As filed with the Securities and Exchange Commission on March 23, 2001
Registration No. 333-56082
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Enterprise Products Partners L.P.
Enterprise Products Operating L.P.
(Name of registrant as specified in its charter)
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Delaware 76-0568219
Delaware 76-0568220
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
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, (name, address, including zip
code, of Registrant's principal executive including area code, of agent
offices) for service)
Copies to:
Vinson & Elkins L.L.P.
1001 Fannin
Houston, Texas 77002-6760
(713) 758-2222
Attn: Michael P. Finch
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. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION, DATED MARCH 23, 2001
PROSPECTUS
[Insert Logo]
$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:
o Common Units representing limited partner interests in Enterprise
Products Partners L.P., and
o 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 this Prospectus and any Prospectus
Supplement carefully before you invest.
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.
The Common Units are listed on the New York Stock Exchange under the
trading symbol "EPD." Any Common Units sold pursuant to a Prospectus Supplement
will be listed on that exchange, subject to official notice of issuance. On
March 20, 2001, the closing price of a Common Unit on that exchange was $34.98.
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.
YOU SHOULD CAREFULLY REVIEW "RISK FACTORS" BEGINNING ON PAGE 2 FOR A
DISCUSSION OF THINGS YOU SHOULD CONSIDER WHEN INVESTING IN 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 _____________, 2001.
The information in this offering memorandum is not complete and may be
changed. We may not sell these securities or accept any offer to buy these
securities until we deliver this offering memorandum to you in final form. We
are not using this offering memorandum to ofer to sellt hses securities or to
solicit offers to buy these securities in any place where the offer or sale is
not permitted.
TABLE OF CONTENTS
Page
FORWARD-LOOKING STATEMENTS................................................1
WHERE YOU CAN FIND MORE INFORMATION.......................................2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...........................2
THE COMPANY...............................................................2
RISK FACTORS..............................................................3
USE OF PROCEEDS...........................................................6
RATIO OF EARNINGS TO FIXED CHARGES........................................6
DESCRIPTION OF DEBT SECURITIES............................................7
DESCRIPTION OF COMMON UNITS..............................................17
TAX CONSIDERATIONS.......................................................24
SELLING UNITHOLDERS......................................................34
PLAN OF DISTRIBUTION.....................................................35
LEGAL MATTERS............................................................36
EXPERTS..................................................................36
FORWARD-LOOKING STATEMENTS
The statements in this Prospectus and the documents incorporated by
reference that are not historical facts are forward-looking statements. We have
based these forward-looking statements on our current expectations and
projections about future events based upon our knowledge of facts as of the date
of this Prospectus and our assumptions about future events. Although we believe
that the expectations reflected in these forward-looking statements are
reasonable, we can give no assurance that these expectations will prove to be
correct. These statements are subject to certain risks, uncertainties, and
assumptions. If one or more of these risks or uncertainties materialize, or if
underlying assumptions provide incorrect, 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:
o competitive practices in the industries in which we compete,
o fluctuations in oil, natural gas, and NGL product prices and production,
o operational and systems risks,
o environmental liabilities that are not covered by indemnity or insurance,
o the impact of current and future laws and governmental regulations
(including environmental regulations) affecting the NGL industry in
general, and our operations in particular,
o loss of a significant customer, and
o failure to complete one or more new projects on time or within budget.
We use words like "anticipate," "estimate," "project," "expect," "plan,"
"forecast," "intend," "could," and "may," and similar expressions and statements
regarding our business strategy, plans and objectives for future operations to
help identify forward-looking statements. We have no obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
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WHERE YOU CAN FIND MORE INFORMATION
Enterprise Products Partners L.P. and Enterprise Products Operating L.P.
file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. 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
(800) SEC-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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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 considered to be part of this Prospectus, and later
information that we file with the Commission will automatically update and
supersede this information. 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 of 1934
until our offering is completed:
(1) Annual Report on Form 10-K for the fiscal year ended December 31, 2000;
(2) Current Reports on Form 8-K filed with the Commission on January 25,
2001 and February 2, 2001; and
(3) 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) 880-2724.
THE COMPANY
Enterprise Products Partners L.P. (the "Company") is a publicly traded
master 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. (the "Operating Partnership") and its
subsidiaries and joint ventures. Enterprise Products GP, LLC (the "General
Partner") is the general partner of the Company and the Operating Partnership,
owning 1.0% and 1.0101% equity interests, respectively, in those partnerships.
We are a leading integrated North American provider of processing and
transportation services to domestic producers of natural gas, domestic and
foreign producers of natural gas liquids ("NGLs") and other liquid hydrocarbons
and domestic and foreign consumers of NGL and liquid hydrocarbon products. We
manage a fully integrated and diversified portfolio of midstream energy assets.
We own and operate:
o natural gas processing plants;
o NGL fractionation facilities;
o storage facilities;
o pipelines;
o propylene production facilities;
o rail transportation facilities; and
o a methyl tertiary butyl ether ("MTBE") production facility.
Certain of these facilities are owned jointly by us and other industry
partners, either through co-ownership arrangements or joint ventures. Some of
these jointly owned facilities are operated by other owners.
Our principal executive office is located at 2727 North Loop West, Houston,
Texas 77008-1038, and our telephone number is (713) 880-6500.
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Recent Significant Developments
Manta Ray, Nautilus and Nemo Pipeline Systems. On January 29, 2001, we
acquired ownership interests in three natural gas pipeline systems and related
equipment located offshore Louisiana in the Gulf of Mexico from affiliates of El
Paso Energy Corp. for approximately $88 million in cash. These systems total
approximately 360 miles of pipeline. We acquired a 25.67% interest in each of
the Manta Ray and Nautilus pipeline systems and a 33.92% interest in the Nemo
pipeline system. Affiliates of Shell Oil Company own an interest in all three
systems, and an affiliate of Marathon Oil Company owns an interest in the Manta
Ray and Nautilus systems. The Manta Ray system comprises approximately 237 miles
of pipeline with a capacity of 750 million cubic fee ("MMcf") per day and
related equipment, the Nautilus system comprises approximately 101 miles of
pipeline with a capacity of 600 MMcf per day, and the Nemo system, when
completed in the fourth quarter of 2001, will comprise approximately 24 miles of
pipeline with a capacity of 300 MMcf per day.
Stingray Pipeline System and Related Facilities. On January 29, 2001, we
and an affiliate of Shell acquired, through a 50/50 owned entity, the Stingray
natural gas pipeline system and related facilities from an affiliate of El Paso
for approximately $50 million in cash. The Stingray system comprises
approximately 375 miles of pipeline with a capacity of 1.2 billion cubic feet
("Bcf") per day offshore Louisiana in the Gulf of Mexico. Shell will be
responsible for the commercial and physical operations of the Stingray system.
Acadian Gas LLC. On September 25, 2000, we announced that we had executed a
definitive agreement to acquire Acadian Gas, LLC ("Acadian Gas") from an
affiliate of Shell for $226 million in cash, inclusive of working capital.
Acadian Gas' assets are comprised of the 438-mile Acadian, 577-mile Cypress and
27-mile Evangeline natural gas pipeline systems, which together have over one
Bcf per day of capacity. The system includes a leased natural gas storage
facility at Napoleonville, Louisiana. The Acadian Gas system, located in South
Louisiana, will integrate with our Gulf Coast natural gas processing and NGL
fractionation, pipeline and storage system. We expect to close the acquisition
in the first quarter of 2001.
Lou-Tex NGL Pipeline. In November 2000, we completed construction of a
wholly-owned, 206-mile, 12" NGL pipeline from Breaux Bridge, Louisiana to Mont
Belvieu, Texas. The Lou-Tex NGL pipeline transports mixed NGLs, NGL products and
mixed propane/propylene streams between major markets in Louisiana and Texas.
RISK FACTORS
An investment in the securities involves a significant degree of risk,
including the risks described below. You should carefully consider the following
risk factors and the other information in this Prospectus before deciding to
invest in the securities. The risks described below are not the only ones facing
us. This Prospectus also contains forward-looking statements that involve risks
and uncertainties. See "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.
Risks Inherent in Our Business
The Profitability of Our Operations Depends Upon the Spread Between Natural
Gas Prices and NGL.
Prices for natural gas and NGLs are subject to fluctuations in response to
changes in supply, market uncertainty and a variety of additional factors that
are beyond our control. These factors include:
o the level of domestic production;
o the availability of imported oil and gas;
o actions taken by foreign oil and gas producing nations,;
o the availability of transportation systems with adequate capacity;
o the availability of competitive fuels;
o fluctuating and seasonal demand for oil, gas and NGLs;
o conservation and the extent of governmental regulation of production
and the overall economic environment.
A decrease in the difference between natural gas and NGL prices results in
lower margins on volumes processed.
The Profitability of Our Operations Depends Upon the Demand and Prices for
Our Products and Services.
The products that we process are principally used as feedstocks in
petrochemical manufacturing and in the production of motor gasoline and as fuel
for residential and commercial heating. A reduction in demand for our products
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by the petrochemical, refining or heating industries, whether because of general
economic conditions, reduced demand by consumers for the end products made with
NGL products, increased competition from petroleum-based products due to pricing
differences, adverse weather conditions, government regulations affecting prices
and production levels of natural gas or the content of motor gasoline or other
reasons, could adversely affect our results of operations.
Ethane. Ethane is primarily used in the petrochemical industry as feedstock
for ethylene, one of the basic building blocks for a wide range of plastics and
other chemical products. Although ethane is typically separated from the natural
gas stream at gas processing plants, if natural gas prices increase
significantly in relation to NGL product prices or if the demand for ethylene
falls, it may be more profitable for natural gas producers to leave the ethane
in the natural gas stream to be burned as fuel than to extract the ethane from
the mixed NGL stream for sale as an ethylene feedstock thereby reducing the
volume of NGLs for fractionation.
Propane. Propane is used both as a petrochemical feedstock in the
production of ethylene and propylene and as a heating, engine and industrial
fuel. The demand for propane as a heating fuel is significantly affected by
weather conditions. The volume of propane sold is at its highest during the
six-month peak heating season of October through March.
Isobutane. Isobutane is predominantly used in refineries to produce
alkylates to enhance octane levels and in the production of MTBE, which is used
in motor gasoline. Accordingly, any action that reduces demand for motor
gasoline in general or MTBE in particular would similarly reduce demand for
isobutane. Further, we purchase a portion of the normal butane feedstock that we
convert into isobutane for our merchant customers in the spot and import
markets. On those occasions where the pricing differential between isobutane and
normal butane (i.e., the "isobutane spread") is narrow, we may find it more
economical to purchase isobutane on the spot market for delivery to customers
than to process the normal butane in our inventory. We frequently retain the
normal butane in our inventory until pricing differentials improve or until
product prices increase. However, if the price of normal butane declines, our
inventory may decline in value. During periods in which isobutane spreads are
narrow or inventory values are high relative to current prices for normal butane
or isobutane, our operating margin from selling isobutane will be reduced.
MTBE. The production of MTBE is driven by oxygenated fuels programs enacted
under the federal Clean Air Amendments of 1990 and other legislation. Any
changes to these programs that enable localities to elect to not participate in
these programs, lessen the requirements for oxygenates or favor the use of
non-isobutane based oxygenated fuels would reduce the demand for MTBE. On March
25, 1999, the Governor of California ordered the phase-out of MTBE in California
by the end of 2002 due to allegations by several public advocacy and protest
groups that MTBE contaminates water supplies, causes health problems and has not
been as beneficial in reducing air pollution as originally contemplated. In
addition, legislation to amend the federal Clean Air Act has been introduced in
the U.S. House of Representatives to ban the use of MTBE as a fuel additive
within three years. Legislation introduced in the U.S. Senate would eliminate
the Clean Air Act's oxygenate requirement in order to foster the elimination of
MTBE in fuel. No assurance can be given as to whether this or similar
legislation ultimately will be adopted or whether the U.S. Congress or the EPA
might take steps to override the MTBE ban in California.
Propylene. Propylene is sold to petrochemical companies for a variety of
uses, principally for the production of polypropylene. Propylene is subject to
rapid and material price fluctuations. Any downturn in the domestic or
international economy could cause reduced demand for, and result in an
oversupply of, propylene, which could cause a reduction in the volumes of
propylene that we produce and expose our investment in inventories of
propane/propylene mix to pricing risk due to requirements for short-term price
discounts in the spot or short-term propylene markets.
The Profitability of Our Operations Depends upon the Availability of a
Supply of NGL Feedstock.
Our profitability is materially impacted by the volume of NGLs processed at
our facilities. A material decrease in natural gas production or crude oil
refining, as a result of depressed commodity prices or otherwise, or a decrease
in imports of mixed butanes, could result in a decline in the volume of NGLs
delivered to our facilities for processing, thereby reducing revenue and
operating income.
We Depend on Certain Key Customers and Contracts.
We currently derive a significant portion of our revenues from contracts
with certain key customers. The loss of these or other significant customers
could adversely affect our results of operations. Lyondell Worldwide accounted
for approximately 43.2% of our isomerization volumes in 2000. Our current
contract with Lyondell has a ten-year term which expires in December 2009. Our
unconsolidated affiliate, Belvieu Environmental Fuels ("BEF"), has an agreement
with Sunoco pursuant to which Sunoco is required to purchase all of BEF's MTBE
production through September 2004. Our contract for sales of high purity
propylene to Basell accounted for approximately 36.4% of 2000 production. We are
a party to a natural gas processing contract with Shell and certain of its
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affiliates which provides us with the right to process substantially all natural
gas produced from the Shell entities' Gulf of Mexico properties for the next 20
years.
We Experience Significant Competition.
We face competition from oil, natural gas, natural gas processing and
petrochemical companies. The principal areas of competition include obtaining
gas supplies for processing operations, obtaining supplies of raw product for
fractionation and the marketing and transportation of natural gas liquids.
Competition typically arises as a result of the location and operating
efficiency of facilities, the reliability of services and price and delivery
capabilities. Our NGL fractionation facilities at Mont Belvieu compete for
volumes of mixed NGLs with three other fractionators at Mont Belvieu. In
addition, certain major producers fractionate NGLs for their own account in
captive facilities. The Mont Belvieu fractionation facilities also compete on a
more limited basis with two fractionators in Conway, Kansas. We also compete
with large, integrated energy and petrochemical companies in our isomerization,
MTBE, propylene and natural gas processing businesses. Our customers who are
significant producers or consumers of NGLs or natural gas may develop their own
processing facilities in lieu of using our services or co-investing with us in
new projects. In addition, certain of our competitors may have advantages in
competing for acquisitions or other new business opportunities because of their
financial resources and access to NGL supplies.
We Are Subject to Operating and Litigation Risks Which May Not Be Covered
by Insurance.
Our operations are subject to all operating hazards and risks normally
incidental to processing, storing and transporting, and otherwise providing for
use by third parties, natural gas, NGLs, propane/propylene mix and MTBE. As a
result, we may be a defendant in various legal proceedings and litigation
arising in the ordinary course of business. We cannot assure you that the
insurance we maintain will be adequate to protect us from all material expenses
related to potential future claims for personal and property damage.
Our Businesses are Subject to Governmental Regulation With Respect to
Environmental, Safety and Other Regulatory Matters.
Our business is subject to the jurisdiction of governmental agencies with
respect to a wide range of environmental, safety and other regulatory matters.
We could be adversely affected by increased costs due to more strict pollution
control requirements or liabilities resulting from non-compliance with required
operating or other regulatory permits. New environmental regulations might
adversely impact our products and activities, including processing, storage and
transportation. Federal and state agencies also could impose additional safety
requirements, any of which could affect profitability. In addition, there are
risks of accidental releases or spills associated with our operations, and we
cannot assure you that material costs and liabilities will not be incurred,
including those relating to claims for damages to property and persons.
Our operations are subject to the Clean Air Act and comparable state
statutes. Amendments to the Clean Air Act were adopted in 1990 and contain
provisions that may result in the imposition of certain pollution control
requirements with respect to air emissions from the operations of our pipelines
and processing and storage facilities. For example, our Mont Belvieu processing
and storage facility is located in the Houston-Galveston ozone non-attainment
area, which is categorized as a "severe" area and, therefore, is subject to more
restrictive regulations for the issuance of air permits for new or modified
facilities. The Houston-Galveston area is among nine areas in the country in
this "severe" category. Another consequence of this non-attainment status and
efforts to eliminate it is the potential imposition of lower limits on the
emissions of certain pollutants, particularly oxides of nitrogen which are
produced through combustion, as in the gas turbines at the Mont Belvieu
processing facility. Regulations to achieve attainment status and imposing new
requirements on existing facilities in the Houston-Galveston area were issued by
the Texas Natural Resource Conservation Commission in December, 2000. These
regulations mandate 90% reductions in oxides of nitrogen emissions from point
sources, such as the gas turbines at our Mont Belvieu processing facility. The
technical practicality and economic reasonableness of requiring existing gas
turbines to achieve such reductions, as well as the substantive basis for
setting the 90% reduction requirements, have been challenged under state law in
a suit we filed as part of a coalition of major Houston-Galveston area
industries. If these regulations stand as issued, they would require substantial
redesign and modification of these facilities to achieve the mandated
reductions; however, the precise impact of these requirements on our operations
cannot be determined until this litigation is resolved.
We Depend Upon Our Key Personnel.
We believe that our success has been dependent to a significant extent upon
the efforts and abilities of our senior management team and in particular Dan
Duncan, Chairman of the Board (age 68) and O. S. Andras, President and Chief
Executive Officer (age 65). The simultaneous deaths or retirement of Mr. Duncan
and Mr. Andras could have an adverse impact on our operations. However, in
recent years we have added to the key members of our senior management team,
5
thereby reducing the potential consequences that could result from losing the
services of both Mr. Duncan and Mr. Andras within a short time. We do not
maintain any life insurance for these persons.
Risks Inherent in an Investment in the Securities.
The prospectus supplement accompanying this prospectus will describe any
additional risk factors inherent in an investment in the particular securities
being offering.
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:
Company Year Ended December 31,
-----------------------------------------------------------------
1996 1997 1998 1999 2000
------- ----------- ----------- ----------- ---------
Enterprise Products Partners L.P.......... 2.38 2.11 1.16 5.84 6.41
Enterprise Products Operating L.P......... 2.40 2.17 1.16 5.90 6.47
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:
o pre-tax income from continuing operations before adjustment for
minority interests in consolidated subsidiaries or income or loss
from equity investees;
o fixed charges;
o amortization of capitalized interest;
o distributed income of equity investees; and
o 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:
o interest capitalized;
o preference security dividend requirements of consolidated
subsidiaries; and
o minority interest in pre-tax income of subsidiaries that have not
incurred fixed charges.
The term "fixed charges" means the sum of the following:
o interest expensed and capitalized;
o amortized premiums, discounts and capitalized expenses related to
indebtedness;
6
o an estimate of the interest within rental expenses (equal to
one-third of rental expense); and
o preference security dividend requirements of consolidated
subsidiaries.
DESCRIPTION OF DEBT SECURITIES
The debt securities will be issued under an Indenture dated as of March 15,
2000 (the "Indenture"), among the Operating Partnership, as issuer, the Company,
as guarantor, and 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.
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.
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 "Description of Debt Securities - 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:
o the form and title of the debt securities;
o the total principal amount of the debt securities;
o the portion of the principal amount which will be payable if the
maturity of the debt securities is accelerated;
o the currency or currency unit in which the debt securities will
be paid, if not U.S. dollars;
o 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;
o the dates on which the principal of the debt securities will be
payable;
o the interest rate which the debt securities will bear and the
interest payment dates for the debt securities;
o any optional redemption provisions;
o any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities;
o any changes to or additional Events of Default or covenants;
o whether the debt securities are to be issued as Registered
Securities or Bearer Securities or both; and any special
provisions for Bearer Securities;
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o the subordination, if any, of the debt securities and any changes
to the subordination provisions of the Indenture; and
o 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:
o Bearer Securities,
o 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,
o debt securities with respect to which principal, premium or
interest is payable in a foreign or composite currency,
o 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
o 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 will be
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 will not require the maintenance of any
financial ratios or specified levels of net worth or liquidity. In addition, the
Indenture will 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.
Limitations on Liens. The Indenture will provide 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
8
equally and ratably with, or prior to, such debt so long as such debt shall be
so secured. "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 (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.
"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;
9
(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 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.
"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 will provide 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;
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(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 (other than the debt securities) secured by liens
other than Permitted Liens upon Principal Property, do not exceed 10% of
Consolidated Net Tangible Assets.
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.
Merger, Consolidation or Sale of Assets. The Indenture will provide 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
11
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 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.
12
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 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;
13
(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
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 and Consolidation"), 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.
14
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
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, Delivery and Form
The debt securities of a series may be issued in whole or in part in the
form of one or more global certificates that will be deposited with a depositary
identified in a prospectus supplement.
Unless otherwise stated in any prospectus supplement, The Depository Trust
Company, New York, New York ("DTC") will act as depositary. Book-entry debt
securities of a series will be issued in the form of a global security that will
be deposited with DTC. This means that we will not issue certificates to each
holder. One global security will be issued to DTC who will keep a computerized
record of its participants (for example, your broker) whose clients have
15
purchased the debt securities. The participant will then keep a record of its
clients who purchased the debt securities. Unless it is exchanged in whole or in
part for a certificated securities, a global security may not be transferred;
except that DTC, its nominees and their successors may transfer a global
security as a whole to one another.
Beneficial interests in global securities will be shown on, and transfers
of global securities will be made only through, records maintained by DTC and
its participants.
DTC has provided us the following information: DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking organization"
with the meaning of the New York Banking Law, a member of the United States
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants ("Direct Participants") deposit with DTC. DTC
also records the settlement among Direct Participants of securities
transactions, such as transfers and pledges, in deposited securities through
computerized records for Direct Participant's accounts. This eliminates the need
to exchange certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations.
DTC's book-entry system is also used by other organizations such as
securities brokers and dealers, banks and trust companies that work through a
Direct Participant. The rules that apply to DTC and its participants are on file
with the Commission.
DTC is owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., The American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc.
We will wire principal and interest payments to DTC's nominee. We and the
Trustee will treat DTC's nominee as the owner of the global securities for all
purposes. Accordingly, we, the Trustee and any paying agent will have no direct
responsibility or liability to pay amounts due on the global securities to
owners of beneficial interests in the global securities.
It is DTC's current practice, upon receipt of any payment of principal or
interest, to credit Direct Participants' accounts on the payment date according
to their respective holdings of beneficial interests in the global securities as
shown on DTC's records. In addition, it is DTC's current practice to assign any
consenting or voting rights to Direct Participants whose accounts are credited
with debt securities on a record date, by using an omnibus proxy. Payments by
participants to owners of beneficial interests in the global securities, and
voting by participants, will be governed the customary practices between the
participants and owners of beneficial interests, as is the case with debt
securities held for the account of customers registered in "street name."
However, payments will be the responsibility of the participants and not of DTC,
the Trustee or us.
Debt securities represented by a global security will be exchangeable for
certificated securities with the same terms in authorized denominations only if:
o DTC notifies us that it is unwilling or unable to continue as
depositary or if DTC ceases to be a clearing agency registered
under applicable law and a successor depositary is not appointed
by us within 90 days; or
o we determine not to require all of the debt securities of a
series to be represented by a global security and notify the
Trustee of our decision.
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
16
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
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.
The Trustee
We may appoint a separate Trustee for any series of debt securities. As
used herein in the description of a series of debt securities, the term
"Trustee" refers to the Trustee appointed with respect to the series of debt
securities.
We may maintain banking and other commercial relationships with the Trustee
and its affiliates in the ordinary course of business, and the Trustee may own
debt securities.
Governing Law
The Indenture provides that it and the debt securities will be governed by,
and construed in accordance with, the laws of the State of New York.
DESCRIPTION OF COMMON UNITS
The Units
As of December 31, 2000, we have outstanding 46,524,515 common units,
21,409,870 subordinated units and 16,500,000 convertible special units. The
common units, the subordinated units and the convertible special units represent
limited partner interests in the Company, which entitle the holders thereof to
participate in Company distributions and exercise the rights or privileges
available to limited partners under our Partnership Agreement. A summary of the
important provisions of our Partnership Agreement and a copy of our Partnership
Agreement are included in our reports filed with the Commission.
The outstanding common units are listed on the New York Stock Exchange
under the symbol "EPD." Any additional common units we issue will also be listed
on the NYSE.
Cash Distribution Policy
General
We distribute to our partners, on a quarterly basis, all of our available
cash. Available cash is defined in the 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 (1) provide for the proper
conduct of the Company's business, (2) comply with applicable law or any Company
debt instrument or other agreement (including reserves for future capital
expenditures and for our future credit needs) or (3) provide funds for
distributions to unitholders and the General Partner in respect of any one or
more of the next four quarters.
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Cash distributions are characterized as distributions from either operating
surplus or capital surplus. This distinction affects the amounts distributed to
unitholders relative to the General Partner, and under certain circumstances it
determines whether holders of subordinated units receive any distributions. See
"-Quarterly Distributions of Available Cash."
Operating surplus is defined in the Partnership Agreement and refers
generally to (a) the sum of (1) the cash balance of the Company on July 31,
1998, the closing date of our initial public offering of common units (excluding
$46.5 million spent from the proceeds of that offering on new projects), (2) all
cash receipts of the Company from its operations since July 31, 1998 (excluding
certain cash receipts that the General Partner designates as operating surplus),
less (b) the sum of (1) all Company operating expenses, (2) debt service
payments (including reserves therefor but not including payments required in
connection with the sale of assets or any refinancing with the proceeds of new
indebtedness or an equity offering), (3) maintenance capital expenditures and
(4) reserves established for future Company operations, in each case since July
31, 1998. 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).
To avoid the difficulty of trying to determine whether available cash
distributed by the Company is from operating surplus or from capital surplus,
all available cash distributed by the Company 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 $22.00 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.
The subordinated units are a separate class of interests in the Company,
and the rights of holders of such interests to participate in distributions to
partners differ from the rights of the holders of common units. For any given
quarter, any available cash will be distributed to the General Partner and to
the holders of common units, and may also be distributed to the holders of
subordinated units depending upon the amount of available cash for the quarter,
the amount of common unit arrearages, if any, and other factors discussed below.
A total of 14,500,000 convertible 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 between August 1, 2000 and August 1, 2002.
On August 1, 2000, 1,000,000 of the convertible special units 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 6,000,000 more
convertible 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. These additional contingent units would convert into an
equal number of common units between August 1, 2002 and August 1, 2003. On
August 1, 2000, 3,000,000 of these contingent convertible special units were
issued to the seller under our foregoing agreement.
The incentive distributions represent the right of the General Partner to
receive an increasing percentage of quarterly distributions of available cash
from operating surplus after the target distribution levels have been achieved.
The target distribution levels are based on the amounts of available cash from
operating surplus distributed in excess of the payments made with respect to the
minimum quarterly distribution of $0.45 per unit and common unit arrearages, if
any, and the related 2% distribution to the General Partner.
Subject to certain limitations contained in the Partnership Agreement, the
Company has the authority to issue additional common units or other equity
securities of the Company for such consideration and on such terms and
conditions as are established by the General Partner in its sole discretion and
without the approval of the unitholders. It is possible that the Company will
fund acquisitions of assets or other capital projects through the issuance of
additional common units or other equity securities of the Company. Holders of
any additional common units issued by the Company will be entitled to share
equally with the then-existing holders of common units in distributions of
available cash by the Company. In addition, the issuance of additional common
units may dilute the value of the interests of the then-existing holders of
common units in the net assets of the Company. The General Partner will be
required to make an additional capital contribution to the Company or the
Operating Partnership in connection with the issuance of additional common
units.
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The discussion in the sections below indicates the percentages of cash
distributions required to be made to the General Partner and the holders of
common units and the circumstances under which holders of subordinated units are
entitled to receive cash distributions and the amounts thereof.
Quarterly Distributions of available cash
The Company will make distributions to its partners with respect to each
calendar quarter of the Company prior to its liquidation in an amount equal to
100% of its available cash for such quarter. The Company expects to make
distributions of all available cash within approximately 45 days after the end
of each quarter to holders of record on the applicable record date. The minimum
quarterly distribution and the target distribution levels are also subject to
certain other adjustments as described below under "-Distributions from Capital
Surplus" and "-Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels."
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 $0.45 per unit, plus any
common unit arrearages, prior to any distribution of available cash to the
holders of subordinated units. Upon expiration of the Subordination Period, all
subordinated units will be converted on a one-for-one basis into common units
and will participate pro rata with all other common units in future
distributions of available cash. Under certain circumstances, up to 50% of the
subordinated units may convert into common units prior to the expiration of the
Subordination Period. 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.
Distributions from operating surplus during Subordinated Period
The Subordination Period will generally extend until the first day of any
quarter beginning after June 30, 2003 in respect of which (1) 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, (2) 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 common units and subordinated units
that were outstanding during such period on a fully diluted basis and the
related distribution on the general partner interests in the Company and the
Operating Partnership and (3) there are no outstanding common unit arrearages.
Prior to the end of the Subordination Period, a portion of the subordinated
units will convert into common units on a one-for-one basis on the first day
after the record date established for the distribution in respect of any quarter
ending on or after (a) June 30, 2001 with respect to 5,352,468 subordinated
units, and (b) June 30, 2002 with respect to 5,352,468 subordinated units in
respect of which (1) 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, (2) 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 $0.45 per unit on all of the common units and subordinated
units that were outstanding during such period on a fully diluted basis and the
related distribution on the general partner interests in the Company and the
Operating Partnership and (3) there are no outstanding common unit arrearages;
provided, however, that the early conversion of the second 5,352,468
subordinated units may not occur until at least one year following the early
conversion of the first 5,352,468 subordinated units.
Upon expiration of the Subordination Period, all remaining subordinated
units will convert into common units on a one-for-one basis and will thereafter
participate, pro rata, with the other common units in distribution on available
cash. In addition, if the General Partner is removed as the general partner of
the Company under circumstances where cause does not exist and units held by the
General Partner and its affiliates are not voted in favor of such removal, (1)
the Subordination Period will end and all outstanding subordinated units will
immediately convert into common units on a one-for-one basis, (2) any existing
common unit arrearages will be extinguished and (3) the General Partner will
have the right to convert its general partner interest into common units or to
receive cash in exchange for such interests.
Adjusted operating surplus for any period generally means operating surplus
generated during such period, less (a) any net increase in working capital
borrowings during such period and (b) any net reduction in cash reserves for
operating expenditures during such period not relating to an operating
expenditure made during such period, and plus (x) any net decrease in working
capital borrowings during such period and (y) any net increase in cash reserves
for operating expenditures during such period required by any debt instrument
19
for the repayment of principal, interest or premium. Operating surplus generated
during a period is equal to the difference between (1) the operating surplus
determined at the end of such period and (2) the operating surplus determined at
the beginning of such period.
Distributions by the Company of available cash from operating surplus with
respect to any quarter during the Subordination Period will be made 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 $0.45 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 common
unit an amount equal to $0.45 per unit; and
thereafter, in the manner described in "-Incentive Distributions-
Hypothetical Annualized Yield" below.
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 in distributions from the Company and the Operating
Partnership of the General Partner (exclusive of its or any of its affiliates'
interests as holders of common units or subordinated units). The General Partner
owns a 1% general partner interests in the Company and a 1.0101% general partner
interests in the Operating Partnership. With respect to any common unit, the
term "common unit arrearages" refers to the amount by which the minimum
quarterly distribution of $0.45 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 from Operating Surplus after Subordination Period
Distributions by the Company of available cash from the operating surplus
with respect to any quarter after the Subordination Period will be made in the
following manner:
first, 98% to all unitholders, pro rata and 2% to the General Partner,
until there has been distributed in respect of each unit an amount equal to
$0.45; and
thereafter, in the manner described in "- Incentive Distributions" below.
Incentive Distributions
For any quarter for which available cash from operating surplus is
distributed to the Common and subordinated unitholders in an amount equal to
$0.45 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 unitholders, pro rata, and 2% to the General Partner,
until the unitholders have received (in addition to any distributions to common
unitholders to eliminate common unit arrearages) a total of $0.506 for such
quarter in respect of each outstanding unit ( the "First Target Distribution");
second, 85% to all unitholders, pro rata, and 15% to the General Partner,
until the unitholders have received (in addition to any distribution to common
unitholders to eliminate common unit arrearages) a total of $0.617 for such
quarter in respect of each outstanding unit (the "Second Target Distribution");
third, 75% to all unitholders, pro rata, and 25% to the General Partner,
until the unitholders have received ( in addition to any distributions to common
unitholders to eliminate common unit arrearages) a total of $0.784 for such
quarter in respect of each outstanding unit ( the "Third Target Distribution");
and
thereafter, 50% to all unitholders, pro rata, and 50% to the General
Partner.
The distributions to the General Partner set forth above that are in excess
of its aggregate 2% general partner interest represent the Incentive
Distributions.
Distributions from Capital Surplus
Distributions by the Company of available cash from capital surplus will be
made in the following manner:
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first, 98% to all unitholders, pro rata, and 2% to the General Partner,
until the Company has 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 $22.00;
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 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.
As a distribution of available cash from capital surplus is made, it is
treated as if it were a repayment of the initial unit price of $22.00 per unit.
To reflect such repayment, the minimum quarterly distribution of $0.45 per unit
and the target distribution levels will be adjusted downward by multiplying each
such amount by a fraction, the numerator of which is the unrecovered capital of
the common units immediately after giving effect to such repayment and the
denominator of which is the unrecovered capital of the common units immediately
prior to such repayment. This adjustment to the minimum quarterly distribution
may make it more likely that subordinated units will be converted into common
units (whether pursuant to the termination of the Subordination Period or to the
provisions permitting early conversion of some subordinated units) and may
accelerate the dates at which such conversions occur.
When "payback" of the initial unit price has occurred, i.e., when the
unrecovered capital of the common units is zero (and any accrued common unit
arrearages have been paid), the minimum quarterly distribution and each of the
target distribution levels will have been reduced to zero for subsequent
quarters. Thereafter, all distributions of available cash from all sources will
be treated as if they were from operating surplus. Because the minimum quarterly
distribution and the target distribution levels will have been reduced to zero,
the General Partner will be entitled thereafter to receive 50% of all
distributions of available cash in its capacity as General Partner (in addition
to any distributions to which it or its affiliates may be entitled as holders of
units).
Distributions of available cash from capital surplus will not reduce the
minimum quarterly distribution or target distribution levels for the quarter
with respect to which they are distributed.
Adjustment of 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, the minimum quarterly distribution, the target distribution levels, the
unrecovered capital, the number of additional common units issuable during the
Subordination Period without a unitholder vote, the number of common units
issuable upon conversion of the subordinated units and other amounts calculated
on a per unit basis will be proportionately adjusted upward or downward, as
appropriate, in the event of any combination or subdivision of common units
(whether effected by a distribution payable in common units or otherwise), but
not by reason of the issuance of additional common units for cash or property.
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.
The minimum quarterly distribution and the target distribution levels may
also be adjusted if legislation is enacted or if existing law is modified or
interpreted by the relevant governmental authority in a manner that causes the
Company to become taxable as a corporation or otherwise subjects the Company to
taxation as an entity for federal, state or local income tax purposes. In such
event, the minimum quarterly distribution and the target distribution levels
would be reduced to an amount equal to the product of (1) the minimum quarterly
distribution and each of the target distribution levels, respectively,
multiplied by (2) one minus the sum of (x) the maximum effective federal income
tax rate to which the Company is then subject as an entity plus (y) any increase
that results from such legislation in the effective overall state and local
income tax rate to which the Company is subject as an entity for the taxable
year in which such event occurs (after taking into account the benefit of any
deduction allowable for federal income tax purposes with respect to the payment
of state and local income taxes). For example, assuming the Company was not
previously subject to state and local income tax, if the Company were to become
taxable as an entity for federal income tax purposes and the Company became
subject to a maximum marginal federal, and effective 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 the amount thereof immediately prior to
such adjustment.
Distributions of Cash upon Liquidation
Following the commencement of the dissolution and liquidation of the
Company, assets will be sold or otherwise disposed of from time to time and the
21
partners' capital account balances will be adjusted to reflect any resulting
gain or loss in the manner provided in the Partnership Agreement. The proceeds
of such liquidation will first be applied to the payment of creditors of the
Company in the order of priority provided in the Partnership Agreement and by
law and, thereafter, be distributed to the unitholders and the General Partner
in accordance with their respective capital account balances as so adjusted.
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 the liquidation of the Company, to the extent required to permit common
unitholders to receive their unrecovered capital plus any unpaid common unit
arrearages. Thus, net losses recognized upon liquidation of the Company 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
liquidation of the Company 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.
If the liquidation of the Company occurs before the end of the
Subordination Period, any net gain (or unrealized gain attributable to assets
distributed in kind) will be allocated 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
(1) the unrecovered capital in respect of such common unit, (2) the amount of
the minimum quarterly distribution for the quarter during which liquidation of
the Company occurs and (3) any unpaid common unit arrearages in respect of such
common unit;
third, 98% to the holders of subordinated units, pro rata, and 2% to the
General Partner, until the capital account for each common unit is equal to the
sum of (1) the unrecovered capital in respect of such common unit, (2) the
amount of the minimum quarterly distribution for the quarter during which
liquidation of the Company occurs and (3) any unpaid common unit arrearages in
respect of such common unit;
fourth, 98% to all unitholders, pro rata, and 2% to the General Partner,
until there has been allocated under this paragraph fourth an amount per unit
equal to (a) the sum of the excess of the First Target Distribution per unit
over the minimum quarterly distribution per unit for each quarter of the
Company's existence, less (b) 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 the Company's
existence;
fifth, 85% to all unitholders, pro rata, and 15% to the General Partner,
until there has been allocated under this paragraph fifth an amount per unit
equal to (a) the sum of the excess of the Second Target Distribution per unit
over the First Target Distribution per unit for each quarter of the Company's
existence, less (b) 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 the Company's existence;
sixth, 75% to all unitholders, pro rata, and 25% to the General Partner,
until there has been allocated under this paragraph sixth an amount per unit
equal to (a) the sum of the excess of the Third Target Distribution per unit
over the Second Target Distribution per unit for each quarter of the Company's
existence, less (b) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the Second Target
Distribution per unit that were distributed 75% to the unitholders, pro rata,
and 25% to the General Partner for each quarter of the Company's existence; and
thereafter, 50% to all unitholders, pro rata, and 50% to the General
Partner.
If the liquidation occurs after the Subordination Period, the distinction
between common units and subordinated units will disappear, so that clauses (ii)
and (iii) of paragraph second above and all of paragraph third above will no
longer be applicable.
Upon liquidation of the Company, any loss will generally be allocated to
the General Partner and the unitholders as follows:
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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, 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.
In addition, interim adjustments to capital accounts will be made at the
time the Company issues additional partnership interests in the Company or makes
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 the Company, distributions of
property by the Company, or upon liquidation of the Company, will be allocated
in a manner which results, to the extent possible, in the capital account
balances of the General Partner equaling the amount which would have been the
General Partner's capital account balances if no prior positive adjustments to
the capital accounts had been made.
Transfer Agent and Registrar
ChaseMellon Shareholder Services, LLC is our registrar and transfer agent
for the common units. You may contact them at the following address:
Mellon Investor Services LLC
Overpeck Center
85 Challenger Road
Ridgefield Park, NJ 07760
All fees charged by the transfer agent for transfers of common units will
be borne by us and not by the holders of common units, except that fees similar
to those customarily paid by stockholders for surety bond premiums to replace
lost or stolen certificates, taxes and other governmental charges, special
charges for services requested by a holder of a common unit and other similar
fees or charges will be borne by the affected holder.
Transfer of Common Units
Until a common unit has been transferred on the books of the Company, the
Company and the transfer agent, notwithstanding any notice to the contrary, may
treat the record holder thereof as the absolute owner for all purposes, except
as otherwise required by law or stock exchange regulations. Any transfers of a
common unit will not be recorded by the transfer agent or recognized by the
Company unless the transferee executes and delivers a transfer application. By
executing and delivering a transfer application (the form of which is set forth
on the reverse side of the certificates representing the common units), the
transferee of common units (i) becomes the record holder of such common units
and shall constitute an assignee until admitted into the Company as a substitute
limited partner, (ii) automatically requests admission as a substituted limited
partner in the Company, (iii) agrees to be bound by the terms and conditions of,
and executes, the Partnership Agreement, (iv) represents that such transferee
has the capacity, power and authority to enter into the Partnership Agreement,
(v) grants powers of attorney to officers of the General Partner and any
liquidator of the Company as specified in the Partnership Agreement and (vi)
makes the consents and waivers contained in the Partnership Agreement. An
assignee will become a substituted limited partner of the Company in the respect
of the transferred common units upon the consent of the General Partner and the
recordation of the name of the assignee on the books and records of the company.
Such consent may be withheld in the sole discretion of the General Partner.
Common units are securities and are transferable according to the laws
governing transfer of securities. In addition to other rights acquired upon
transfer, the transferor gives the transferee the right to request admission as
a substituted limited partner in the Company in the respect of transferred
common units. A purchaser or transferee of common units who does not execute and
deliver a transfer application obtains only (a) the right to assign the common
units to a purchaser or other transferee and (b) the right to transfer the right
to seek admission as a substituted limited partner in the Company with respect
to the transferred common units. Thus, a purchaser or transferee of common units
who does not execute and deliver a transfer application will not receive cash
distributions or federal income tax allocations 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 with respect to such common units, and may not
23
receive certain federal income tax information or reports furnished to record
holders of common units. The transferor of common units will have a duty to
provide such transferee with all information that may be necessary to obtain
registration of the transfer of common units, that the transferor will not have
a duty to insure the execution of the transfer application by the transferee and
will have no liability or responsibility if such transferee neglects to or
chooses not to execute and forward the transfer application to the transfer
agent.
TAX CONSIDERATIONS
This section is a summary of all 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 and legal conclusions with respect to those 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.
Unless the context otherwise requires, references in this section to "us" or
"we" are references to Company and the Operating Partnership.
No attempt has been made in the following discussion to 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. 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.
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 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.
24
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.
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.
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
(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, counsel's opinion 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."
25
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.
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 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
limited partner 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.
26
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 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." The IRS has announced that Treasury
Regulations will be issued that characterize net passive income from a
publicly-traded partnership as investment income for purposes of the limitations
on the deductibility of investment interest. In addition, the unitholder's share
of our portfolio income will be treated as 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 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.
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 this 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.
27
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.
Counsel 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.
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 for 2001 is 39.6% and the maximum United States federal
income tax rate for net capital gains of an individual for 2001 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 partners. For purposes of
this discussion, a partner'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, the 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 counsel 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
28
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 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 this offering will
be borne by the General Partner and its affiliates. Please read "-- 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 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."
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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 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 regulations 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 sell as would be the case with
corporate stock, but, according to the 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.
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Moreover, if a taxpayer has previously entered into a short sale, an
offsetting notional principal contract or a futures or forward contract with
respect to the partnership interest, the taxpayer will be treated as having sold
that position if the taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of 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, counsel 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 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. Additionally, a transferor and a transferee of a unit will be required
to furnish statements to the IRS, filed with their income tax returns for the
taxable year in which the sale or exchange occurred, that describe the amount of
the consideration received for the unit that is allocated to our goodwill or
going concern value. 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 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
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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 which 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 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. And, under rules applicable to publicly traded partnerships, we will
withhold (currently at the rate of 39.6%) 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 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
32
that those positions will yield a result that conforms to the requirements of
the Internal Revenue Code, 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 the 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. 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. The temporary
Treasury Regulations interpreting the tax shelter registration provisions of the
Internal Revenue Code are extremely broad. It is arguable that we are not
subject to the registration requirement on the basis that we will not constitute
a tax shelter. However, the 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
33
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 ($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, the 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, each prospective unitholder should consult, and
must 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. Counsel 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.
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,
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(1) the name of the selling unitholder,
(2) 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,
(3) the number of common units owned by the selling unitholders prior to
the offering,
(4) the amount of common units to be offered for the selling unitholder's
account, and
(5) 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:
o the names of any underwriters, dealers or agents;
o the offering price;
o underwriting discounts;
o sales agents' commissions;
o other forms of underwriter or agent compensation;
o discounts, concessions or commissions that underwriters may pass on to
other dealers;
o 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 of 1933.
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 of 1933 (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.
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.
35
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 consolidated financial statements and the related consolidated
financial statement schedules incorporated in this prospectus by reference from
Enterprise Products Partners L.P.'s and Enterprise Products Operating L.P.'s
respective Annual Reports on Form 10-K for the years ended December 31, 2000 and
1999 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
36
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. ("Enterprise") and Enterprise Products Operating L.P.
("Operating") in connection with the issuance and distribution of the securities
covered by this Registration Statement.
Registration fee $125,000
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 $775,000
==================
Item 15. Indemnification of Directors and Officers.
Section 17-108 of the Delaware Revised 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. The Partnership
Agreement of Enterprise Products Partners L.P. and the Partnership Agreement of
Enterprise Products Operating L.P. each provide that the Partnership will
indemnify (i) the General Partner, (ii) any Departing Partner, (iii) any Person
who is or was an affiliate of a General Partner or any Departing Partner, (iv)
any Person who is or was a member, partner, officer director, employee, agent or
trustee of a General Partner or any Departing Partner or any affiliate of a
General Partner or any Departing Partner, or (v) any Person who is or was
serving at the request of a General Partner or any Departing Partner or any
affiliate of any such person, any affiliate of a General Partner or any
Departing Painter as an officer, director, employee, member, partner, agent,
fiduciary or trustee of another Person ("Indemnitees"), 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
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as an Indemnitee; provided that in each case
the Indemnitee acted in good faith and in a manner that such Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Partnership and, with respect to any criminal proceeding, had no reasonable
cause to believe its conduct was unlawful. Any indemnification under these
provisions will be only out of the assets of the Partnership, and the General
Partner shall not be personally liable for, or have any obligation to contribute
or lend funds or assets to the Partnership to enable it to effectuate, such
indemnification. The Partnership is authorized to purchase (or to reimburse the
General Partner or its affiliates for the cost of) insurance against liabilities
asserted against and expenses incurred by such persons in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such person against such liabilities under the provisions
described above.
The Underwriting Agreements that the Company and the Issuer 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 the Company and the Issuer and the Underwriters or Sales Agent,
as applicable, against civil liabilities under the Securities Act.
II-1
Item 16.Exhibits.
The following documents are filed as exhibits to this Registration
Statement, including those exhibits incorporated herein by reference to a prior
filing of the Company under the Securities Act or the Exchange Act as indicated
in parentheses:
Exhibit No. Exhibit
- ------------ ------------
*1.1 Form of Underwriting Agreement (Debt Securities).
*1.2 Form of Underwriting Agreement (common units).
3.1 Second Amended and Restated Agreement of Limited Partnership of
Enterprise Products Partners L.P. dated as of September 17, 1999
(incorporated by reference to Exhibit "D" to Schedule 13D filed on
September 27, 1999 by Tejas Energy, LLC).
3.2 First Amended and Restated Limited Liability Company Agreement of the
General Partner dated as of September 17, 1999 (incorporated by
reference to Exhibit 99.8 to the Form 8-K/A-1 dated October 27, 1999).
3.3 Form of Amended and Restated Agreement of Limited Partnership of
Enterprise Products Operating L.P. (incorporated by reference to Exhibit
3.2 to Registration Statement on Form S-1/A, File No. 333-52537, filed
on July 21, 1998).
3.4 Amendment No. 1 to Second Amended and Restated Agreement of Limited
Partnership of Enterprise Products Partners L.P. dated June 9, 2000
(incorporated by reference to Exhibit 3.6 to Form 10-Q filed August 11,
2000).
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 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
on July 21, 1998).
4.4 $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 dated January 24,
2001).
4.5 $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 dated January 24,
2001).
4.6 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 dated January 24, 2001).
4.7 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 included as Exhibit 4.5 above (incorporated by reference to
Exhibit 4.5 to Form 8-K dated January 24, 2001).
4.8 Contribution Agreement dated September 17, 1999 (incorporated by
reference to Exhibit "B" to Schedule 13D filed on September 27, 1999 by
Tejas Energy, LLC).
4.9 Registration Rights Agreement dated September 17, 1999 (incorporated by
reference to Exhibit "E" to Schedule 13D filed on September 27, 1999 by
Tejas Energy, LLC).
4.10 Unitholder Rights Agreement dated September 17, 1999 (incorporated by
reference to Exhibit "C" to Schedule 13D filed on 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 Calculation of Ratio of Earnings to Fixed Charges (incorporated by
reference to Exhibit 12.1 to Form 10-K for the year ended December 31,
2000).
***23.1 Consent of Deloitte & Touche 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.
- ---------------------
* The Company will file as an exhibit to a Current Report on Form 8-K (i)
any form of Debt Securities, Depositary Receipts or Depositary
Agreement, (ii) any form of underwriting agreement to be used in
connection with an offering of securities, and (iii) any statement of
eligibility of a trustee in connection with an offering of Debt
Securities.
** Previously filed.
*** Filed herewith.
II-2
Item 17.Undertakings.
(a) The 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 of 1933;
(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; and
(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 Securities and Exchange Commission by the registrants
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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 registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities
Act of 1933, 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 of 1933 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 of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) The registrants hereby undertake that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the
Company's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) 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 of 1933 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 Securities and Exchange Commission such
indemnification is against public policy as expressed in the 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
II-4
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 Act and will be
governed by the final adjudication of such issue.
(e) The 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 ("Act") in
accordance with the rules and regulations prescribed by the Commission
under section 305(b)(2) of the Act.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on March 23, 2001.
ENTERPRISE PRODUCTS PARTNERS, L.P.
By: ENTERPRISE PRODUCTS G.P., 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 G.P., LLC
As General Partner
By: /s/ O.S. ANDRAS
----------------
O. S. Andras.
President and Chief Executive
Officer
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities indicated on the 23rd day of March, 2001.
Signature Title
(of Enterprise Products GP, LLC)
* 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
* RANDA L. DUNCAN Director
- -----------------------------------------------------------
Randa L. Duncan
* RICHARD H. BACHMANN Executive Vice President, Chief Legal Officer and
- ----------------------------------------------------------- Director
Richard H. Bachmann
/s/ MICHAEL A. CREEL Executive Vice President and Chief Financial Officer
- ----------------------------------------------------------- (Principal Financial Officer)
Michael A. Creel
* MICHAEL J. KNESEK Vice President, Controller and Principal Accounting
- ----------------------------------------------------------- Officer
Michael J. Knesek
* JORN A. BERGET Director
- -----------------------------------------------------------
Jorn A. Berget
* DR. RALPH S. CUNNINGHAM Director
- -----------------------------------------------------------
Dr. Ralph S. Cunningham
* JERELYN R. EAGAN Director
- -----------------------------------------------------------
Jerelyn R. Eagan
* CURTIS R. FRASIER Director
- -----------------------------------------------------------
Curtis R. Frasier
* LEE. W. MARSHALL, SR. Director
- -----------------------------------------------------------
Lee W. Marshall, Sr.
* RICHARD S. SNELL Director
- -----------------------------------------------------------
Richard S. Snell
* By /s/ MICHAEL A. CREEL
--------------------
Michael A. Creel
Attorney-in-Fact
II-7
Form S-3 032301 FINAL.rtf
INDEX TO EXHIBITS
Exhibit
No. Exhibit
- ------------ ------------
*1.1 Form of Underwriting Agreement (Debt Securities).
*1.2 Form of Underwriting Agreement (common units).
3.1 Second Amended and Restated Agreement of Limited Partnership of
Enterprise Products Partners L.P. dated as of September 17, 1999
(incorporated by reference to Exhibit "D" to Schedule 13D filed on
September 27, 1999 by Tejas Energy, LLC).
3.2 First Amended and Restated Limited Liability Company Agreement of the
General Partner dated as of September 17, 1999 (incorporated by
reference to Exhibit 99.8 to the Form 8-K/A-1 dated October 27, 1999).
3.3 Form of Amended and Restated Agreement of Limited Partnership of
Enterprise Products Operating L.P. (incorporated by reference to Exhibit
3.2 to Registration Statement on Form S-1/A, File No. 333-52537, filed
on July 21, 1998).
3.4 Amendment No. 1 to Second Amended and Restated Agreement of Limited
Partnership of Enterprise Products Partners L.P. dated June 9, 2000
(incorporated by reference to Exhibit 3.6 to Form 10-Q filed August 11,
2000).
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 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
on July 21, 1998).
4.4 $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 dated January 24,
2001).
4.5 $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 dated January 24,
2001).
4.6 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 dated January 24, 2001).
4.7 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 included as Exhibit 4.5 above (incorporated by reference to
Exhibit 4.5 to Form 8-K dated January 24, 2001).
4.8 Contribution Agreement dated September 17, 1999 (incorporated by
reference to Exhibit "B" to Schedule 13D filed on September 27, 1999 by
Tejas Energy, LLC).
4.9 Registration Rights Agreement dated September 17, 1999 (incorporated by
reference to Exhibit "E" to Schedule 13D filed on September 27, 1999 by
Tejas Energy, LLC).
4.10 Unitholder Rights Agreement dated September 17, 1999 (incorporated by
reference to Exhibit "C" to Schedule 13D filed on 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 Calculation of Ratio of Earnings to Fixed Charges (incorporated by
reference to Exhibit 12.1 to Form 10-K for the year ended December 31,
2000).
***23.1 Consent of Deloitte & Touche 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.
- ---------------------
* The Company will file as an exhibit to a Current Report on Form 8-K (i)
any form of Debt Securities, Depositary Receipts or Depositary
Agreement, (ii) any form of underwriting agreement to be used in
connection with an offering of securities, and (iii) any statement of
eligibility of a trustee in connection with an offering of Debt
Securities.
** Previously filed.
*** Filed herewith.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-56082 of Enterprise Products Partners L.P. and
Enterprise Products Operating L.P. on Form S-3 of our report dated February 28,
2001, appearing in the Annual Report on Form 10-K of Enterprise Products
Partners L.P. for the year ended December 31, 2000, our report dated February
28, 2001, appearing in the Annual Report on Form 10-K of Enterprise Products
Operating L.P. for the year ended December 31, 2000 and to the reference to us
under the headings "Experts" in the Prospectus, which is part of such
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
March 23, 2001