTON, TEXAS 77008 HOUSTON, TEXAS 77008
(713) 880-6500 (713) 880-6500
(Address, including zip code, and telephone number, (Name, address, including zip code, and telephone
including area code, of Registrant's principal number, including area code, of agent for service)
executive offices)
COPIES TO:
MICHAEL P. FINCH
VINSON & ELKINS L.L.P.
1001 FANNIN
HOUSTON, TEXAS 77002-6760
(713) 758-2222
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT PRICE AMOUNT OF(2)(3)
---------------------------------------------------------------------------------------------------------------------------------
Common Units of Enterprise Products Partners
L.P.(4)....................................
---------------------------------------------------------------------------------------------------------------------------------
Debt Securities of Enterprise Products
Operating L.P..............................
---------------------------------------------------------------------------------------------------------------------------------
Guaranties of Debt Securities by Enterprise
Products Partners L.P......................
---------------------------------------------------------------------------------------------------------------------------------
Total............................... $1,500,000,000 $1,500,000,000 $138,000
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
(1) The amount of securities to be registered consists of $1,500,000,000 of an
indeterminate number or amount of common units of Enterprise Products
Partners L.P. ("Enterprise"), debt securities of Enterprise's subsidiary,
Enterprise Products Operating L.P. ("Operating") and guaranties of the
payment of principal and interest on Operating's debt securities by
Enterprise.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended. No
separate consideration will be received for any guaranties of payment of
principal and interest on debt securities.
(3) Securities registered under registration statement No. 333-56082 previously
filed by Enterprise and Operating having an aggregate offering price of
$49,826,375 remain unsold. In accordance with Rule 457(p), the registration
fee of $12,456 associated with such securities is offset against the total
registration fee due in connection with this registration statement.
Accordingly, the balance of $125,544 has been paid prior to filing this
registration statement.
(4) Includes common units that may be sold by or for the account of selling
unitholders.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT A SOLICITATION OF AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 28, 2003
PROSPECTUS
[ENTERPRISE PRODUCTS PARTNERS L.P. LOGO]
$1,500,000,000
ENTERPRISE PRODUCTS PARTNERS L.P.
ENTERPRISE PRODUCTS OPERATING L.P.
---------------------
COMMON UNITS
DEBT SECURITIES
---------------------
We may offer the following securities under this prospectus:
- common units representing limited partner interests in Enterprise
Products Partners L.P.; and
- debt securities of Enterprise Products Operating L.P., which will be
guaranteed by its parent company, Enterprise Products Partners L.P.
This prospectus provides you with a general description of the securities
we may offer. Each time we sell securities we will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or change information
contained in this prospectus. You should read carefully this prospectus and any
prospectus supplement before you invest. You should also read the documents we
have referred you to in the "Where You Can Find More Information" section of
this prospectus for information on us and for our financial statements.
In addition, common units may be offered from time to time by other holders
thereof. Any selling unitholders will be identified, and the number of common
units to be offered by them will be specified, in a prospectus supplement to
this prospectus. We will not receive proceeds of any sale of shares by any such
selling unitholders.
Our common units are listed on the New York Stock Exchange under the
trading symbol "EPD."
---------------------
Unless otherwise specified in a prospectus supplement, the senior debt
securities, when issued, will be unsecured and will rank equally with our other
unsecured and unsubordinated indebtedness. The subordinated debt securities,
when issued, will be subordinated in right of payment to our senior debt.
LIMITED PARTNERSHIPS ARE INHERENTLY DIFFERENT FROM CORPORATIONS. YOU SHOULD
REVIEW CAREFULLY "RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION OF
IMPORTANT RISKS YOU SHOULD CONSIDER BEFORE INVESTING ON OUR SECURITIES.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
This prospectus may not be used to consummate sales of securities unless
accompanied by a prospectus supplement.
---------------------
The date of this prospectus is , 2003.
TABLE OF CONTENTS
PAGE
----
ABOUT THIS PROSPECTUS....................................... i
WHERE YOU CAN FIND MORE INFORMATION......................... i
FORWARD-LOOKING STATEMENTS.................................. ii
OUR COMPANY................................................. 1
RISK FACTORS................................................ 2
USE OF PROCEEDS............................................. 8
RATIO OF EARNINGS TO FIXED CHARGES.......................... 8
DESCRIPTION OF DEBT SECURITIES.............................. 9
DESCRIPTION OF OUR COMMON UNITS............................. 22
CASH DISTRIBUTION POLICY.................................... 24
DESCRIPTION OF OUR PARTNERSHIP AGREEMENT.................... 31
TAX CONSIDERATIONS.......................................... 35
SELLING UNITHOLDERS......................................... 48
PLAN OF DISTRIBUTION........................................ 48
LEGAL MATTERS............................................... 49
EXPERTS..................................................... 49
You should rely only on the information contained or incorporated by
reference in this prospectus or any prospectus supplement. We have not
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. You should not assume that the information incorporated by reference or
provided in this prospectus or any prospectus supplement is accurate as of any
date other than the date on the front of each document.
In this prospectus, the terms "we," "us" and "our" refer to Enterprise
Products Partners L.P. and Enterprise Products Operating L.P. and their
subsidiaries, unless otherwise indicated or the context requires otherwise.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we file with the
Securities and Exchange Commission (the "Commission") using a "shelf"
registration process. Under this shelf process, we may offer from time to time
up to $1,500,000,000 of our securities. Each time we offer securities, we will
provide you with a prospectus supplement that will describe, among other things,
the specific amounts and prices of the securities being offered and the terms of
the offering. The prospectus supplement may also add, update or change
information contained in this prospectus. Any statement that we make in this
prospectus will be modified or superseded by any inconsistent statement made by
us in a prospectus supplement. Therefore, you should read this prospectus and
any attached prospectus supplement before you invest in our securities.
WHERE YOU CAN FIND MORE INFORMATION
Enterprise Products Partners L.P. and Enterprise Products Operating L.P.
file annual, quarterly and current reports, and other information with the
Commission under the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"). Enterprise Products Partners L.P. and Enterprise
Products Operating L.P. filed separate Annual Reports on Form 10-K for the
fiscal year ended December 31, 2001. All subsequent reports of Enterprise
Products Operating L.P. filed with the Commission are combined with those filed
by Enterprise Products Partners L.P. You may read and copy any document we file
at the Commission's public reference rooms in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the Commission at 1-800-732-0330 for
further information on the public reference rooms. Our filings are also
available to the public at the Commission's web site at http://www.sec.gov. In
addition, documents filed by us can be inspected at the offices of the New York
Stock Exchange, Inc. 20 Broad Street, New York, New York 10002.
i
The Commission allows us to incorporate by reference into this prospectus
the information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is part of this prospectus and later information that
we file with the Commission will automatically update and supersede this
information. Therefore, before you decide to invest in a particular offering
under this shelf registration, you should always check for reports we may have
filed with the Commission after the date of this prospectus. We incorporate by
reference the documents listed below filed by Enterprise Products Partners L.P.
or Enterprise Products Operating L.P. and any future filings made by either
company with the Commission under section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act until our offering is completed:
- Annual Reports on Form 10-K for the fiscal year ended December 31, 2001
(excluding Item 8 information for Enterprise Products Partners);
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002,
June 30, 2002 and September 30, 2002;
- Current Report on Form 8-K filed with the Commission on August 12, 2002 ,
as amended by our Current Report on Form 8-K/A (Amendment No. 1) filed
with the Commission on September 26, 2002 (excluding Item 9 information);
- Current Reports on Form 8-K filed with the Commission on February 8,
2002, February 28, 2002, April 2, 2002 (excluding Item 9 information),
August 12, 2002 (excluding Item 9 information), September 27, 2002,
October 2, 2002 and October 3, 2002 (excluding Item 9 information)
December 11, 2002, December 17, 2002 (excluding Item 9 information),
December 31, 2002 and January 10, 2003; and
- the description of the common units contained in the Registration
Statement on Form 8-A, initially filed with the Commission on July 21,
1998, and any subsequent amendment thereto filed for the purposes of
updating such description.
We will provide without charge to each person, including any beneficial
owner, to whom this prospectus is delivered, upon written or oral request, a
copy of any document incorporated by reference in this prospectus, other than
exhibits to any such document not specifically described above. Requests for
such documents should be directed to Investor Relations, Enterprise Products
Partners L.P., 2727 North Loop West, Suite 700, Houston, Texas 77008-1038;
telephone number: (713) 880-6812.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference contain various
forward-looking statements and information that are based on our beliefs and
those of our general partner, as well as assumptions made by us and information
currently available to us. When used in this prospectus, words such as
"anticipate," "project," "expect," "plan," "goal," "forecast," "intend,"
"could," "believe," "may" and similar expressions and statements regarding our
plans and objectives for future operations, are intended to identify forward-
looking statements. Although we and our general partner believe that such
expectations reflected in such forward-looking statements are reasonable,
neither we nor our general partner can give any assurances that such
expectations will prove to be correct. Such statements are subject to a variety
of risks, uncertainties and assumptions. If one or more of these risks or
uncertainties materialize, or if underlying assumptions prove incorrect, our
actual results may vary materially from those anticipated, estimated, projected
or expected.
Among the key risk factors that may have a direct bearing on our results of
operations and financial condition are:
- competitive practices in the industries in which we compete;
- fluctuations in oil, natural gas, and NGL product prices and production
and production due to weather and other natural and economic forces;
- operational and systems risks;
ii
- environmental liabilities that are not covered by indemnity or insurance;
- the impact of current and future laws and governmental regulations
(including environmental regulations) affecting the midstream energy
industry in general and our NGL and natural gas operations in particular;
- loss of a significant customer;
- the use of financial instruments to hedge commodity and other risks which
prove to be economically ineffective; and
- failure to complete one or more new projects on time or within budget.
You should not put undue reliance on any forward-looking statements. When
considering forward-looking statements, please review the risk factors described
under "Risk Factors" in this prospectus.
iii
OUR COMPANY
We are a publicly traded limited partnership that was formed in April 1998
to acquire, own, and operate all of the NGL processing and distribution assets
of Enterprise Products Company. We conduct all of our business through our 99%
owned subsidiary, Enterprise Products Operating L.P., our "Operating
Partnership" and its subsidiaries and joint ventures. Our general partner,
Enterprise Products GP, LLC, owns a 1.0% interest in us and a 1.0101% interest
in our Operating Partnership.
We are a leading North American midstream energy company that provides a
wide range of services to producers and consumers of natural gas and natural gas
liquids, or NGLs. NGLs are used by the petrochemical and refining industries to
produce plastics, motor gasoline and other industrial and consumer products and
also are used as residential and industrial fuels. Our asset platform creates
the only integrated natural gas and NGL transportation, fractionation,
processing, storage and import/export network in North America. We provide
integrated services to our customers and generate fee-based cash flow from
multiple sources along our natural gas and NGL "value chain." Our services
include the:
- gathering and transmission of raw natural gas from both onshore and
offshore Gulf of Mexico developments;
- processing of raw natural gas into a marketable product that meets
industry quality specifications by removing mixed NGLs and impurities;
- purchase and transportation of natural gas for delivery to our
industrial, utility and municipal customers;
- transportation of mixed NGLs to fractionation facilities by pipeline;
- fractionation, or separation, of mixed NGLs produced as by-products of
crude oil refining and natural gas production into component NGL
products: ethane, propane, isobutane, normal butane and natural gasoline;
- transportation of NGL products to end-users by pipeline, railcar and
truck;
- import and export of NGL products and petrochemical products through our
dock facilities;
- fractionation of refinery-sourced propane/propylene mix into high purity
propylene, propane and mixed butane;
- transportation of high purity propylene to end-users by pipeline;
- storage of natural gas, mixed NGLs, NGL products and petrochemical
products;
- conversion of normal butane to isobutane through the process of
isomerization;
- production of high-octane additives for motor gasoline from isobutane;
and
- sale of NGL and petrochemical products we produce and/or purchase for
resale on a merchant basis.
Certain of our facilities are owned jointly by us and other industry
partners, either through co-ownership arrangements or joint ventures. Some of
our jointly owned facilities are operated by other owners.
Our principal executive offices are located at 2727 North Loop West,
Houston, Texas 77008-1038, and our telephone number is (713) 880-6500.
1
RISK FACTORS
An investment in our securities involves risks. You should consider
carefully the following risk factors, together with all of the other information
included in, or incorporated by reference into, this prospectus and any
prospectus supplement in evaluating an investment in our securities. The risks
described below are not the only risks associated with an investment in our
securities. This prospectus also contains forward-looking statements that
involve risks and uncertainties. Please read "Forward-Looking Statements." Our
actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors, including the risks
described below and elsewhere in this prospectus. If any of these risks occur,
our business, financial condition or results of operation could be adversely
affected.
RISKS RELATED TO OUR COMMON UNITS AS A RESULT OF OUR PARTNERSHIP STRUCTURE
WE MAY NOT HAVE SUFFICIENT CASH FROM OPERATIONS TO PAY DISTRIBUTIONS AT THE
CURRENT LEVEL FOLLOWING ESTABLISHMENT OF CASH RESERVES AND PAYMENTS OF FEES AND
EXPENSES, INCLUDING PAYMENTS TO OUR GENERAL PARTNER.
Because distributions on our common units are dependent on the amount of
cash we generate, distributions may fluctuate based on our performance. We
cannot guarantee that we will continue to pay distributions at the current level
each quarter. The actual amount of cash that is available to be distributed each
quarter will depend upon numerous factors, some of which are beyond our control
and the control of our general partner. These factors include but are not
limited to the following:
- the level of our operating costs;
- the level of competition in our business segments;
- prevailing economic conditions;
- the level of capital expenditures we make;
- the restrictions contained in our debt agreements and our debt service
requirements;
- fluctuations in our working capital needs;
- the cost of acquisitions, if any; and
- the amount, if any, of cash reserves established by our general partner,
in its discretion.
In addition, you should be aware that our ability to pay the minimum
quarterly distribution each quarter depends primarily on our cash flow,
including cash flow from financial reserves and working capital borrowings, and
not solely on profitability, which is affected by non-cash items. As a result,
we may make cash distributions during periods when we record losses and we may
not make distributions during periods when we record net income.
COST REIMBURSEMENTS DUE OUR GENERAL PARTNER MAY BE SUBSTANTIAL AND WILL REDUCE
OUR CASH AVAILABLE FOR DISTRIBUTION TO HOLDERS OF COMMON UNITS.
Prior to making any distribution on our common units, we will reimburse our
general partner and its affiliates, including officers and directors of our
general partner, for expenses they incur on our behalf. The reimbursement of
expenses could adversely affect our ability to pay cash distributions to holders
of common units. Our general partner has sole discretion to determine the amount
of these expenses, subject to an annual limit. In addition, our general partner
and its affiliates may provide us other services for which we will be charged
fees as determined by our general partner.
OUR GENERAL PARTNER AND ITS AFFILIATES HAVE LIMITED FIDUCIARY RESPONSIBILITIES
AND CONFLICTS OF INTEREST WITH RESPECT TO OUR PARTNERSHIP.
The directors and officers of our general partner and its affiliates have
duties to manage the general partner in a manner that is beneficial to its
members. At the same time, our general partner has duties to
2
manage our partnership in a manner that is beneficial to us. Therefore, our
general partner's duties to us may conflict with the duties of its officers and
directors to its members.
Such conflicts may include, among others, the following:
- decisions of our general partner regarding the amount and timing of asset
purchases and sales, cash expenditures, borrowings, issuances of
additional units and reserves in any quarter may affect the level of cash
available to pay quarterly distributions to unitholders and the general
partner;
- under our partnership agreement, our general partner determines which
costs incurred by it and its affiliates are reimbursable by us;
- our general partner is allowed to take into account the interests of
parties other than us, such as Enterprise Products Company, in resolving
conflicts of interest, which has the effect of limiting its fiduciary
duty to unitholders;
- affiliates of our general partner may compete with us in certain
circumstances;
- our general partner may limit its liability and reduce its fiduciary
duties, while also restricting the remedies available to unitholders for
actions that might, without the limitations, constitute breaches of
fiduciary duty. As a result of purchasing units, you are deemed to
consent to some actions and conflicts of interest that might otherwise
constitute a breach of fiduciary or other duties under applicable law;
- we do not have any employees and we rely solely on employees of the
general partner and its affiliates; and
- in some instances, our general partner may cause us to borrow funds in
order to permit the payment of distributions, even if the purpose or
effect of the borrowing is to make a distribution on the subordinated
units, to make incentive distributions or to hasten the expiration of the
subordination period.
EVEN IF UNITHOLDERS ARE DISSATISFIED, THEY CANNOT EASILY REMOVE OUR GENERAL
PARTNER.
Unlike the holders of common stock in a corporation, unitholders have only
limited voting rights on matters affecting our business and, therefore, limited
ability to influence management's decisions regarding our business. Unitholders
did not elect our general partner or the directors of the general partner and
will have no right to elect our general partner or the directors of our general
partner on an annual or other continuing basis.
Furthermore, if unitholders are dissatisfied with the performance of our
general partner, they will have little ability to remove our general partner.
Our general partner may not be removed except upon the vote of the holders of at
least 66 2/3% of the outstanding units voting together as a single class.
Because affiliates of our general partner own more than one-third of our
outstanding units, the general partner currently cannot be removed without the
consent of the general partner and its affiliates. Also, if our general partner
is removed without cause during the subordination period, all remaining
subordinated units will automatically convert into common units and will share
distributions with the existing common units pro rata, existing arrearages on
the common units will be extinguished and the common units will no longer be
entitled to arrearages if we fail to pay the minimum quarterly distribution in
any quarter. A removal of the general partner under these circumstances would
adversely affect the common units by prematurely eliminating their distribution
and liquidation preference over the subordinated units, which otherwise would
have continued until we had met certain distribution and performance tests.
Cause is narrowly defined to mean that a court of competent jurisdiction
has entered a final non-appealable judgment finding our general partner liable
for actual fraud, gross negligence or willful or wanton misconduct in its
capacity as our general partner. Cause does not include most cases of charges of
poor management of the business, so the removal of the general partner because
of the unitholders' dissatisfaction with the general partner's performance in
managing our partnership will most likely result in the termination of the
subordination period.
3
Unitholders' voting rights are further restricted by the partnership
agreement provision stating that any units held by a person that owns 20% or
more of any class of units then outstanding, other than our general partner and
its affiliates, cannot be voted on any matter. In addition, the partnership
agreement contains provisions limiting the ability of unitholders to call
meetings or to acquire information about our operations, as well as other
provisions limiting the unitholders' ability to influence the manner or
direction of management.
As a result of these provisions, the price at which the common units will
trade may be lower because of the absence or reduction of a takeover premium in
the trading price.
WE MAY ISSUE ADDITIONAL COMMON UNITS WITHOUT THE APPROVAL OF COMMON
UNITHOLDERS, WHICH WOULD DILUTE THEIR EXISTING OWNERSHIP INTERESTS.
During the subordination period, our general partner may cause us to issue
up to 54,550,000 additional common units without any approval by the common
unitholders. Our general partner may also cause us to issue an unlimited number
of additional common units or other equity securities of equal rank with the
common units, without such approval, in a number of circumstances, such as:
- the issuance of common units in connection with acquisitions that
increase cash flow from operations per unit on a pro forma basis;
- the conversion of subordinated units into common units;
- the conversion of special units into common units;
- the conversion of the general partner interest and the incentive
distribution rights into common units as a result of the withdrawal of
our general partner; or
- issuances of common units under our long-term incentive plan.
After the end of the subordination period, we may issue an unlimited number
of limited partner interests of any type without the approval of the
unitholders. Our partnership agreement does not give the common unitholders the
right to approve our issuance of equity securities ranking junior to the common
units.
The issuance of additional common units or other equity securities of equal
or senior rank will have the following effects:
- the proportionate ownership interest of common unitholders in us will
decrease;
- the amount of cash available for distribution on each unit may decrease;
- since a lower percentage of total outstanding units will be subordinated
units, the risk that a shortfall in the payment of the minimum quarterly
distribution will be borne by the common unitholders will increase;
- the relative voting strength of each previously outstanding unit may be
diminished; and
- the market price of the common units may decline.
OUR GENERAL PARTNER HAS A LIMITED CALL RIGHT THAT MAY REQUIRE COMMON
UNITHOLDERS TO SELL THEIR UNITS AT AN UNDESIRABLE TIME OR PRICE.
If at any time our general partner and its affiliates own 85% more of the
common units then outstanding, our general partner will have the right, but not
the obligation, which it may assign to any of its affiliates or to us, to
acquire all, but not less than all, of the remaining common units held by
unaffiliated persons at a price not less than their then current market price.
As a result, common unitholders may be required to sell their common units at an
undesirable time or price and may therefore not receive any return on their
investment. They may also incur a tax liability upon a sale of their units.
Under our partnership agreement, Shell is not deemed to be an affiliate of our
general partner for purposes of this limited call right.
4
COMMON UNITHOLDERS MAY NOT HAVE LIMITED LIABILITY IF A COURT FINDS THAT LIMITED
PARTNER ACTIONS CONSTITUTE CONTROL OF OUR BUSINESS.
Under Delaware law, common unitholders could be held liable for our
obligations to the same extent as a general partner if a court determined that
the right of limited partners to remove our general partner or to take other
action under the partnership agreement constituted participation in the
"control" of our business.
Under Delaware law, 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.
In addition, Section 17-607 of the Delaware Revised Uniform Limited
Partnership Act provides that, under some circumstances, a limited partner may
be liable to us for the amount of a distribution for a period of three years
from the date of the distribution.
TAX RISKS TO COMMON UNITHOLDERS
You are urged to read "Tax Considerations" beginning on page 35 for a more
complete discussion of the following federal income tax risks related to owning
and disposing of common units.
THE IRS COULD TREAT US AS A CORPORATION FOR TAX PURPOSES, WHICH WOULD
SUBSTANTIALLY REDUCE THE CASH AVAILABLE FOR DISTRIBUTION TO COMMON
UNITHOLDERS.
The anticipated after-tax economic benefit of an investment in the common
units depends largely on our being treated as a partnership for federal income
tax purposes. We have not requested, and do not plan to request, a ruling from
the IRS on this or any other matter affecting us.
If we were classified as a corporation for federal income tax purposes, we
would pay federal income tax on our income at the corporate tax rate, which is
currently a maximum of 35%, and we likely would pay state taxes as well.
Distributions to you would generally be taxed again to you as corporate
distributions, and no income, gains, losses or deductions would flow through to
you. Because a tax would be imposed upon us as a corporation, the cash available
for distribution to you would be substantially reduced. Therefore, treatment of
us as a corporation would result in a material reduction in the after-tax return
to you, likely causing a substantial reduction in the value of the common units.
A change in current law or a change in our business could cause us to be
taxed as a corporation for federal income tax purposes or otherwise subject us
to entity-level taxation. Our partnership agreement provides that, if a law is
enacted or existing law is modified or interpreted in a manner that subjects us
to taxation as a corporation or otherwise subjects us to entity-level taxation
for federal, state or local income tax purposes, then the minimum quarterly
distribution and the target distribution levels will be decreased to reflect
that impact on us.
A SUCCESSFUL IRS CONTEST OF THE FEDERAL INCOME TAX POSITIONS WE TAKE MAY
ADVERSELY IMPACT THE MARKET FOR COMMON UNITS, AND THE COSTS OF ANY CONTESTS
WILL BE BORNE BY OUR UNITHOLDERS AND OUR GENERAL PARTNER.
We have not requested a ruling from the IRS with respect to any matter
affecting us. The IRS may adopt positions that differ from the conclusions of
our counsel expressed in the accompanying prospectus or from the positions we
take. It may be necessary to resort to administrative or court proceedings to
sustain some or all of our counsel's conclusions or the positions we take. A
court may not concur with our counsel's conclusions or the 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, principally legal, accounting and related fees, will be
borne indirectly by our unitholders and our general partner.
5
COMMON UNITHOLDERS MAY BE REQUIRED TO PAY TAXES EVEN IF THEY DO NOT RECEIVE
ANY CASH DISTRIBUTIONS.
Common unitholders will be required to pay federal income taxes and, in
some cases, state, local and foreign income taxes on their share of our taxable
income even if they do not receive any cash distributions from us. They may not
receive cash distributions from us equal to their share of our taxable income or
even equal to the actual tax liability that results from their share of our
taxable income.
TAX GAIN OR LOSS ON DISPOSITION OF COMMON UNITS COULD BE DIFFERENT THAN
EXPECTED.
If you sell your common units, you will recognize gain or loss equal to the
difference between the amount realized and your tax basis in those common units.
Prior distributions to you in excess of the total net taxable income you were
allocated for a common unit, which decreased your tax basis in that common unit,
will, in effect, become taxable income to you if the common unit is sold at a
price greater than your tax basis in that common unit, even if the price you
receive is less than your original cost. A substantial portion of the amount
realized, whether or not representing gain, may be ordinary income to you.
Should the IRS successfully contest some positions we take, you could recognize
more gain on the sale of units than would be the case under those positions,
without the benefit of decreased income in prior years. Also, if you sell your
units, you may incur a tax liability in excess of the amount of cash you receive
from the sale.
TAX-EXEMPT ENTITIES, REGULATED INVESTMENT COMPANIES AND FOREIGN 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), regulated investment companies (known as
mutual funds) and foreign persons raises issues unique to them. For example,
virtually all of our income allocated to unitholders who are organizations
exempt from federal income tax, including individual retirement accounts and
other retirement plans, will be unrelated business taxable income and will be
taxable to them. Very little of our income will be qualifying income to a
regulated investment company or mutual fund. Distributions to foreign persons
will be reduced by withholding taxes at the highest effective U.S. federal
income tax rate for individuals, and foreign persons will be required to file
federal income tax returns and pay tax on their share of our taxable income.
WE ARE REGISTERED AS A TAX SHELTER. THIS MAY INCREASE THE RISK OF AN IRS AUDIT
OF US OR A UNITHOLDER.
We are registered with the IRS as a "tax shelter." Our tax shelter
registration number is 9906100007. The tax laws require that some types of
entities, including some partnerships, register as "tax shelters" in response to
the perception that they claim tax benefits that may be unwarranted. As a
result, we may be audited by the IRS and tax adjustments could be made. Any
unitholder owning less than a 1% profits interest in us has very limited rights
to participate in the income tax audit process. Further, any adjustments in our
tax returns will lead to adjustments in our unitholders' tax returns and may
lead to audits of unitholders' tax returns and adjustments of items unrelated to
us. You will bear the cost of any expense incurred in connection with an
examination of your personal tax return and indirectly bear a portion of the
cost of an audit of us.
WE WILL TREAT EACH PURCHASER OF COMMON UNITS AS HAVING THE SAME TAX BENEFITS
WITHOUT REGARD TO THE UNITS PURCHASED. THE IRS MAY CHALLENGE THIS TREATMENT,
WHICH COULD ADVERSELY AFFECT THE VALUE OF OUR COMMON UNITS.
Because we cannot match transferors and transferees of common units, we
adopt depreciation and amortization positions that may not conform with all
aspects of applicable Treasury regulations. A successful IRS challenge to those
positions could adversely affect the amount of tax benefits available to a
common unitholder. It also could affect the timing of these tax benefits or the
amount of gain from a sale of common units and could have a negative impact on
the value of the common units or result in audit adjustments to the common
unitholder's tax returns.
6
COMMON UNITHOLDERS WILL LIKELY BE SUBJECT TO STATE AND LOCAL TAXES IN STATES
WHERE THEY DO NOT LIVE AS A RESULT OF AN INVESTMENT IN OUR COMMON UNITS.
In addition to federal income taxes, common unitholders will likely be
subject to other taxes, including state and local income taxes, unincorporated
business taxes and estate, inheritance or intangible taxes that are imposed by
the various jurisdictions in which we do business or own property and in which
they do not reside. Common unitholders may be required to file state and local
income tax returns and pay state and local income taxes in many or all of the
jurisdictions in which we do business or own property. Further, they may be
subject to penalties for failure to comply with those requirements. It is the
responsibility of the common unitholder to file all United States federal, state
and local tax returns. Our counsel has not rendered an opinion on the state or
local tax consequences of an investment in the common units.
7
USE OF PROCEEDS
Except as may be set forth in a prospectus supplement, we will use the net
proceeds from any sale of securities described in this prospectus for future
business acquisitions and other general corporate purposes, such as working
capital, investments in subsidiaries, the retirement of existing debt and/or the
repurchase of common units or other securities. The exact amounts to be used and
when the net proceeds will be applied to corporate purposes will depend on a
number of factors, including our funding requirements and the availability of
alternative funding sources. We routinely review acquisition opportunities. A
prospectus supplement will disclose any future proposal to use net proceeds from
an offering of our securities to finance any specific acquisition, if
applicable.
We will not receive any proceeds from any sale of common units by any
selling unitholders.
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges for each of the periods indicated
are as follows:
YEAR ENDED DECEMBER 31,
-------------------------------- NINE MONTHS ENDED
COMPANY 1997 1998 1999 2000 2001 SEPTEMBER 30, 2002
------- ---- ---- ---- ---- ---- ------------------
Enterprise Products Partners L.P............ 2.11 1.16 5.80 6.27 5.30 1.81
Enterprise Products Operating L.P........... 2.13 1.16 5.86 6.34 5.34 1.84
These computations include us and our subsidiaries, and 50% or less equity
companies. For these ratios, "earnings" is the amount resulting from adding and
subtracting the following items.
Add the following:
- pre-tax income from continuing operations before adjustment for minority
interests in consolidated subsidiaries or income or loss from equity
investees;
- fixed charges;
- amortization of capitalized interest;
- distributed income of equity investees; and
- our share of pre-tax losses of equity investees for which charges arising
from guarantees are included in fixed charges.
From the total of the added items, subtract the following:
- interest capitalized;
- preference security dividend requirements of consolidated subsidiaries;
and
- minority interest in pre-tax income of subsidiaries that have not
incurred fixed charges.
The term "fixed charges" means the sum of the following:
- interest expensed and capitalized;
- amortized premiums, discounts and capitalized expenses related to
indebtedness;
- an estimate of the interest within rental expenses (equal to one-third of
rental expense); and
- preference security dividend requirements of consolidated subsidiaries.
8
DESCRIPTION OF DEBT SECURITIES
In this Description of Debt Securities references to the "Issuer" mean only
Enterprise Products Operating L.P. and not its subsidiaries. References to the
"Guarantor" mean only Enterprise Products Partners L.P. and not its
subsidiaries. References to "we" and "us" mean the Issuer and the Guarantor
collectively.
The debt securities will be issued under an Indenture dated as of March 15,
2000 (the "Indenture"), among the Issuer, the Guarantor, and Wachovia Bank,
National Association (successor to First Union National Bank), as trustee (the
"Trustee"). The terms of the debt securities will include those expressly set
forth in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). Capitalized
terms used in this Description of Debt Securities have the meanings specified in
the Indenture.
This Description of Debt Securities is intended to be a useful overview of
the material provisions of the debt securities and the Indenture. Since this
Description of Debt Securities is only a summary, you should refer to the
Indenture for a complete description of our obligations and your rights.
GENERAL
The Indenture does not limit the amount of debt securities that may be
issued thereunder. Debt securities may be issued under the Indenture from time
to time in separate series, each up to the aggregate amount authorized for such
series. The debt securities will be general obligations of the Issuer and the
Guarantor and may be subordinated to Senior Indebtedness of the Issuer and the
Guarantor. See "-- Subordination."
A prospectus supplement and a supplemental indenture (or a resolution of
our Board of Directors and accompanying officers' certificate) relating to any
series of debt securities being offered will include specific terms relating to
the offering. These terms will include some or all of the following:
- the form and title of the debt securities;
- the total principal amount of the debt securities;
- the portion of the principal amount which will be payable if the maturity
of the debt securities is accelerated;
- the currency or currency unit in which the debt securities will be paid,
if not U.S. dollars;
- any right we may have to defer payments of interest by extending the
dates payments are due whether interest on those deferred amounts will be
payable as well;
- the dates on which the principal of the debt securities will be payable;
- the interest rate which the debt securities will bear and the interest
payment dates for the debt securities;
- any optional redemption provisions;
- any sinking fund or other provisions that would obligate us to repurchase
or otherwise redeem the debt securities;
- any changes to or additional Events of Default or covenants;
- whether the debt securities are to be issued as Registered Securities or
Bearer Securities or both; and any special provisions for Bearer
Securities;
9
- the subordination, if any, of the debt securities and any changes to the
subordination provisions of the Indenture; and
- any other terms of the debt securities.
The prospectus supplement will also describe any material United States
federal income tax consequences or other special considerations applicable to
the applicable series of debt securities, including those applicable to:
- Bearer Securities;
- debt securities with respect to which payments of principal, premium or
interest are determined with reference to an index or formula, including
changes in prices of particular securities, currencies or commodities;
- debt securities with respect to which principal, premium or interest is
payable in a foreign or composite currency;
- debt securities that are issued at a discount below their stated
principal amount, bearing no interest or interest at a rate that at the
time of issuance is below market rates; and
- variable rate debt securities that are exchangeable for fixed rate debt
securities.
At our option, we may make interest payments, by check mailed to the
registered holders thereof or, if so stated in the applicable prospectus
supplement, at the option of a holder by wire transfer to an account designated
by the holder. Except as otherwise provided in the applicable prospectus
supplement, no payment on a Bearer Security will be made by mail to an address
in the United States or by wire transfer to an account in the United States.
Unless otherwise provided in the applicable prospectus supplement,
Registered Securities may be transferred or exchanged at the office of the
Trustee at which its corporate trust business is principally administered in the
United States or at the office of the Trustee or the Trustee's agent in New York
City, subject to the limitations provided in the Indenture, without the payment
of any service charge, other than any applicable tax or governmental charge.
Bearer Securities will be transferable only by delivery. Provisions with respect
to the exchange of Bearer Securities will be described in the applicable
prospectus supplement.
Any funds we pay to a paying agent for the payment of amounts due on any
debt securities that remain unclaimed for two years will be returned to us, and
the holders of the debt securities must thereafter look only to us for payment
thereof.
GUARANTEE
The Guarantor will unconditionally guarantee to each holder and the Trustee
the full and prompt payment of principal of, premium, if any, and interest on
the debt securities, when and as the same become due and payable, whether at
maturity, upon redemption or repurchase, by declaration of acceleration or
otherwise.
CERTAIN COVENANTS
Except as set forth below or as may be provided in a prospectus supplement
and supplemental indenture, neither the Issuer nor the Guarantor is restricted
by the Indenture from incurring any type of indebtedness or other obligation,
from paying dividends or making distributions on its partnership interests or
capital stock or purchasing or redeeming its partnership interests or capital
stock. The Indenture does not require the maintenance of any financial ratios or
specified levels of net worth or liquidity. In addition, the Indenture does not
contain any provisions that would require the Issuer to repurchase or redeem or
otherwise modify the terms of any of the debt securities upon a change in
control or other events involving the Issuer which may adversely affect the
creditworthiness of the debt securities.
10
Limitations on Liens. The Indenture provides that the Guarantor will not,
nor will it permit any Subsidiary to, create, assume, incur or suffer to exist
any mortgage, lien, security interest, pledge, charge or other encumbrance
("liens") other than Permitted Liens (as defined below) upon any Principal
Property (as defined below) or upon any shares of capital stock of any
Subsidiary owning or leasing any Principal Property, whether owned or leased on
the date of the Indenture or thereafter acquired, to secure any indebtedness for
borrowed money ("debt") of the Guarantor or the Issuer or any other person
(other than the debt securities), without in any such case making effective
provision whereby all of the debt securities outstanding shall be secured
equally and ratably with, or prior to, such debt so long as such debt shall be
so secured.
In the Indenture, the term "Subsidiary" means:
(1) the Issuer; or
(2) any corporation, association or other business entity of which more
than 50% of the total voting power of the equity interests entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof or any partnership of
which more than 50% of the partners' equity interests (considering all
partners' equity interests as a single class) is, in each case, at the time
owned or controlled, directly or indirectly, by the Guarantor, the Issuer
or one or more of the other Subsidiaries of the Guarantor or the Issuer or
combination thereof.
"Permitted Liens" means:
(1) liens upon rights-of-way for pipeline purposes;
(2) any statutory or governmental lien or lien arising by operation of
law, or any mechanics', repairmen's, materialmen's, suppliers', carriers',
landlords', warehousemen's or similar lien incurred in the ordinary course
of business which is not yet due or which is being contested in good faith
by appropriate proceedings and any undetermined lien which is incidental to
construction, development, improvement or repair; or any right reserved to,
or vested in, any municipality or public authority by the terms of any
right, power, franchise, grant, license, permit or by any provision of law,
to purchase or recapture or to designate a purchaser of, any property;
(3) liens for taxes and assessments which are (a) for the then current
year, (b) not at the time delinquent, or (c) delinquent but the validity or
amount of which is being contested at the time by the Guarantor or any
Subsidiary in good faith by appropriate proceedings;
(4) liens of, or to secure performance of, leases, other than capital
leases; or any lien securing industrial development, pollution control or
similar revenue bonds;
(5) any lien upon property or assets acquired or sold by the Guarantor
or any Subsidiary resulting from the exercise of any rights arising out of
defaults on receivables;
(6) any lien in favor of the Guarantor or any Subsidiary; or any lien
upon any property or assets of the Guarantor or any Subsidiary in existence
on the date of the execution and delivery of the Indenture;
(7) any lien in favor of the United States of America or any state
thereof, or any department, agency or instrumentality or political
subdivision of the United States of America or any state thereof, to secure
partial, progress, advance, or other payments pursuant to any contract or
statute, or any debt incurred by the Issuer or any Subsidiary for the
purpose of financing all or any part of the purchase price of, or the cost
of constructing, developing, repairing or improving, the property or assets
subject to such lien;
(8) any lien incurred in the ordinary course of business in connection
with workmen's compensation, unemployment insurance, temporary disability,
social security, retiree health or similar laws or regulations or to secure
obligations imposed by statute or governmental regulations;
(9) liens in favor of any person to secure obligations under provisions
of any letters of credit, bank guarantees, bonds or surety obligations
required or requested by any governmental authority in
11
connection with any contract or statute; or any lien upon or deposits of
any assets to secure performance of bids, trade contracts, leases or
statutory obligations;
(10) any lien upon any property or assets created at the time of
acquisition of such property or assets by the Guarantor or any Subsidiary
or within one year after such time to secure all or a portion of the
purchase price for such property or assets or debt incurred to finance such
purchase price, whether such debt was incurred prior to, at the time of or
within one year after the date of such acquisition; or any lien upon any
property or assets to secure all or part of the cost of construction,
development, repair or improvements thereon or to secure debt incurred
prior to, at the time of, or within one year after completion of such
construction, development, repair or improvements or the commencement of
full operations thereof (whichever is later), to provide funds for any such
purpose;
(11) any lien upon any property or assets existing thereon at the time
of the acquisition thereof by the Guarantor or any Subsidiary and any lien
upon any property or assets of a person existing thereon at the time such
person becomes a Subsidiary by acquisition, merger or otherwise; provided
that, in each case, such lien only encumbers the property or assets so
acquired or owned by such person at the time such person becomes a
Subsidiary;
(12) liens imposed by law or order as a result of any proceeding before
any court or regulatory body that is being contested in good faith, and
liens which secure a judgment or other court-ordered award or settlement as
to which the Guarantor or the applicable Subsidiary has not exhausted its
appellate rights;
(13) any extension, renewal, refinancing, refunding or replacement (or
successive extensions, renewals, refinancing, refunding or replacements) of
liens, in whole or in part, referred to in clauses (1) through (12) above;
provided, however, that any such extension, renewal, refinancing, refunding
or replacement lien shall be limited to the property or assets covered by
the lien extended, renewed, refinanced, refunded or replaced and that the
obligations secured by any such extension, renewal, refinancing, refunding
or replacement lien shall be in an amount not greater than the amount of
the obligations secured by the lien extended, renewed, refinanced, refunded
or replaced and any expenses of the Guarantor and its Subsidiaries
(including any premium) incurred in connection with such extension,
renewal, refinancing, refunding or replacement; or
(14) any lien resulting from the deposit of moneys or evidence of
indebtedness in trust for the purpose of defeasing debt of the Guarantor or
any Subsidiary.
"Principal Property" means, whether owned or leased on the date of the
Indenture or thereafter acquired:
(1) any pipeline assets of the Guarantor or any Subsidiary, including
any related facilities employed in the transportation, distribution,
storage or marketing of refined petroleum products, natural gas liquids,
and petrochemicals, that are located in the United States of America or any
territory or political subdivision thereof; and
(2) any processing or manufacturing plant or terminal owned or leased by
the Guarantor or any Subsidiary that is located in the United States or any
territory or political subdivision thereof,
except, in the case of either of the foregoing clauses (1) or (2):
(a) any such assets consisting of inventories, furniture, office
fixtures and equipment (including data processing equipment), vehicles
and equipment used on, or useful with, vehicles; and
(b) any such assets, plant or terminal which, in the opinion of the
board of directors of the General Partner, is not material in relation
to the activities of the Issuer or of the Guarantor and its Subsidiaries
taken as a whole.
Notwithstanding the foregoing, under the Indenture, the Guarantor may, and
may permit any Subsidiary to, create, assume, incur, or suffer to exist any lien
upon any Principal Property to secure debt of the Guarantor or any other person
(other than the debt securities) other than a Permitted Lien without securing
the debt securities, provided that the aggregate principal amount of all debt
then outstanding secured by such lien and all similar liens, together with all
Attributable Indebtedness from Sale-Leaseback Transactions
12
(excluding Sale-Leaseback Transactions permitted by clauses (1) through (4),
inclusive, of the first paragraph of the restriction on sale-leasebacks covenant
described below) does not exceed 10% of Consolidated Net Tangible Assets.
"Consolidated Net Tangible Assets" means, at any date of determination, the
total amount of assets after deducting therefrom:
(1) all current liabilities (excluding (A) any current liabilities that
by their terms are extendable or renewable at the option of the obligor
thereon to a time more than 12 months after the time as of which the amount
thereof is being computed, and (B) current maturities of long-term debt);
and
(2) the value (net of any applicable reserves) of all goodwill, trade
names, trademarks, patents and other like intangible assets, all as set
forth, or on a pro forma basis would be set forth, on the consolidated
balance sheet of the Guarantor and its consolidated subsidiaries for the
Guarantor's most recently completed fiscal quarter, prepared in accordance
with generally accepted accounting principles.
Restriction on Sale-Leasebacks. The Indenture provides that the Guarantor
will not, and will not permit any Subsidiary to, engage in the sale or transfer
by the Guarantor or any Subsidiary of any Principal Property to a person (other
than the Issuer or a Subsidiary) and the taking back by the Guarantor or any
Subsidiary, as the case may be, of a lease of such Principal Property (a
"Sale-Leaseback Transaction"), unless:
(1) such Sale-Leaseback Transaction occurs within one year from the date
of completion of the acquisition of the Principal Property subject thereto
or the date of the completion of construction, development or substantial
repair or improvement, or commencement of full operations on such Principal
Property, whichever is later;
(2) the Sale-Leaseback Transaction involves a lease for a period,
including renewals, of not more than three years;
(3) the Guarantor or such Subsidiary would be entitled to incur debt
secured by a lien on the Principal Property subject thereto in a principal
amount equal to or exceeding the Attributable Indebtedness from such
Sale-Leaseback Transaction without equally and ratably securing the debt
securities; or
(4) the Guarantor or such Subsidiary, within a one-year period after
such Sale-Leaseback Transaction, applies or causes to be applied an amount
not less than the Attributable Indebtedness from such Sale-Leaseback
Transaction to (a) the prepayment, repayment, redemption, reduction or
retirement of any debt of the Guarantor or any Subsidiary that is not
subordinated to the debt securities, or (b) the expenditure or expenditures
for Principal Property used or to be used in the ordinary course of
business of the Guarantor or its Subsidiaries. "Attributable Indebtedness,"
when used with respect to any Sale-Leaseback Transaction, means, as at the
time of determination, the present value (discounted at the rate set forth
or implicit in the terms of the lease included in such transaction) of the
total obligations of the lessee for rental payments (other than amounts
required to be paid on account of property taxes, maintenance, repairs,
insurance, assessments, utilities, operating and labor costs and other
items that do not constitute payments for property rights) during the
remaining term of the lease included in such Sale-Leaseback Transaction
(including any period for which such lease has been extended). In the case
of any lease that is terminable by the lessee upon the payment of a penalty
or other termination payment, such amount shall be the lesser of the amount
determined assuming termination upon the first date such lease may be
terminated (in which case the amount shall also include the amount of the
penalty or termination payment, but no rent shall be considered as required
to be paid under such lease subsequent to the first date upon which it may
be so terminated) or the amount determined assuming no such termination.
Notwithstanding the foregoing, under the Indenture the Guarantor may, and
may permit any Subsidiary to, effect any Sale-Leaseback Transaction that is not
excepted by clauses (1) through (4), inclusive, of the first paragraph under
"-- Restrictions On Sale-Leasebacks," provided that the Attributable
Indebtedness from such Sale-Leaseback Transaction, together with the aggregate
principal amount of outstanding debt
13
(other than the debt securities) secured by liens other than Permitted Liens
upon Principal Property, do not exceed 10% of Consolidated Net Tangible Assets.
Merger, Consolidation or Sale of Assets. The Indenture provides that each
of the Guarantor and the Issuer may, without the consent of the holders of any
of the debt securities, consolidate with or sell, lease, convey all or
substantially all of its assets to, or merge with or into, any partnership,
limited liability company or corporation if:
(1) the partnership, limited liability company or corporation formed by
or resulting from any such consolidation or merger or to which such assets
shall have been transferred (the "successor") is either the Guarantor or
the Issuer, as applicable, or assumes all the Guarantor's or the Issuer's,
as the case may be, obligations and liabilities under the Indenture and the
debt securities (in the case of the Issuer) and the Guarantee (in the case
of the Guarantor);
(2) the successor is organized under the laws of the United States, any
state or the District of Columbia; and
(3) immediately after giving effect to the transaction no Default or
Event of Default shall have occurred and be continuing.
The successor will be substituted for the Guarantor or the Issuer, as the
case may be, in the Indenture with the same effect as if it had been an original
party to the Indenture. Thereafter, the successor may exercise the rights and
powers of the Guarantor or the Issuer, as the case may be, under the Indenture,
in its name or in its own name. If the Guarantor or the Issuer sells or
transfers all or substantially all of its assets, it will be released from all
liabilities and obligations under the Indenture and under the debt securities
(in the case of the Issuer) and the Guarantee (in the case of the Guarantor)
except that no such release will occur in the case of a lease of all or
substantially all of its assets.
EVENTS OF DEFAULT
Each of the following will be an Event of Default under the Indenture with
respect to a series of debt securities:
(1) default in any payment of interest on any debt securities of that
series when due, continued for 30 days;
(2) default in the payment of principal of or premium, if any, on any
debt securities of that series when due at its stated maturity, upon
optional redemption, upon declaration or otherwise;
(3) failure by the Guarantor or the Issuer to comply for 60 days after
notice with its other agreements contained in the Indenture;
(4) certain events of bankruptcy, insolvency or reorganization of the
Issuer or the Guarantor (the "bankruptcy provisions"); or
(5) the Guarantee ceases to be in full force and effect or is declared
null and void in a judicial proceeding or the Guarantor denies or
disaffirms its obligations under the Indenture or the Guarantee.
However, a default under clause (3) of this paragraph will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount of
the outstanding debt securities of that series notify the Issuer and the
Guarantor of the default such default is not cured within the time specified in
clause (3) of this paragraph after receipt of such notice.
If an Event of Default (other than an Event of Default described in clause
(4) above) occurs and is continuing, the Trustee by notice to the Issuer, or the
holders of at least 25% in principal amount of the outstanding debt securities
of that series by notice to the Issuer and the Trustee, may, and the Trustee at
the request of such holders shall, declare the principal of, premium, if any,
and accrued and unpaid interest, if any, on all the debt securities of that
series to be due and payable. Upon such a declaration, such principal, premium
and accrued and unpaid interest will be due and payable immediately. If an Event
of Default
14
described in clause (4) above occurs and is continuing, the principal of,
premium, if any, and accrued and unpaid interest on all the debt securities will
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders. The holders of a majority in
principal amount of the outstanding debt securities of a series may waive all
past defaults (except with respect to nonpayment of principal, premium or
interest) and rescind any such acceleration with respect to the debt securities
of that series and its consequences if rescission would not conflict with any
judgment or decree of a court of competent jurisdiction and all existing Events
of Default, other than the nonpayment of the principal of, premium, if any, and
interest on the debt securities of that series that have become due solely by
such declaration of acceleration, have been cured or waived.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium, if any, or interest when due, no holder may pursue any
remedy with respect to the Indenture or the debt securities unless:
(1) such holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding debt
securities of that series have requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after
the receipt of the request and the offer of security or indemnity; and
(5) the holders of a majority in principal amount of the outstanding
debt securities of that series have not given the Trustee a direction that,
in the opinion of the Trustee, is inconsistent with such request within
such 60-day period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding debt securities of a series are given the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or of exercising any trust or power conferred on the
Trustee with respect to that series of debt securities. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder or that would involve the Trustee in personal liability. Prior to taking
any action under the Indenture, the Trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, premium, if any, or interest on any debt securities, the
Trustee may withhold notice if and so long as a committee of trust officers of
the Trustee in good faith determines that withholding notice is in the interests
of the holders. In addition, the Issuer is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Issuer also is required to deliver to the Trustee, within 30
days after the occurrence thereof, written notice of any events which would
constitute certain Defaults, their status and what action the Issuer is taking
or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Modifications and amendments of the Indenture may be made by the Issuer,
the Guarantor and the Trustee with the consent of the holders of a majority in
principal amount of all debt securities then outstanding under the Indenture
(including consents obtained in connection with a tender offer or exchange offer
for the
15
debt securities). However, without the consent of each holder of outstanding
debt securities of each series affected thereby, no amendment may, among other
things:
(1) reduce the amount of debt securities whose holders must consent to
an amendment;
(2) reduce the stated rate of or extend the stated time for payment of
interest on any debt securities;
(3) reduce the principal of or extend the stated maturity of any debt
securities;
(4) reduce the premium payable upon the redemption of any debt
securities or change the time at which any debt securities may be redeemed
as described above under "-- Optional Redemption" or any similar provision;
(5) make any debt securities payable in money other than that stated in
the debt securities;
(6) impair the right of any holder to receive payment of, premium, if
any, principal of and interest on such holder's debt securities on or after
the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such holder's debt securities;
(7) make any change in the amendment provisions which require each
holder's consent or in the waiver provisions; or
(8) release the Guarantor or modify the Guarantee in any manner adverse
to the holders.
The holders of a majority in aggregate principal amount of the outstanding
debt securities of each series affected thereby, on behalf of all such holders,
may waive compliance by the Issuer and the Guarantor with certain restrictive
provisions of the Indenture. Subject to certain rights of the Trustee as
provided in the Indenture, the holders of a majority in aggregate principal
amount of the debt securities of each series affected thereby, on behalf of all
such holders, may waive any past default under the Indenture (including any such
waiver obtained in connection with a tender offer or exchange offer for the debt
securities), except a default in the payment of principal, premium or interest
or a default in respect of a provision that under the Indenture that cannot be
modified or amended without the consent of all holders of the series of debt
securities that is affected.
Without the consent of any holder, the Issuer, the Guarantor and the
Trustee may amend the Indenture to:
(1) cure any ambiguity, omission, defect or inconsistency;
(2) provide for the assumption by a successor corporation, partnership,
trust or limited liability company of the obligations of the Guarantor or
the Issuer under the Indenture;
(3) provide for uncertificated debt securities in addition to or in
place of certificated debt securities (provided that the uncertificated
debt securities are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated debt
securities are described in Section 163(f)(2)(B) of the Code);
(4) add guarantees with respect to the debt securities;
(5) secure the debt securities;
(6) add to the covenants of the Guarantor or the Issuer for the benefit
of the holders or surrender any right or power conferred upon the Guarantor
or the Issuer;
(7) make any change that does not adversely affect the rights of any
holder; or
(8) comply with any requirement of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment. After an amendment under the
Indenture becomes effective, the Issuer is required to mail to the holders a
16
notice briefly describing such amendment. However, the failure to give such
notice to all the holders, or any defect therein, will not impair or affect the
validity of the amendment.
DEFEASANCE
The Issuer at any time may terminate all its obligations under a series of
debt securities and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the debt securities, to replace mutilated,
destroyed, lost or stolen debt securities and to maintain a registrar and paying
agent in respect of the debt securities. If the Issuer exercises its legal
defeasance option, the Guarantee will terminate with respect to that series.
The Issuer at any time may terminate its obligations under covenants
described under "-- Certain Covenants" (other than "Merger, Consolidation or
Sale of Assets"), the bankruptcy provisions with respect to the Guarantor and
the Guarantee provision described under "Events of Default" above with respect
to a series of debt securities ("covenant defeasance").
The Issuer may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Issuer exercises its
legal defeasance option, payment of the affected series of debt securities may
not be accelerated because of an Event of Default with respect thereto. If the
Issuer exercises its covenant defeasance option, payment of the affected series
of debt securities may not be accelerated because of an Event of Default
specified in clause (3), (4), (with respect only to the Guarantor) or (5) under
"-- Events of Default" above.
In order to exercise either defeasance option, the Issuer must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium, if any, and
interest on the series of debt securities to redemption or maturity, as the case
may be, and must comply with certain other conditions, including delivery to the
Trustee of an opinion of counsel (subject to customary exceptions and
exclusions) to the effect that holders of the series of debt securities will not
recognize income, gain or loss for Federal income tax purposes as a result of
such deposit and defeasance and will be subject to Federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred. In the case of legal
defeasance only, such opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law.
NO PERSONAL LIABILITY OF GENERAL PARTNER
The General Partner and its directors, officers, employees, incorporators
and stockholders, as such, shall have no liability for any obligations of the
Guarantor or the Issuer under the debt securities, the Indenture or the
Guarantee or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder by accepting a debt security waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the debt securities. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
SUBORDINATION
Debt securities of a series may be subordinated to Senior Indebtedness (as
defined below) to the extent set forth in the prospectus supplement relating
thereto. Subordinated debt securities will be subordinate in right of payment,
to the extent and in the manner set forth in the Indenture and the prospectus
supplement relating thereto, to the prior payment of all indebtedness of the
Issuer and the Guarantor that is designated as "Senior Indebtedness" with
respect to the series. "Senior Indebtedness" is defined generally to include all
notes or other evidences of indebtedness for money borrowed by the Issuer,
including guarantees, not expressed to be subordinate or junior in right of
payment to any other indebtedness of the Issuer.
Upon any payment or distribution of assets of the Issuer to creditors or
upon a total or partial liquidation or dissolution of the Issuer or in a
bankruptcy, receivership or similar proceeding relating to the Issuer or its
17
property, holders of Senior Indebtedness shall be entitled to receive payment in
full in cash of the Senior Indebtedness before holders of subordinated debt
securities shall be entitled to receive any payment of principal, premium or
interest with respect to the subordinated debt securities, and until the Senior
Indebtedness is paid in full, any distribution to which holders of subordinated
debt securities would otherwise be entitled shall be made to the holders of
Senior Indebtedness (except that the holders may receive shares of stock and any
debt securities that are subordinated to Senior Indebtedness to at least the
same extent as the subordinated debt securities).
We may not make any payments of principal, premium or interest with respect
to subordinated debt securities, make any deposit for the purpose of defeasance
of the subordinated debt securities, or repurchase, redeem or otherwise retire
(except, in the case of subordinated debt securities that provide for a
mandatory sinking fund, by our delivery of subordinated debt securities to the
Trustee in satisfaction of our sinking fund obligation) any subordinated debt
securities if (a) any principal, premium or interest with respect to Senior
Indebtedness is not paid within any applicable grace period (including at
maturity), or (b) any other default on Senior Indebtedness occurs and the
maturity of the Senior Indebtedness is accelerated in accordance with its terms,
unless, in either case, the default has been cured or waived and the
acceleration has been rescinded, the Senior Indebtedness has been paid in full
in cash, or the Issuer and the Trustee receive written notice approving the
payment from the representatives of each issue of "Designated Senior
Indebtedness" (which will include the Bank Indebtedness and any other specified
issue of Senior Indebtedness of at least $100 million). During the continuance
of any default (other than a default described in clause (a) or (b) above) with
respect to any Senior Indebtedness pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect the acceleration) or the expiration of any applicable grace
periods, the Issuer may not pay the subordinated debt securities for a period
(the "Payment Blockage Period") commencing on the receipt by the Issuer and the
Trustee of written notice of the default from the representative of any
Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period (a "Blockage Notice"). The Payment Blockage Period may be
terminated before its expiration by written notice to the Trustee and us from
the person who have the Blockage Notice, by repayment in full in cash of the
Senior Indebtedness with respect to which the Blockage Notice was given, or
because the default giving rise to the Payment Blockage Period is no longer
continuing. Unless the holders of the Senior Indebtedness shall have accelerated
the maturity thereof, the Issuer may resume payments on the subordinated debt
securities after the expiration of the Payment Blockage Period. Not more than
one Blockage Notice may be given in any period of 360 consecutive days unless
the first Blockage Notice within the 360-day period is given by or on behalf of
holders of Designated Senior Indebtedness other than the Bank Indebtedness, in
which case, the representative of the Bank Indebtedness may give another
Blockage Notice within the period. In no event, however, may the total number of
days during which any Payment Blockage Period or Periods is in effect exceed 179
days in the aggregate during any period of 360 consecutive days. After all
Senior Indebtedness is paid in full and until the subordinated debt securities
are paid in full, holders of the subordinated debt securities shall be
subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness.
By reason of the subordination, in the event of insolvency, our creditors
who are holders of Senior Indebtedness, as well as certain of our general
creditors, may recover more, ratably, than the holders of the subordinated debt
securities.
BOOK-ENTRY SYSTEM
We will issue the debt securities in the form of one or more global
securities in fully registered form initially in the name of Cede & Co., as
nominee of DTC, or such other name as may be requested by an authorized
representative of DTC. The global securities will be deposited with the Trustee
as custodian for DTC and may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC
or any nominee to a successor of DTC or a nominee of such successor.
18
DTC has advised us as follows:
- DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act.
- DTC holds securities that its participants deposit with DTC and
facilitates the settlement among direct participants of securities
transactions, such as transfers and pledges, in deposited securities,
through electronic computerized book-entry changes in direct
participants' accounts, thereby eliminating the need for physical
movement of securities certificates.
- Direct participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations.
- DTC is owned by a number of its direct participants and by the New York
Stock Exchange, Inc., the American Stock Exchange LLC and the National
Association of Securities Dealers, Inc.
- Access to the DTC system is also available to others such as securities
brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a direct participant, either
directly or indirectly.
- The rules applicable to DTC and its direct and indirect participants are
on file with the Commission.
Purchases of debt securities under the DTC system must be made by or
through direct participants, which will receive a credit for the debt securities
on DTC's records. The ownership interest of each actual purchaser of debt
securities is in turn to be recorded on the direct and indirect participants'
records. Beneficial owners of the debt securities will not receive written
confirmation from DTC of their purchase, but beneficial owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the direct or indirect participants
through which the beneficial owner entered into the transaction. Transfers of
ownership interests in the debt securities are to be accomplished by entries
made on the books of direct and indirect participants acting on behalf of
beneficial owners. Beneficial owners will not receive certificates representing
their ownership interests in the debt securities, except in the event that use
of the book-entry system for the debt securities is discontinued.
To facilitate subsequent transfers, all debt securities deposited by direct
participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of debt securities with DTC and their
registration in the name of Cede & Co. or such other nominee do not effect any
change in beneficial ownership. DTC has no knowledge of the actual beneficial
owners of the debt securities; DTC's records reflect only the identity of the
direct participants to whose accounts such debt securities are credited, which
may or may not be the beneficial owners. The direct and indirect participants
will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to direct
participants, by, direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote
with respect to the global securities. Under its usual procedures, DTC mails an
omnibus proxy to the issuer as soon as possible after the record date. The
omnibus proxy assigns Cede & Co.'s consenting or voting rights to those direct
participants to whose accounts the debt securities are credited on the record
date (identified in the listing attached to the omnibus proxy).
All payments on the global securities will be made to Cede & Co., as holder
of record, or such other nominee as may be requested by an authorized
representative of DTC. DTC's practice is to credit direct participants' accounts
upon DTC's receipt of funds and corresponding detail information from us or the
19
Trustee on payment dates in accordance with their respective holdings shown on
DTC's records. Payments by participants to beneficial owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such participant and not of DTC, us or
the Trustee, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal, premium, if any, and interest to
Cede & Co. (or such other nominee as may be requested by an authorized
representative of DTC) shall be the responsibility of us or the Trustee.
Disbursement of such payments to direct participants shall be the responsibility
of DTC, and disbursement of such payments to the beneficial owners shall be the
responsibility of direct and indirect participants.
DTC may discontinue providing its service as securities depositary with
respect to the debt securities at any time by giving reasonable notice to us or
the Trustee. In addition, we may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor securities depositary). Under
such circumstances, in the event that a successor securities depositary is not
obtained, note certificates in fully registered form are required to be printed
and delivered to beneficial owners of the global securities representing such
debt securities.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable (including DTC),
but we take no responsibility for its accuracy.
Neither we, the Trustee nor the initial purchasers will have any
responsibility or obligation to direct or indirect participants, or the persons
for whom they act as nominees, with respect to the accuracy of the records of
DTC, its nominee or any participant with respect to any ownership interest in
the debt securities, or payments to, or the providing of notice to participants
or beneficial owners.
So long as the debt securities are in DTC's book-entry system, secondary
market trading activity in the debt securities will settle in immediately
available funds. All payments on the debt securities issued as global securities
will be made by us in immediately available funds.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
The debt securities of a series may be issued as Registered Securities
(which will be registered as to principal and interest in the register
maintained by the registrar for the debt securities) or Bearer Securities (which
will be transferable only by delivery). If the debt securities are issuable as
Bearer Securities, certain special limitations and conditions will apply.
In compliance with United States federal income tax laws and regulations,
we and any underwriter, agent or dealer participating in an offering of Bearer
Securities will agree that, in connection with the original issuance of the
Bearer Securities and during the period ending 40 days after the issue date,
they will not offer, sell or deliver any such Bearer Securities, directly or
indirectly, to a United States Person (as defined below) or to any person within
the United States, except to the extent permitted under United States Treasury
regulations.
Bearer Securities will bear a legend to the following effect: "Any United
States person who holds this obligation will be subject to limitations under the
United States federal income tax laws, including the limitations provided in
Sections 165(j) and 1287(a) of the Internal Revenue Code." The sections referred
to in the legend provide that, with certain exceptions, a United States taxpayer
who holds Bearer Securities will not be allowed to deduct any loss with respect
to, and will not be eligible for capital gain treatment with respect to any gain
realized on the sale, exchange, redemption or other disposition of, the Bearer
Securities.
For this purpose, "United States" includes the United States of America and
its possessions, and "United States person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States, or an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source.
Pending the availability of a definitive global security or individual
Bearer Securities, as the case may be, debt securities that are issuable as
Bearer Securities may initially be represented by a single temporary global
20
security, without interest coupons, to be deposited with a common depositary in
London for Morgan Guaranty Trust Company of New York, Brussels Office, as
operator of the Euroclear System ("Euroclear"), or Centrale de Livraison de
Valeurs Mobilieres S.A. ("CEDEL") for credit to the accounts designated by or on
behalf of the purchasers thereof. Following the availability of a definitive
global security in bearer form, without coupons attached, or individual Bearer
Securities and subject to any further limitations described in the applicable
prospectus supplement, the temporary global security will be exchangeable for
interests in the definitive global security or for the individual Bearer
Securities, respectively, only upon receipt of a "Certificate of Non-U.S.
Beneficial Ownership," which is a certificate to the effect that a beneficial
interest in a temporary global security is owned by a person that is not a
United States Person or is owned by or through a financial institution in
compliance with applicable United States Treasury regulations. No Bearer
Security will be delivered in or to the United States. If so specified in the
applicable prospectus supplement, interest on a temporary global security will
be paid to each of Euroclear and CEDEL with respect to that portion of the
temporary global security held for its account, but only upon receipt as of the
relevant interest payment date of a Certificate of Non-U.S. Beneficial
Ownership.
NO RECOURSE AGAINST GENERAL PARTNER
Our general partner and its directors, officers, employees and members, as
such, shall have no liability for any obligations of the Guarantor or the Issuer
under the debt securities, the Indenture or the guarantee or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
holder by accepting a note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the debt securities.
Such waiver may not be effective to waive liabilities under the federal
securities laws, and it is the view of the Commission that such a waiver is
against public policy.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the right of the Trustee,
should it become our creditor, to obtain payment of claims in certain cases, or
to realize for its own account on certain property received in respect of any
such claim as security or otherwise. The Trustee is permitted to engage in
certain other transactions. However, if it acquires any conflicting interest
within the meaning of the Trust Indenture Act, it must eliminate the conflict or
resign as Trustee.
The holders of a majority in principal amount of all outstanding debt
securities (or if more than one series of debt securities under the Indenture is
affected thereby, all series so affected, voting as a single class) will have
the right to direct the time, method and place of conducting any proceeding for
exercising any remedy or power available to the Trustee for the debt securities
or all such series so affected.
If an Event of Default occurs and is not cured under the Indenture and is
known to the Trustee, the Trustee shall exercise such of the rights and powers
vested in it by the Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the circumstances in
the conduct of his own affairs. Subject to such provisions, the Trustee will not
be under any obligation to exercise any of its rights or powers under the
Indenture at the request of any of the holders of debt securities unless they
shall have offered to such Trustee reasonable security and indemnity.
Wachovia Bank, National Association is the Trustee under the Indenture and
has been appointed by the Issuer as Registrar and Paying Agent with regard to
the debt securities. Wachovia Bank, National Association is the Administrative
Agent and a lender under the Issuer's credit facilities.
GOVERNING LAW
The Indenture, the debt securities and the guarantee are governed by, and
will be construed in accordance with, the laws of the State of New York.
21
DESCRIPTION OF OUR COMMON UNITS
Generally, our common units represent limited partner interests that
entitle the holders to participate in our cash distributions and to exercise the
rights and privileges available to limited partners under our partnership
agreement. For a description of the relative rights and preferences of holders
of common units, holders of subordinated units and our general partner in and to
cash distributions, together with a description of the circumstances under which
subordinated units convert into common units, see "Cash Distribution Policy" in
this prospectus.
Our outstanding common units are listed on the NYSE under the symbol "EPD."
Any additional common units we issue will also be listed on the NYSE.
The transfer agent and registrar for our common units is Mellon Investor
Services LLC.
MEETINGS/VOTING
Each holder of common units is entitled to one vote for each common unit on
all matters submitted to a vote of the unitholders.
STATUS AS LIMITED PARTNER OR ASSIGNEE
Except as described below under "-- Limited Liability," the common units
will be fully paid, and unitholders will not be required to make additional
capital contributions to us.
For a purchaser of common units offered by this prospectus to be registered
as a record holder of common units on the books of our transfer agent or issued
a common unit certificate, the purchaser must execute a transfer application
whereby the purchaser requests admission as a substituted limited partner and
makes representations and agrees to provisions stated in the transfer
application. If this action is not taken, a purchaser's common units will be
held in nominee accounts.
An assignee, pending its admission as a substituted limited partner, is
entitled to an interest in us equivalent to that of a limited partner with
respect to the right to share in allocations and distributions, including
liquidating distributions. Our general partner will vote and exercise other
powers attributable to common units owned by an assignee who has not become a
substituted limited partner at the written direction of the assignee.
Transferees who do not execute and deliver transfer applications will be treated
neither as assignees nor as record holders of common units and will not receive
distributions, federal income tax allocations or reports furnished to record
holders of common units. The only right the transferees will have is the right
to admission as a substituted limited partner in respect of the transferred
common units upon execution of a transfer application in respect of the common
units. A nominee or broker who has executed a transfer application with respect
to common units held in street name or nominee accounts will receive
distributions and reports pertaining to its common units.
LIMITED LIABILITY
Assuming that a limited partner does not participate in the control of our
business within the meaning of the Delaware Revised Uniform Limited Partnership
Act (the "Delaware Act") and that he otherwise acts in conformity with the
provisions of our partnership agreement, his liability under the Delaware Act
will be limited, subject to some possible exceptions, generally to the amount of
capital he is obligated to contribute to us in respect of his units plus his
share of any undistributed profits and assets.
Under the Delaware Act, a limited partnership may not make a distribution
to a partner to the extent that at the time of the distribution, after giving
effect to the distribution, all liabilities of the partnership, other than
liabilities to partners on account of their partnership interests and
liabilities for which the recourse of creditors is limited to specific property
of the partnership, exceed the fair value of the assets of the limited
partnership.
For the purposes of determining the fair value of the assets of a limited
partnership, the Delaware Act provides that the fair value of the property
subject to liability of which recourse of creditors is limited shall be
22
included in the assets of the limited partnership only to the extent that the
fair value of that property exceeds the nonrecourse liability. The Delaware Act
provides that a limited partner who receives a distribution and knew at the time
of the distribution that the distribution was in violation of the Delaware Act
is liable to the limited partnership for the amount of the distribution for
three years from the date of the distribution.
REPORTS AND RECORDS
As soon as practicable. but in no event later than 120 days after the close
of each fiscal year, our general partner will furnish or make available to each
unitholder of record (as of a record date selected by our general partner) an
annual report containing our audited financial statements for the past fiscal
year. These financial statements will be prepared in accordance with generally
accepted accounting principles. In addition, no later than 45 days after the
close of each quarter (except the fourth quarter), our general partner will
furnish or make available to each unitholder of record (as of a record date
selected by our general partner) a report containing our unaudited financial
statements and any other information required by law.
Our general partner will use all reasonable efforts to furnish each
unitholder of record information reasonably required for tax reporting purposes
within 90 days after the close of each fiscal year. Our general partner's
ability to furnish this summary tax information will depend on the cooperation
of unitholders in supplying information to our general partner. Each unitholder
will receive information to assist him in determining his U.S. federal and state
and Canadian federal and provincial tax liability and filing his U.S. federal
and state and Canadian federal and provincial income tax returns.
A limited partner can, for a purpose reasonably related to the limited
partner's interest as a limited partner, upon reasonable demand and at his own
expense, have furnished to him:
- a current list of the name and last known address of each partner; a copy
of our tax returns;
- information as to the amount of cash and a description and statement of
the agreed value of any other property or services, contributed or to be
contributed by each partner and the date on which each became a partner;
- copies of our partnership agreement. our certificate of limited
partnership, amendments to either of them and powers of attorney which
have been executed under our partnership agreement; information regarding
the status of our business and financial condition; and
- any other information regarding our affairs as is just and reasonable.
Our general partner may, and intends to, keep confidential from the limited
partners trade secrets and other information the disclosure of which our general
partner believes in good faith is not in our best interest or which we are
required by law or by agreements with third parties to keep confidential.
CLASS A SPECIAL UNITS
A total of 29,000,000 Class A special units were issued as part of the
purchase price of Tejas Natural Gas Liquids LLC. These units do not accrue
distributions and are not entitled to cash distributions until their conversion
into an equal number of common units. On August 1, 2000, August 1, 2001 and
August 1, 2002, 2,000,000, 10,000,000 and 17,000,000 of the Class A special
units, respectively, were converted into an equal number of common units. As an
additional part of the purchase price of Tejas Natural Gas Liquids LLC, we
agreed to issue up to 12,000,000 more Class A special units to the seller if the
volumes of natural gas that we process for Shell Oil Company and its affiliates
reach certain agreed upon levels in 2000 and 2001. On August 1, 2000, we issued
6,000,000 of these Class A special units to the seller, and on August 1, 2001,
we issued the remaining 6,000,000 Class A special units to the seller under our
foregoing agreement. On August 1, 2002, 2,000,000 of these additional Class A
special units converted into an equal number of common units. The remaining
10,000,000 additional Class A special units will convert into an equal number of
common units in August 2003.
23
CASH DISTRIBUTION POLICY
DISTRIBUTIONS OF AVAILABLE CASH
General. Within approximately 45 days after the end of each quarter, we
will distribute all of our available cash to unitholders of record on the
applicable record date.
Definition of Available Cash. Available cash is defined in our partnership
agreement and generally means, with respect to any calendar quarter, all cash on
hand at the end of such quarter:
- less the amount of cash reserves that is necessary or appropriate in the
reasonable discretion of the general partner to:
- provide for the proper conduct of our business;
- comply with applicable law or any debt instrument or other agreement
(including reserves for future capital expenditures and for our future
credit needs); or
- provide funds for distributions to unitholders and our general partner
in respect of any one or more of the next four quarters;
- plus all cash on hand on the date of determination of available cash for
the quarter resulting from working capital borrowings made after the end
of the quarter. Working capital borrowings are generally borrowings that
are made under our credit facilities and in all cases are used solely for
working capital purposes or to pay distributions to partners.
OPERATING SURPLUS AND CAPITAL SURPLUS
General. Cash distributions are characterized as distributions from either
operating surplus or capital surplus. We distribute available cash from
operating surplus differently than available cash from capital surplus.
Definition of Operating Surplus. Operating surplus is defined in the
partnership agreement and generally means:
- our cash balance on July 31, 1998, the closing date of our initial public
offering of common units (excluding $46.5 million to fund certain capital
commitments existing at such closing date); plus
- all of our cash receipts since the closing of our initial public
offering, excluding cash from interim capital transactions such as
borrowings that are not working capital borrowings, sales of equity and
debt securities and sales or other disposition of assets for cash, other
than inventory, accounts receivable and other assets sold in the ordinary
course of business or as part of normal retirements or replacements of
assets; plus
- up to $60.0 million of cash from interim capital transactions; plus
- working capital borrowings made after the end of a quarter but before the
date of determination of operating surplus for the quarter; less
- all of our operating expenditures since the closing of our initial public
offering, including the repayment of working capital borrowings, but not
the repayment of other borrowings, and including maintenance capital
expenditures; less
- the amount of cash reserved that we deem necessary or advisable to
provide funds for future operating expenditures.
Definition of Capital Surplus. Capital surplus is generally generated only
by borrowings (other than borrowings for working capital purposes), sales of
debt and equity securities and sales or other dispositions of assets for cash
(other than inventory, accounts receivable and other assets disposed of in the
ordinary course of business).
24
Characterization of Cash Distributions. To avoid the difficulty of trying
to determine whether available cash we distribute is from operating surplus or
from capital surplus, all available cash we distribute from any source will be
treated as distributed from operating surplus until the sum of all available
cash distributed since July 31, 1998 equals the operating surplus as of the end
of the quarter prior to such distribution. Any available cash in excess of such
amount (irrespective of its source) will be deemed to be from capital surplus
and distributed accordingly.
If available cash from capital surplus is distributed in respect of each
common unit in an aggregate amount per common unit equal to the $11.00 initial
public offering price of the common units, plus any common unit arrearages, the
distinction between operating surplus and capital surplus will cease, and all
distributions of available cash will be treated as if they were from operating
surplus. We do not anticipate that there will be significant distributions from
capital surplus.
SUBORDINATION PERIOD
General. With respect to each quarter during the subordination period, to
the extent there is sufficient available cash, the holders of common units will
have the right to receive the minimum quarterly distribution of $0.225 per unit,
plus any common unit arrearages, prior to any distribution of available cash to
the holders of subordinated units. The purpose of the subordinated units is to
increase the likelihood that during the subordination period there will be
sufficient available cash from operating surplus for us to distribute the
minimum quarterly distribution on each common unit. Common units will not accrue
arrearages with respect to distributions for any quarter after the subordination
period, and subordinated units will not accrue any arrearages with respect to
distributions for any quarter.
Definition of Subordination Period. The subordination period will
generally extend until the first day of any quarter beginning after June 30,
2003 that the following tests are met:
- distributions of available cash from operating surplus on each of the
outstanding common units and the subordinated units with respect to each
of the three consecutive, non-overlapping, four-quarter periods
immediately preceding such date equaled or exceeded the minimum quarterly
distribution on all of the outstanding common units and subordinated
units during such periods;
- the adjusted operating surplus generated during each of the three
consecutive, non-overlapping, four-quarter periods immediately preceding
such date equaled or exceeded the sum of:
-- the minimum quarterly distribution on all of the outstanding common
units and subordinated units during those periods on a fully diluted
basis; and
-- the related distribution on the general partner interests in us and our
operating partnership; and
- there are no outstanding common unit arrearages.
Early Conversion of Subordinated Units. On May 1, 2002, 10,704,936 of the
original subordinated units, or approximately 25%, converted into an equal
number of common units. As of December 31, 2002, 32,114,804 subordinated units
remained outstanding. An additional 10,704,936 subordinated units will convert
into an equal number of common units on the first day after the record date
established for the distribution in respect of any quarter ending on or after
March 31, 2003 if the following tests are met:
- distributions of available cash from operating surplus on the common
units and the subordinated units with respect to each of the three
consecutive, non-overlapping, four-quarter periods immediately preceding
such date equaled or exceeded the sum of the minimum quarterly
distribution on all of the outstanding common units and subordinated
units during such periods;
- the adjusted operating surplus generated during each of the three
consecutive, non-overlapping, four-quarter periods immediately preceding
such date equaled or exceeded the sum of $0.225 per unit on all of the
common units and subordinated units that were outstanding during such
period on a fully
25
diluted basis and the related distribution on the general partner
interests in us and our operating partnership; and
- there are no outstanding common unit arrearages.
Because the tests for early conversion and the end of the subordination
period are the same, if the test for early conversion is not met for the quarter
ending March 31, 2003, there will not be any additional early conversion of the
subordinated units. If the test is met at the end of any subsequent quarter,
then the subordination period will end and all of the subordinated units will
convert into common units. On August 1, 2003, 10,000,000 special units owned by
Shell that are currently not entitled to distributions will convert into common
units and, if the subordination period has not terminated at such time, will be
included as common units for purposes of the above test.
Definition of Adjusted Operating Surplus. Adjusted operating surplus is
intended to reflect the cash generated from operations during a particular
period and therefore excludes net increases in working capital borrowings and
net drawdowns of reserves of cash generated in prior periods. Adjusted operating
surplus for any period generally means:
- operating surplus generated during that period; less
- any net increase in working capital borrowings during that period; less
- any net reduction in cash reserves for operating expenditures during that
period not relating to an operating expenditure made during that period;
plus
- any net decrease in working capital borrowings during that period; plus
- any net increase in cash reserves for operating expenditures during that
period required by any debt instrument for the repayment of principal,
interest or premium.
Effect of Expiration of the Subordination Period. Upon expiration of the
subordination period, each outstanding subordinated unit will convert into one
common unit and will then participate pro rata with the other common units in
distributions of available cash. In addition, if our general partner is removed
as our general partner under circumstances where cause does not exist and units
held by our general partner and its affiliates are not voted in favor of such
removal:
- the subordination period will end and all outstanding subordinated units
will immediately convert into common units on a one-for-one basis;
- any existing common unit arrearages will be extinguished; and
- our general partner will have the right to convert its general partner
interest into common units or to receive cash in exchange for such
interests.
DISTRIBUTIONS OF AVAILABLE CASH FROM OPERATING SURPLUS DURING THE SUBORDINATION
PERIOD
We will make distributions of available cash from operating surplus with
respect to any quarter during the subordination period in the following manner:
- first, 98% to the common unitholders, pro rata, and 2% to the general
partner, until there has been distributed in respect of each outstanding
common unit an amount equal to $0.225 per unit for such quarter.
- second, 98% to the common unitholders, pro rata, and 2% to the general
partner, until there has been distributed in respect of each outstanding
common unit an amount equal to any common unit arrearages accrued and
unpaid with respect to any prior quarters during the subordination
period;
- third, 98% to the subordinated unitholders, pro rata, and 2% to the
general partner, until there has been distributed in respect of each
outstanding subordinated unit an amount equal to $0.225 per unit; and
- thereafter, in the manner described in "Incentive Distributions" below.
26
The above references to the 2% of available cash from operating surplus
distributed to the general partner are references to the amount of the
percentage interest of our general partner (exclusive of its or any of its
affiliates' interests as holders of common units or subordinated units) in
distributions from us and our operating partnership. Our general partner owns a
1% general partner interests in us and a 1.0101% general partner interest in our
operating partnership.
With respect to any common unit, the term "common unit arrearages" refers
to the amount by which the minimum quarterly distribution of $0.225 per unit in
any quarter during the subordination period exceeds the distribution of
available cash from operating surplus actually made for such quarter on a common
unit issued in our initial public offering, cumulative for such quarter and all
prior quarters during the subordination period. Common unit arrearages will not
accrue interest.
DISTRIBUTIONS OF AVAILABLE CASH FROM OPERATING SURPLUS AFTER SUBORDINATION
PERIOD
We will make distributions of available cash from operating surplus with
respect to any quarter after the subordination period in the following manner:
- first, 98% to all common unitholders, pro rata and 2% to the general
partner, until there has been distributed in respect of each unit an
amount equal to $0.225; and
- thereafter, in the manner described in "Incentive Distributions" below.
INCENTIVE DISTRIBUTIONS
Incentive distributions represent the right to receive an increasing
percentage of quarterly distributions of available cash from operating surplus
after the minimum quarterly distribution and the target distribution levels have
been achieved. For any quarter for which available cash from operating surplus
is distributed to the common and subordinated unitholders in an amount equal to
$0.225 per unit on all units and to the common unitholders in an amount equal to
any unpaid common unit arrearages, then any additional available cash from
operating surplus in respect of such quarter will be distributed among the
unitholders and the general partner in the following manner:
- first, 98% to all common and subordinated unitholders, pro rata, and 2%
to the general partner, until the unitholders have received a total of
$0.253 for such quarter in respect of each outstanding unit (the "First
Target Distribution");
- second, 85% to all common and subordinated unitholders, pro rata, and 15%
to the general partner, until the unitholders have received a total of
$0.3085 for such quarter in respect of each outstanding unit (the "Second
Target Distribution"); and
- thereafter, 75% to all common and subordinated unitholders, pro rata, and
25% to the general partner.
In each case, the amount of the target distribution set forth above is
exclusive of any distributions to our common unitholders to eliminate any
cumulative arrearages in payment of the minimum quarterly distribution.
DISTRIBUTIONS FROM CAPITAL SURPLUS
How Distributions from Capital Surplus Will Be Made. We will make
distributions of available cash from capital surplus in the following manner:
- first, 98% to all common and subordinated unitholders, pro rata, and 2%
to the general partner, until we have distributed, in respect of each
outstanding common unit issued in our initial public offering, available
cash from capital surplus in an aggregate amount per common unit equal to
the initial unit price of $11.00;
- second, 98% to the holders of common units, pro rata, and 2% to the
general partner, until the Company has distributed, in respect of each
outstanding common unit, available cash from capital
27
surplus in an aggregate amount equal to any unpaid common unit arrearages
with respect to such common unit; and
- thereafter, all distributions of available cash from capital surplus will
be distributed as if they were from operating surplus.
Effect of a Distribution from Capital Surplus. Our partnership agreement
treats a distribution of capital surplus on a common unit as the repayment of
the common unit price from its initial public offering, which is a return of
capital. The initial public offering price less any distributions of capital
surplus per common unit is referred to as the unrecovered initial common unit
price. Each time a distribution of capital surplus is made on a common unit, the
minimum quarterly distribution and the target distribution levels for all units
will be reduced in the same proportion as the corresponding reduction in the
unrecovered initial common unit price. Because distributions of capital surplus
will reduce the minimum quarterly distribution, after any of these distributions
are made, it may be easier for our general partner to receive incentive
distributions and for the subordinated units to convert into common units.
However, any distribution by us of capital surplus before the unrecovered
initial common unit price is reduced to zero cannot be applied to the payment of
the minimum quarterly distribution or any arrearages.
Once we distribute capital surplus on a common unit in any amount equal to
the unrecovered initial common unit price plus any arrearages, it will reduce
the minimum quarterly distribution and the target distribution levels to zero
and it will make all future distributions of available cash from operating
surplus, with 25% being paid to the holders of units, as applicable, and 75% to
our general partner.
ADJUSTMENT TO THE MINIMUM QUARTERLY DISTRIBUTION AND TARGET DISTRIBUTION LEVELS
In addition to reductions of the minimum quarterly distribution and target
distribution levels made upon a distribution of available cash from capital
surplus, if we combine our units into fewer units or subdivide our units into a
greater number of units, we will proportionately adjust:
- the minimum quarterly distribution;
- the target distribution levels;
- the unrecovered initial common unit price;
- the number of common units issuable during the subordination period
without a unitholder vote; and
- the number of common units issuable upon conversion of the subordinated
units.
For example, in the event of a two-for-one split of the common units
(assuming no prior adjustments), the minimum quarterly distribution, each of the
target distribution levels and the unrecovered capital of the common units would
each be reduced to 50% of its initial level.
In addition, if legislation is enacted or if existing law is modified or
interpreted in a manner that causes us to become taxable as a corporation or
otherwise subject to taxation as an entity for federal, state or local income
tax purposes, then we will reduce the minimum quarterly distribution and the
target distribution levels by multiplying the same by one minus the sum of the
highest effective federal corporate income tax rate that could apply and any
increase in the effective overall state and local income tax rates. For example,
if we became subject to a maximum effective federal, state and local income tax
rate of 38%, then the minimum quarterly distribution and the target distribution
levels would each be reduced to 62% of their previous levels.
DISTRIBUTIONS OF CASH UPON LIQUIDATION
If we dissolve in accordance with the partnership agreement, we will sell
or otherwise dispose of our assets in a process called a liquidation. We will
first apply the proceeds of liquidation to the payment of our creditors in the
order of priority provided in the partnership agreement and by law and,
thereafter, we will distribute any remaining proceeds to the unitholders and our
general partner in accordance with their respective capital account balances as
so adjusted.
28
Partners are entitled to liquidating distributions in accordance with
capital account balances. The allocations of gains and losses upon liquidation
are intended, to the extent possible, to entitle the holders of outstanding
common units to a preference over the holders of outstanding subordinated units
upon our liquidation, to the extent required to permit common unitholders to
receive their unrecovered capital plus any unpaid common unit arrearages. Thus,
net losses recognized upon our liquidation will be allocated to the holders of
the subordinated units to the extent of their capital account balances before
any loss is allocated to the holders of the common units, and net gains
recognized upon liquidation will be allocated first to restore negative balances
in the capital account of the general partner and any unitholders and then to
the common unitholders until their capital account balances equal their
unrecovered capital plus unpaid common unit arrearages. However, no assurance
can be given that there will be sufficient gain upon our liquidation to enable
the holders of common units to fully recover all of such amounts, even though
there may be cash available after such allocation for distribution to the
holders of subordinated units.
Manner of Adjustments for Gain. The manner of the adjustment is set forth
in the partnership agreement. If our liquidation occurs before the end of the
subordination period, we will allocate any net gain (or unrealized gain
attributable to assets distributed in kind to the partners as follows:
- first, to the general partner and the holders of units having negative
balances in their capital accounts to the extent of and in proportion to
such negative balances:
- second, 98% to the holders of common units, pro rata, and 2% to the
general partner, until the capital account for each common unit is equal
to the sum of
- the unrecovered capital in respect of such common unit; plus
- the amount of the minimum quarterly distribution for the quarter during
which our liquidation occurs; plus
- any unpaid common unit arrearages in respect of such common unit;
- third, if the capital account with respect to a Class A special unit is
not equal to the capital account with respect to each common unit, 98% to
the holders of common units and the holders of Class A special units in
the manner and amount necessary to equalize, to the maximum extent
possible, the capital account for each common unit and Class A special
unit, and 2% to the general partner;
- fourth, 98% to the holders of subordinated units, pro rata, and 2% to the
general partner, until the capital account for each subordinated unit is
equal to the sum of
- the unrecovered capital in respect of such subordinated unit; plus
- the amount of the minimum quarterly distribution for the quarter during
which our liquidation occurs;
- fifth, 98% to all unitholders, pro rata, and 2% to the general partner,
until there has been allocated under this paragraph fifth an amount per
unit equal to:
- the sum of the excess of the First Target Distribution per unit over the
minimum quarterly distribution per unit for each quarter of our
existence; less
- the cumulative amount per unit of any distributions of available cash
from operating surplus in excess of the minimum quarterly distribution
per unit that were distributed 98% to the unitholders, pro rata, and 2%
to the general partner for each quarter of our existence;
- sixth, 85% to all unitholders, pro rata, and 15% to the general partner,
until there has been allocated under this paragraph sixth an amount per
unit equal to:
- the sum of the excess of the Second Target Distribution per unit over
the First Target Distribution per unit for each quarter of our
existence; less
29
- the cumulative amount per unit of any distributions of available cash
from operating surplus in excess of the First Target Distribution per
unit that were distributed 85% to the unitholders, pro rata, and 15% to
the general partner for each quarter of our existence; and
- thereafter, 75% to all unitholders, pro rata, and 25% to the general
partner.
If the liquidation occurs after the conversion of all the Class A special
units into common units, the distinction between Class A special units and
common units will disappear, so that all of paragraph third above will no longer
be applicable. If the liquidation occurs after the subordination period, the
distinction between common units and subordinated units will disappear, so that
the third bullet of paragraph second above and all of paragraph fourth above
will no longer be applicable.
Manner of Adjustments for Losses. Upon our liquidation, any loss will
generally be allocated to the general partner and the unitholders as follows:
- first, 98% to holders of subordinated units in proportion to the positive
balances in their respective capital accounts and 2% to the general
partner, until the capital accounts of the holders of the subordinated
units have been reduced to zero;
- second, if the capital account with respect to a Class A special unit is
not equal to the capital account with respect to each common unit, 98% to
the holders of common units and the holders of Class A special units in
the manner and amount necessary to equalize, to the maximum extent
possible, the capital account for each common unit and Class A special
unit, and 2% to the general partner;
- third, 98% to the holders of common units in proportion to the positive
balances in their respective capital accounts and 2% to the general
partner, until the capital accounts of the common unitholders have been
reduced to zero; and
- thereafter, 100% to the general partner.
If the liquidation occurs after the subordination period, the distinction
between common units and subordinated units will disappear, so that all of
paragraph first above will no longer be applicable. If the liquidation occurs
after the conversion of all the Class A special units into common units, the
distinction between Class A special units and common units will disappear, so
that all of paragraph second above will no longer be applicable.
Adjustments to Capital Accounts. In addition, interim adjustments to
capital accounts will be made at the time we issue additional partnership
interests or make distributions of property. Such adjustments will be based on
the fair market value of the partnership interests or the property distributed
and any gain or loss resulting therefrom will be allocated to the unitholders
and the general partner in the same manner as gain or loss is allocated upon
liquidation. In the event that positive interim adjustments are made to the
capital accounts, any subsequent negative adjustments to the capital accounts
resulting from the issuance of additional partnership interests in us,
distributions of property by us, or upon our liquidation, will be allocated in a
manner which results, to the extent possible, in the capital account balances of
the general partner equaling the amount that would have been the general
partner's capital account balances if no prior positive adjustments to the
capital accounts had been made.
30
DESCRIPTION OF OUR PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our partnership
agreement. Our amended and restated partnership agreement has been filed with
the Commission, and is incorporated by reference in this prospectus. The
following provisions of our partnership agreement are summarized elsewhere in
this prospectus:
- distributions of our available cash are described under "Cash
Distribution Policy";
- allocations of taxable income and other tax matters are described under
"Tax Considerations"; and
- rights of holders of common units are described under "Description of Our
Common Units."
PURPOSE
Our purpose under our partnership agreement is to serve as a partner of our
operating partnership and to engage in any business activities that may be
engaged in by our operating partnership or that are approved by our general
partner. The partnership agreement of our operating partnership provides that it
may engage in any activity that was engaged in by our predecessors at the time
of our initial public offering or reasonably related thereto and any other
activity approved by our general partner.
POWER OF ATTORNEY
Each limited partner, and each person who acquires a unit from a unitholder
and executes and delivers a transfer application, grants to our general partner
and, if appointed, a liquidator, a power of attorney to, among other things,
execute and file documents required for our qualification, continuance or
dissolution. The power of attorney also grants the authority for the amendment
of, and to make consents and waivers under, our partnership agreement.
REIMBURSEMENTS OF OUR GENERAL PARTNER
Our general partner does not receive any compensation for its services as
our general partner. It is, however, entitled to be reimbursed for all of its
costs incurred in managing and operating our business. Our partnership agreement
provides that our general partner will determine the expenses that are allocable
to us in any reasonable manner determined by our general partner in its sole
discretion.
ISSUANCE OF ADDITIONAL SECURITIES
Our partnership agreement authorizes us to issue an unlimited number of
additional limited partner interests and other equity securities that are equal
in rank with or junior to our common units on terms and conditions established
by our general partner in its sole discretion without the approval of any
limited partners. During the subordination period, however, except as set forth
in the following paragraph, we may not issue an aggregate of more than
approximately 54,550,000 additional common units or an equivalent number of
units that are equal in rank with our common units, in each case, without the
approval of at least a majority of our outstanding common units (excluding
common units owned by the general partner and its affiliates).
During the subordination period, we may issue an unlimited number of common
units to finance an acquisition or a capital improvement that would have
resulted, on a pro forma basis, in an increase in per unit adjusted operating
surplus as provided in our partnership agreement.
In no event may we issue partnership interests during the subordination
period that are senior to our common units without the approval of the holders
of a majority of our outstanding common units (excluding common units owned by
the general partner and its affiliates).
It is possible that we will fund acquisitions through the issuance of
additional common units or other equity securities. Holders of any additional
common units we issue will be entitled to share equally with the then-existing
holders of common units in our cash distributions. In addition, the issuance of
additional
31
partnership interests may dilute the value of the interests of the then-existing
holders of common units in our net assets.
In accordance with Delaware law and the provisions of our partnership
agreement, we may also issue additional partnership interests that, in the sole
discretion of our general partner, may have special voting rights to which
common units are not entitled.
Our general partner has the right, which it may from time to time assign in
whole or in part to any of its affiliates, to purchase common units,
subordinated units or other equity securities whenever, and on the same terms
that, we issue those securities to persons other than our general partner and
its affiliates, to the extent necessary to maintain their percentage interests
in us that existed immediately prior to the issuance. The holders of common
units will not have preemptive rights to acquire additional common units or
other partnership interests in us.
AMENDMENTS TO OUR PARTNERSHIP AGREEMENT
Amendments to our partnership agreement may be proposed only by our general
partner. Any amendment that materially and adversely affects the rights or
preferences of any type or class of limited partner interests in relation to
other types or classes of limited partner interests or our general partner
interest will require the approval of at least a majority of the type or class
of limited partner interests or general partner interests so affected. However,
in some circumstances, more particularly described in our partnership agreement,
our general partner may make amendments to our partnership agreement without the
approval of our limited partners or assignees.
WITHDRAWAL OR REMOVAL OF OUR GENERAL PARTNER
Our general partner has agreed not to withdraw voluntarily as our general
partner prior to December 31, 2008 without obtaining the approval of the holders
of a majority of our outstanding common units, excluding those held by our
general partner and its affiliates, and furnishing an opinion of counsel
regarding limited liability and tax matters. On or after December 31, 2008, our
general partner may withdraw as general partner without first obtaining approval
of any unitholder by giving 90 days' written notice, and that withdrawal will
not constitute a violation of our partnership agreement. In addition, our
general partner may withdraw without unitholder approval upon 90 days' notice to
our limited partners if at least 50% of our outstanding common units are held or
controlled by one person and its affiliates other than our general partner and
its affiliates.
Upon the voluntary withdrawal of our general partner, the holders of a
majority of our outstanding common units, excluding the common units held by the
withdrawing general partner and its affiliates, may elect a successor to the
withdrawing general partner. If a successor is not elected, or is elected but an
opinion of counsel regarding limited liability and tax matters cannot be
obtained, we will be dissolved, wound up and liquidated, unless within 90 days
after that withdrawal, the holders of a majority of our outstanding units,
excluding the common units held by the withdrawing general partner and its
affiliates, and the holders of a majority of the subordinated units, voting as
separate classes, agree to continue our business and to appoint a successor
general partner.
Our general partner may not be removed unless that removal is approved by
the vote of the holders of not less than two-thirds of our outstanding units,
including units held by our general partner and its affiliates, and we receive
an opinion of counsel regarding limited liability and tax matters. Any removal
of this kind is also subject to the approval of a successor general partner by
the vote of the holders of a majority of our outstanding common units, including
those held by our general partner and its affiliates, and the holders of a
majority of the subordinated units, voting as separate classes.
While our partnership agreement limits the ability of our general partner
to withdraw, it allows the general partner interest to be transferred to an
affiliate or to a third party in conjunction with a merger or sale of all or
substantially all of the assets of our general partner. In addition, our
partnership agreement expressly
32
permits the sale, in whole or in part, of the ownership of our general partner.
Our general partner may also transfer, in whole or in part, the common units and
subordinated units it owns.
LIQUIDATION AND DISTRIBUTION OF PROCEEDS
Upon our dissolution, unless we are reconstituted and continued as a new
limited partnership, the person authorized to wind up our affairs (the
liquidator) will, acting with all the powers of our general partner that the
liquidator deems necessary or desirable in its good faith judgment, liquidate
our assets. The proceeds of the liquidation will be applied as follows:
- first, towards the payment of all of our creditors and the creation of
a reserve for contingent liabilities; and
- then, to all partners in accordance with the positive balance in the
respective capital accounts.
Under some circumstances and subject to some limitations, the liquidator
may defer liquidation or distribution of our assets for a reasonable period of
time. If the liquidator determines that a sale would be impractical or would
cause a loss to our partners, our general partner may distribute assets in kind
to our partners.
CHANGE OF MANAGEMENT PROVISIONS
Our partnership agreement contains the following specific provisions that
are intended to discourage a person or group from attempting to remove our
general partner or otherwise change management:
- if the holders, including the general partner and its affiliates, of at
least 66 2/3% of the units vote to remove the general partner without
cause, all remaining subordinated units will automatically convert into
common units and will share distributions with the existing common units
pro rata, existing arrearages on the common units will be extinguished
and the common units will no longer be entitled to arrearages if we fail
to pay the minimum quarterly distribution in any quarter. Cause is
narrowly defined to mean that a court of competent jurisdiction has
entered a final, non-appealable judgment finding the general partner
liable for actual fraud, gross negligence or willful or wanton misconduct
in its capacity as our general partner;
- any units held by a person that owns 20% or more of any class of units
then outstanding, other than our general partner and its affiliates,
cannot be voted on any matter; and
- the partnership agreement contains provisions limiting the ability of
unitholders to call meetings or to acquire information about our
operations, as well as other provisions limiting the unitholders' ability
to influence the manner or direction of management.
LIMITED CALL RIGHT
If at any time our general partner and its affiliates own 85% or more of
the issued and outstanding limited partner interests of any class, our general
partner will have the right to purchase all, but not less than all, of the
outstanding limited partner interests of that class that are held by
non-affiliated persons. The record date for determining ownership of the limited
partner interests would be selected by our general partner on at least 10 but
not more than 60 days' notice. The purchase price in the event of a purchase
under these provisions would be the greater of (1) the current market price (as
defined in our partnership agreement) of the limited partner interests of the
class as of the date three days prior to the date that notice is mailed to the
limited partners as provided in the partnership agreement and (2) the highest
cash price paid by our general partner or any of its affiliates for any limited
partner interest of the class purchased within the 90 days preceding the date
our general partner mails notice of its election to purchase the units. Under
our partnership agreement, Shell is not deemed to be an affiliate of our general
partner for purposes of this limited call right.
33
INDEMNIFICATION
Under our partnership agreement, in most circumstances, we will indemnify
our general partner, its affiliates and their officers and directors to the
fullest extent permitted by law, from and against all losses, claims or damages
any of them may suffer by reason of their status as general partner, officer or
director, as long as the person seeking indemnity acted in good faith and in a
manner believed to be in or not opposed to our best interest. Any
indemnification under these provisions will only be out of our assets. Our
general partner shall not be personally liable for, or have any obligation to
contribute or loan funds or assets to us to enable us to effectuate any
indemnification. We are authorized to purchase insurance against liabilities
asserted against and expenses incurred by persons for our activities, regardless
of whether we would have the power to indemnify the person against liabilities
under our partnership agreement.
REGISTRATION RIGHTS
Under our partnership agreement, we have agreed to register for resale
under the Securities Act of 1933, as amended (the "Securities Act") and
applicable state securities laws any common units, subordinated units or other
partnership securities proposed to be sold by our general partner or any of its
affiliates or their assignees if an exemption from the registration requirements
is not otherwise available. We are obligated to pay all expenses incidental to
the registration, excluding underwriting discounts and commissions.
34
TAX CONSIDERATIONS
This section is a summary of the material tax considerations that may be
relevant to prospective unitholders who are individual citizens or residents of
the United States and, unless otherwise noted in the following discussion,
expresses the opinion of Vinson & Elkins L.L.P., special counsel to the general
partner and us, insofar as it relates to matters of United States federal income
tax law matters. This section is based upon current provisions of the Internal
Revenue Code, existing and proposed regulations and current administrative
rulings and court decisions, all of which are subject to change. Later changes
in these authorities may cause the tax consequences to vary substantially from
the consequences described below.
The following discussion does not comment on all federal income tax matters
affecting us or the unitholders. Moreover, the discussion focuses on unitholders
who are individual citizens or residents of the United States and has only
limited application to corporations, estates, trusts, nonresident aliens or
other unitholders subject to specialized tax treatment, such as tax-exempt
institutions, foreign persons, individual retirement accounts (IRAs), real
estate investment trusts (REITs)or mutual funds. Accordingly, we recommend that
each prospective unitholder consult, and depend on, his own tax advisor in
analyzing the federal, state, local and foreign tax consequences particular to
him of the ownership or disposition of common units.
All statements as to matters of law and legal conclusions, but not as to
factual matters, contained in this section, unless otherwise noted, are the
opinion of counsel and are based on the accuracy of the representations made by
us.
No ruling has been or will be requested from the IRS regarding any matter
affecting us or prospective unitholders. Instead, we will rely on opinions and
advice of Vinson & Elkins L.L.P. Unlike a ruling, an opinion of counsel
represents only that counsel's best legal judgment and does not bind the IRS or
the courts. Accordingly, the opinions and statements made here may not be
sustained by a court if contested by the IRS. Any contest of this sort with the
IRS may materially and adversely impact the market for the common units and the
prices at which common units trade. In addition, the costs of any contest with
the IRS will be borne directly or indirectly by the unitholders and the general
partner. Furthermore, the tax treatment of us, or of an investment in us, may be
significantly modified by future legislative or administrative changes or court
decisions. Any modifications may or may not be retroactively applied.
For the reasons described below, counsel has not rendered an opinion with
respect to the following specific federal income tax issues:
(1) the treatment of a unitholder whose common units are loaned to a
short seller to cover a short sale of common units (please read "-- Tax
Consequences of Unit Ownership -- Treatment of Short Sales");
(2) whether our monthly convention for allocating taxable income and
losses is permitted by existing Treasury Regulations (please read
"-- Disposition of Common Units -- Allocations Between Transferors and
Transferees"); and
(3) whether our method for depreciating Section 743 adjustments is
sustainable (please read "-- Tax Consequences of Unit Ownership -- Section
754 Election").
PARTNERSHIP STATUS
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner of a partnership is required to take into
account his share of items of income, gain, loss and deduction of the
partnership in computing his federal income tax liability, regardless of whether
cash distributions are made to him by the partnership. Distributions by a
partnership to a partner are generally not taxable unless the amount of cash
distributed is in excess of the partner's adjusted basis in his partnership
interest.
35
Section 7704 of the Internal Revenue Code provides that publicly-traded
partnerships will, as a general rule, be taxed as corporations. However, an
exception, referred to as the "Qualifying Income Exception," exists with respect
to publicly-traded partnerships of which 90% or more of the gross income for
every taxable year consists of "qualifying income." Qualifying income includes
income and gains derived from the exploration, development, mining or
production, processing, refining, transportation and marketing of any mineral or
natural resource. Other types of qualifying income include interest other than
from a financial business, dividends, gains from the sale of real property and
gains from the sale or other disposition of assets held for the production of
income that otherwise constitutes qualifying income. We estimate that less than
2% of our current gross income is not qualifying income; however, this estimate
could change from time to time. Based upon and subject to this estimate, the
factual representations made by us and the general partner and a review of the
applicable legal authorities, counsel is of the opinion that at least 90% of our
current gross income constitutes qualifying income.
No ruling has been or will be sought from the IRS and the IRS has made no
determination as to our status or the status of the Operating Partnership as
partnerships for federal income tax purposes or whether our operations generate
"qualifying income" under Section 7704 of the Internal Revenue Code. Instead, we
will rely on the opinion of counsel that, based upon the Internal Revenue Code,
its regulations, published revenue rulings and court decisions and the
representations described below, we and the Operating Partnership will be
classified as a partnership for federal income tax purposes.
In rendering its opinion, counsel has relied on factual representations
made by us and the general partner. The representations made by us and our
general partner upon which counsel has relied are:
(a) Neither we nor the Operating Partnership will elect to be treated as
a corporation; and
(b) For each taxable year, more than 90% of our gross income will be
income from sources that our counsel has opined or will opine is
"qualifying income" within the meaning of Section 7704(d) of the Internal
Revenue Code.
If we fail to meet the Qualifying Income Exception, other than a failure
which is determined by the IRS to be inadvertent and which is cured within a
reasonable time after discovery, we will be treated as if we had transferred all
of our assets, subject to liabilities, to a newly formed corporation, on the
first day of the year in which we fail to meet the Qualifying Income Exception,
in return for stock in that corporation, and then distributed that stock to the
unitholders in liquidation of their interests in us. This contribution and
liquidation should be tax-free to unitholders and us so long as we, at that
time, do not have liabilities in excess of the tax basis of our assets.
Thereafter, we would be treated as a corporation for federal income tax
purposes.
If we were taxable as a corporation in any taxable year, either as a result
of a failure to meet the Qualifying Income Exception or otherwise, our items of
income, gain, loss and deduction would be reflected only on our tax return
rather than being passed through to the unitholders, and our net income would be
taxed to us at corporate rates. In addition, any distribution made to a
unitholder would be treated as either taxable dividend income, to the extent of
our current or accumulated earnings and profits, or, in the absence of earnings
and profits, a nontaxable return of capital, to the extent of the unitholder's
tax basis in his common units, or taxable capital gain, after the unitholder's
tax basis in his common units is reduced to zero. Accordingly, taxation as a
corporation would result in a material reduction in a unitholder's cash flow and
after-tax return and thus would likely result in a substantial reduction of the
value of the units.
The discussion below is based on the conclusion that we will be classified
as a partnership for federal income tax purposes.
LIMITED PARTNER STATUS
Unitholders who have become limited partners of the Company will be treated
as partners of the Company for federal income tax purposes. Also:
(a) assignees who have executed and delivered transfer applications, and
are awaiting admission as limited partners, and
36
(b) unitholders whose common units are held in street name or by a
nominee and who have the right to direct the nominee in the exercise of all
substantive rights attendant to the ownership of their common units,
will be treated as partners of the Company for federal income tax purposes. As
there is no direct authority addressing assignees of common units who are
entitled to execute and deliver transfer applications and become entitled to
direct the exercise of attendant rights, but who fail to execute and deliver
transfer applications, the opinion of Vinson & Elkins L.L.P. does not extend to
these persons. Furthermore, a purchaser or other transferee of common units who
does not execute and deliver a transfer application may not receive some federal
income tax information or reports furnished to record holders of common units
unless the common units are held in a nominee or street name account and the
nominee or broker has executed and delivered a transfer application for those
common units.
A beneficial owner of common units whose units have been transferred to a
short seller to complete a short sale would appear to lose his status as a
partner with respect to those units for federal income tax purposes. Please read
"-- Tax Consequences of Unit Ownership -- Treatment of Short Sales."
Income, gain, deductions or losses would not appear to be reportable by a
unitholder who is not a partner for federal income tax purposes, and any cash
distributions received by a unitholder who is not a partner for federal income
tax purposes would therefore be fully taxable as ordinary income. These holders
should consult their own tax advisors with respect to their status as partners
in the Company for federal income tax purposes.
TAX CONSEQUENCES OF UNIT OWNERSHIP
Flow-through of Taxable Income. We will not pay any federal income tax.
Instead, each unitholder will be required to report on his income tax return his
share of our income, gains, losses and deductions without regard to whether
corresponding cash distributions are received by him. Consequently, we may
allocate income to a unitholder even if he has not received a cash distribution.
Each unitholder will be required to include in income his allocable share of our
income, gains, losses and deductions for our taxable year ending with or within
his taxable year. Our taxable year ends on December 31.
Treatment of Distributions. Distributions by us to a unitholder generally
will not be taxable to the unitholder for federal income tax purposes to the
extent of his tax basis in his common units immediately before the distribution.
Our cash distributions in excess of a unitholder's tax basis generally will be
considered to be gain from the sale or exchange of the common units, taxable in
accordance with the rules described under "-- Disposition of Common Units"
below. Any reduction in a unitholder's share of our liabilities for which no
partner, including the general partner, bears the economic risk of loss, known
as "nonrecourse liabilities," will be treated as a distribution of cash to that
unitholder. To the extent our distributions cause a unitholder's "at risk"
amount to be less than zero at the end of any taxable year, he must recapture
any losses deducted in previous years. Please read "-- Limitations on
Deductibility of Losses."
A decrease in a unitholder's percentage interest in us because of our
issuance of additional common units will decrease his share of our nonrecourse
liabilities, and thus will result in a corresponding deemed distribution of
cash. A non-pro rata distribution of money or property may result in ordinary
income to a unitholder, regardless of his tax basis in his common units, if the
distribution reduces the unitholder's share of our "unrealized receivables,"
including depreciation recapture, and/or substantially appreciated "inventory
items," both as defined in the Internal Revenue Code, and collectively, "Section
751 Assets." To that extent, he will be treated as having been distributed his
proportionate share of the Section 751 Assets and having exchanged those assets
with us in return for the non-pro rata portion of the actual distribution made
to him. This latter deemed exchange will generally result in the unitholder's
realization of ordinary income. That income will equal the excess of (1) the
non-pro rata portion of that distribution over (2) the unitholder's tax basis
for the share of Section 751 Assets deemed relinquished in the exchange.
Basis of Common Units. A unitholder's initial tax basis for his common
units will be the amount he paid for the common units plus his share of our
nonrecourse liabilities. That basis will be increased by his share of
37
our income and by any increases in his share of our nonrecourse liabilities.
That basis will be decreased, but not below zero, by distributions from us, by
the unitholder's share of our losses, by any decreases in his share of our
nonrecourse liabilities and by his share of our expenditures that are not
deductible in computing taxable income and are not required to be capitalized. A
unitholder will have no share of our debt which is recourse to the general
partner, but will have a share, generally based on his share of profits, of our
nonrecourse liabilities. Please read "-- Disposition of Common
Units -- Recognition of Gain or Loss."
Limitations on Deductibility of Losses. The deduction by a unitholder of
his share of our losses will be limited to the tax basis in his units and, in
the case of an individual unitholder or a corporate unitholder, if more than 50%
of the value of the corporate unitholder's stock is owned directly or indirectly
by five or fewer individuals or some tax-exempt organizations, to the amount for
which the unitholder is considered to be "at risk" with respect to our
activities, if that is less than his tax basis. A unitholder must recapture
losses deducted in previous years to the extent that distributions cause his at
risk amount to be less than zero at the end of any taxable year. Losses
disallowed to a unitholder or recaptured as a result of these limitations will
carry forward and will be allowable to the extent that his tax basis or at risk
amount, whichever is the limiting factor, is subsequently increased. Upon the
taxable disposition of a unit, any gain recognized by a unitholder can be offset
by losses that were previously suspended by the at risk limitation but may not
be offset by losses suspended by the basis limitation. Any excess loss above
that gain previously suspended by the at risk or basis limitations is no longer
utilizable.
In general, a unitholder will be at risk to the extent of the tax basis of
his units, excluding any portion of that basis attributable to his share of our
nonrecourse liabilities, reduced by any amount of money he borrows to acquire or
hold his units, if the lender of those borrowed funds owns an interest in us, is
related to the unitholder or can look only to the units for repayment. A
unitholder's at risk amount will increase or decrease as the tax basis of the
unitholder's units increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of our nonrecourse
liabilities.
The passive loss limitations generally provide that individuals, estates,
trusts and some closely-held corporations and personal service corporations can
deduct losses from passive activities, which are generally corporate or
partnership activities in which the taxpayer does not materially participate,
only to the extent of the taxpayer's income from those passive activities. The
passive loss limitations are applied separately with respect to each
publicly-traded partnership. Consequently, any passive losses we generate will
be available to offset only our passive income generated in the future and will
not be available to offset income from other passive activities or investments,
including our investments or investments in other publicly-traded partnerships,
or salary or active business income. Passive losses that are not deductible
because they exceed a unitholder's share of income we generate may be deducted
in full when he disposes of his entire investment in us in a fully taxable
transaction with an unrelated party. The passive activity loss rules are applied
after other applicable limitations on deductions, including the at risk rules
and the basis limitation.
A unitholder's share of our net income may be offset by any suspended
passive losses, but it may not be offset by any other current or carryover
losses from other passive activities, including those attributable to other
publicly-traded partnerships.
Limitations on Interest Deductions. The deductibility of a non-corporate
taxpayer's "investment interest expense" is generally limited to the amount of
that taxpayer's "net investment income." Investment interest expense includes:
- interest on indebtedness properly allocable to property held for
investment;
- our interest expense attributed to portfolio income; and
- the portion of interest expense incurred to purchase or carry an interest
in a passive activity to the extent attributable to portfolio income.
The computation of a unitholder's investment interest expense will take
into account interest on any margin account borrowing or other loan incurred to
purchase or carry a unit. Net investment income includes gross income from
property held for investment and amounts treated as portfolio income under the
passive
38
loss rules, less deductible expenses, other than interest, directly connected
with the production of investment income, but generally does not include gains
attributable to the disposition of property held for investment. The IRS has
indicated that net passive income earned by a publicly-traded partnership will
be treated as investment income to unitholders. In addition, the unitholder's
share of our portfolio income will be treated as investment income.
Entity-Level Collections. If we are required or elect under applicable law
to pay any federal, state or local income tax on behalf of any unitholder or the
general partner or any former unitholder, we are authorized to pay those taxes
from our funds. That payment, if made, will be treated as a distribution of cash
to the partner on whose behalf the payment was made. If the payment is made on
behalf of a person whose identity cannot be determined, we are authorized to
treat the payment as a distribution to all current unitholders. We are
authorized to amend the partnership agreement in the manner necessary to
maintain uniformity of intrinsic tax characteristics of units and to adjust
later distributions, so that after giving effect to these distributions, the
priority and characterization of distributions otherwise applicable under the
partnership agreement is maintained as nearly as is practicable. Payments by us
as described above could give rise to an overpayment of tax on behalf of an
individual partner in which event the partner would be required to file a claim
in order to obtain a credit or refund.
Allocation of Income, Gain, Loss and Deduction. In general, if we have a
net profit, our items of income, gain, loss and deduction will be allocated
among the general partner and the unitholders in accordance with their
percentage interests in us. At any time that distributions are made to the
common units in excess of distributions to the subordinated units, or incentive
distributions are made to the general partner, gross income will be allocated to
the recipients to the extent of these distributions. If we have a net loss for
the entire year, that loss will be allocated first to the general partner and
the unitholders in accordance with their percentage interests in us to the
extent of their positive capital accounts and, second, to the general partner.
Specified items of our income, gain, loss and deduction will be allocated
to account for the difference between the tax basis and fair market value of
property contributed to us by the general partner and its affiliates, referred
to in this discussion as "Contributed Property." The effect of these allocations
to a unitholder purchasing common units in this offering will be essentially the
same as if the tax basis of our assets were equal to their fair market value at
the time of an offering. In addition, items of recapture income will be
allocated to the extent possible to the partner who was allocated the deduction
giving rise to the treatment of that gain as recapture income in order to
minimize the recognition of ordinary income by some unitholders. Finally,
although we do not expect that our operations will result in the creation of
negative capital accounts, if negative capital accounts nevertheless result,
items of our income and gain will be allocated in an amount and manner to
eliminate the negative balance as quickly as possible.
An allocation of items of our income, gain, loss or deduction, other than
an allocation required by the Internal Revenue Code to eliminate the difference
between a partner's "book" capital account, credited with the fair market value
of Contributed Property, and "tax" capital account, credited with the tax basis
of Contributed Property, referred to in this discussion as the "Book-Tax
Disparity", will generally be given effect for federal income tax purposes in
determining a partner's share of an item of income, gain, loss or deduction only
if the allocation has substantial economic effect. In any other case, a
partner's share of an item will be determined on the basis of his interest in
us, which will be determined by taking into account all the facts and
circumstances, including his relative contributions to us, the interests of all
the partners in profits and losses, the interest of all the partners in cash
flow and other nonliquidating distributions and rights of all the partners to
distributions of capital upon liquidation.
Vinson & Elkins L.L.P. is of the opinion that, with the exception of the
issues described in "-- Tax Consequences of Unit Ownership -- Section 754
Election" and "-- Disposition of Common Units -- Allocations Between Transferors
and Transferees," allocations under our partnership agreement will be given
effect for federal income tax purposes in determining a partner's share of an
item of income, gain, loss or deduction.
39
Treatment of Short Sales. A unitholder whose units are loaned to a "short
seller" to cover a short sale of units may be considered as having disposed of
those units. If so, he would no longer be a partner for those units during the
period of the loan and may recognize gain or loss from the disposition. As a
result, during this period:
- any of our income, gain, loss or deduction with respect to those units
would not be reportable by the unitholder;
- any cash distributions received by the unitholder as to those units
would be fully taxable; and
- all of these distributions would appear to be ordinary income.
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 should modify
any applicable brokerage account agreements to prohibit their brokers from
borrowing their units. The IRS has announced that it is actively studying issues
relating to the tax treatment of short sales of partnership interests. Please
also read "-- Disposition of Common Units -- Recognition of Gain or Loss."
Alternative Minimum Tax. Each unitholder will be required to take into
account his distributive share of any items of our income, gain, loss or
deduction for purposes of the alternative minimum tax. The current minimum tax
rate for noncorporate taxpayers is 26% on the first $175,000 of alternative
minimum taxable income in excess of the exemption amount and 28% on any
additional alternative minimum taxable income. Prospective unitholders should
consult with their tax advisors as to the impact of an investment in units on
their liability for the alternative minimum tax.
Tax Rates. In general the highest effective United States federal income
tax rate for individuals currently is 38.6% and the maximum United States
federal income tax rate for net capital gains of an individual currently is 20%
if the asset disposed of was held for more than 12 months at the time of
disposition.
Section 754 Election. We have made the election permitted by Section 754
of the Internal Revenue Code. That election is irrevocable without the consent
of the IRS. The election generally permits us to adjust a common unit
purchaser's tax basis in our assets ("inside basis") under Section 743(b) of the
Internal Revenue Code to reflect his purchase price. This election does not
apply to a person who purchases common units directly from us. The Section
743(b) adjustment belongs to the purchaser and not to other unitholders. For
purposes of this discussion, a unitholder's inside basis in our assets will be
considered to have two components: (1) his share of our tax basis in our assets
("common basis") and (2) his Section 743(b) adjustment to that basis.
Treasury regulations under Section 743 of the Internal Revenue Code require
that, if the remedial allocation method is adopted (which we have adopted), a
portion of the Section 743(b) adjustment attributable to recovery property be
depreciated over the remaining cost recovery period for the Section 704(c)
built-in gain. Under Treasury regulation Section 1.167(c)-l(a)(6), a Section
743(b) adjustment attributable to property subject to depreciation under Section
167 of the Internal Revenue Code rather than cost recovery deductions under
Section 168 is generally required to be depreciated using either the straight-
line method or the 150% declining balance method. Under our partnership
agreement, our general partner is authorized to take a position to preserve the
uniformity of units even if that position is not consistent with these Treasury
Regulations. Please read "-- Tax Treatment of Operations -- Uniformity of
Units."
Although Vinson & Elkins L.L.P. is unable to opine as to the validity of
this approach because there is no clear authority on this issue, we intend to
depreciate the portion of a Section 743(b) adjustment attributable to unrealized
appreciation in the value of Contributed Property, to the extent of any
unamortized Book-Tax Disparity, using a rate of depreciation or amortization
derived from the depreciation or amortization method and useful life applied to
the common basis of the property, or treat that portion as non-amortizable to
the extent attributable to property the common basis of which is not
amortizable. This method is consistent with the regulations under Section 743
but is arguably inconsistent with Treasury regulation Section 1.167(c)-1(a)(6).
To the extent this Section 743(b) adjustment is attributable to appreciation in
value in excess of
40
the unamortized Book-Tax Disparity, we will apply the rules described in the
Treasury regulations and legislative history. If we determine that this position
cannot reasonably be taken, we may take a depreciation or amortization position
under which all purchasers acquiring units in the same month would receive
depreciation or amortization, whether attributable to common basis or a Section
743(b) adjustment, based upon the same applicable rate as if they had purchased
a direct interest in our assets. This kind of aggregate approach may result in
lower annual depreciation or amortization deductions than would otherwise be
allowable to some unitholders. Please read "-- Tax Treatment of
Operations -- Uniformity of Units."
A Section 754 election is advantageous if the transferee's tax basis in his
units is higher than the units' share of the aggregate tax basis of our assets
immediately prior to the transfer. In that case, as a result of the election,
the transferee would have, among other items, a greater amount of depreciation
and depletion deductions and his share of any gain or loss on a sale of our
assets would be less. Conversely, a Section 754 election is disadvantageous if
the transferee's tax basis in his units is lower than those units' share of the
aggregate tax basis of our assets immediately prior to the transfer. Thus, the
fair market value of the units may be affected either favorably or unfavorably
by the election.
The calculations involved in the Section 754 election are complex and will
be made on the basis of assumptions as to the value of our assets and other
matters. For example, the allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue Code. The IRS could
seek to reallocate some or all of any Section 743(b) adjustment allocated by us
to our tangible assets to goodwill instead. Goodwill, as an intangible asset, is
generally amortizable over a longer period of time or under a less accelerated
method than our tangible assets. We cannot assure you that the determinations we
make will not be successfully challenged by the IRS and that the deductions
resulting from them will not be reduced or disallowed altogether. Should the IRS
require a different basis adjustment to be made, and should, in our opinion, the
expense of compliance exceed the benefit of the election, we may seek permission
from the IRS to revoke our Section 754 election. If permission is granted, a
subsequent purchaser of units may be allocated more income than he would have
been allocated had the election not been revoked.
TAX TREATMENT OF OPERATIONS
Accounting Method and Taxable Year. We use the year ending December 31 as
our taxable year and the accrual method of accounting for federal income tax
purposes. Each unitholder will be required to include in income his share of our
income, gain, loss and deduction for our taxable year ending within or with his
taxable year. In addition, a unitholder who has a taxable year ending on a date
other than December 31 and who disposes of all of his units following the close
of our taxable year but before the close of his taxable year must include his
share of our income, gain, loss and deduction in income for his taxable year,
with the result that he will be required to include in income for his taxable
year his share of more than one year of our income, gain, loss and deduction.
Please read "-- Disposition of Common Units -- Allocations Between Transferors
and Transferees."
Initial Tax Basis, Depreciation and Amortization. The tax basis of our
assets will be used for purposes of computing depreciation and cost recovery
deductions and, ultimately, gain or loss on the disposition of these assets. The
federal income tax burden associated with the difference between the fair market
value of our assets and their tax basis immediately prior to an offering will be
borne by our general partner, its affiliates and our unitholders as of that
time. Please read "-- Tax Consequences of Unit Ownership -- Allocation of
Income, Gain, Loss and Deduction."
To the extent allowable, we may elect to use the depreciation and cost
recovery methods that will result in the largest deductions being taken in the
early years after assets are placed in service. We are not entitled to any
amortization deductions with respect to any goodwill conveyed to us on
formation. Property we subsequently acquire or construct may be depreciated
using accelerated methods permitted by the Internal Revenue Code.
If we dispose of depreciable property by sale, foreclosure, or otherwise,
all or a portion of any gain, determined by reference to the amount of
depreciation previously deducted and the nature of the property, may be subject
to the recapture rules and taxed as ordinary income rather than capital gain.
Similarly, a
41
partner who has taken cost recovery or depreciation deductions with respect to
property we own will likely be required to recapture some or all, of those
deductions as ordinary income upon a sale of his interest in us. Please read
"-- Tax Consequences of Unit Ownership -- Allocation of Income, Gain, Loss and
Deduction" and "-- Disposition of Common Units -- Recognition of Gain or Loss."
The costs incurred in selling our units (called "syndication expenses")
must be capitalized and cannot be deducted currently, ratably or upon our
termination. There are uncertainties regarding the classification of costs as
organization expenses, which may be amortized by us, and as syndication
expenses, which may not be amortized by us. The underwriting discounts and
commissions we incur will be treated as a syndication cost.
Valuation and Tax Basis of Our Properties. The federal income tax
consequences of the ownership and disposition of units will depend in part on
our estimates of the relative fair market values, and the initial tax bases, of
our assets. Although we may from time to time consult with professional
appraisers regarding valuation matters, we will make many of the relative fair
market value estimates ourselves. These estimates and determinations of basis
are subject to challenge and will not be binding on the IRS or the courts. If
the estimates of fair market value or basis are later found to be incorrect, the
character and amount of items of income, gain, loss or deductions previously
reported by unitholders might change, and unitholders might be required to
adjust their tax liability for prior years and incur interest and penalties with
respect to those adjustments.
DISPOSITION OF COMMON UNITS
Recognition of Gain or Loss. Gain or loss will be recognized on a sale of
units equal to the difference between the amount realized and the unitholder's
tax basis for the units sold. A unitholder's amount realized will be measured by
the sum of the cash or the fair market value of other property received by him
plus his share of our nonrecourse liabilities. Because the amount realized
includes a unitholder's share of our nonrecourse liabilities, the gain
recognized on the sale of units could result in a tax liability in excess of any
cash received from the sale.
Prior distributions from us in excess of cumulative net taxable income for
a common unit that decreased a unitholder's tax basis in that common unit will,
in effect, become taxable income if the common unit is sold at a price greater
than the unitholder's tax basis in that common unit, even if the price received
is less than his original cost.
Except as noted below, gain or loss recognized by a unitholder, other than
a "dealer" in units, on the sale or exchange of a unit held for more than one
year will generally be taxable as capital gain or loss. Capital gain recognized
by an individual on the sale of units held more than 12 months will generally be
taxed at a maximum rate of 20%. A portion of this gain or loss, which will
likely be substantial, however, will be separately computed and taxed as
ordinary income or loss under Section 751 of the Internal Revenue Code to the
extent attributable to assets giving rise to depreciation recapture or other
"unrealized receivables" or to "inventory items" we own. The term "unrealized
receivables" includes potential recapture items, including depreciation
recapture. Ordinary income attributable to unrealized receivables, inventory
items and depreciation recapture may exceed net taxable gain realized upon the
sale of a unit and may be recognized even if there is a net taxable loss
realized on the sale of a unit. Thus, a unitholder may recognize both ordinary
income and a capital loss upon a sale of units. Net capital loss may offset
capital gains and no more than $3,000 of ordinary income, in the case of
individuals, and may only be used to offset capital gain in the case of
corporations.
The IRS has ruled that a partner who acquires interests in a partnership in
separate transactions must combine those interests and maintain a single
adjusted tax basis for all those interests. Upon a sale or other disposition of
less than all of those interests, a portion of that tax basis must be allocated
to the interests sold using an "equitable apportionment" method. Although the
ruling is unclear as to how the holding period of these interests is determined
once they are combined, recently finalized Treasury regulations under Section
1223 of the Internal Revenue Code allow a selling unitholder who can identify
common units transferred with an ascertainable holding period to elect to use
the actual holding period of the common units transferred. Thus, according to
the ruling, a common unitholder will be unable to select high or low basis
common units to
42
sell as would be the case with corporate stock, but, according to the Treasury
regulations, may designate specific common units sold for purposes of
determining the holding period of units transferred. A unitholder electing to
use the actual holding period of common units transferred must consistently use
that identification method for all subsequent sales or exchanges of common
units. A unitholder considering the purchase of additional units or a sale of
common units purchased in separate transactions should consult his tax advisor
as to the possible consequences of this ruling and application of the final
regulations.
Specific provisions of the Internal Revenue Code affect the taxation of
some financial products and securities, including partnership interests, by
treating a taxpayer as having sold an "appreciated" partnership interest, one in
which gain would be recognized if it were sold, assigned or terminated at its
fair market value, if the taxpayer or related persons enter(s) into:
- a short sale;
- an offsetting notional principal contract; or
- a futures or forward contract with respect to the partnership interest or
substantially identical property.
Moreover, if a taxpayer has previously entered into a short sale, an
offsetting notional principal contract or a futures or forward contract with
respect to the partnership interest, the taxpayer will be treated as having sold
that position if the taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of Treasury is also
authorized to issue regulations that treat a taxpayer that enters into
transactions or positions that have substantially the same effect as the
preceding transactions as having constructively sold the financial position.
Allocations Between Transferors and Transferees. In general, our taxable
income and losses will be determined annually, will be prorated on a monthly
basis and will be subsequently apportioned among the unitholders in proportion
to the number of units owned by each of them as of the opening of the applicable
exchange on the first business day of the month (the "Allocation Date").
However, gain or loss realized on a sale or other disposition of our assets
other than in the ordinary course of business will be allocated among the
unitholders on the Allocation Date in the month in which that gain or loss is
recognized. As a result, a unitholder transferring units may be allocated
income, gain, loss and deduction realized after the date of transfer.
The use of this method may not be permitted under existing Treasury
Regulations. Accordingly, Vinson & Elkins L.L.P. is unable to opine on the
validity of this method of allocating income and deductions between unitholders.
If this method is not allowed under the Treasury regulations, or only applies to
transfers of less than all of the unitholder's interest, our taxable income or
losses might be reallocated among the unitholders. We are authorized to revise
our method of allocation between unitholders, as well as among unitholders whose
interests vary during a taxable year, to conform to a method permitted under
future Treasury regulations.
A unitholder who owns units at any time during a quarter and who disposes
of them prior to the record date set for a cash distribution for that quarter
will be allocated items of our income, gain, loss and deductions attributable to
that quarter but will not be entitled to receive that cash distribution.
Notification Requirements. A unitholder who sells or exchanges units is
required to notify us in writing of that sale or exchange within 30 days after
the sale or exchange. We are required to notify the IRS of that transaction and
to furnish specified information to the transferor and transferee. However,
these reporting requirements do not apply to a sale by an individual who is a
citizen of the United States and who effects the sale or exchange through a
broker. Failure to satisfy these reporting obligations may lead to the
imposition of substantial penalties.
Constructive Termination. We will be considered to have been terminated
for tax purposes if there is a sale or exchange of 50% or more of the total
interests in our capital and profits within a 12-month period. A constructive
termination results in the closing of our taxable year for all unitholders. In
the case of a unitholder reporting on a taxable year other than a fiscal year
ending December 31, the closing of our taxable year may result in more than 12
months of our taxable income or loss being includable in his taxable income
43
for the year of termination. We would be required to make new tax elections
after a termination, including a new election under Section 754 of the Internal
Revenue Code, and a termination would result in a deferral of our deductions for
depreciation. A termination could also result in penalties if we were unable to
determine that the termination had occurred. Moreover, a termination might
either accelerate the application of, or subject us to, any tax legislation
enacted before the termination.
UNIFORMITY OF UNITS
Because we cannot match transferors and transferees of units, we must
maintain uniformity of the economic and tax characteristics of the units to a
purchaser of these units. In the absence of uniformity, we may be unable to
completely comply with a number of federal income tax requirements, both
statutory and regulatory. A lack of uniformity can result from a literal
application of Treasury Regulation Section 1.167(c)-1(a)(6). Any non-uniformity
could have a negative impact on the value of the units. Please read "-- Tax
Consequences of Unit Ownership -- Section 754 Election."
We intend to depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of Contributed Property, to
the extent of any unamortized Book-Tax Disparity, using a rate of depreciation
or amortization derived from the depreciation or amortization method and useful
life applied to the common basis of that property, or treat that portion as
nonamortizable, to the extent attributable to property the common basis of which
is not amortizable, consistent with the regulations under Section 743, even
though that position may be inconsistent with Treasury regulation Section
1.167(c)-1(a)(6). Please read "-- Tax Consequences of Unit Ownership -- Section
754 Election." To the extent that the Section 743(b) adjustment is attributable
to appreciation in value in excess of the unamortized Book-Tax Disparity, we
will apply the rules described in the Treasury regulations and legislative
history. If we determine that this position cannot reasonably be taken, we may
adopt a depreciation and amortization position under which all purchasers
acquiring units in the same month would receive depreciation and amortization
deductions, whether attributable to a common basis or Section 743(b) adjustment,
based upon the same applicable rate as if they had purchased a direct interest
in our property. If this position is adopted, it may result in lower annual
depreciation and amortization deductions than would otherwise be allowable to
some unitholders and risk the loss of depreciation and amortization deductions
not taken in the year that these deductions are otherwise allowable. This
position will not be adopted if we determine that the loss of depreciation and
amortization deductions will have a material adverse effect on the unitholders.
If we choose not to utilize this aggregate method, we may use any other
reasonable depreciation and amortization method to preserve the uniformity of
the intrinsic tax characteristics of any units that would not have a material
adverse effect on the unitholders. The IRS may challenge any method of
depreciating the Section 743(b) adjustment described in this paragraph. If this
challenge were sustained, the uniformity of units might be affected, and the
gain from the sale of units might be increased without the benefit of additional
deductions. Please read "-- Disposition of Common Units -- Recognition of Gain
or Loss."
TAX-EXEMPT ORGANIZATIONS AND OTHER INVESTORS
Ownership of units by employee benefit plans, other tax-exempt
organizations, non-resident aliens, foreign corporations, other foreign persons
and regulated investment companies raises issues unique to those investors and,
as described below, may have substantially adverse tax consequences to them.
Employee benefit plans and most other organizations exempt from federal
income tax, including individual retirement accounts and other retirement plans,
are subject to federal income tax on unrelated business taxable income.
Virtually all of our income allocated to a unitholder that is a tax-exempt
organization will be unrelated business taxable income and will be taxable to
them.
A regulated investment company or "mutual fund" is required to derive 90%
or more of its gross income from interest, dividends and gains from the sale of
stocks or securities or foreign currency or specified related sources. It is not
anticipated that any significant amount of our gross income will include that
type of income.
Non-resident aliens and foreign corporations, trusts or estates that own
units will be considered to be engaged in business in the United States because
of the ownership of units. As a consequence they will be
44
required to file federal tax returns to report their share of our income, gain,
loss or deduction and pay federal income tax at regular rates on their share of
our net income or gain. Under rules applicable to publicly traded partnerships,
we will withhold (currently at the rate of 38.6%) on cash distributions made
quarterly to foreign unitholders. Each foreign unitholder must obtain a taxpayer
identification number from the IRS and submit that number to our transfer agent
on a Form W-8 BEN or applicable substitute form in order to obtain credit for
these withholding taxes.
In addition, because a foreign corporation that owns units will be treated
as engaged in a United States trade or business, that corporation may be subject
to the United States branch profits tax at a rate of 30%, in addition to regular
federal income tax, on its share of our income and gain, as adjusted for changes
in the foreign corporation's "U.S. net equity," which are effectively connected
with the conduct of a United States trade or business. That tax may be reduced
or eliminated by an income tax treaty between the United States and the country
in which the foreign corporate unitholder is a "qualified resident." In
addition, this type of unitholder is subject to special information reporting
requirements under Section 6038C of the Internal Revenue Code.
Under a ruling of the IRS, a foreign unitholder who sells or otherwise
disposes of a unit will be subject to federal income tax on gain realized on the
sale or disposition of that unit to the extent that this gain is effectively
connected with a United States trade or business of the foreign unitholder.
Apart from the ruling, a foreign unitholder will not be taxed or subject to
withholding upon the sale or disposition of a unit if he has owned less than 5%
in value of the units during the five-year period ending on the date of the
disposition and if the units are regularly traded on an established securities
market at the time of the sale or disposition.
ADMINISTRATIVE MATTERS
Information Returns and Audit Procedures. We intend to furnish to each
unitholder, within 90 days after the close of each calendar year, specific tax
information, including a Schedule K-1, which describes his share of our income,
gain, loss and deduction for our preceding taxable year. In preparing this
information, which will not be reviewed by counsel, we will take various
accounting and reporting positions, some of which have been mentioned earlier,
to determine his share of income, gain, loss and deduction. We cannot assure you
that those positions will yield a result that conforms to the requirements of
the Internal Revenue Code, Treasury regulations or administrative
interpretations of the IRS. Neither we nor counsel can assure prospective
unitholders that the IRS will not successfully contend in court that those
positions are impermissible. Any challenge by the IRS could negatively affect
the value of the units.
The IRS may audit our federal income tax information returns. Adjustments
resulting from an IRS audit may require each unitholder to adjust a prior year's
tax liability, and possibly may result in an audit of his own return. Any audit
of a unitholder's return could result in adjustments not related to our returns
as well as those related to our returns.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership proceeding rather than
in separate proceedings with the partners. The Internal Revenue Code requires
that one partner be designated as the "Tax Matters Partner" for these purposes.
The partnership agreement names our general partner as our Tax Matters Partner.
The Tax Matters Partner will make some elections on our behalf and on
behalf of unitholders. In addition, the Tax Matters Partner can extend the
statute of limitations for assessment of tax deficiencies against unitholders
for items in our returns. The Tax Matters Partner may bind a unitholder with
less than a 1% profits interest in us to a settlement with the IRS unless that
unitholder elects, by filing a statement with the IRS, not to give that
authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial
review, by which all the unitholders are bound, of a final partnership
administrative adjustment and, if the Tax Matters Partner fails to seek judicial
review, judicial review may be sought by any unitholder having at least a 1%
interest in profits or by any group of unitholders having in the aggregate at
least a 5% interest in profits.
45
However, only one action for judicial review will go forward, and each
unitholder with an interest in the outcome may participate.
A unitholder must file a statement with the IRS identifying the treatment
of any item on his federal income tax return that is not consistent with the
treatment of the item on our return. Intentional or negligent disregard of this
consistency requirement may subject a unitholder to substantial penalties.
Nominee Reporting. Persons who hold an interest in us as a nominee for
another person are required to furnish to us:
(a) the name, address and taxpayer identification number of the
beneficial owner and the nominee;
(b) whether the beneficial owner is
(1) a person that is not a United States person,
(2) a foreign government, an international organization or any wholly
owned agency or instrumentality of either of the foregoing, or
(3) a tax-exempt entity;
(c) the amount and description of units held, acquired or transferred
for the beneficial owner; and
(d) specific information including the dates of acquisitions and
transfers, means of acquisitions and transfers, and acquisition cost for
purchases, as well as the amount of net proceeds from sales.
Brokers and financial institutions are required to furnish additional
information, including whether they are United States persons and specific
information on units they acquire, hold or transfer for their own account. A
penalty of $50 per failure, up to a maximum of $100,000 per calendar year, is
imposed by the Internal Revenue Code for failure to report that information to
us. The nominee is required to supply the beneficial owner of the units with the
information furnished to us.
Registration as a Tax Shelter. The Internal Revenue Code requires that
"tax shelters" be registered with the Secretary of the Treasury. It is arguable
that we are not subject to the registration requirement on the basis that we
will not constitute a tax shelter. However, our general partner, as our
principal organizer, has registered us as a tax shelter with the Secretary of
Treasury because of the absence of assurance that we will not be subject to tax
shelter registration and in light of the substantial penalties which might be
imposed if registration is required and not undertaken.
ISSUANCE OF THIS REGISTRATION NUMBER DOES NOT INDICATE THAT INVESTMENT IN US OR
THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE IRS.
We must supply our tax shelter registration number to unitholders, and a
unitholder who sells or otherwise transfers a unit in a later transaction must
furnish the registration number to the transferee. The penalty for failure of
the transferor of a unit to furnish the registration number to the transferee is
$100 for each failure. The unitholders must disclose our tax shelter
registration number on Form 8271 to be attached to the tax return on which any
deduction, loss or other benefit we generate is claimed or on which any of our
income is included. A unitholder who fails to disclose the tax shelter
registration number on his return, without reasonable cause for that failure,
will be subject to a $250 penalty for each failure. Any penalties discussed are
not deductible for federal income tax purposes.
Accuracy-related Penalties. An additional tax equal to 20% of the amount
of any portion of an underpayment of tax that is attributable to one or more
specified causes, including negligence or disregard of rules or regulations,
substantial understatements of income tax and substantial valuation
misstatements, is imposed by the Internal Revenue Code. No penalty will be
imposed, however, for any portion of an underpayment if it is shown that there
was a reasonable cause for that portion and that the taxpayer acted in good
faith regarding that portion.
A substantial understatement of income tax in any taxable year exists if
the amount of the understatement exceeds the greater of 10% of the tax required
to be shown on the return for the taxable year or $5,000
46
($10,000 for most corporations). The amount of any understatement subject to
penalty generally is reduced if any portion is attributable to a position
adopted on the return:
(1) for which there is, or was, "substantial authority," or
(2) as to which there is a reasonable basis and the pertinent facts of
that position are disclosed on the return.
More stringent rules apply to "tax shelters," a term that in this context
does not appear to include us. If any item of income, gain, loss or deduction
included in the distributive shares of unitholders might result in that kind of
an "understatement" of income for which no "substantial authority" exists, we
must disclose the pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for unitholders to make
adequate disclosure on their returns to avoid liability for this penalty.
A substantial valuation misstatement exists if the value of any property,
or the adjusted basis of any property, claimed on a tax return is 200% or more
of the amount determined to be the correct amount of the valuation or adjusted
basis. No penalty is imposed unless the portion of the underpayment attributable
to a substantial valuation misstatement exceeds $5,000 ($10,000 for most
corporations). If the valuation claimed on a return is 400% or more than the
correct valuation, the penalty imposed increases to 40%.
STATE, LOCAL AND OTHER TAX CONSIDERATIONS
In addition to federal income taxes, you will be subject to other taxes,
including state and local income taxes, unincorporated business taxes, and
estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property or in which you are a
resident. Although an analysis of those various taxes is not presented here,
each prospective unitholder should consider their potential impact on his
investment in us. You will be required to file state income tax returns and to
pay state income taxes in some or all of the states in which we do business or
own property and may be subject to penalties for failure to comply with those
requirements. In some states, tax losses may not produce a tax benefit in the
year incurred and also may not be available to offset income in subsequent
taxable years. Some of the states may require us, or we may elect, to withhold a
percentage of income from amounts to be distributed to a unitholder who is not a
resident of the state. Withholding, the amount of which may be greater or less
than a particular unitholder's income tax liability to the state, generally does
not relieve a nonresident unitholder from the obligation to file an income tax
return. Amounts withheld may be treated as if distributed to unitholders for
purposes of determining the amounts distributed by us. Please read "-- Tax
Consequences of Unit Ownership -- Entity-Level Collections." Based on current
law and our estimate of our future operations, our general partner anticipates
that any amounts required to be withheld will not be material. We may also own
property or do business in other states in the future.
It is the responsibility of each unitholder to investigate the legal and
tax consequences, under the laws of pertinent states and localities, of his
investment in us. Accordingly, we strongly recommend that each prospective
unitholder consult, and depend upon, his own tax counsel or other advisor with
regard to those matters. Further, it is the responsibility of each unitholder to
file all state and local, as well as United States federal tax returns, that may
be required of him. Vinson & Elkins L.L.P. has not rendered an opinion on the
state or local tax consequences of an investment in us.
TAX CONSEQUENCES OF OWNERSHIP OF DEBT SECURITIES
A description of the material federal income tax consequences of the
acquisition, ownership and disposition of debt securities will be set forth in
the prospectus supplement relating to the offering of debt securities.
47
SELLING UNITHOLDERS
In addition to covering our offering of securities, this Prospectus covers
the offering for resale of an unspecified number of common units by selling
unitholders. The applicable prospectus supplement will set forth, with respect
to each selling unitholder:
- the name of the selling unitholder,
- the nature of any position, office or other materials relationship which
the selling unitholder will have had within the prior three years with us
or any of our predecessors or affiliates,
- the number of common units owned by the selling unitholders prior to the
offering,
- the amount of common units to be offered for the selling unitholder's
account, and
- the amount and (if one percent or more) the percentage of the common
units to be owned by the selling unitholders after completion of the
offering.
PLAN OF DISTRIBUTION
We may sell the common units or debt securities directly, through agents,
or to or through underwriters or dealers. Please read the prospectus supplement
to find the terms of the common unit or debt securities offering including:
- the names of any underwriters, dealers or agents;
- the offering price;
- underwriting discounts;
- sales agents' commissions;
- other forms of underwriter or agent compensation;
- discounts, concessions or commissions that underwriters may pass on to
other dealers; and
- any exchange on which the common units or debt securities are listed.
We may change the offering price, underwriter discounts or concessions, or
the price to dealers when necessary. Discounts or commissions received by
underwriters or agents and any profits on the resale of common units or debt
securities by them may constitute underwriting discounts and commissions under
the Securities Act.
Unless we state otherwise in the prospectus supplement, underwriters will
need to meet certain requirements before purchasing common units or debt
securities. Agents will act on a "best efforts" basis during their appointment.
We will also state the net proceeds from the sale in the prospectus supplement.
Any brokers or dealers that participate in the distribution of the common
units or debt securities may be "underwriters" within the meaning of the
Securities Act for such sales. Profits, commissions, discounts or concessions
received by such broker or dealer may be underwriting discounts and commissions
under the securities act.
When necessary, we may fix common unit or debt securities distribution
using changeable, fixed prices, market prices at the time of sale, prices
related to market prices, or negotiated prices.
We may, through agreements, indemnify underwriters, dealers or agents who
participate in the distribution of the common units or debt securities against
certain liabilities including liabilities under the Securities Act. We may also
provide funds for payments such underwriters, dealers or agents may be required
to make. Underwriters, dealers and agents, and their affiliates may transact
with us and our affiliates in the ordinary course of their business.
48
DISTRIBUTION BY SELLING UNITHOLDERS
Distribution of any common units to be offered by one or more of the
selling unitholders may be effected from time to time in one or more
transactions (which may involve block transactions) (1) on the New York Stock
Exchange, (2) in the over-the-counter market, (3) in underwritten transactions;
(4) in transactions otherwise than on the New York Stock Exchange or in the
over-the-counter market or (5) in a combination of any of these transactions.
The transactions may be effected by the selling unitholders at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices or at fixed prices. The selling unitholders may
offer their shares through underwriters, brokers, dealers or agents, who may
receive compensation in the form of underwriting discounts, commissions or
concessions from the selling unitholders and/or the purchasers of the shares for
whom they act as agent. The selling unitholders may engage in short sales, short
sales against the box, puts and calls and other transactions in our securities,
or derivatives thereof, and may sell and deliver their common units in
connection therewith. In addition, the selling unitholders may from time to time
sell their common units in transactions permitted by Rule 144 under the
Securities Act.
As of the date of this prospectus, we have not engaged any underwriter,
broker, dealer or agent in connection with the distribution of common units
pursuant to this prospectus by the selling unitholders. To the extent required,
the number of common units to be sold, the purchase price, the name of any
applicable agent, broker, dealer or underwriter and any applicable commissions
with respect to a particular offer will be set forth in the applicable
prospectus supplement. The aggregate net proceeds to the selling unitholders
from the sale of their common units offered hereby will be the sale price of
those shares, less any commissions, if any, and other expenses of issuance and
distribution not borne by us.
The selling unitholders and any brokers, dealers, agents or underwriters
that participate with the selling unitholders in the distribution of shares may
be deemed to be "underwriters" within the meaning of the Securities Act, in
which event any discounts, concessions and commissions received by such brokers,
dealers, agents or underwriters and any profit on the resale of the shares
purchased by them may be deemed to be underwriting discounts and commissions
under the Securities Act.
The applicable prospectus supplement will set forth the extent to which we
will have agreed to bear fees and expenses of the selling unitholders in
connection with the registration of the common units being offered hereby by
them. We may, if so indicated in the applicable prospectus supplement, agree to
indemnify selling unitholders against certain civil liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Vinson & Elkins L.L.P., our counsel, will issue an opinion for us about the
legality of the common units and debt securities and the material federal income
tax considerations regarding the common units. Any underwriter will be advised
about other issues relating to any offering by their own legal counsel.
EXPERTS
The (i) consolidated financial statements and the related consolidated
financial statement schedules of Enterprise Products Partners L.P. and
Enterprise Products Operating L.P. and subsidiaries as of December 1, 2001 and
2000 and for each of the three years in the period ended December 31, 2001
incorporated by reference in this prospectus, and (ii) the balance sheet of
Enterprise Products GP, LLC as of December 31, 2001, incorporated by reference
in this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are incorporated by reference herein
(each such report expresses an unqualified opinion and for Enterprise Products
Partners L.P. and Enterprise Products Operating L.P. includes an explanatory
paragraph referring to a change in method of accounting for derivative
instruments in 2001 as discussed in Note 13 and Note 11 to Enterprise Products
Partners L.P.'s and Enterprise Products Operating L.P.'s consolidated financial
statements, respectively), and have been so incorporated in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
49
The financial statements of Mid-America Pipeline System and Seminole
Pipeline Company as of December 31, 2000 and 2001 and for each of the three
years in the period ended December 31, 2001 appearing in Enterprise Products
Partners L.P. and Enterprise Products Operating L.P.'s Current Report on Form
8-K/A (Amendment No. 1) filed September 26, 2002, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such reports given on the
authority of such firm as experts in accounting and auditing.
50
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses payable by Enterprise
Products Partners L.P. and Enterprise Products Operating L.P. in connection with
the issuance and distribution of the securities covered by this registration
statement.
Registration fee............................................ $138,000
Fees and expenses of accountants............................ 100,000
Fees and expenses of legal counsel.......................... 200,000
Rating Agencies............................................. 200,000
Fees and expenses of Trustee and counsel.................... 25,000
Printing and engraving expenses............................. 100,000
Miscellaneous............................................... 25,000
--------
Total............................................. $788,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act
empowers a Delaware limited partnership to indemnify and hold harmless any
partner or other person from and against all claims and demands whatsoever.
Enterprise Products Partners' partnership agreement provides that Enterprise
Products Partners will indemnify (i) Enterprise Products GP, (ii) any departing
general partner, (iii) any person who is or was an affiliate of Enterprise
Products GP or any departing general partner, (iv) any person who is or was a
member, partner, officer director, employee, agent or trustee of Enterprise
Products GP or any departing general partner or any affiliate of Enterprise
Products GP or any departing general partner or (v) any person who is or was
serving at the request of Enterprise Products GP or any departing general
partner or any affiliate of any such person, any affiliate of Enterprise
Products GP or any fiduciary or trustee of another person (each, a "Partnership
Indemnitee"), to the fullest extent permitted by law, from and against any and
all losses, claims, damages, liabilities (joint or several), expenses
(including, without limitation, legal fees and expenses), judgments, fines,
penalties, interest, settlements and other amounts arising from any and all
claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any Partnership Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, by reason of
its status as a Partnership Indemnitee; provided that in each case the
Partnership Indemnitee acted in good faith and in a manner that such Partnership
Indemnitee reasonably believed to be in or not opposed to the best interests of
Enterprise Products Partners and, with respect to any criminal proceeding, had
no reasonable cause to believe its conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere, or its equivalent, shall not create an assumption that
the Partnership Indemnitee acted in a manner contrary to that specified above.
Any indemnification under these provisions will be only out of the assets of
Enterprise Products Partners, and Enterprise Products GP shall not be personally
liable for, or have any obligation to contribute or lend funds or assets to
Enterprise Products Partners to enable it to effectuate, such indemnification.
Enterprise Products Partners is authorized to purchase (or to reimburse
Enterprise Products GP or its affiliates for the cost of) insurance against
liabilities asserted against and expenses incurred by such persons in connection
with Enterprise Products Partners' activities, regardless of whether Enterprise
Products Partners would have the power to indemnify such person against such
liabilities under the provisions described above.
Enterprise Products Operating's partnership agreement provides that
Enterprise Products Operating will indemnify (i) Enterprise Products GP, (ii)
any departing general partner, (iii) any person who is or was an affiliate of
Enterprise Products GP or any departing general partner, (iv) any person who is
or was a member, partner, officer director, employee, agent or trustee of
Enterprise Products GP or any departing general partner or any affiliate of
Enterprise Products GP or any departing general partner or (v) any person who is
or was
II-1
serving at the request of Enterprise Products GP or any departing general
partner or any affiliate of any such person, any affiliate of Enterprise
Products GP or any fiduciary or trustee of another person (each, an "Operating
Partnership Indemnitee"), to the fullest extent permitted by law, from and
against any and all losses, claims, damages, liabilities (joint or several),
expenses (including, without limitation, legal fees and expenses), judgments,
fines, penalties, interest, settlements and other amounts arising from any and
all claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any Operating Partnership Indemnitee
may be involved, or is threatened to be involved, as a party or otherwise, by
reason of its status as an Operating Partnership Indemnitee; provided that in
each case the Operating Partnership Indemnitee acted in good faith and in a
manner that such Operating Partnership Indemnitee reasonably believed to be in
or not opposed to the best interests of Enterprise Products Operating and, with
respect to any criminal proceeding, had no reasonable cause to believe its
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not create an assumption that the Operating Partnership
Indemnitee acted in a manner contrary to that specified above. Any
indemnification under these provisions will be only out of the assets of
Enterprise Products Operating, and Enterprise Products GP shall not be
personally liable for, or have any obligation to contribute or lend funds or
assets to Enterprise Products Operating to enable it to effectuate, such
indemnification. Enterprise Products Operating is authorized to purchase (or to
reimburse Enterprise Products GP or its affiliates for the cost of) insurance
against liabilities asserted against and expenses incurred by such persons in
connection with Enterprise Products Operating's activities, regardless of
whether Enterprise Products Operating would have the power to indemnify such
person against such liabilities under the provisions described above.
Section 18-108 of the Delaware Limited Liability Company Act provides that,
subject to such standards and restrictions, if any, as are set forth in its
limited liability company agreement, a Delaware limited liability company may,
and shall have the power to, indemnify and hold harmless any member or manager
or other person from and against any and all claims and demands whatsoever. The
limited liability company agreement of Enterprise Products GP provides for the
indemnification of (i) present or former members of the Board of Directors
Enterprise Products GP or any committee thereof, (ii) present or former
officers, employees, partners, agents or trustees of the Enterprise Products GP
or (iii) persons serving at the request of the Enterprise Products GP in another
entity in a similar capacity as that referred to in the immediately preceding
clauses (i) or (ii) (each, a "General Partner Indemnitee") to the fullest extent
permitted by law, from and against any and all losses, claims, damages,
liabilities, joint or several, expenses (including reasonable legal fees and
expenses), judgments, fines, penalties, interest, settlements and other amounts
arising from any and all claims, demands, actions, suits or proceedings, whether
civil, criminal, administrative or investigative, in which any such person may
be involved, or is threatened to be involved, as a party or otherwise, by reason
of such person's status as a General Partner Indemnitee; provided, that in each
case the General Partner Indemnitee acted in good faith and in a manner which
such General Partner Indemnitee believed to be in, or not opposed to, the best
interests of the Enterprise Products GP and, with respect to any criminal
proceeding, had no reasonable cause to believe such General Partner Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that the General Partner
Indemnitee acted in a manner contrary to that specified above. Any
indemnification pursuant to these provisions shall be made only out of the
assets of Enterprise Products GP. Enterprise Products GP is authorized to
purchase and maintain insurance, on behalf of the members of its Board of
Directors, its officers and such other persons as the Board of Directors may
determine, against any liability that may be asserted against or expense that
may be incurred by such person in connection with the activities of Enterprise
Products GP, regardless of whether Enterprise Products GP would have the power
to indemnify such person against such liability under the provisions of its
limited liability company agreement.
Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers or persons controlling Enterprise
Products Partners, Enterprise Products Operating or Enterprise Products GP as
set forth above, Enterprise Products Partners, Enterprise Products Operating and
Enterprise Products GP have been informed that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
II-2
The underwriting agreements that Enterprise Products Partners, Enterprise
Products Operating and Enterprise Products GP may enter into with respect to the
offer and sale of securities covered by this Registration Statement will contain
certain provisions for the indemnification of directors and officers of
Enterprise Products GP and the Underwriters or Sales Agent, as applicable,
against civil liabilities under the Securities Act.
ITEM 16. EXHIBITS.
Reference is made to the Index to Exhibits following the signature pages
hereto, which Index to Exhibits is hereby incorporated into this item.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that the undertakings set forth in clauses (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those clauses is contained in periodic reports
filed with or furnished to the Commission by the registrants pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement
II-3
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions set forth in Item 15, or otherwise, the
registrants have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of the registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by them is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(e) The undersigned registrants hereby undertake to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under section 305(b)(2) of
that Act.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, these
registrants certify that they have reasonable grounds to believe that they meets
all of the requirements for filing on Form S-3 and have duly caused this
registration statement to be signed on their behalf by the undersigned,
thereunto duly authorized, in the City of Houston, State of Texas, on January
28, 2003.
ENTERPRISE PRODUCTS PARTNERS L.P.
By: ENTERPRISE PRODUCTS GP, LLC
As General Partner
By: /s/ O. S. ANDRAS
------------------------------------
O. S. Andras
President and Chief Executive
Officer
ENTERPRISE PRODUCTS OPERATING L.P.
By: ENTERPRISE PRODUCTS GP, LLC
As General Partner
By: /s/ O. S. ANDRAS
------------------------------------
O. S. Andras
President and Chief Executive
Officer
II-5
SIGNATURES
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard H. Bachmann and Michael A. Creel,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement and any additional registration statement
pursuant to Rule 462(b), 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 full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully and to all intents and purposes as
they might or could not in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement on Form S-3 has been signed below by the following
persons in the capacities indicated on the 28th day of January, 2003.
TITLE
SIGNATURE (OF ENTERPRISE PRODUCTS GP, LLC)
--------- --------------------------------
/s/ DAN L. DUNCAN Chairman of the Board and Director
------------------------------
Dan L. Duncan
/s/ O. S. ANDRAS President, Chief Executive Officer and Director
------------------------------ (Principal Executive Officer)
O. S. Andras
/s/ RICHARD H. BACHMANN Executive Vice President, Chief Legal Officer,
------------------------------ Secretary and Director
Richard H. Bachmann
/s/ MICHAEL A. CREEL Executive Vice President and Chief Financial
------------------------------ Officer (Principal Financial Officer)
Michael A. Creel
/s/ MICHAEL J. KNESEK Vice President, Controller and Principal
------------------------------ Accounting Officer
Michael J. Knesek
/s/ RANDA D. WILLIAMS Director
------------------------------
Randa D. Williams
Director
------------------------------
Jorn A. Berget
/s/ DR. RALPH S. CUNNINGHAM Director
------------------------------
Dr. Ralph S. Cunningham
Director
------------------------------
Jerelyn R. Eagan
Director
------------------------------
Augustus Y. Noojin, III
/s/ LEE W. MARSHALL, SR. Director
------------------------------
Lee W. Marshall, Sr.
/s/ RICHARD S. SNELL Director
------------------------------
Richard S. Snell
II-6
INDEX TO EXHIBITS
EXHIBIT
NO. EXHIBIT
------- -------
1.1* -- Underwriting Agreement.
2.1 -- Purchase and Sale Agreement between Coral Energy, LLC and
Enterprise Products Operating L.P. dated September 22, 2000
(incorporated by reference to Exhibit 10.1 to Form 8-K filed
September 26, 2000).
2.2 -- Purchase and Sale Agreement dated January 16, 2002 by and
between Diamond-Koch, L.P. and Diamond-Koch III, L.P. and
Enterprise Products Texas Operating L.P. (incorporated by
reference to Exhibit 10.1 to Form 8-K filed February 8,
2002.
2.3 -- Purchase and Sale Agreement dated January 31, 2002 by and
between D-K Diamond-Koch, L.L.C., Diamond-Koch, L.P. and
Diamond-Koch III, L.P. as Sellers and Enterprise Products
Operating L.P. as Buyer (incorporated by reference to
Exhibit 10.2 to Form 8-K filed February 8, 2002).
2.4 -- Purchase Agreement by and between E-Birchtree, LLC and
Enterprise Products Operating L.P. dated July 31, 2002
(incorporated by reference to Exhibit 2.2 to Form 8-K filed
August 12, 2002).
2.5 -- Purchase Agreement by and between E-Birchtree, LLC and
E-Cypress, LLC dated July 31, 2002 (incorporated by
reference to Exhibit 2.1 to Form 8-K filed August 12, 2002).
3.1 -- First Amended and Restated Limited Liability Company
Agreement of Enterprise Products GP LLC dated as of
September 17, 1999 (incorporated by reference to Exhibit
99.8 to the Form 8-K/A-1 filed October 27, 1999).
3.2 -- Third Amended and Restated Agreement of Limited Partnership
of Enterprise Products Partners L.P. dated May 15, 2002
(incorporated by reference to Exhibit 3.3 to Form 10-Q filed
August 13, 2002).
3.3 -- Amendment No. 1 to Third Amended and Restated Agreement of
Limited Partnership of Enterprise Products Partners L.P.
dated August 7, 2002 (incorporated by reference to Exhibit
3.3 to Form 10-Q filed August 13, 2002).
3.4 -- Amendment No. 2 to Third Amended and Restated Agreement of
Limited Partnership of Enterprise Products Partners L.P.
dated December 17, 2002 (incorporated by reference to
Exhibit 3.5 to Form 8-K filed December 17, 2002).
3.5 -- Amended and Restated Agreement of Limited Partnership of
Enterprise Products Operating L.P. dated as of July 31, 1998
(incorporated by reference to Exhibit 3.2 to Registration
Statement on Form S-1/A filed July 21, 1998).
4.1 -- Indenture dated as of March 15, 2000, among Enterprise
Products Operating L.P., as Issuer, Enterprise Products
Partners L.P., as Guarantor, and First Union National Bank,
as Trustee (incorporated by reference to Exhibit 4.1 to Form
8-K filed March 10, 2000).
4.2* -- Form of Debt Securities.
4.3 -- First Supplemental Indenture dated as of January 22, 2003,
among Enterprise Products Operating L.P., as Issuer,
Enterprise Products Partners L.P., as Guarantor, and
Wachovia Bank, National Association as Trustee (incorporated
by reference to Exhibit 4.2 to Registration Statement on
Form S-4 filed January 28, 2003).
4.4 -- Global Note representing $350 million principal amount of
6.375% Series A Senior Notes due 2013 with attached
Guarantee (incorporated by reference to Exhibit 4.3 to
Registration Statement on Form S-4 filed January 28, 2003).
4.5 -- Form of Global Note representing $350 million principal
amount of 6.375% Series B Senior Notes due 2013 with
attached Guarantee (included in Exhibit 4.3).
4.6 -- Registration Rights Agreement dated as of January 22, 2003,
among Enterprise Products Operating L.P., Enterprise
Products Partners L.P. and the Initial Purchasers named
therein (incorporated by reference to Exhibit 4.5 to
Registration Statement on Form S-4 filed January 28, 2003).
4.7 -- Global Note representing $350 million principal amount of
8.25% Senior Notes due 2005 (incorporated by reference to
Exhibit 4.2 to Form 8-K filed March 10, 2000).
EXHIBIT
NO. EXHIBIT
------- -------
4.8 -- Global Note representing $450 million principal amount of
7.50% Senior Notes due 2011 (incorporated by reference to
Exhibit 4.1 to Form 8-K filed January 25, 2001).
4.9 -- Form of Common Unit certificate (incorporated by reference
to Exhibit 4.1 to Registration Statement on Form S-1/A, File
No. 333-52537, filed July 21, 1998).
4.10 -- $250 Million Multi-Year Revolving Credit Facility dated as
of November 17, 2000, among Enterprise Products Operating
L.P., First Union National Bank, as Administrative Agent,
Bank One, NA, as Documentation Agent, the Chase Manhattan
Bank, as Syndication Agent, and the several banks from time
to time parties thereto, with First Union Securities, Inc.
and Chase Securities Inc. as Joint Lead Arrangers and Joint
Book Managers (incorporated by reference to Exhibit 4.2 to
Form 8-K filed January 24, 2001).
4.11 -- $150 Million 364-Day Revolving Credit Facility November 17,
2000, among Enterprise Products Operating L.P., First Union
National Bank, as Administrative Agent, Bank One, NA, as
Documentation Agent, the Chase Manhattan Bank, as
Syndication Agent, and the several banks from time to time
parties thereto, with First Union Securities, Inc. and Chase
Securities Inc. as Joint Lead Arrangers and Joint Book
Managers (incorporated by reference to Exhibit 4.3 to Form
8-K filed January 24, 2001).
4.12 -- Guaranty Agreement dated as of November 17, 2000, by
Enterprise Products Partners L.P. in favor of First Union
National Bank, as Administrative Agent, with respect to the
$250 Million Multi-Year Revolving Credit Facility included
as Exhibit 4.4 above (incorporated by reference to Exhibit
4.4 to Form 8-K filed January 24, 2001).
4.13 -- Guaranty Agreement dated as of November 17, 2000, by
Enterprise Products Partners L.P. in favor of First Union
National Bank, as Administrative Agent, with respect to the
$150 Million 364-Day Revolving Credit Facility (incorporated
by reference to Exhibit 4.5 to Form 8-K filed January 24,
2001).
4.14 -- First Amendment to Multi-Year Credit Facility dated April
19, 2001 (incorporated by reference to Exhibit 4.12 to Form
10-Q filed May 14, 2001).
4.15 -- Second Amendment to Multi-Year Revolving Credit Facility
dated April 14, 2002 (incorporated by reference to Exhibit
4.14 to Form 10-Q filed May 14, 2002).
4.16 -- Third Amendment to Multi-Year Revolving Credit Facility
dated July 31, 2002 (incorporated by reference to Exhibit
4.1 to Form 10-Q filed August 12, 2002).
4.17 -- Fourth Amendment to Multi-Year Revolving Credit Facility
dated effective as of November 15, 2002 (incorporated by
reference to Exhibit 4.21 to Form 10-Q filed November 13,
2002).
4.18 -- First Amendment to 364-Day Credit Facility dated November 6,
2001, effective as of November 16, 2001 (incorporated by
reference to Exhibit 4.13 to Form 10-Q filed August 13,
2002).
4.19 -- Second Amendment to 364-Day Revolving Credit Facility dated
April 24, 2002 (incorporated by reference to Exhibit 4.15 to
Form 10-Q filed May 14, 2002).
4.20 -- Third Amendment to 364-Day Revolving Credit Facility dated
July 31, 2002 (incorporated by reference to Exhibit 4.2 to
Form 8-K filed August 12, 2002).
4.21 -- Contribution Agreement dated September 17, 1999
(incorporated by reference to Exhibit "B" to Schedule 13D
filed September 27, 1999 by Tejas Energy, LLC).
4.22 -- Registration Rights Agreement dated September 17, 1999
(incorporated by reference to Exhibit "E" to Schedule 13D
filed September 27, 1999 by Tejas Energy, LLC).
4.23 -- Unitholder Rights Agreement dated September 17, 1999
(incorporated by reference to Exhibit "C" to Schedule 13D
filed September 27, 1999 by Tejas Energy, LLC).
5.1** -- Opinion of Vinson & Elkins L.L.P.
8.1** -- Opinion of Vinson & Elkins L.L.P. relating to certain tax
matters.
12.1 -- Computation of ratio of earnings to fixed charges for the
nine months ended September 30, 2002 and each of the five
years ended December 31, 2001, 2000, 1999, 1998 and 1997 for
Enterprise Products Partners L.P. (incorporated by reference
to Exhibit 12.1 to Form 10-Q filed November 13, 2002).
EXHIBIT
NO. EXHIBIT
------- -------
12.2 -- Computation of ratio of earnings to fixed charges for the
nine months ended September 30, 2002 and each of the five
years ended December 31, 2001, 2000, 1999, 1998 and 1997 for
Enterprise Products Operating L.P. (incorporated by
reference to Exhibit 12.2 to Form 10-Q filed November 13,
2002).
23.1** -- Consent of Deloitte & Touche LLP.
23.2** -- Consent of Ernst & Young LLP.
23.3 -- Consent of Vinson & Elkins L.L.P. (included in Exhibits 5.1
and 8.1).
24.1 -- Powers of Attorney (included on signature page).
25.1** -- Form T-1 Statement of Eligibility of Trustee under the Debt
Securities Indenture.
---------------
* Enterprise Products Partners or Enterprise Products Operating will file as an
exhibit to a Current Report on Form 8-K (i) any form of Debt Securities,
Depositary Receipts or Depositary Agreement and (ii) any underwriting
agreement used in connection with an offering of securities.
** Filed herewith.