As filed with the Securities and Exchange Commission on January 20, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SUBURBAN PROPANE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
----------------
Delaware 5984 22-3410353
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
240 Route 10 West
Whippany, NJ 07981
(973) 887-5300
(Address, including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
----------------
Janice G. Meola, Esq.
General Counsel
Suburban Propane Partners, L.P.
240 Route 10 West
Whippany, NJ 07981
(Name, address, including zip code, and telephone number,
including area code, of Agent for Service)
With a copy to:
Ellen J. Odoner, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
----------------
NY2:\853668\11\76463.0001
<PAGE>
Approximate date of commencement of proposed sale of the securities
to the public: From time to time after the effective date of this Registration
Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please 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(d) under the Securities Act, check the following box and list the Securities
Act registration statement for the same offering. [ ]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
Proposed Maximum
Title of Each Class of Offering Price Per Proposed Maximum Aggregate Amount of
Securities to be Registered Amount to Be Registered Unit(1) Offering Price Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Units representing
limited partner interests........ 10,000,000 $18.75 $187,500,000 $49,500
===================================================================================================================================
(1) Pursuant to Rule 457(c) under the Securities Act, the offering price is
estimated, solely for the purpose of determining the registration fee, using the
average of the high and low prices reported on the New York Stock Exchange
Composite Transactions Tape on January 13, 2000.
</TABLE>
----------------
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 Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
1
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, Dated January 20, 2000
SUBURBAN PROPANE PARTNERS, L.P.
10,000,000 COMMON UNITS
REPRESENTING LIMITED PARTNER INTERESTS
We may use this prospectus to issue up to 10,000,000 of our common
units from time to time as consideration for acquisitions of other businesses,
assets or securities.
Our common units are traded on the New York Stock Exchange under the
symbol "SPH". On January 19, 2000, the closing sale price of the common units as
reported on the New York Stock Exchange was $19.0625 per unit.
YOU SHOULD CAREFULLY CONSIDER EACH OF THE RISK FACTORS DESCRIBED
UNDER "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
The date of this Prospectus is January 20, 2000.
2
<PAGE>
TABLE OF CONTENTS
Page
----
WHO WE ARE ................................................................4
ABOUT THIS PROSPECTUS......................................................4
SELECTED HISTORICAL FINANCIAL DATA.........................................6
RISK FACTORS...............................................................8
USE OF PROCEEDS...........................................................16
DESCRIPTION OF COMMON UNITS...............................................16
TAX CONSIDERATIONS........................................................19
PRICE RANGE OF COMMON UNITS AND CASH DISTRIBUTIONS........................34
WHERE YOU CAN FIND MORE INFORMATION.......................................34
LEGAL OPINIONS............................................................35
EXPERTS ..................................................................35
3
<PAGE>
WHO WE ARE
We are a publicly traded Delaware limited partnership engaged,
through subsidiaries, in the retail and wholesale marketing of propane and
related appliances and services. We believe that we are the third largest retail
marketer of propane in the United States (measured by retail gallons sold). As
of September 25, 1999, we served more than 730,000 active residential,
commercial, industrial and agricultural customers from approximately 350
customer service centers in over 40 states. Our operations are concentrated in
the east and west coast regions of the United States.
Our business strategy is to focus on consolidating and extending our
presence in strategically attractive markets primarily through the acquisition
of other propane distributors. At the same time, we plan to continue to evaluate
existing operations to identify opportunities to optimize return on assets and
selectively divest marginal operating locations in slower growing markets.
Outside our core propane distribution business, we will seek to develop retail
and service business lines which can benefit from our logistical skills, our
national presence and our long experience in dealing with residential consumers.
We also plan to continue to pursue internal growth of existing operations by
acquiring new customers, retaining existing customers and selling additional
products and services to our customers.
We maintain our principal executive offices at 240 Route 10 West,
Whippany, New Jersey 07981 and our telephone number at that address is
973-887-5300.
As used in this prospectus, "we", "us", "our", "Suburban" and the
"Partnership" mean Suburban Propane Partners, L.P. and, unless the context
requires otherwise, our subsidiary operating partnership, Suburban Propane,
L.P., and our wholly owned subsidiaries. Our subsidiary operating partnership is
sometimes referred to in this prospectus as the "Operating Partnership".
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-4 that
we filed with the Securities and Exchange Commission (the "SEC"). The
registration statement will allow us to issue from time to time up to 10,000,000
of our common units as consideration for acquisitions of other businesses,
assets or securities. Each time we sell common units 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, any
prospectus supplement and the additional information described under the heading
"Where You Can Find More Information".
We have incorporated business and financial information about the
Partnership that is not included in or delivered with this document. You may
request copies of this information, at no cost, by writing or calling the
Partnership at the address given under the heading "Where You Can Find More
Information". TO ASSURE TIMELY DELIVERY OF DOCUMENTS, YOU MUST REQUEST THE
INFORMATION NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE DATE ON WHICH YOU WISH
TO MAKE YOUR INVESTMENT DECISION.
As permitted by the SEC, this prospectus does not contain all of the
information included in the registration statement. The additional information
may be obtained from the locations described under "Where You Can Find More
Information". Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete. You should refer to the
contract or other document for all of the details.
4
<PAGE>
For each acquisition, we expect to negotiate the terms with the
owners or controlling persons of the business, assets or securities we plan to
acquire. We will value the common units issued or reserved for issuance in each
acquisition based on or related to market prices for our common units on the
NYSE. This valuation may occur at the time we agree to the terms of an
acquisition, the time of delivery of our common units, during periods ending at
or about such times based on average market prices, or otherwise.
We will not pay underwriting discounts or commissions, although we
may pay brokers' or finders' fees with respect to specific acquisitions. In some
cases, we may issue common units under this prospectus in full or partial
payment of such fees. Any person who receives such fees may be deemed to be an
underwriter within the meaning of the Securities Act of 1933.
5
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA.
The following table presents selected condensed consolidated
historical financial data of Suburban and its predecessor company, Quantum
Chemical Corporation ("Predecessor Company"). Suburban and the Operating
Partnership were formed in 1995 to acquire and operate the propane business and
assets of Suburban Propane, a division of the Predecessor Company, then owned by
Hanson PLC. The Predecessor Company had been continuously engaged in the retail
propane business since 1928 and had been owned by Quantum since 1983. The
selected condensed consolidated historical data is derived from the audited
financial statements of Suburban and Predecessor Company. The dollar amounts in
the table below, except per unit data, are in thousands.
<TABLE>
<CAPTION>
PARTNERSHIP (a) PREDECESSOR COMPANY
|----------------------------
MARCH 5, |OCTOBER 1,
1996 | 1995 YEAR
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH | THROUGH ENDED
---------------------------------------------- | ------------
SEPT 25, SEPT 26, SEPT 27, SEPT 28, | MARCH 4, SEPT 30,
1999 1998 1997 1996 | 1996 1995
---- ---- ---- ---- | ---- ----
<S> <C> <C> <C> <C> | <C> <C>
STATEMENT OF OPERATIONS DATA |
Revenues $ 619,778 $ 667,287 $ 771,131 $ 323,947 | $ 383,999 $ 633,620
Depreciation and |
Amortization 34,906 36,531 37,307 21,046 | 14,816 34,055
Restructuring Charge - - 6,911 2,340 | - -
Recapitalization Cost 18,903 - - - | - -
Income (Loss) Before Interest |
Expense and Income Taxes 53,272 68,814 47,763 (3,464) | 61,796 55,544
Interest Expense, Net 30,765 30,614 33,979 17,171 | - -
Provision for Income Taxes 68 35 190 147 | 28,147 25,299
Net Income (Loss) 22,439 38,165 13,594 (20,782) | 33,649 30,245
Net Income (Loss) per Unit (b) $ 0.83 $ 1.30 $ 0.46 $ (0.71) | - -
|
BALANCE SHEET DATA |
(END OF PERIOD) |
Current Assets $ 78,637 $ 132,781 $ 104,361 $ 120,692 | $ 78,846
Total Assets 659,220 729,565 745,634 776,651 | 705,686
Current Liabilities 103,006 91,550 96,701 101,826 | 69,872
Long-term Debt 427,634 427,897 427,970 428,229 | -
Other Long-term liabilities 60,194 62,318 79,724 81,917 | 77,579
Predecessor Equity - - - - | - 558,235
Partners' Capital - General Partner 2,044 24,488 12,830 3,286 | - -
Partners' Capital - Limited Partners 66,342 123,312 128,409 161,393 | - -
|
STATEMENT OF CASH |
FLOWS DATA |
Cash Provided by |
(Used in) |
Operating Activities $ 81,758 $ 70,073 $ 58,848 $ 62,961 | $ (3,765) $ 53,717
Investing Activities $ (12,241) $ 2,900 $ (20,709) $ (30,449) | $ (21,965) $ (22,317)
Financing Activities $(120,944) $ (32,490) $ (37,734) $ (13,786) | $ 25,799 $ (31,562)
|
OTHER DATA |
EBITDA (c) $ 88,178 $ 105,345 $ 85,070 $ 17,582 | $ 76,612 $ 89,599
Capital Expenditures (d) |
Maintenance and growth $ 11,033 $ 12,617 $ 24,888 $ 16,089 | $ 9,796 $ 21,359
Acquisitions $ 4,768 $ 4,041 $ 1,880 $ 15,357 | $ 13,172 $ 5,817
Retail Propane |
Gallons Sold 524,276 529,796 540,799 257,029 | 309,871 527,269
</TABLE>
6
<PAGE>
Notes:
- ------
(a) Suburban acquired the propane business and assets of the Predecessor
Company on March 5, 1996. There are no material differences in the basis of
assets and liabilities between the Partnership and the Predecessor Company.
(b) Net income (loss) per unit is computed by dividing the limited partners'
interest in net income (loss) by the number of weighted average units
outstanding.
(c) EBITDA (earnings before interest, taxes, depreciation and amortization) is
defined as income (loss) before interest expense and income taxes plus
depreciation and amortization. EBITDA should not be considered as an
alternative to net income (as an indicator of operating performance) or as
an alternative to cash flow (as a measure of liquidity or ability to
service debt obligations) and is not in accordance with or superior to
generally accepted accounting principles, but provides additional
information for evaluating the Partnership's ability to pay the minimum
quarterly distribution.
(d) Suburban's capital expenditures fall generally into three categories: (i)
maintenance expenditures, which include expenditures for repair and
replacement of property, plant and equipment, (ii) growth capital
expenditures which include new propane tanks and other equipment to
facilitate expansion of Suburban's customer base and operating capacity;
and (iii) acquisition capital expenditures, which include expenditures
related to the acquisition of retail propane operations and a portion of
the purchase price allocated to intangibles associated with such acquired
businesses.
7
<PAGE>
RISK FACTORS
Before you invest in our common units, you should be aware that there
are various risks in doing so, including those described below. You should
carefully consider these risk factors, together with all the other information
included or incorporated by reference in this prospectus and any prospectus
supplement.
Some of the information included or incorporated by reference in this
prospectus contains forward-looking statements that involve substantial risks
and uncertainties. You can identify these statements by forward-looking words
such as "may," "will," "expect," "anticipate," "believe," "estimate," and
"continue" or similar words. You should read statements that contain these words
carefully because they (1) discuss our future expectations, (2) contain
projections of our future results of operations or of our financial condition or
(3) state other "forward-looking" information. We believe it is important to
communicate our expectations to our investors. However, there may be events in
the future that we are not able to accurately predict or over which we have no
control. The risk factors listed in this section, as well as any cautionary
language included or incorporated by reference in this prospectus, provide
examples of risks, uncertainties and events that may cause actual results to
differ materially from the expectations we describe in our forward-looking
statements. If any of the events described in these risk factors or elsewhere in
the information included or incorporated by reference in this prospectus
actually occurs, then our business, results of operations or financial condition
could be materially adversely affected. In such event, we may be unable to make
distributions to our unitholders, the trading price of the common units could
decline and you may lose all or part of your investment.
RISKS INHERENT IN OUR BUSINESS
SINCE WEATHER CONDITIONS MAY ADVERSELY AFFECT DEMAND FOR PROPANE, OUR FINANCIAL
CONDITION IS VULNERABLE TO WARM WINTERS
Weather conditions have a significant impact on the demand for
propane for both heating and agricultural purposes. Many of our customers rely
heavily on propane as a heating fuel. The volume of propane sold is at its
highest during the six-month peak heating season of October through March and is
directly affected by the severity of the winter. Typically, we sell
approximately two-thirds of our retail propane volume during the peak heating
season.
In addition, actual weather conditions can vary substantially from
year to year, significantly affecting our financial performance. For example,
temperatures during fiscal 1999 were 8% warmer than normal and 1% warmer than
temperatures during fiscal 1998 as reported by the National Oceanic and
Atmospheric Administration. In fiscal 1999, revenues were 7.1% lower than during
fiscal 1998 principally attributable to lower product costs which resulted in
lower selling prices and, to a lesser extent, a decrease in retail gallons sold
due to warmer temperatures during the winter heating season. The El Nino weather
phenomenon impacted weather conditions during fiscal 1998. Temperatures during
fiscal 1998 were 4% warmer than normal and 4% warmer than fiscal 1997. In fiscal
1998, our revenues were 13.5% lower than in fiscal 1997 principally due to lower
propane prices (because of lower propane costs) and, to a lesser extent, due to
the warmer than normal temperatures. Furthermore, variations in weather in one
or more regions in which we operate can significantly affect the total volume of
propane we sell and, consequently, our results of operations. Variations in the
weather in the Northeast, where we have a greater concentration of higher margin
residential accounts, generally have a greater impact on our operations than
variations in the weather in other markets. Our ability to pay distributions to
unitholders is substantially dependent on the cash generated by the Operating
Partnership, which is affected by weather conditions. As a result, there can be
no assurance that the weather conditions in any quarter or year will not have a
material adverse effect on our operations or that our available cash will be
sufficient to pay distributions to unitholders.
8
<PAGE>
SUDDEN PROPANE PRICE INCREASES MAY ADVERSELY AFFECT OUR OPERATING RESULTS
The retail propane business is a "margin-based" business in which
gross profits depend on the excess of sales prices we receive over our propane
supply costs. Propane is a commodity, and its unit price is subject to volatile
changes in response to changes in supply or other market conditions over which
we have no control. In general, product supply contracts permit suppliers to
charge posted prices at the time of delivery or the current prices established
at major storage points such as Mont Belvieu, Texas and Conway, Kansas. Since we
may not be able to pass on to our customers immediately or in full all increases
in our wholesale cost of propane, these increases could reduce our gross
profits. We engage in transactions to hedge product costs from time to time in
an attempt to reduce cost volatility, although to date such activities have not
been significant. There can be no assurances that future volatility in propane
supply costs will not have a material adverse effect on our gross profits,
income and cash flow or our available cash required to make distributions to our
unitholders.
BECAUSE OF THE HIGHLY COMPETITIVE NATURE OF THE RETAIL PROPANE BUSINESS, WE MAY
NOT BE ABLE TO MAINTAIN EXISTING CUSTOMERS OR ACQUIRE NEW CUSTOMERS, WHICH COULD
HAVE AN ADVERSE IMPACT ON OUR OPERATING RESULTS AND FINANCIAL CONDITION
The retail propane industry is mature and highly competitive. We
expect overall demand for propane to remain relatively constant over the next
several years, with year-to-year industry volumes being affected primarily by
weather patterns. Therefore, our ability to grow within the industry is
dependent on our ability to acquire other retail distributors, open new district
locations, add new customers and retain existing customers. We compete with
other distributors of propane, including a number of large national and regional
firms and several thousand small independent firms. Generally,
warmer-than-normal weather intensifies competition. We believe our ability to
compete effectively depends on reliability of service, responsiveness to
customers and our ability to maintain competitive retail prices.
Propane competes with other sources of energy, some of which are less
costly for equivalent energy value. Electricity is a major competitor of
propane, but propane generally enjoys a competitive price advantage over
electricity. In addition, propane competes with natural gas, which is a
significantly less expensive source of energy than propane. As a result, except
for certain industrial and commercial applications, propane is generally not
economically competitive with natural gas in areas where natural gas pipelines
already exist. The gradual expansion of the nation's natural gas distribution
systems has made natural gas available in many areas that previously depended
upon propane. To a lesser extent, propane also competes with fuel oil. In the
future, we may compete with other alternative energy sources as they are
developed.
IF WE DO NOT MAKE ACQUISITIONS ON ECONOMICALLY ACCEPTABLE TERMS, OUR FUTURE
GROWTH MAY BE LIMITED
The retail propane industry is mature, and we foresee only limited
growth in total retail demand for propane. Because of long-standing customer
relationships that are typical in our industry, the inconvenience of switching
tanks and suppliers and propane's higher cost relative to other energy sources,
such as natural gas, it may be difficult for us to acquire new retail customers
except through acquisitions. Therefore, we expect our ability to grow will
depend primarily upon our ability to acquire other retail propane distributors
and to successfully integrate them into our existing operations and to make
cost-saving changes. We cannot guarantee that we will identify attractive
acquisition candidates in the future, that we will be able to acquire such
businesses on economically acceptable terms or successfully integrate them into
our existing operations and make cost-saving changes, that any acquisition will
not dilute earnings and distributions to our unitholders or that any additional
debt incurred to finance an acquisition will not adversely affect our ability to
make distributions to unitholders. We are subject to certain covenants contained
in our debt agreements that may restrict our ability to incur debt to finance
acquisitions. In addition, to the extent that warm weather or other factors
adversely affects our operating and financial results, our access to capital and
our acquisition activities may be limited.
9
<PAGE>
ENERGY EFFICIENCY AND TECHNOLOGY ADVANCES MAY AFFECT DEMAND FOR PROPANE
The national trend toward increased conservation and technological
advances, including installation of improved insulation and the development of
more efficient furnaces and other heating devices, has adversely affected the
demand for propane by retail customers. Future technological advances in
heating, conservation and energy generation may affect our financial condition
and results of operations.
OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED BY
GOVERNMENTAL REGULATION AND ASSOCIATED ENVIRONMENTAL AND REGULATORY COSTS
The propane business is subject to a wide range of federal and state
laws and regulations related to environmental, health and safety and other
regulated matters. We have implemented environmental and health and safety
programs and policies designed to avoid potential liability and costs under
applicable environmental laws. It is possible, however, that we will have
increased costs due to stricter pollution control requirements or liabilities
resulting from non-compliance with operating or other regulatory permits. New
environmental and health and safety regulations might adversely impact our
operations, storage and transportation of propane. It is possible that material
costs and liabilities will be incurred, including those relating to claims for
damages to property and persons.
WE ARE SUBJECT TO OPERATING HAZARDS AND LITIGATION RISKS THAT COULD ADVERSELY
AFFECT OUR OPERATING RESULTS TO THE EXTENT NOT COVERED BY INSURANCE
Our operations are subject to all operating hazards and risks
normally incidental to handling, storing and delivering combustible liquids such
as propane. As a result, we have been, and are likely to continue to be, a
defendant in various legal proceedings and litigation arising in the ordinary
course of business. Suburban is self-insured for general and product, workers'
compensation and automobile liabilities up to predetermined amounts above which
third party insurance applies. We believe that the self-insured retentions and
coverage we maintain are reasonable and prudent. However, we cannot guarantee
that our insurance will be adequate to protect us from all material expenses
related to potential future claims for personal injury and property damage or
that such levels of insurance will be available at economical prices.
RISKS INHERENT IN AN INVESTMENT IN SUBURBAN
CASH DISTRIBUTIONS ARE NOT GUARANTEED AND MAY FLUCTUATE WITH OUR PERFORMANCE AND
OTHER EXTERNAL FACTORS
Because distributions on the common units are dependent on the amount
of cash generated, distributions may fluctuate based on our performance. The
actual amount of cash that is available will depend upon numerous factors,
including:
o cash flow generated by operations;
o required principal and interest payments on our debt;
o the costs of acquisitions;
o restrictions contained in our debt instruments;
o issuances of debt and equity securities;
o fluctuations in working capital;
o capital expenditures;
10
<PAGE>
o prevailing economic conditions; and
o financial, business and other factors, a number of which will be
beyond our control.
Cash distributions are dependent primarily on cash flow, including
from reserves, and not on profitability, which is affected by non-cash items.
Therefore, cash distributions might be made during periods when we record losses
and might not be made during periods when we record profits.
Our partnership agreement gives our Board of Supervisors broad
discretion in establishing reserves for, among other things, the proper conduct
of our business. These reserves will also affect the amount of cash available
for distributions.
OUR DEBT AGREEMENTS MAY LIMIT OUR ABILITY TO MAKE DISTRIBUTIONS TO UNITHOLDERS
AND OUR FINANCIAL FLEXIBILITY
As of December 25, 1999, we had outstanding $425 million of senior
promissory notes and $97 million under our bank credit facilities. As a result,
we have indebtedness that is substantial in relation to our partners' equity.
The notes and the bank credit facility contain restrictive covenants that limit
our ability to incur additional debt and to engage in certain transactions. The
amount and terms of our debt may adversely affect our ability to finance future
operations and capital needs, limit our ability to pursue acquisitions and other
business opportunities and make our results of operations more susceptible to
adverse economic conditions. We may in the future incur additional debt to
finance acquisitions or for general business purposes, which could result in a
significant increase in our leverage. The payment of principal and interest on
our debt will reduce the cash available to make distributions on the common
units. We will not be able to make any distributions to our unitholders if there
is or will be an event of default under our debt agreements. Our ability to make
principal and interest payments depends on our future performance, which is
subject to many factors, some of which are outside our control.
IF WE ISSUE ADDITIONAL LIMITED PARTNER INTERESTS AS CONSIDERATION FOR
ACQUISITIONS, THE EXISTING INTERESTS OF UNITHOLDERS WILL BE DILUTED
Our partnership agreement generally allows us to issue additional
limited partner interests and other equity securities without the approval of
the unitholders. However, we may not issue equity securities ranking senior to
the common units or more than an aggregate of 9,375,000 additional common units
or equivalent units at any time prior to March 31, 2001 without the approval of
the holders of at least a majority of the outstanding common units. These
limitations do not apply to issuances in connection with an acquisition or a
capital improvement that is accretive or in connection with the repayment of
certain indebtedness.
The general partner has the right to purchase common units, or other
equity securities whenever, and on the same terms that, we issue securities or
rights to persons other than the general partner and its affiliates, to the
extent necessary to maintain the percentage interest of the general partner and
its affiliates that existed immediately prior to each issuance. Other holders of
common units do not have similar rights. Therefore, when we issue additional
common units or securities ranking on a parity with the common units, your
proportionate partnership interest will decrease, and the amount of cash
distributed on each common unit and the market price of common units could
decrease. The issuance of additional common units will also diminish the
relative voting strength of each previously outstanding unit.
RISKS ARISING FROM OUR PARTNERSHIP STRUCTURE AND RELATIONSHIPS WITH OUR GENERAL
PARTNER
UNITHOLDERS HAVE LIMITED VOTING RIGHTS
The Board of Supervisors manages or directs the management of
Suburban. Holders of common units have only limited voting rights on matters
affecting Suburban's business. Among the limitations on voting rights are
11
<PAGE>
that holders of common units may elect only three of the five members of the
Board of Supervisors, and elections are only held every three years (with the
next election to be held in 2000).
The other two members of the Board of Supervisors are appointed by
our general partner. Common unitholders have no right to elect our general
partner, and the general partner cannot be removed except upon, among other
things, the vote of the holders of at least a majority of the then outstanding
common units and the approval of a successor general partner by the holders of
at least a majority of the then outstanding common units.
PERSONS OWNING 20% OR MORE OF THE COMMON UNITS CANNOT VOTE
If, at any time, any person or group beneficially owns more than 20%
of the total common units outstanding, any common units owned by that person or
group in excess of 20% may not be voted on any matter. This provision may: o
discourage a person or group from attempting to remove the general partner or
otherwise changing management; and o reduce the price at which the common units
will trade under certain circumstances.
UNITHOLDERS MAY BE REQUIRED TO SELL THEIR UNITS TO THE GENERAL PARTNER AT AN
UNDESIRABLE TIME OR PRICE
If at any time less than 20% of the outstanding units of any class
are held by persons other than the general partner and its affiliates, the
general partner will have the right to acquire all, but not less than all, of
those units at a price no less than their then-current market price. As a
consequence, a unitholder may be required to sell his common units at an
undesirable time or price. The general partner may assign this purchase right to
any of its affiliates or to Suburban.
THE GENERAL PARTNER CAN PROTECT ITSELF AGAINST DILUTION
Whenever we issue equity securities to any person other than the
general partner and its affiliates, the general partner has the right to
purchase additional limited partnership interests on the same terms to maintain
its percentage interest in the Partnership. No other unitholder has a similar
right. Therefore, only the general partner may protect itself against dilution
caused by the issuance of additional equity securities.
UNITHOLDERS MAY NOT HAVE LIMITED LIABILITY IN CERTAIN CIRCUMSTANCES AND MAY BE
LIABLE FOR THE RETURN OF CERTAIN DISTRIBUTIONS
A number of states have not clearly established limitations on the
liabilities of limited partners for the obligations of a limited partnership.
The unitholders might be held liable for our obligations as if they were a
general partner if:
o a court or government agency determined that we were conducting
business in the state but had not complied with the state's
limited partnership statute; or
o unitholders' rights to act together to remove or replace the
general partner or take other actions under the partnership
agreement constitute "participation in the control" of our
business for purposes of the state's limited partnership statute.
UNITHOLDERS MAY HAVE LIABILITY TO REPAY DISTRIBUTIONS
Unitholders will not be liable for assessments in addition to their
initial capital investment in the common units. Under certain circumstances,
however, unitholders may have to repay to Suburban amounts wrongfully returned
or distributed to them. Under Delaware law, we may not make a distribution to
you if the distribution causes our liabilities to exceed the fair value of our
assets. Liabilities to partners on account of their
12
<PAGE>
partnership interests and non-recourse liabilities are not counted for purposes
of determining whether a distribution is permitted. Delaware law provides that a
limited partner who receives such a distribution and knew at the time of the
distribution that the distribution violated Delaware law will be liable to the
limited partnership for the distribution amount for three years from the
distribution date. Under Delaware law, an assignee who becomes a substituted
limited partner of a limited partnership is liable for the obligations of the
assignor to make contributions to the partnership. However, such an assignee is
not obligated for liabilities unknown to him at the time he or she became a
limited partner if the liabilities could not be determined from the partnership
agreement.
OUR GENERAL PARTNER HAS PLEDGED THE GENERAL PARTNER INTERESTS IN SUBURBAN AS
SECURITY FOR A BANK LOAN AND THE OPERATING PARTNERSHIP HAS AGREED TO PURCHASE
THE BANK LOAN IF AN EVENT OF DEFAULT OCCURS
As part of the recapitalization of Suburban completed in May 1999,
our general partner purchased all the general partner interests and incentive
distribution rights from our former general partner for $6 million. Our general
partner obtained the necessary funds from a loan provided by Mellon Bank, N.A.
The loan has a term of five years and bears interest payable quarterly at a rate
equal to LIBOR plus 2%. The loan is secured by a pledge of the general partner's
interests in Suburban and in the Operating Partnership. Under the pledge
agreement, Mellon may foreclose on and sell the general partner's interests that
serve as collateral if an event of default occurs and is continuing under the
loan. The purchaser in the foreclosure sale would become the general partner of
Suburban and of the Operating Partnership with all the rights and duties of the
general partner and the existence of Suburban and the Operating Partnership
would continue in accordance with the terms of our partnership agreement.
The Operating Partnership has agreed to purchase the loan from Mellon
if an event of default occurs under the loan. It has also agreed to reserve
availability under Suburban's bank credit facility for this purpose, which
reduces borrowing ability for working capital needs or other purposes. If the
loan is purchased, Suburban or the Operating Partnership may cause to be
forfeited and cancelled up to all of the 596,821 units held in a benefits
protection trust established pursuant to a compensation deferral plan for the
benefit of officers and senior management who are members of the general
partner.
TAX RISKS
For a general discussion of the expected federal income tax
consequences of owning and disposing of common units, see "Tax Considerations".
TAX TREATMENT IS DEPENDENT ON PARTNERSHIP STATUS
The availability to a common unitholder of the federal income tax
benefits of an investment in the common units depends, in large part, on our
classification as a partnership for federal income tax purposes. Based on
certain representations of the general partner and Suburban, Weil, Gotshal &
Manges LLP, our tax counsel, is of the opinion that, under current law, we will
be classified as a partnership for federal income tax purposes. However, no
ruling from the IRS as to such status has been or is expected to be requested.
Instead, we are relying on the opinion of our tax counsel, which is not binding
on the IRS.
If, contrary to the opinion of our tax counsel, we were classified as
an association taxable as a corporation for federal income tax purposes, we
would be required to pay tax on our income at corporate tax rates (currently a
35% federal rate) . Distributions to the common unitholders would generally be
taxed a second time as corporate distributions, and no income, gains, losses or
deductions would flow through to the unitholders. Because a tax would be imposed
upon us as an entity, the cash available for distribution to the common
unitholders would be substantially reduced. Treatment of us as a taxable entity
would cause a material reduction in the anticipated cash flow and after-tax
return to the common unitholders, likely causing a substantial reduction in the
value of the common units.
We cannot guarantee that the law will not be changed so as to cause
us to be treated as an association taxable as a corporation for federal income
tax purposes or otherwise to be subject to entity-level taxation. Our
13
<PAGE>
partnership agreement provides that if a law is enacted or existing law is
modified or interpreted in a manner that subjects us to taxation as a
corporation or otherwise subjects us to entity-level taxation for federal, state
or local income tax purposes, certain provisions of our partnership agreement
will be subject to change. Such changes would include a decrease in the minimum
quarterly distribution and the target distribution levels to reflect the impact
of such law on us.
WE HAVE NOT REQUESTED AN IRS RULING WITH RESPECT TO OUR CLASSIFICATION AS A
PARTNERSHIP
We have not requested a ruling from the IRS with respect to our
classification as a partnership for federal income tax purposes, whether our
propane operations generate "qualifying income" under Section 7704 of the
Internal Revenue Code or any other matter affecting us. Accordingly, the IRS may
adopt positions that differ from the conclusions of our tax counsel expressed in
this prospectus or the positions taken by us. It may be necessary to resort to
administrative or court proceedings in an effort to sustain some or all of our
tax counsel's conclusions or the positions taken by us. A court may not concur
with some or all of our conclusions. Any contest with the IRS may materially and
adversely impact the market for the common units and the prices at which they
trade. In addition, the costs of any contest with the IRS will be borne directly
or indirectly by some or all of the unitholders and the general partner.
A UNITHOLDER'S TAX LIABILITY COULD EXCEED CASH DISTRIBUTIONS ON ITS UNITS
A unitholder will be required to pay federal income taxes and, in
some cases, state and local income taxes on its allocable share of our income,
even if it receives no cash distributions from us. We cannot guarantee that a
unitholder will receive cash distributions equal to its allocable share of our
taxable income or even the tax liability to it resulting from that income.
Further, a unitholder may incur a tax liability, in excess of the amount of cash
received, upon the sale of its common units.
OWNERSHIP OF COMMON UNITS MAY HAVE ADVERSE TAX CONSEQUENCES FOR TAX-EXEMPT
ORGANIZATIONS AND CERTAIN OTHER INVESTORS
Investment in common units by certain tax-exempt entities, regulated
investment companies and foreign persons raises issues unique to them. For
example, virtually all of our taxable income allocated to organizations exempt
from federal income tax, including individual retirement accounts and other
retirement plans, will be unrelated business taxable income and thus will be
taxable to the unitholder. Very little of our income will be qualifying income
to a regulated investment company. Distributions to foreign persons will be
reduced by withholding taxes.
THERE ARE LIMITS ON THE DEDUCTIBILITY OF LOSSES
In the case of taxpayers subject to the passive loss rules
(generally, individuals and closely held corporations), any losses generated by
us will only be available to offset our future income and cannot be used to
offset income from other activities, including other passive activities or
investments. Unused losses may be deducted when the unitholder disposes of its
entire investment in us in a fully taxable transaction with an unrelated party.
A unitholder's share of our net passive income may be offset by unused losses
from us carried over from prior years, but not by losses from other passive
activities, including losses from other publicly traded partnerships.
TAX SHELTER REGISTRATION COULD INCREASE RISK OF POTENTIAL AUDIT BY THE IRS
We are registered with the IRS as a "tax shelter". The IRS has issued
us the following tax shelter registration number: 96080000050. Issuance of the
registration number does not indicate that an investment in us or the claimed
tax benefits have been reviewed, examined or approved by the IRS. We cannot
guarantee that we will not be audited by the IRS or that tax adjustments will
not be made. The rights of a unitholder owning less than a 1% profits interest
in us to participate in the income tax audit process are very limited. Further,
any adjustments in our tax
14
<PAGE>
returns will lead to adjustments in the unitholders' tax returns and may lead to
audits of unitholders' tax returns and adjustments of items unrelated to us.
Each unitholder would bear the cost of any expenses incurred in connection with
an examination of its personal tax return.
TAX GAIN OR LOSS ON DISPOSITION OF COMMON UNITS COULD BE DIFFERENT THAN EXPECTED
A unitholder who sells common units will recognize gain or loss equal
to the difference between the amount realized, including its share of our
nonrecourse liabilities, and its adjusted tax basis in the common units. Prior
distributions in excess of cumulative net taxable income allocated for a common
unit which 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 is less than
the unit's original cost. A portion of the amount realized, whether or not
representing gain, may be ordinary income. Furthermore, should the IRS
successfully contest some conventions used by us, a unitholder could recognize
more gain on the sale of common units than would be the case under those
conventions, without the benefit of decreased income in prior years.
REPORTING OF PARTNERSHIP TAX INFORMATION IS COMPLICATED AND SUBJECT TO AUDITS
We will furnish each unitholder with a Schedule K-l that sets forth
its allocable share of income, gains, losses and deductions. In preparing these
schedules, we will use various accounting and reporting conventions and adopt
various depreciation and amortization methods. We cannot guarantee that these
schedules will yield a result that conforms to statutory or regulatory
requirements or to administrative pronouncements of the IRS. Further, our tax
return may be audited, which could result in an audit of a unitholder's
individual tax return and increased liabilities for taxes because of adjustments
resulting from the audit.
THERE IS A POSSIBILITY OF LOSS OF TAX BENEFITS RELATING TO NONUNIFORMITY OF
COMMON UNITS AND NONCONFORMING DEPRECIATION CONVENTIONS
Because we cannot match transferors and transferees of common units,
uniformity of the economic and tax characteristics of the common units to a
purchaser of common units of the same class must be maintained. To maintain
uniformity and for other reasons, we have adopted certain depreciation and
amortization conventions which conform to Treasury Regulations under Section
743(b) of the Internal Revenue Code effective for purchases of common units on
or after December 15, 1999. However, for purchases of common units prior to
December 15, 1999, these conventions do not conform with all aspects of certain
proposed and final Treasury Regulations. A successful challenge to those
conventions by the IRS could adversely affect the amount of tax benefits
available to a purchaser of common units and could have a negative impact on the
value of the common units.
THERE ARE STATE, LOCAL AND OTHER TAX CONSIDERATIONS
In addition to United States federal income taxes, unitholders will
likely be subject to other taxes, such as state and local taxes, unincorporated
business taxes and estate, inheritance or intangible taxes that are imposed by
the various jurisdictions in which the unitholder resides or in which we do
business or own property. A unitholder will likely be required to file state and
local income tax returns and pay state and local income taxes in some or all of
the various jurisdictions in which we do business or own property and may be
subject to penalties for failure to comply with those requirements. It is the
responsibility of each unitholder to file all United States federal, state and
local tax returns that may be required of him. Our tax counsel has not rendered
an opinion on the tax consequences of an investment in us other than the United
States federal income tax consequences.
UNITHOLDERS MAY HAVE NEGATIVE TAX CONSEQUENCES IF WE DEFAULT ON OUR DEBT OR SELL
ASSETS
If we default on any of our debt, the lenders will have the right to
sue us for non-payment. Such an action could cause an investment loss and
negative tax consequences for unitholders through the realization of taxable
income by unitholders without a corresponding cash distribution. Likewise, if we
were to dispose of assets and realize
15
<PAGE>
a taxable gain while there is substantial debt outstanding and proceeds of the
sale were applied to the debt, unitholders could have increased taxable income
without a corresponding cash distribution.
USE OF PROCEEDS
All of the common units we are offering pursuant to this prospectus
may be issued from time to time in connection with our acquisition of other
businesses, properties or securities. Other than the businesses, assets or
securities acquired, we will not receive any proceeds from the issuance of
shares under this prospectus. As of the date of this prospectus, we do not have
any pending agreements for any material acquisitions but we intend to pursue
acquisition opportunities actively.
DESCRIPTION OF COMMON UNITS
GENERAL
Our common units represent limited partner interests in Suburban,
which entitle the holders to participate in distributions and exercise the
rights and privileges available to limited partners under our partnership
agreement. A copy of our partnership agreement is filed as an exhibit to the
registration statement of which this prospectus is a part. A summary of
important provisions of our partnership agreement is included in our April 22,
1999 proxy statement filed with the SEC.
NUMBER OF UNITS
As of December 25, 1999, we had 22,278,587 common units outstanding.
Suburban Energy Services Group LLC, our general partner, owns a 1.0% general
partner interest in the Partnership and a 1.0101% general partner interest in
the Operating Partnership.
Under our partnership agreement we may issue, without further
unitholder action, an unlimited number of additional limited partner interests
and other equity securities with such rights, preferences and privileges as
shall be established by the Board of Supervisors in its sole discretion,
including securities that may have special voting rights to which common units
are not entitled. However, we may not issue equity securities senior to the
common units or an aggregate of more than 9,375,000 additional common units or
other units having rights to distributions or in liquidation ranking on a parity
with the common units or equivalent units at any time prior to March 31, 2001,
without the prior approval of at least a majority of the outstanding common
units. These limitations do not, however, apply to the issuance of additional
common units or parity securities in connection with certain accretive
acquisitions or capital improvements or if the proceeds of such issuance is used
to repay certain indebtedness.
LISTING
Our outstanding common units are listed on the NYSE under the symbol
"SPH". Any additional common units we issue will also be listed on the NYSE.
VOTING
Each record holder of a unit has a vote according to his percentage
interest in the partnership. However, if at any time, any person or group
(including our general partner and its affiliates) owns beneficially more than
20% of all common units, any common units owned by that person or group in
excess of 20% may not be voted on any matter and will not be considered to be
outstanding when sending notices of a meeting of unitholders (unless otherwise
required by law), calculating required votes, determining the presence of a
quorum or for other similar purposes under our partnership agreement. We hold a
meeting of the limited partners every three years.
16
<PAGE>
CASH DISTRIBUTIONS
Our partnership agreement requires us to distribute all of our
"Available Cash" to our unitholders and our general partner within 45 days
following the end of each fiscal quarter based on the priorities described
below. "Available Cash" generally means, with respect to any fiscal quarter of
the Partnership, all of our cash on hand at the end of each quarter, less
reserves necessary or appropriate, in the discretion of our Board of
Supervisors, to provide for the proper conduct of our business, to comply with
applicable law or agreements, or to provide funds for future distributions to
partners.
Distributions of Available Cash may be made either from "Operating
Surplus" or from "Capital Surplus".
"Operating Surplus" generally means (A) our cash balance on the date
we commenced operations, plus $40 million, plus all cash receipts from our
operations (including working capital borrowings but excluding cash receipts
from "Interim Capital Transactions"), minus (B) all of our operating expenses,
debt service payments (including reserves, 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), maintenance capital expenditures and
reserves established for our future operations, in each case, since we commenced
operations.
"Interim Capital Transactions" generally mean borrowings and sales of
debt securities (other than for working capital purposes), sales of equity
interests and sales or other dispositions of assets (other than inventory,
accounts receivable and other current assets, all as disposed of in the ordinary
course of business).
All Available Cash distributed will be treated as distributed from
Operating Surplus until the sum of all Available Cash distributed since we
commenced operations equals Operating Surplus as of the end of the quarter prior
to such distribution. Any excess Available Cash (regardless of its source) will
be deemed to be from "Capital Surplus" and distributed accordingly.
Historically, we have not made any distributions of Available Cash from Capital
Surplus and do not expect to do so in the foreseeable future.
Available Cash from Operating Surplus with respect to any quarter
will be distributed as follows:
o first, 98% to common unitholders, pro rata, and 2% to the general
partner, until all common unitholders have received the minimum
quarterly distribution of $0.50 per unit, any arrearages in
minimum quarterly distributions on the common units from prior
quarters, and an amount equal to the excess of the target
distribution of $0.55 per unit over the minimum quarterly
distribution; and
o thereafter, 85% to all common unitholders, pro rata, 13% to the
holders of incentive distribution rights and 2% to the general
partner.
o After the fiscal quarter ending March 31, 2001, the priorities
will be the same, except that common units will no longer be
entitled to arrearages.
Our general partner currently owns all of the incentive distribution
rights, but has the right to transfer them freely. Incentive distribution rights
are non-voting, limited partner interests in Suburban that confer upon the
holder the right to receive certain cash distributions as described above. The
Board of Supervisors (with the approval of a majority of the Elected
Supervisors) has the option, exercisable beginning in May 2004, to cause all the
incentive distribution rights to be converted into a number of common units
having a value equal to the fair market value of the incentive distribution
rights.
17
<PAGE>
Our quarterly distribution of Available Cash is currently $0.5125 per
unit per quarter, consisting of the minimum quarterly distribution of $0.50 per
unit plus an additional $0.0125 per unit. See "Price Range of Common Units and
Cash Distributions".
LIQUIDITY ARRANGEMENT
Our Partnership Agreement requires that we maintain, through the
quarter ending March 31, 2001, $22.0 million of committed availability under the
working capital line under our bank credit facility to support the minimum
quarterly distribution. The committed availability will be reduced to $11.6
million on January 1, 2001 (reduced by any amounts in excess of $10.4 million
previously drawn), which is the currently estimated amount of the minimum
quarterly distribution for the last quarter in which this liquidity arrangement
is in effect.
Generally, if adjusted Operating Surplus (disregarding for purposes
of this term changes in operating balance sheet accounts, including changes
relating to borrowings for working capital purposes, other than such borrowings
that are distributed to unitholders) is less than the aggregate minimum
quarterly distribution for the previous four fiscal-quarter period, i.e., a
"distribution shortfall," or if there is no distribution shortfall but Suburban
has insufficient borrowing capacity under its general working capital facility,
any borrowings to pay the minimum quarterly distribution will be deemed to be
drawdowns of the liquidity arrangement and will permanently reduce the liquidity
arrangement. (These borrowings will be distributed to the extent permitted by
Suburban's contracts and securities.) Any other borrowings to pay the minimum
quarterly distribution will be deemed to be regular working capital borrowings
and, therefore, will not reduce the liquidity arrangement.
The amount of required availability under the liquidity arrangement
will be permanently reduced by any amount borrowed under it, even if the amount
borrowed is repaid. Suburban is in effect setting aside some of its own
resources that could otherwise have been used for distributions, working capital
needs or other purposes, which may adversely affect Suburban's operations.
Consequently, the cost of the liquidity arrangement, if used, will be indirectly
born by the unitholders.
There is an exception if the amount of the Available Cash from
Operating Surplus is insufficient to distribute the minimum quarterly
distribution in any fiscal quarter when, looking back over the preceding four
fiscal quarters (including such fiscal quarter) the aggregate amount of
Available Cash from adjusted Operating Surplus for such four-fiscal quarter
period was less than the aggregate minimum quarterly distribution for such
four-fiscal quarter period. In this event, a management reserve established
through the fiscal quarter ending March 31, 2001, comprised of the quarterly
distributions paid on certain common units held in a benefits protection trust
established pursuant to a compensation deferral plan for the benefit of officers
and senior management who are members of the general partner, will be drawn on
prior to using the liquidity arrangement.
TRANSFER RESTRICTIONS
Common units are securities and are transferable according to the
laws governing transfer of securities. Until a common unit has been transferred
on the books of the Partnership, we will treat the record holder as the absolute
owner for all purposes. Transfers of common units will not be recorded by the
Transfer Agent or recognized by the Partnership until the transferee executes
and delivers a transfer application. A purchaser or transferee of common units
who does not execute and deliver a transfer application will not receive cash
distributions (unless the common units are held in nominee or "street" name and
the nominee or broker has executed and delivered a transfer application with
respect to the common units) and may not receive federal income tax information
and reports furnished to record holders of common units. The Partnership has
discretion to withhold consent to transfer.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for the common units is
Equiserve-First Chicago Trust Division. You may contact them at the following
address:
18
<PAGE>
Mail Suite 4690
P.O. Box 2532
Jersey City, NJ 07303-2532
TAX CONSIDERATIONS
This section is a summary of the material federal income tax
considerations that may be relevant to prospective unitholders and, to the
extent set forth below under "-- Legal Opinions", expresses the opinion of Weil,
Gotshal & Manges LLP, tax counsel to Suburban, insofar as it relates to matters
of law and legal conclusions. This section is based upon current provisions of
the Internal Revenue Code, existing and proposed regulations thereunder and
current administrative rulings and court decisions, all of which are subject to
change possibly with retroactive effect. Subsequent changes in such authorities
may cause the tax consequences to vary substantially from the consequences
described below. As the context otherwise requires, references in this section
to "us" are references to either Suburban or 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, non-resident aliens or other unitholders subject to specialized tax
treatment, such as tax-exempt institutions, foreign persons, individual
retirement accounts, REITs or mutual funds. Accordingly, each prospective
unitholder should consult, and should depend on, his own tax advisor in
analyzing the federal, state, local and foreign tax consequences peculiar to him
of the ownership or disposition of common units.
LEGAL OPINIONS
Counsel is of the opinion that, as of the date hereof, assuming the
accuracy of the representations and subject to the qualifications set forth in
the detailed discussion that follows, for federal income tax purposes (i) the
Partnership and the Operating Partnership will each be treated as a partnership,
and (ii) owners of common units, with certain exceptions, as described in
"--Limited Partner Status" below, will be treated as partners of the
Partnership, but not the Operating Partnership. In addition, all statements as
to matters of law and legal conclusions contained in this section, unless
otherwise noted, reflect the opinion of counsel as of the date hereof. All
references to "us," "we" or "our" are to either Suburban or the Operating
Partnership and not to Weil, Gotshal & Manges LLP.
We have not requested, and do not expect to request, a ruling from
the IRS with respect to our classification as a partnership for federal income
tax purposes, whether our propane operations generate "qualifying income" under
Section 7704 of the Internal Revenue Code or any other matter affecting us or
prospective unitholders. Instead, we have relied, and will rely, on the opinions
of counsel as to these matters. An opinion of counsel represents only that
counsel's best legal judgment and does not bind the IRS or the courts. No
assurance can be provided that the opinions and statements set forth herein
would be sustained by a court if contested by the IRS. Any such contest with the
IRS may materially and adversely impact the market for the common units and the
prices at which common units trade even if we prevail. In addition, the costs of
any contest with the IRS will be borne directly or indirectly by the unitholders
and the general partner. Furthermore, no assurance can be given that our
treatment, or an investment in the Partnership, will not be significantly
modified by future legislative or administrative changes or court decisions. Any
such modification may or may not be retroactively applied.
For the reasons hereinafter described, counsel has not rendered an
opinion with respect to the following specific federal income tax issues:
o the treatment of a unitholder whose common units are loaned to a
short seller to cover a short sale of common units (see "--Tax
Treatment of Unitholders--Treatment of Short Sales");
19
<PAGE>
o whether a unitholder acquiring common units in separate
transactions must maintain a single aggregate adjusted tax basis
in the common units (see "--Disposition of Common
Units--Recognition of Gain or Loss");
o whether our monthly convention for allocating taxable income and
losses is permitted by existing Treasury Regulations (see
"--Disposition of Common Units--Allocations Between Transferors
and Transferees"); and
o whether our method for depreciating certain Section 743
adjustments is sustainable (see "--Tax Treatment of
Operations--Section 754 Election").
PARTNERSHIP STATUS
A partnership is not a taxable entity and incurs no federal income
tax liability. Instead, each partner is required to take into account its
allocable share of items of income, gain, loss and deduction of the partnership
in computing its federal income tax liability, regardless of whether cash
distributions are made. Distributions by a partnership to a partner are
generally not taxable unless the amount of cash distributed to a partner is in
excess of the partner's adjusted basis in its partnership interest.
We have not requested, and do not expect to request any ruling from
the IRS as to the status of Suburban or the Operating Partnership as a
partnership for federal income tax purposes. Instead we have relied on the
opinion of counsel that, based upon the Internal Revenue Code, Treasury
Regulations, published revenue rulings and court decisions and the
representations described below, Suburban and the Operating Partnership will
each be classified as a partnership for federal income tax purposes. In
rendering its opinion, counsel has relied on certain factual representations
made by Suburban and the general partner. Such factual matters are as follows:
o Neither Suburban nor the Operating Partnership has elected or
will elect to be treated as an association or corporation;
o Suburban and the Operating Partnership have been and will be
operated in accordance with:
o all applicable partnership statutes;
o the partnership agreement or operating partnership agreement
(whichever is applicable); and
o the description of the applicable agreement in this
prospectus; and
o For each taxable year, more than 90% of our gross income will be
derived from:
o the exploration, development, production, processing,
refining, transportation or marketing of any mineral or
natural resource, including oil, gas or products thereof; or
o other items of "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 interest from other than a financial business, dividends and income and
gains from the processing, transportation and marketing of crude oil, natural
gas, and products thereof, including the retail and wholesale marketing of
propane, certain hedging activities and the transportation of propane
20
<PAGE>
and natural gas liquids. Based upon the representations of Suburban and the
general partner and a review of the applicable legal authorities, counsel is of
the opinion that at least 90% of our 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
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 partners in liquidation of their interests in us.
This contribution and liquidation should be tax-free to unitholders and
Suburban, so long as we, at that time, do not have liabilities in excess of the
tax basis of our assets and the distribution qualifies for certain exceptions
relating to the distribution of marketable securities by partnerships.
Thereafter, we would be treated as an association taxable as a corporation for
federal income tax purposes.
If Suburban or the Operating Partnership were treated as an
association taxable as a corporation in any taxable year, either as a result of
a failure to meet the Qualifying Income Exception or otherwise, its items of
income, gain, loss and deduction would be reflected only on its tax return
rather than being passed through to the unitholders, and our net income would be
taxed to Suburban or the Operating Partnership at corporate rates. The
imposition of a corporate income tax on our income would reduce the amount of
cash available to distribute to unitholders. In addition, any distributions we
made to a unitholder would be treated as either taxable dividend income, to the
extent of Suburban's 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 the common units is reduced to zero.
Accordingly, treatment of either Suburban or the Operating Partnership as an
association taxable 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 common units.
The discussion below is based on the assumption that we will be
classified as a partnership for federal income tax purposes.
TAX TREATMENT OF UNITHOLDERS
LIMITED PARTNER STATUS
Unitholders who have become limited partners will be treated as our
partners for federal income tax purposes. Counsel is of the opinion that
assignees who have executed and delivered transfer applications, and are
awaiting admission as limited partners, and 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 our partners for federal income tax purposes.
Because there is no direct authority addressing assignees of common units who
are entitled to execute and deliver transfer applications and thereby become
entitled to direct the exercise of attendant rights, but who fail to execute and
deliver transfer applications, it is not clear whether such assignees will be
treated as partners of the Partnership for federal income tax purposes.
Furthermore, a purchaser or other transferee of common units who does not
execute and deliver a transfer application may not receive certain 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 with respect
to such common units.
Although it is not clear, a beneficial owner of common units whose
common 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 such common units
for federal income tax purposes. See "--Tax Treatment of Unitholders--Treatment
of Short Sales."
Our 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 such a unitholder would therefore be
21
<PAGE>
fully taxable as ordinary income. These holders should consult their own tax
advisors with respect to their status as our partners for federal income tax
purposes and the treatment of cash distributions to them.
FLOW-THROUGH OF TAXABLE INCOME
We will not pay any federal income tax. Instead, each unitholder must
report on its income tax return its allocable share of our income, gains, losses
and deductions without regard to whether corresponding cash distributions are
received by that unitholder. Consequently, a unitholder may be allocated a share
of our income even if it has not received a corresponding cash distribution.
Each unitholder must include in income its allocable share of our income, gain,
loss and deduction for our taxable year ending with or within his taxable year.
TREATMENTS OF PARTNERSHIP DISTRIBUTIONS
Distributions by us to a unitholder generally will not be taxable to
the unitholder for federal income tax purposes to the extent of the tax basis
the unitholder has in the 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 that our distributions cause a unitholder's "at risk"
amount to be less than zero at the end of any taxable year, the unitholder must
recapture any losses deducted in previous years. See "--Tax Treatment of
Unitholders--Limitations on Deductibility of Partnership Losses".
A decrease in a unitholder's percentage interest in us because of our
issuance of additional common units will decrease such unitholder's share of
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 the unitholder's tax
basis in the common units, if such distribution reduces the unitholder's share
of our "unrealized receivables," including depreciation recapture, and/or
substantially appreciated "inventory items," both as defined in Section 751 of
the Internal Revenue Code, and collectively, "Section 751 Assets". To that
extent, the unitholder will be treated as having been distributed part of its
proportionate share of the Section 751 Assets and having exchanged such assets
with us in return for the non-pro rata portion of the actual distribution made
to the unitholder. This latter deemed exchange will generally result in the
unitholder's realization of ordinary income under Section 751(b) of the Internal
Revenue Code. Such income will equal the excess of (1) the non-pro rata portion
of such distribution over (2) the unitholder's tax basis for the share of such
Section 751 Assets deemed relinquished in the exchange.
ALTERNATIVE MINIMUM TAX
Each unitholder will be required to take into account his
distributive share of any of our items of income, gain, deduction or loss for
purposes of the alternative minimum tax. A portion of our depreciation
deductions may be treated as an item of tax preference for this purpose. A
unitholder's alternative minimum taxable income derived from us may be higher
than his share of our net income because we may use accelerated methods of
depreciation for purposes of computing federal taxable income or loss. The
alternative 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 common units on their liability for the alternative minimum tax.
BASIS OF COMMON UNITS
A unitholder will have an initial tax basis in the common units equal
to the amount paid for the common units plus the unitholder's share of our
nonrecourse liabilities. That basis will be increased by the
22
<PAGE>
unitholder's share of our income and by any increases in the unitholder's 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
decrease in the unitholder's share of our nonrecourse liabilities and by the
unitholder's share of our expenditures that are not deductible in computing our
taxable income and are not required to be capitalized. A unitholder will have no
share of our debt which is recourse to the general partner, but will have a
share, generally based on its share of profits, of our nonrecourse liabilities.
See "--Disposition of Common Units--Recognition of Gain or Loss".
LIMITATIONS ON DEDUCTIBILITY OF PARTNERSHIP LOSSES
The deduction by a unitholder of its share of our losses will be
limited to its tax basis in the common units and, in the case of an individual
unitholder or a corporate unitholder, if more than 50% of the value of its stock
is owned directly or indirectly by five or fewer individuals, or certain
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 the
unitholder's tax basis. A unitholder must recapture losses deducted in previous
years to the extent that our distributions cause the unitholder's 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 the unitholder's tax basis or at risk
amount, whichever is the limiting factor, subsequently increases. Upon the
taxable disposition of a common 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 such 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 its tax
basis in the common units, excluding any portion of that basis attributable to
its share of our nonrecourse liabilities, reduced by any amount of money the
unitholder borrows to acquire or hold the common units if the lender of such
borrowed funds owns an interest in us, is related to the unitholder or can look
only to common units for repayment. A unitholder's at risk amount will increase
or decrease as the tax basis of the unitholder's common units increases or
decreases, other than increases or decreases in tax basis attributable to
increases or decreases in the unitholder's share of our nonrecourse liabilities.
The passive loss limitations generally provide that individuals,
estates, trusts and certain closely-held corporations and personal service
corporations can deduct losses from passive activities, 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 passive activity. Consequently, any
passive losses we generate will only be available to offset future income
generated by us and will not be available to offset income from other passive
activities or investments, including other publicly-traded partnerships, or
salary or active business income. Passive losses which are not deductible
because they exceed a unitholder's share of our income may be deducted in full
upon disposition of the entire investment in us in a fully taxable transaction
to an unrelated party. The passive activity loss rules are applied after other
applicable limitations on deductions such as the at risk rules and the basis
limitation.
LIMITATIONS ON INTEREST DEDUCTIONS
The deductibility of a non-corporate taxpayer's "investment interest
expense" is generally limited to the amount of such taxpayer's "net investment
income." As noted, a unitholder's net passive income from us will be treated as
investment income for this purpose. In addition, the unitholder's share of our
portfolio income will be treated as investment income. Investment interest
expense includes:
o interest on indebtedness properly allocable to property held for
investment;
o our interest expense attributed to portfolio income; and
o the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
23
<PAGE>
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 common unit. Net investment income includes
gross income from property held for investment and amounts treated as portfolio
income pursuant to 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 unless the unitholder waives the benefit of the lower tax
rates on such gain.
ALLOCATION OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTION
In general, if we have a net profit, our items of income, gain, loss
and deduction are allocated among the general partner and the unitholders in
accordance with their respective percentage interests in us. At any time that
distributions are made to the common unitholders and our general partner and not
to the holders of incentive distribution rights, or that incentive distributions
are made to the holders of incentive distribution rights, gross income is
allocated to the recipients to the extent of such distributions. If we have a
net loss, our items of income, gain, loss and deduction are generally allocated
first, to the general partner and the unitholders in accordance with their
respective percentage interests to the extent of their positive capital
accounts, as maintained under the partnership agreement, and, second, to the
general partner.
As required by Section 704(c) of the Internal Revenue Code and as
permitted by its Regulations, certain items of our income, deduction, gain and
loss are allocated to account for the difference between the tax basis and fair
market value of property contributed or deemed contributed to us by each of our
partners, referred to in this discussion as "Contributed Property," and to
account for the difference between the fair market value of our assets and their
carrying value on our books at the time of any offering made pursuant to this
prospectus. The effect of these allocations to a unitholder purchasing common
units pursuant to this prospectus will be essentially the same as if the tax
basis of our assets were equal to their fair market value at the time of
purchase. In addition, certain items of recapture income are allocated to the
extent possible to the partner allocated the deduction or curative allocation
giving rise to the treatment of such 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
sufficient to eliminate the negative balance as quickly as possible.
Regulations provide that an allocation of items of partnership
income, gain, loss or deduction, other than an allocation required by Section
704(c) of 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 (the "Book-Tax Disparity"), will generally be given effect
for federal income tax purposes in determining a partner's distributive 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 distributive share
of an item will be determined on the basis of the partner's interest in the
partnership, which will be determined by taking into account all the facts and
circumstances, including the partners' relative contributions to the
partnership, the interests of the partners in economic profits and losses, the
interest of the partners in cash flow and other nonliquidating distributions and
rights of the partners to distributions of capital upon liquidation.
Under the Internal Revenue Code, the partners in a partnership cannot
be allocated more depreciation, gain or loss than the total amount of any such
item recognized by that partnership in a particular taxable period (the "ceiling
limitation"). As allowed by the Regulations, to the extent that the ceiling
limitation is or becomes applicable, we will allocate certain items of income
and deduction in a way designed to effectively "solve" this problem and
eliminate the impact of the ceiling limitation. Although these allocations will
not have substantial economic effect because they will not be reflected in the
capital accounts of the unitholders they, nevertheless, generally should be
respected under the Treasury Regulations.
Counsel is of the opinion that, with the exception of the issues
described in "Tax Treatment of Operations--Section 754 Election" and
"Disposition of Common Units--Allocations Between Transferors and
24
<PAGE>
Transferees," allocations under our partnership agreement will be given effect
for federal income tax purposes in determining a partner's distributive share of
an item of income, gain, loss or deduction. There are, however, uncertainties in
the Treasury Regulations relating to the allocation of partnership income and
some of the allocations in our partnership agreement may be successfully
challenged by the IRS.
TAX TREATMENT OF OPERATIONS
ACCOUNTING METHOD AND TAXABLE YEAR
We currently use the year ending December 31 as our taxable year and
we have adopted the accrual method of accounting for federal income tax
purposes. Each unitholder will be required to include in income its allocable
share of our income, gain, loss and deduction for our taxable year ending within
or with its taxable year. In addition, any unitholder who has a taxable year
ending on a date other than December 31 who disposes of all of its units
following the close of our taxable year but before the close of the unitholder's
taxable year must include the allocable share of our income, gain, loss and
deduction for that taxable year. Therefore, the unitholder's income for the
taxable year may include its allocable share of more than one year of our
income.
INITIAL TAX BASIS, DEPRECIATION AND AMORTIZATION
We use the tax basis of our various assets for purposes of computing
depreciation and cost recovery deductions and, ultimately, gain or loss on the
disposition of such assets. The federal income tax burden associated with the
difference between the fair market value of our property and its tax basis
immediately prior to this offering will be borne by partners holding interests
in us prior to this offering. See "--Tax Treatment of Unitholders--Allocation of
Partnership Income, Gain, Loss and Deduction."
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 owned by us may be required to recapture
such deductions as ordinary income upon a sale of his interest in us. See "--Tax
Treatment of Unitholders--Allocation of Partnership Income, Gain, Loss and
Deduction" and "--Disposition of Common Units--Recognition of Gain or Loss."
The costs incurred in promoting the issuance of common units (i.e.,
syndication expenses) must be capitalized and cannot be deducted currently,
ratably, or upon our termination. Uncertainties exist regarding the
classification of costs as organization expenses, which may be amortized, and as
syndication expenses, which may not be amortized.
SECTION 754 ELECTION
We have made the election permitted by Section 754 of the Internal
Revenue Code. Except for a one time revocation which we could make for our tax
year ending December 31, 1999, the 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") pursuant to Section 743(b)
of the Internal Revenue Code to reflect his purchase price. This election does
not apply to a person who purchases 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) its share of our tax basis in such assets ("common
basis") and (2) its Section 743(b) adjustment to that basis. The amount of the
adjustment under Section 743(b) is equal to the difference between the
purchaser's initial adjusted federal income tax basis in the units purchased and
its share of our adjusted basis in our assets attributable to those units. The
Section 743(b) adjustment attempts to provide the purchaser with the equivalent
of an adjusted tax basis in its share of our assets equal to the fair market
value of such share.
25
<PAGE>
Effective for transfers of partnership interests occurring on or
after December 15, 1999, Treasury Regulations under Section 743 of the Internal
Revenue Code require a partnership that adopts the remedial allocation method
(which we have done) to depreciate the portion of the Section 743(b) increase
with respect to recovery property that is attributable to Section 704(c)
built-in gain over the remaining cost recovery period for the Section 704(c)
built-in gain. Any remaining portion of the Section 743(b) adjustment is
recovered as if it were newly-purchased recovery property placed in service when
the purchaser purchased his partnership interest. The recovery allowance for the
purchaser's share of common basis is unaffected by the Section 743(b)
adjustment.
However, the proposed regulations under Section 197 indicate that the
Section 743(b) adjustment attributable to an amortizable Section 197 intangible
should be treated as a newly-acquired asset placed in service in the month when
the purchaser acquires the common unit. Furthermore, under Treasury Regulation
Section l.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 of the Internal Revenue Code is
generally required to be depreciated using either the straight-line method or
the 150% declining balance method.
Pursuant to our partnership agreement, we have adopted a convention
to preserve the uniformity of common units even if such convention is not
consistent with certain Treasury Regulations. See "--Uniformity of Common
Units." Although counsel is unable to opine as to the validity of this method,
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 such property. This method is consistent
with the regulations under Section 743, but arguably inconsistent with Treasury
Regulation Section 1.167(c)-1(a) (6), which is not expected to directly apply to
a material portion of our assets, and Proposed Treasury Regulation Section
1.197-2(g) (3). To the extent such Section 743(b) adjustment is attributable to
appreciation in value in excess of the unamortized Book-Tax Disparity, we will
apply the rules described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken, we may adopt a
depreciation or amortization convention under which all purchasers acquiring
common units in the same month would receive depreciation or amortization,
whether attributable to common basis or Section 743(b) adjustment, based upon
the same applicable rate as if they had purchased a direct interest in our
assets. Such an aggregate approach may result in lower annual depreciation or
amortization deductions than would otherwise be allowable to certain
unitholders. See "--Uniformity of Common Units."
The allocation of the Section 743(b) adjustment among items of
partnership property must be made in accordance with the Internal Revenue Code
and the Treasury Regulations thereunder. The IRS may seek to reallocate some or
all of any Section 743(b) adjustment not so allocated by us to goodwill.
Goodwill, as an intangible asset, would be amortizable over a longer period of
time than our tangible assets.
A section 754 election is advantageous if the transferee's tax basis
in his common units in higher than such common units' share of the aggregate tax
basis of our assets immediately prior to the transfer. In such a case, as a
result of the election, the transferee would have a higher tax basis in his
share of our assets for purposes of calculating, among other items, his
depreciation and depletion deductions and his share of any gain or loss on a
sale of our assets. Conversely, a Section 754 election is disadvantageous if the
transferee's tax basis in his common units is lower than such common units'
share of the aggregate tax basis of our assets immediately prior to the
transfer. Thus, the fair market value of the common units may be affected either
favorably or adversely by the election.
The calculations involved in the Section 754 election are complex and
are made by us on the basis of certain assumptions as to the value of our assets
and other matters. There is no assurance that the determinations made by us 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 revoke our Section 754
election for our taxable year ending December 31, 1999 or seek permission from
the IRS to revoke our Section 754 election at a later time.
26
<PAGE>
If such permission is granted, a subsequent purchaser of common units may be
allocated more income than he would have been allocated had the election not
been revoked.
VALUATION OF PARTNERSHIP PROPERTY AND BASIS OF PROPERTIES
The federal income tax consequences of the ownership and disposition
of common units will depend in part on our estimates as to the relative fair
market values, and determinations of the initial tax bases, of our assets.
Although we may from time to time consult with professional appraisers with
respect to valuation matters, we will make many of the relative fair market
value estimates. These estimates and determinations of basis are subject to
challenge and will not be binding on the IRS or the courts. If the estimates of
fair market value or determinations of basis are subsequently 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.
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. Such
payment, if made, will be treated as a distribution of cash to the unitholder 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 current unitholders. We are authorized to amend our partnership
agreement in the manner necessary to maintain uniformity of intrinsic tax
characteristics of common units and to adjust subsequent distributions, so that
after giving effect to such distributions, the priority and characterization of
distributions otherwise applicable under our 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 could file a claim for credit or refund.
TREATMENT OF SHORT SALES
A unitholder whose common units are loaned to a "short seller" to
cover a short sale of common units may be considered as having disposed of
ownership of those common units. If so, he would no longer be a partner with
respect to those common 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, deduction or loss with respect to those common units would not be
reportable by the unitholder, any cash distributions received by the unitholder
with respect to those common units would be fully taxable and all of such
distributions would appear to be treated as ordinary income. Unitholders
desiring to assure their status as partners and avoid the risk of gain
recognition should modify any applicable brokerage account agreements to
prohibit their brokers from borrowing their common units. See also
"--Disposition of Common Units--Recognition of Gain or Loss."
DISPOSITION OF COMMON UNITS
RECOGNITION OF GAIN OR LOSS
A unitholder will recognize gain or loss on a sale of common units
equal to the difference between the amount realized and the unitholder's tax
basis for the common 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 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 common units could result in a tax liability in excess of any cash
received from such sale.
Prior distributions from us in excess of cumulative net taxable
income allocated for a common unit which decreased a unitholder's tax basis in
such common unit will, in effect, become taxable income if the common
27
<PAGE>
unit is sold at a price greater than the unitholder's tax basis in such common
unit, even if the price is less than his original cost.
Gain or loss recognized by a unitholder, other than a "dealer" in
common units, on the sale or exchange of a common unit will generally be taxable
as capital gain or loss. Capital gain recognized on the sale of common units
held for more than 12 months will generally be taxed at a maximum rate of 20%. A
portion of this gain or loss, which could 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"
owned by us. 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 the common unit and may be recognized
even if there is a net taxable loss realized on the sale of the common unit.
Thus, a unitholder may recognize both ordinary income and a capital loss upon a
disposition of common units. Net capital loss may offset 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. Upon a sale or other disposition of less than all of
such interests, a portion of that tax basis must be allocated to the interests
sold using an "equitable apportionment" method. The ruling is unclear as to how
the holding period of these interests is determined once they are combined. If
this ruling is applicable to the holders of common units, a unitholder will be
unable to select high or low basis common units to sell as would be the case
with corporate stock. Thus, the ruling may result in an acceleration of gain or
a deferral of loss on a sale of a portion of a unitholder's common units. It is
not clear whether the ruling applies to us because, similar to corporate stock,
our interests are evidenced by separate certificates. Accordingly, counsel is
unable to opine as to the effect such ruling will have on the unitholders. A
unitholder considering the purchase of additional common units or a sale of
common units purchased in separate transactions should consult his tax advisor
as to the possible consequences of such ruling.
Certain provisions of the Internal Revenue Code affect the taxation
of certain 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 otherwise
terminated at its fair market value, if the taxpayer or a related person enters
into,
o certain types of short sales;
o an offsetting notional principal contract; or
o a futures or forward contract with respect to the partnership
interest or substantially identical property.
Moreover, if a taxpayer has previously entered into a short sale, an
offsetting notional principal contract or a futures or forward contract with
respect to a partnership interest, the taxpayer will be treated as having sold
such position if the taxpayer or a related person then acquires the partnership
interest or substantially similar property. The Secretary of the 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 are determined annually,
are prorated on a monthly basis and are subsequently apportioned among the
unitholders in proportion to the number of common units owned by each of them as
of the opening of the principal national securities exchange on which the common
units are then traded on the
28
<PAGE>
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 is 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 common units in the open market may be allocated income, gain, loss
and deduction accrued 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 the transferors and the
transferees of common units. 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
transferors and transferees, as well as among partners whose interests otherwise
vary during a taxable period, to conform to a method permitted under future
Treasury Regulations.
Any unitholder who owns common units at any time during a quarter and
who disposes of such common units prior to the record date set for a cash
distribution with respect to such quarter will be allocated items of our income,
gain, loss and deductions attributable to such quarter but will not be entitled
to receive that cash distribution.
NOTIFICATION REQUIREMENTS
A unitholder who sells or exchanges common units is required to
notify us in writing of that sale or exchange within 30 days after the sale or
exchange and in any event by no later than January 15 of the year following the
calendar year in which the sale or exchange occurred. We are required to notify
the IRS of that transaction and to furnish certain information to the transferor
and transferee. However, these reporting requirements do not apply with respect
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 transferee of a common
unit will be required to furnish a statement to the IRS, filed with its income
tax return for the taxable year in which the sale or exchange occurred, that
sets forth the amount of the consideration paid for the common unit. In
addition, because we have made an election under Section 754 of the Internal
Revenue Code, a purchaser of an interest in us is required to notify us of the
transfer of such interest and we are required to include a statement with our
Partnership Return for the taxable year in which we receive notice of the
transfer, setting forth the name and taxpayer identification number of the
transferee, the computation of any Section 743(b) basis adjustment and the
allocation of such adjustment among our properties. A unitholder who is required
to recognize ordinary income or loss under Section 751 of the Internal Revenue
Code upon the sale or exchange of a common unit must submit with its federal
income tax return for the taxable year in which the sale or exchange occurs, a
statement setting forth the date of the sale or exchange, the amount of gain or
loss attributable to the Section 751 property and the amount of capital gain or
loss. Failure to satisfy these reporting obligations may lead to the imposition
of substantial penalties.
CONSTRUCTIVE TERMINATION
We will be considered to have been terminated if, in the aggregate,
there is a sale or exchange of 50% or more of the total interests in our capital
and profits within a 12-month period. If we elect to be treated as a large
partnership, which we currently do not intend to do, we will not terminate by
reason of the sale or exchange of interests in us. A termination of us will
cause a termination of the Operating Partnership. Any such termination would
result in the closing of our taxable year for all unitholders. New tax elections
required to be made by us, including a new election under Section 754 of the
Internal Revenue Code, must be made subsequent to a termination, and a
termination could 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 prior to the
termination.
29
<PAGE>
UNIFORMITY OF COMMON UNITS
Because we cannot match transferors and transferees of common units,
uniformity of the economic and tax characteristics of the common units to a
purchaser of such common units must be maintained. In the absence of uniformity,
compliance with a number of federal income tax requirements, both statutory and
regulatory, could be substantially diminished. A lack of uniformity can result
from the application of the "ceiling limitation" to our ability to make
allocations to eliminate Book-Tax disparities and a literal application of
Treasury Regulation Section 1.167(c)-1(a)(6) and Proposed Treasury Regulation
Section 1.197-2(g)(3) to our Section 743(b) adjustments. Any non-uniformity
could have a negative impact on the value of the common units. See "--Tax
Treatment of Operations--Section 754 Election."
Although counsel is unable to opine on the validity of this method,
we depreciate the portion of a Section 743(b) adjustment attributable to
unrealized appreciation in the value of contributed property or adjusted
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 such property. This method
is consistent with the regulations under Section 743, but is arguably
inconsistent with Treasury Regulation Section 1.167(c)-1(a) (6), which is not
expected to directly apply to a material portion of our assets, and Proposed
Treasury Regulation Section 1.197-2(g)(3). See "--Tax Treatment of
Operations--Section 754 Election." To the extent such Section 743(b) adjustment
is attributable to appreciation in value in excess of the unamortized Book-Tax
Disparity, we apply the rules described in the Treasury Regulations and
legislative history. If we determine that this position cannot reasonably be
taken, we may adopt a depreciation and amortization convention under which all
purchasers acquiring common units in the same month would receive depreciation
and amortization deductions, whether attributable to common basis or Section
743(b) basis, based upon the same applicable rate as if they had purchased a
direct interest in our property. If such an aggregate approach is adopted, it
may result in lower annual depreciation and amortization deductions than would
otherwise be allowable to certain unitholders and risk the loss of depreciation
and amortization deductions not taken in the year that such deductions are
otherwise allowable. This convention 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 convention
to preserve the uniformity of the intrinsic tax characteristics of any common
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 such a challenge were sustained, the uniformity of common
units might be affected, and the gain from the sale of common units might be
increased without the benefit of additional deductions. See "--Disposition of
Common Units--Recognition of Gain or Loss."
TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER INVESTORS
Ownership of common units by employee benefit plans, other tax-exempt
organizations, nonresident aliens, foreign corporations, other foreign persons
and regulated investment companies raises issues unique to such persons and, as
described below, may have substantially adverse tax consequences. 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
taxable income allocated to such an organization will be unrelated business
taxable income and thus will be taxable to such a unitholder.
A regulated investment company or "mutual fund" is required to derive
90% or more of its gross income from interest, dividends, gains from the sale of
stocks or securities or foreign currency or certain 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 which
hold common units will be considered to be engaged in business in the United
States on account of ownership of common units. As a consequence they will be
required to file federal tax returns in respect of their share of our income,
gain, loss or deduction and pay federal income tax at regular rates on any net
income or gain. Generally, a partnership is required
30
<PAGE>
to pay a withholding tax on the portion of the partnership's income which is
effectively connected with the conduct of a United States trade or business and
which is allocable to the foreign partners, regardless of whether any actual
distributions have been made to such partners. However, under rules applicable
to publicly-traded partnerships, we will withhold taxes (currently at the rate
of 39.6%) on actual 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 in order to
obtain credit for the taxes withheld. A change in applicable law may require us
to change these procedures.
Because a foreign corporation which owns common units will be treated
as engaged in a United States trade or business, such a corporation may be
subject to United States branch profits tax at a rate of 30%, in addition to
regular federal income tax, on its allocable 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. An
income tax treaty between the United States and the country in which the foreign
corporate unitholder is a "qualified resident" may reduce or eliminate this tax.
In addition, such a 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 common unit will be subject to federal income tax on
gain realized on the disposition of such common unit to the extent that such
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 upon the disposition of a common unit if that foreign unitholder has held
less than 5% in value of the common units during the five-year period ending on
the date of the disposition and if the common units are regularly traded on an
established securities market at the time of the 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, certain tax information, including a Substitute
Schedule K-1, which sets forth such unitholder's share of our income, gain, loss
and deduction for our preceding taxable year. In preparing this information,
which will generally not be reviewed by counsel, we will use various accounting
and reporting conventions, some of which have been mentioned in the previous
discussion, to determine the unitholder's share of income, gain, loss and
deduction. There is no assurance that any of those conventions will yield a
result which conforms to the requirements of the Internal Revenue Code, Treasury
Regulations or administrative interpretations of the IRS. We cannot assure
prospective unitholders that the IRS will not successfully contend in court that
such accounting and reporting conventions are impermissible. Any such challenge
by the IRS could result in a reallocation of our income to the unitholders and
could negatively affect the value of the common units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from any such audit may require each unitholder to adjust
a prior year's tax liability, and possibly may result in an audit of the
unitholder's 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
provides for one partner to be designated as the "Tax Matters Partner" for these
purposes. Our partnership agreement appoints the general partner as our Tax
Matters Partner.
The Tax Matters Partner will make certain elections on our behalf and
on behalf of the unitholders and can extend the statute of limitations for
assessment of tax deficiencies against unitholders with respect to 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
31
<PAGE>
the IRS unless that unitholder elects, by filing a statement with the IRS, not
to give such 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, such review may be sought by any unitholder having at
least a 1% interest in our profits and by the unitholders having in the
aggregate at least a 5% profits interest. However, only one action for judicial
review will go forward, and each unitholder with an interest in the outcome may
participate. However, if we elect to be treated as a large partnership, which we
do not intend to do because of the costs of application, a unitholder will not
have a right to participate in settlement conferences with the IRS or to seek a
refund.
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 the consistency requirement may subject a unitholder to substantial
penalties. Partners in electing large partnerships are required to treat all
items from the partnership's return in a manner consistent with such return. If
we elect to be treated as a large partnership, each partner would take into
account separately his share of the following items, determined at the
partnership level: (1) taxable income or loss from passive loss limitation
activities; (2) taxable income or loss from other activities, such as portfolio
income or loss; (3) net capital gains to the extent allocable to passive loss
limitation activities and other activities; (4) tax exempt interest; (5) a net
alternative minimum tax adjustment separately computed for passive loss
limitation activities and other activities; (6) general credits; (7) low-income
housing credit; (8) rehabilitation credit; (9) foreign income taxes; (10) credit
for producing fuel from a nonconventional source; and (11) any other items the
Secretary of Treasury deems appropriate. Moreover, miscellaneous itemized
deductions would not be passed through to the partners and 30% of those
deductions would be used at the partnership level.
Adjustments relating to partnership items for a previous taxable year
are generally taken into account by those persons who were partners in the
previous taxable year. Each partner in an electing large partnership, however,
must take into account his share of any adjustments to partnership items in the
year such adjustments are made. Alternatively, a large partnership could elect
to or, in some circumstances, could be required to directly pay the tax
resulting from any such adjustments. In either case, therefore, unitholders of
an electing large partnership could bear significant costs associated with tax
adjustments relating to periods predating their acquisition of units. We do not
expect to elect to have the large partnership provisions apply to us because of
the cost of their application.
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 (i) a person that is not a United States person, (ii) a foreign government,
an international organization or any wholly-owned agency or instrumentality of
either of the foregoing, or (iii) a tax-exempt entity; (c) the amount and
description of common units held, acquired or transferred for the beneficial
owner; and (d) certain 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 certain
information on common 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 such
information to us. The nominee is required to supply the beneficial owner of the
common 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
32
<PAGE>
that we do not constitute a tax shelter. However, we have registered as a tax
shelter with the Secretary of the Treasury in the absence of assurance that we
are not subject to tax shelter registration and in light of the substantial
penalties which might be imposed if registration is required and not undertaken.
The IRS has issued us the following tax shelter registration number:
96080000050.
ISSUANCE OF THE REGISTRATION NUMBER DOES NOT INDICATE THAT AN
INVESTMENT IN US OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR
APPROVED BY THE IRS.
We must furnish the registration number to the unitholders, and a
unitholder who sells or otherwise transfers a common unit in a subsequent
transaction must furnish the registration number to the transferee. The penalty
for failure of the transferor of a common unit to furnish the registration
number to the transferee is $100 for each such failure. The unitholders must
disclose our tax shelter registration number on Form 8271 to be attached to the
tax return on which any deduction, loss or other benefit generated by us is
claimed or 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 herein are not deductible for federal income tax purposes.
Registration as a tax shelter may increase the risk of an audit.
ACCURACY-RELATED PENALTIES
An additional tax equal to 20% of the amount of any portion of an
underpayment of tax which 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, with
respect to 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 with
respect to that portion.
A substantial understatement of income tax in any taxable year exists
it 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 (i) with respect to which there is, or was, "substantial authority" or
(ii) as to which there is a reasonable basis and the pertinent facts of such
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 our income, gain, loss or deduction included in the distributive shares
of unitholders might result in such 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 such 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, a unitholder will be subject to
other taxes, such as state and local income taxes, unincorporated business
taxes, and estate, inheritance or intangible taxes that may be imposed by the
various jurisdictions in which he resides or in which we do business or own
property. Although an analysis of those various taxes is not presented here,
each prospective unitholder should consider their potential impact on his
investment in us. We currently conduct business in 47 states. Many of these
states currently impose a state income tax. A unitholder will be required to
file state income tax returns and to pay state income taxes in some or all of
these states and may be subject to penalties for failure to comply with those
requirements. In some states, tax losses may not
33
<PAGE>
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 the non-resident 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. See "--Tax Treatment of Unitholders--Entity-Level Collections."
IT IS THE RESPONSIBILITY OF EACH UNITHOLDER TO INVESTIGATE THE LEGAL
AND TAX CONSEQUENCES, UNDER THE LAWS OF PERTINENT STATES AND LOCALITIES OF AN
INVESTMENT IN US. ACCORDINGLY, EACH PROSPECTIVE UNITHOLDER SHOULD CONSULT, AND
MUST DEPEND UPON, ITS 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 U.S. FEDERAL, TAX RETURNS THAT MAY BE REQUIRED OF SUCH
UNITHOLDER. COUNSEL HAS NOT RENDERED AN OPINION ON THE STATE OR LOCAL TAX
CONSEQUENCES OF AN INVESTMENT IN US.
PRICE RANGE OF COMMON UNITS AND CASH DISTRIBUTIONS
The Common Units are listed and traded on the NYSE under the symbol
"SPH". The following table sets forth, for the periods indicated, the high and
low sales prices per common unit, as reported on the NYSE Composite Tape, and
the amount of cash distributions paid per common unit.
<TABLE>
<CAPTION>
PRICE RANGE CASH
-----------
HIGH LOW DISTRIBUTION
---- --- ------------
<S> <C> <C> <C>
1997 FISCAL YEAR
First Quarter ended December 28, 1996 $21.88 $18.75 $0.50
Second Quarter ended March 29, 1997 $20.63 $17.75 $0.50
Third Quarter ended June 28, 1997 $18.75 $17.00 $0.50
Fourth Quarter ended September 27, 1997 $20.19 $18.06 $0.50
1998 FISCAL YEAR
First Quarter ended December 27, 1997 $20.56 $15.38 $0.50
Second Quarter ended March 28, 1998 $20.00 $17.50 $0.50
Third Quarter ended June 27, 1998 $19.50 $18.00 $0.50
Fourth Quarter ended September 26, 1998 $20.00 $17.56 $0.50
1999 FISCAL YEAR
First Quarter ended December 26, 1998 $19.94 $17.13 $0.50
Second Quarter ended March 27, 1999 $20.13 $18.00 $0.50
Third Quarter ended June 26, 1999 $20.50 $17.94 $0.5125
Fourth Quarter ended September 25, 1999 $20.75 $19.00 $0.5125
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference room at 450 Fifth Street, N.W.,
34
<PAGE>
Washington, D.C. 20549. You may obtain information on the operation of the
public reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings are
also available on the SEC's web site at "http://www.sec.gov."
We also provide information to the NYSE. You may obtain reports and
other information at the offices of the NYSE at 20 Broad Street, New York, New
York 10002.
The SEC allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus. Information we later file with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 until the termination of this offering:
o our Proxy Statement dated April 22, 1999;
o our Annual Report on Form 10-K for the fiscal year ended
September 25, 1999; and
o the description of the common units in our registration statement
on Form 8-A (File No. 1-14222) filed pursuant to the Securities
Exchange Act of 1934 on February 22, 1996.
If information in incorporated documents conflicts with information
in this prospectus, you should rely on the most recent information. If
information in an incorporated document conflicts with information in another
incorporated document, you should rely on the most recent incorporated document.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Suburban Propane Partners, L.P.
240 Route 10 West
Whippany, NJ 07981
Attention: Investor Relations
Telephone No.: (973) 887-5300
You should rely on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We will make offers of
common units only in states where the offer is permitted. You should not assume
that the information in this prospectus or any prospectus supplement is accurate
as of any date other than the date on the front of those documents.
LEGAL OPINIONS
Certain legal and tax matters relating to the common units being
registered will be passed upon for us by Weil, Gotshal & Manges LLP, New York,
New York.
EXPERTS
The financial statements incorporated in this prospectus by reference
to the Annual Report on Form 10-K for the year ended September 25, 1999 have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
35
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
All capitalized terms used and not defined in Part II of this
Registration Statement shall have the meanings assigned to them in the
Prospectus which forms a part of this Registration Statement.
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our partnership agreement provides that Suburban will indemnify (i)
the members of the Board of Supervisors or the members of the Board of
Supervisors of the Operating Partnership or any subsidiary of the Operating
Partnership, (ii) the general partner, (iii) any departing partner, (iv) any
person who is or was an affiliate of the general partner or any departing
partner, (v) any person who is or was a member, partner, director, officer,
employee, agent or trustee of Suburban, the Operating Partnership or any
subsidiary of the Operating Partnership, (vi) any person who is or was a member,
partner, officer, director, employee, agent or trustee of the general partner or
any departing partner or any affiliate of the general partner or any departing
partner, or (vii) any person who is or was serving at the request of the Board
of Supervisors, the general partner or any departing partner or any affiliate of
the general partner or any departing partner as a member, partner, director,
officer, employee, 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 legal fees, expenses and other disbursements), judgments, fines,
penalties, interest, settlements or 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 Suburban 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 Suburban, and the
general partner shall not be personally liable for, or have any obligation to
contribute or loan funds or assets to Suburban to enable it to effectuate, such
indemnification. Suburban 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
Suburban's activities, regardless of whether Suburban would have the power to
indemnify such person against such liabilities under the provisions described
above.
36
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
Exhibit No. Description
- ----------- -----------
D 2.1 Recapitalization Agreement dated as of November 27,
1998 by and among the Partnership, the Operating
Partnership, the General Partner, Millennium and Suburban
Energy Services Group LLC.
A 3.1 Amended and Restated Agreement of Limited Partnership
of the Partnership dated as of March 4, 1996.
A 3.2 Amended and Restated Agreement of Limited Partnership
of the Operating Partnership dated as of March 4, 1996.
J 3.3 Second Amended and Restated Agreement of Limited
Partnership of Suburban Propane Partners, L.P.
L 5.1 Opinion of Weil, Gotshal & Manges LLP as to the
legality of the securities registered hereby.
L 8.1 Opinion of Weil, Gotshal & Manges LLP as to tax
matters.
J 10.1 Credit Agreement dated as of November 8, 1999 by and
among Suburban Propane, L.P., the Lenders referred to
therein and First Union National Bank, as Administrative
Agent.
A 10.2 Note Agreement dated as of February 28, 1996 among
certain investors and the Operating Partnership relating
to $425 million aggregate principal amount of 7.54% Senior
Notes due June 30, 2011.
A 10.6 Employment Agreement dated as of March 5, 1996
between the Operating Partnership and Mr. Alexander.
C 10.7 First Amendment to Employment Agreement dated as of
March 5, 1996 between the Operating Partnership and Mr.
Alexander entered into as of October 23, 1997.
F 10.8 Second Amendment to Employment Agreement dated as of
March 5, 1996 between the Operating Partnership and Mr.
Alexander entered into as of April 14, 1999.
A 10.9 The Partnership's 1996 Restricted Unit Plan.
A 10.10 Form of Unit Grant Agreement pursuant to the
Partnership's 1996 Restricted Unit Plan.
B 10.11 The Partnership Supplemental Executive Retirement
Plan (effective as of March 5, 1996).
G 10.12 Amendment No. 1 to the Partnership Supplemental
Executive Retirement Plan.
B 10.13 The Partnership's Severance Protection Plan dated
September 1996.
E 10.14 Suburban Propane L.P. Long-Term Incentive Program.
H 10.15 Benefits Protection Trust dated May 26, 1999 by and
between Suburban Propane Partners, L.P. and First Union
National Bank.
37
<PAGE>
Exhibit No. Description
- ----------- -----------
I 10.16 Compensation Deferral Plan of Suburban Propane
Partners, L.P. and Suburban Propane, L.P. dated May 26,
1999.
J 21.1 Listing of Subsidiaries of the Partnership.
K 23.1 Consent of Independent Accountants.
- --------------------------------------------------------------------------------
A Incorporated by reference to the same numbered Exhibit to
the Partnership's Current Report on Form 8-K A filed April
29, 1996.
B Incorporated by reference to the same numbered Exhibit to
the Partnership's Annual Report on Form 10-K for the
fiscal year ended September 28, 1996.
C Incorporated by reference to the same numbered Exhibit to
the Partnership's Annual Report on Form 10-K for the
fiscal year ended September 27, 1997.
D Incorporated by reference to Exhibit 2.1 to the
Partnership's Form 8-K filed December 3, 1998.
E Incorporated by reference to the same numbered Exhibit to
the Partnership's Annual Report on Form 10-K for the
fiscal year ended September 28, 1998.
F Incorporated by reference to Exhibit (10)(c) to the
Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 26, 1999.
G Incorporated by reference to Exhibit 10(d) to the
Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 26, 1999.
H Incorporated by reference to Exhibit (10)(f) to the
Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 26, 1999.
I Incorporated by reference to Exhibit (10)(e) to the
Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 26, 1999.
J Incorporated by reference to Exhibit (21.1) to the
Partnership's Annual Report on Form 10-K for the fiscal
year ended September 25, 1999.
K Filed herewith.
L To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
All supporting schedules have been omitted because they are not
required or the information required to be set forth therein is incorporated by
reference from the Partnership's 1999 Annual Report on Form 10-K.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933. as amended (the "Securities Act") may be permitted to
directors, officers and/or persons
38
<PAGE>
controlling the registrant pursuant to the foregoing provision, or otherwise,
the registrant has 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
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant 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 registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(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;
(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 paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the "Exchange Act")
that are incorporated by reference into the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to those 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 post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934, as amended, 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.
The undersigned registrant here by undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 and
39
<PAGE>
13 of this form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Whippany, State of New
Jersey, on January 20, 2000.
SUBURBAN PROPANE PARTNERS, L.P.
By: /s/ Mark A. Alexander
----------------------------------
Mark A. Alexander
President, Chief Executive Officer
and Appointed Supervisor
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Janice G. Meola and Edward Walsh and each
of them his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign, execute and file this registration statement under
the Securities Act and any and all amendments (including, without limitation,
post-effective amendments and any amendment or amendments or additional
registration statements filed pursuant to Rule 462 under the Securities Act
increasing the amount of securities for which registration is being sought) to
this registration statement, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and
Exchange Commission, to sign any and all applications, registration statements,
notices or other documents necessary or advisable to comply with the applicable
state security laws, and to file the same, together with other documents in
connection therewith, with the appropriate state securities authorities,
granting unto said attorney-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in- fact and agents or him or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
41
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Mark A. Alexander President and Chief Executive Officer; January 20, 2000
------------------------- Appointed Member of the Board of
Mark A. Alexander Supervisors (Principal Executive
Officer)
/s/ Michael J. Dunn, Jr. Appointed Member of the Board of January 20, 2000
------------------------- Supervisors
Michael J. Dunn, Jr.
/s/ John Hoyt Stookey Elected Member and Chairman of the January 20, 2000
------------------------- Board of Supervisors
John Hoyt Stookey
/s/ Harold R. Logan, Jr. Elected Member of the Board of January 20, 2000
------------------------- Supervisors
Harold R. Logan, Jr.
/s/ Dudley C. Mecum Elected Member of the Board of January 20, 2000
------------------------- Supervisors
Dudley C. Mecum
/s/ Anthony M. Simonowicz Vice President and Chief Financial January 20, 2000
------------------------- Officer (Principal Financial Officer)
Anthony M. Simonowicz
/s/ Edward J. Grabowiecki Vice President, Controller and Chief January 20, 2000
------------------------- Accounting Officer (Principal
Edward J. Grabowiecki Accounting Officer)
</TABLE>
42
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
D 2.1 Recapitalization Agreement dated as of November 27,
1998 by and among the Partnership, the Operating
Partnership, the General Partner, Millennium and Suburban
Energy Services Group LLC.
A 3.1 Amended and Restated Agreement of Limited Partnership
of the Partnership dated as of March 4, 1996.
A 3.2 Amended and Restated Agreement of Limited Partnership
of the Operating Partnership dated as of March 4, 1996.
J 3.3 Second Amended and Restated Agreement of Limited
Partnership of Suburban Propane Partners, L.P.
L 5.1 Opinion of Weil, Gotshal & Manges LLP as to the
legality of the securities registered hereby.
L 8.1 Opinion of Weil, Gotshal & Manges LLP as to tax
matters.
J 10.1 Credit Agreement dated as of November 8, 1999 by and
among Suburban Propane, L.P., the Lenders referred to
therein and First Union National Bank, as Administrative
Agent.
A 10.2 Note Agreement dated as of February 28, 1996 among
certain investors and the Operating Partnership relating
to $425 million aggregate principal amount of 7.54% Senior
Notes due June 30, 2011.
A 10.6 Employment Agreement dated as of March 5, 1996
between the Operating Partnership and Mr. Alexander.
C 10.7 First Amendment to Employment Agreement dated as of
March 5, 1996 between the Operating Partnership and Mr.
Alexander entered into as of October 23, 1997.
F 10.8 Second Amendment to Employment Agreement dated as of
March 5, 1996 between the Operating Partnership and Mr.
Alexander entered into as of April 14, 1999.
A 10.9 The Partnership's 1996 Restricted Unit Plan.
A 10.10 Form of Unit Grant Agreement pursuant to the
Partnership's 1996 Restricted Unit Plan.
B 10.11 The Partnership Supplemental Executive Retirement
Plan (effective as of March 5, 1996).
G 10.12 Amendment No. 1 to the Partnership Supplemental
Executive Retirement Plan.
B 10.13 The Partnership's Severance Protection Plan dated
September 1996.
E 10.14 Suburban Propane L.P. Long-Term Incentive Program.
H 10.15 Benefits Protection Trust dated May 26, 1999 by and
between Suburban Propane Partners, L.P. and First Union
National Bank.
43
<PAGE>
Exhibit No. Description
- ----------- -----------
I 10.16 Compensation Deferral Plan of Suburban Propane
Partners, L.P. and Suburban Propane, L.P. dated May 26,
1999.
J 21.1 Listing of Subsidiaries of the Partnership.
K 23.1 Consent of Independent Accountants.
- --------------------------------------------------------------------------------
A Incorporated by reference to the same numbered Exhibit to
the Partnership's Current Report on Form 8-K A filed April
29, 1996.
B Incorporated by reference to the same numbered Exhibit to
the Partnership's Annual Report on Form 10-K for the
fiscal year ended September 28, 1996.
C Incorporated by reference to the same numbered Exhibit to
the Partnership's Annual Report on Form 10-K for the
fiscal year ended September 27, 1997.
D Incorporated by reference to Exhibit 2.1 to the
Partnership's Form 8-K filed December 3, 1998.
E Incorporated by reference to the same numbered Exhibit to
the Partnership's Annual Report on Form 10-K for the
fiscal year ended September 28, 1998.
F Incorporated by reference to Exhibit (10)(c) to the
Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 26, 1999.
G Incorporated by reference to Exhibit 10(d) to the
Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 26, 1999.
H Incorporated by reference to Exhibit (10)(f) to the
Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 26, 1999.
I Incorporated by reference to Exhibit (10)(e) to the
Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 26, 1999.
J Incorporated by reference to Exhibit (21.1) to the
Partnership's Annual Report on Form 10-K for the fiscal
year ended September 25, 1999.
K Filed herewith.
L To be filed by amendment.
44
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Suburban Propane Partners, L.P. of our report dated
October 21, 1999 (except for Note 14, which is as of December 3, 1999) relating
to the financial statements and financial statement schedules appearing in its
Annual Report on Form 10-K for the year ended September 25, 1999. We also
consent to the references to us under the headings "Experts" and "Selected
Historical Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Florham Park, NJ
January 20, 2000
