As filed with the Securities and Exchange Commission on February 16, 2000
Registration No. 333-95097
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SUBURBAN PROPANE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
----------------
<TABLE>
<S> <C> <C>
Delaware 5984 22-3410353
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
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
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NY2:\853668\12\$@p012!.DOC\76463.0001
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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. [ ]
----------------
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.
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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 February 16, 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 February 11, 2000, the closing sale price of the
common units as reported on the New York Stock Exchange was $19.375 per unit.
YOU SHOULD CAREFULLY CONSIDER EACH OF THE RISK FACTORS
DESCRIBED UNDER "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
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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.
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The date of this Prospectus is February 16, 2000.
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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
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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.
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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.
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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>
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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.
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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.
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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.
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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;
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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 that
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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 UNITS REPRESENTING
MORE THAN 20%
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
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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
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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 returns will lead to adjustments in
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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
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were to dispose of assets and realize 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.
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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.
For a table showing our distribution history, see "Price
Range of Common Units and Cash Distributions".
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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:
Mail Suite 4690
P.O. Box 2532
Jersey City, NJ 07303-2532
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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. Furthermore, the discussion assumes
that prospective unitholders are not related to each other or to existing
unitholders, either by blood or through ownership of entities, in a manner that
would affect the tax results to prospective unitholders of owning units.
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");
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");
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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");
o certain matters relating to the allocation among the partners of our
income, gain, loss and deduction for federal income tax purposes (see
"--Allocation of Partnership Income, Gain, Loss and Deduction"); and
o whether our method for depreciating certain Section 743 adjustments is
sustainable (see "--Tax Treatment of Operations--Section 754 Election"
and "Uniformity of Common Units").
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 and
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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
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therefore be 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 unitholder's
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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.
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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. There can be no assurances under the treasury regulations that
such allocations with respect to the incentive distribution rights will be
respected, in which case a unitholder may be allocated income in excess of the
amount distributed to it, possibly without a corresponding allocation of a
deduction for the payment to the holder of the incentive distribution right. 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.
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Because there are uncertainties in the treasury regulations
relating to the allocation of partnership income and because certain of the
allocations that may be made under our partnership agreements will be determined
by the Board of Supervisors or the general partner in their discretion, there
can be no assurance that all of the allocations under our partnership agreements
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. See for
example, the discussion in (i) this section regarding allocations attributable
to incentive distribution rights, (ii) "Tax Treatment of Operations--Section 754
Election", (iii) "Disposition of Common Units--Allocations Between Transferors
and Transferees," and (iv) "Uniformity of Common Units." However, no
reallocation could be made arbitrarily by the Internal Revenue Service. In such
circumstances, a partner's distributive share of our income, gain, loss, or
deduction 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.
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)
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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.
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 regulations under Section 197 indicate that
the Section 743(b) adjustment attributable to a 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 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'
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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. 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."
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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
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.
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Moreover, if a taxpayer has previously entered into a short
sale, an offsetting notional principal contract or a futures or forward
contract with respect to 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 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.
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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.
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 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 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
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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 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
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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 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.
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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 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
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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 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
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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
2000 FISCAL YEAR
First Quarter ended December 25, 1999 $20.63 $16.50 $0.525
</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.,
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;
o our Current Report on Form 10-Q for the fiscal quarter ended December
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:
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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 have been 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.
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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.
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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.
K 5.1 Opinion of Weil, Gotshal & Manges LLP as to the legality of
the securities registered hereby.
K 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.
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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.
L 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 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 Previously filed.
(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 controlling the registrant pursuant to the
39
<PAGE>
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 13 of this form, within one business day of
40
<PAGE>
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.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the
registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Whippany, State of New Jersey, on February 16, 2000.
SUBURBAN PROPANE PARTNERS, L.P.
By: /s/ Mark A. Alexander
---------------------------------------
Mark A. Alexander
President, Chief Executive Officer
and Appointed Supervisor
42
<PAGE>
Pursuant to the requirements of the Securities Act of 1933,
this amendment to the 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; February 16, 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 February 16, 2000
------------------------- Supervisors
Michael J. Dunn, Jr.
/s/ John Hoyt Stookey * Elected Member and Chairman of the February 16, 2000
------------------------- Board of Supervisors
John Hoyt Stookey
/s/ Harold R. Logan, Jr. * Elected Member of the Board of February 16, 2000
------------------------- Supervisors
Harold R. Logan, Jr.
/s/ Dudley C. Mecum * Elected Member of the Board of February 16, 2000
------------------------- Supervisors
Dudley C. Mecum
/s/ Anthony M. Simonowicz Vice President and Chief Financial February 16, 2000
------------------------- Officer (Principal Financial Officer)
Anthony M. Simonowicz
/s/ Edward J. Grabowiecki Vice President, Controller and Chief February 16, 2000
------------------------- Accounting Officer (Principal
Edward J. Grabowiecki Accounting Officer)
</TABLE>
* By: /s/ Janice G. Meola
------------------------------
Janice G. Meola
Attorney-in-Fact
43
<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.
K 5.1 Opinion of Weil, Gotshal & Manges LLP as to the legality of
the securities registered hereby.
K 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.
44
<PAGE>
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.
L 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 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 Previously filed.
45
Exhibit 5.1
WEIL, GOTSHAL & MANGES LLP
A LIMITED LIABILITY PARTNERSHIP
INCLUDING PROFESSIONAL CORPORATIONS
767 FIFTH AVENUE
NEW YORK, NY 10153
212-310-8000
(FAX) 212-310-8007
February 16, 2000
Suburban Propane Partners, L.P.
One Suburban Plaza
240 Route 10 West
Whippany, New Jersey 07981-0206
Ladies and Gentlemen:
We have acted as counsel to Suburban Propane Partners,
L.P., a Delaware limited partnership (the "Partnership"), in connection with the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of up to 10,000,000 common units of the Partnership, representing limited
partner interests in the Partnership (the "Common Units"), which may be issued
pursuant to the Partnership's Registration Statement on Form S-4 (Registration
No. 333-95097) (the "Registration Statement") from time to time in connection
with the Partnership's acquisition of other businesses, assets or securities in
amounts, at prices and on terms to be determined at the time of such
acquisitions.
In so acting, we have examined such statutes, regulations,
partnership and corporate records, documents and other instruments, and such
certificates or comparable documents of public officials and of officers and
representatives of the Partnership, and have made such inquiries of such
officers and representatives, as we have deemed relevant and necessary as a
basis for the opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. As to all questions
of fact material to this opinion that have not been established, we have relied
upon certificates or comparable documents of officers and representatives of the
Partnership.
NY2:\877429\02\$T1102!.DOC\76463.0009
<PAGE>
February 16, 2000
Page 2
Based on the foregoing, and subject to the qualifications
stated herein, we are of the opinion that, when appropriate partnership action
has been taken to authorize the issuance of the Common Units as consideration
for the acquisition of other businesses, assets or securities and such Common
Units have been issued and paid for in accordance with the terms of such
partnership action and the partnership agreement as then in effect, such Common
Units will be duly authorized, validly issued, fully paid and nonassessable,
except as such nonassessability may be affected by the matters described in the
prospectus contained in the Registration Statement, as amended or supplemented
(the "Prospectus"), under the caption "Risk Factors - Risks Inherent in an
Investment in Suburban - Unitholders may not have limited liability in certain
circumstances and may be liable for the return of certain distributions" - and -
"Unitholders may have liability to repay distributions."
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the references to this firm under
the heading "Legal Opinions" in the Prospectus.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
Exhibit 8.1
WEIL, GOTSHAL & MANGES LLP
A LIMITED LIABILITY PARTNERSHIP
INCLUDING PROFESSIONAL CORPORATIONS
767 FIFTH AVENUE
NEW YORK, NY 10153
212-310-8000
(FAX) 212-310-8007
February 15, 2000
Suburban Propane Partners, L.P.
One Suburban Plaza
240 Route 10 West
Whippany, NJ 07981
RE: TAX OPINION
-----------
Ladies and Gentlemen:
We have acted as federal tax counsel to Suburban Propane
Partners, L.P. (the "Partnership") in connection with the Partnership's
Registration Statement on Form S-4 (File No. 333-95097) (the "Registration
Statement"), relating to the registration of the offering and sale of common
units of the Partnership (the "Common Units") to be issued and sold by the
Partnership from time to time. All capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Registration Statement.
In so acting, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement, (ii) the Second Amended and Restated Agreement of Limited Partnership
of Suburban Propane Partners, L.P., dated as of May 26, 1999 (the "Partnership
Agreement"), (iii) the Amended and Restated Agreement of Limited Partnership of
Suburban Propane, L.P. (the "Operating Partnership"), dated as of March 4, 1996
(the "Operating Partnership Agreement"), (iv) the representations attached
hereto as Exhibit 1, and (v) such agreements, documents and other instruments as
we have deemed necessary or appropriate (the aforementioned documents together,
the "Documents"), and have made such inquiries of such officers and
representatives of the Partnership and such other persons, as we have deemed
relevant and necessary as a basis for the opinion hereinafter set forth. In such
examination, we have assumed, without investigation, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies, the
authenticity of the originals of such latter documents, the genuineness of all
signatures, the legal capacity of all natural persons, and the correctness of
all representations made therein or otherwise made to us. We have further
assumed that there are no agreements or understandings between or among the
NY2:\871175\07\$_7B07!.DOC\76463.0001
<PAGE>
February 15, 2000
Page 2
parties to the Documents with respect to the transactions contemplated therein
other than those contained in the Documents.
Based on the foregoing, subject to the next paragraph and
assuming full compliance with all the terms of the Documents, it is our opinion
that, for federal income tax purposes (i) the Partnership and the Operating
Partnership will each constitute a partnership and not an association or
publicly traded partnership taxable as a corporation, (ii) owners of the Common
Units, with certain exceptions (described in the Registration Statement) will be
treated as partners of the Partnership, and (iii) all statements as to matters
of law and legal conclusions contained in the Registration Statement under the
caption "Tax Considerations," except to the extent qualified therein and herein,
are correct in all material respects and reflect our opinion as of the date
hereof.
The foregoing opinion, to the extent it relates to federal
law, is based on current provisions of the Internal Revenue Code of 1986, as
amended, the Treasury Regulations promulgated thereunder, published
pronouncements of the Internal Revenue Service, and case law. Any rules set
forth in any of the foregoing authorities may be changed at any time with
retroactive effect. Further you should be aware that opinions of counsel are not
binding on the Internal Revenue Service or the courts. We express no opinion
either as to any matters not specifically covered by the foregoing opinion or as
to the effect on the matters covered by this opinion of the laws of any other
jurisdictions.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
<PAGE>
Exhibit 1
Suburban Propane Partners, L.P.
Suburban Propane, L.P.
In connection with the opinion of counsel to be dated February 15,
2000, and delivered by Weil, Gotshal & Manges LLP (the "Opinion"), the
undersigned Anthony M. Simonowicz, does hereby certify that I am an authorized
signatory of each of Suburban Propane Partners, L.P. ("Suburban") and Suburban
Propane, L.P. (the "Operating Partnership") and that in connection with this
Certificate I have undertaken all necessary internal review to enable me to
provide the certification set forth herein. All defined terms used herein and
not otherwise defined shall have the meanings ascribed thereto in the Opinion or
in the Registration Statement.
The Opinion is being rendered in connection with the preparation of,
and will be an exhibit attached to, the Registration Statement. In connection
with the Opinion, I hereby certify on behalf of Suburban and the Operating
Partnership that:
(i) Neither Suburban nor the Operating Partnership has elected or
will elect to be treated as an association taxable as a
corporation, or as a corporation,
(ii) Suburban and the Operating Partnership have been and will be
operated in accordance with:
(a) all applicable partnership statutes,
(b) the Partnership Agreement or the Operating
Partnership Agreement (whichever is applicable), and
(c) the description of the applicable agreement in the
Registration Statement,
(iii) For each taxable year, more than 90% of the gross income of
Suburban and the Operating Partnership will be derived from:
(a) the exploration, development, production, processing,
refining, transportation or marketing of any mineral
or natural resource, all within the meaning of
Section 7704(d) of the Internal Revenue Code of 1986,
as amended (the "Code"), or
(b) other items of "qualifying income" within the meaning
of Section 7704(d) of the Code; and
(iv) Neither Suburban nor the Operating Partnership (or any portion
of either) is or will be a "taxable mortgage pool" within the
meaning of Section 7701(i) of the Code.
NY2:\871231\04\$_8V04!.DOC\76463.0001
<PAGE>
In WITNESS WHEREOF, I have signed my name on this 11th
day of February, 2000.
/s/ Anthony M. Simonowicz
----------------------------------------------
Anthony M. Simonowicz
Vice President and Chief Financial Officer
Suburban Propane Partners, L.P.
Suburban Propane, L.P.
2
