<PAGE> 1
AS FILED WITH THE COMMISSION ON NOVEMBER 17, 1997
REGISTRATION NO. 333--
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HERITAGE PROPANE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
----------------
<TABLE>
<S> <C> <C>
DELAWARE 8801 S. YALE AVENUE 73-1493906
(State or other jurisdiction of SUITE 31 (I.R.S. Employer Identification No.)
incorporation or organization) TULSA, OKLAHOMA 74137
(918) 492-7272
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
</TABLE>
----------------
H. MICHAEL KRIMBILL
CHIEF FINANCIAL OFFICER
8801 S. YALE AVENUE
SUITE 310
TULSA, OKLAHOMA 74137
(918) 492-7272
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
<TABLE>
<S> <C>
LAWRENCE T. CHAMBERS, JR. ESQ. DAVID P. OELMAN, ESQ.
DOERNER, SAUNDERS, DANIEL & ANDERSON ANDREWS & KURTH L.L.P.
320 S. BOSTON AVENUE, SUITE 500 4200 TEXAS COMMERCE TOWER
TULSA, OKLAHOMA 74103 HOUSTON, TEXAS 77002
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box.
[X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
If 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 number of the earlier effective registration statement
for the same offering. [ ]
------------------------
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================
Proposed maximum
aggregate offering Amount of
Title of each class of securities to be registered price(1) registration fee
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Units . . . . . . . . . . . . . . . . . . . . . . $48,750,000 $14,773
===========================================================================================================
</TABLE>
(1) Pursuant to Rule 457(c) under the Securities Act, the offering price is
estimated, solely for the purpose of determining the registration fee, using
the average of the high and low prices reported on the New York Stock Exchange
Composite Transactions Tape on November 12, 1997.
------------------------
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.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECRUITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH AN OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1997
PROSPECTUS
2,000,000 COMMON UNITS
HERITAGE PROPANE PARTNERS, L.P.
REPRESENTING LIMITED PARTNER INTERESTS
This Prospectus has been prepared for use in connection with the
proposed offering and sale of up to an aggregate of 2,000,000 Common Units (the
"Common Units") representing limited partner interests in Heritage Propane
Partners, L.P. (the "Partnership"), which may be issued from time to time by
the Partnership in connection with its acquisition of other businesses,
properties or securities in business combination transactions in accordance
with Rule 415 (a) (1) (viii) under the Securities Act of 1933, as amended (the
"Securities Act"). It is expected that the terms of acquisitions involving the
issuance by the Partnership of Common Units covered by this Prospectus will be
determined by direct negotiations with the owners or controlling persons of the
businesses, properties or securities to be acquired. Common Units issued in
exchange for businesses, properties or securities in business combination
transactions will be valued at prices reasonably related to market prices of
the Common Units either at the time the terms of an acquisition are agreed upon
or at or about the time of delivery of such Common Units.
The Common Units are traded on the NYSE under the symbol "HPG." On
November 14, 1997, the last reported sales price for the Common Units as
reported on the New York Stock Exchange Composite Transactions tape was $25 per
Common Unit.
The Partnership will receive no portion of the proceeds of the sale of
the Common Units. The Partnership will pay the costs and expenses of the
registration and offering of the Common Units. No underwriting discounts or
commissions will be paid in connection with the issuance of Common Units,
although finder's fees may be paid with respect to specific acquisitions. Any
person receiving a finder's fee may be deemed to be an "underwriter" within the
meaning of the Securities Act.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF THE MATERIAL
RISKS RELEVANT TO AN INVESTMENT IN THE COMMON UNITS OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Date of this Prospectus is November , 1997
<PAGE> 3
AVAILABLE INFORMATION
The Partnership has filed with the Securities and Exchange Commission
(the "SEC") in Washington, D.C., a Registration Statement on Form S-4
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the securities offered by this
Prospectus. Certain of the information contained in the Registration Statement
is omitted from this Prospectus, and reference is hereby made to the
Registration Statement and exhibits and schedules relating thereto for further
information with respect to the Partnership and the securities offered by
this Prospectus. The Partnership is subject to the information requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and, in accordance therewith, files reports and other information with the
SEC. Such reports and other information are available for inspection and
copying at the SEC's public reference facilities located at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the
Regional Offices of the SEC located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and at Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such materials may
also be obtained from the SEC's Public Reference Section at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, the Common Units are traded on the NYSE, and such reports and other
information may be inspected at the offices of the NYSE, 20 Broad Street,
New York, New York 10002. The SEC maintains an Internet Web Site that
contains reports, information statements and other information regarding
registrants that file electronically with the SEC. The address of such
Internet Web Site is http://www.sec.gov.
The Partnership will furnish to record holders of Common Units within
120 days after the close of each fiscal year an annual report containing
audited financial statements and a report thereon by its independent public
accountants. The Partnership will also furnish each Unitholder with tax
information within 90 days after the close of each taxable year of the
Partnership.
INCORPORATION OF CERTAIN DOCUMENTS
The Partnership's Annual Report on Form 10-K for the fiscal year
ended August 31, 1997 (the "Form 10-K") is hereby incorporated herein by
reference.
The description of the Common Units which is contained in the
Partnership's registration statement on Form 8-A (File No. 1-11727) filed
pursuant to the Exchange Act on May 14, 1996, is incorporated herein by
reference.
All documents filed by the Partnership pursuant to Section 13(e), 13(c),
14 or 15(d) of the Exchange Act, after the date of this Prospectus and prior to
the termination of the offering made hereby, shall be deemed to be
incorporated by reference in this Prospectus and be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference in this Prospectus shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained in this Prospectus, or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference, modifies or replaces such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute part of this Prospectus.
The Partnership undertakes to provide without charge to each
person, including any beneficial owner, to whom a copy of this Prospectus
has been delivered, upon written or oral request of any such person, a copy of
any or all of the documents incorporated by reference herein, other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into this Prospectus. Written or oral requests for such copies
should be directed to: Heritage Propane Partners, L.P., 8801 S. Yale Avenue,
Suite 310, Tulsa, Oklahoma 74137 , Attention: H. Michael Krimbill, telephone
(918) 492-7272.
-1-
<PAGE> 4
THE PARTNERSHIP
Heritage Propane Partners, L.P. (The "Master Limited Partnership" or the
"MLP"), a Delaware limited partnership, was formed in April of 1996. The MLP's
activities are conducted through its subsidiary, Heritage Operating, L.P. (the
"Operating Partnership" or the "OLP"). The MLP, with a 99% limited partner
interest, is the sole limited partner of the Operating Partnership. The MLP
and the OLP are together referred to herein as the "Partnership". The
Operating Partnership accounts for nearly all of the MLP's consolidated assets,
sales, and operating earnings. The Operating Partnership, a Delaware limited
partnership, was formed in April of 1996, to acquire, own and operate the
propane business and assets of Heritage Holdings, Inc. (the "Company",
"Heritage", and "General Partner"). The Company's activities prior to the
formation of the Partnership are generally included in the operating results of
the Partnership described herein. The Company has retained a 1% general
partner interest in the MLP and also holds a 1.0101% general partner interest
in the Operating Partnership, representing a 2% general partner interest in the
Partnership on a combined basis. As General Partner of the Partnership, the
Company performs all management functions required for the Partnership.
The Partnership believes it is the seventh largest retail marketer of
propane in the United States, serving more than 220,000 active residential,
commercial, industrial and agricultural customers from 132 district locations
in 23 states. The Partnership's operations have been concentrated in large
part in the western and southeastern regions of the United States, with
expansion into the northeastern United States initiated in July 1996.
The business of the Partnership, starting with the formation of Heritage
in 1989, has grown primarily through acquisitions of retail propane operations
and, to a lesser extent, through internal growth. Through August 31, 1997, 40
acquisitions had been completed for an aggregate purchase price of
approximately $179 million. Volumes of propane sold to retail customers almost
doubled from 63.2 million gallons for the fiscal year ended August 31, 1992 to
125.6 million gallons for the fiscal year ended August 31, 1997. Since August
31, 1997, the Partnership has acquired two additional propane companies.
The Partnership believes that its competitive strengths include: (i)
management's experience in identifying, evaluating and completing acquisitions,
(ii) operations that are focused in areas experiencing higher- than-average
population growth, (iii) a low cost overhead structure and (iv) a decentralized
operating structure and entrepreneurial workforce. These competitive strengths
have enabled the Partnership to achieve levels of EBITDA per retail propane
gallon that the Partnership believes are among the highest of any publicly
traded propane partnership. The Partnership believes that as a result of its
geographic diversity and district-level incentive compensation program, the
Partnership has been able to reduce the effect of adverse weather conditions on
EBITDA, including those experienced by Heritage during the warmer-than-normal
winters of 1994-1995 and 1996-1997. The Partnership believes that its
concentration in higher-than-average population growth areas provides it with a
strong economic foundation for expansion through acquisitions and internal
growth. The Partnership does not believe that it is significantly more
vulnerable than its competitors to displacement by natural gas distribution
systems because the majority of the Partnership's areas of operations are rural
and their population growth tends to open business opportunities for the
Partnership in more remote locations on their peripheries.
BUSINESS STRATEGY
The Partnership's strategy is to expand its operations and increase its
retail market share in order to increase the funds available for distribution
to its Unitholders. The three critical elements to this strategy are described
below.
Acquisitions. Acquisitions will be the principal means of growth for
the Partnership, as the retail propane industry is mature and overall demand
for propane is expected to experience limited growth in the foreseeable future.
The Partnership believes that the fragmented nature of the propane industry
provides significant opportunities for growth through acquisition. Industry
sources indicate that there are over 8,000 retail propane operations, of which
the 10 largest comprise approximately 35% of industry sales. The Partnership
follows a disciplined acquisition strategy that
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<PAGE> 5
concentrates on companies (i) in geographic areas experiencing higher-than-
average population growth, (ii) with a high percentage of sales to residential
customers, (iii) with local reputations for quality service and (iv) with a
high percentage of tank ownership. In addition, unlike many of its
competitors, the Partnership attempts to capitalize on the reputations of the
companies it acquires by maintaining local brand names, billing practices and
employees, thereby creating a sense of continuity and minimizing customer loss.
The Partnership also believes that this strategy has helped to make it an
attractive buyer for many acquisition candidates from the seller's viewpoint.
Through August 31, 1997, the Company had completed 40 acquisitions for
an aggregate purchase price of approximately $179 million. The Partnership has
completed two additional acquisitions since that time. Of the companies
acquired, 11 represent "core acquisitions" with multiple plants in a specific
geographic area, with the balance representing "blend-in companies" which
operate in an existing area of Partnership operations. The Partnership will
focus on acquisition candidates in its existing areas of operations, but will
consider core acquisitions in other higher-than-average population growth areas
in order to further reduce the impact on the Partnership's operations of
adverse weather patterns in any one region. While the Partnership is currently
evaluating numerous acquisition candidates, there can be no assurance that the
Partnership will identify attractive acquisition candidates in the future, that
the Partnership will be able to acquire such businesses on economically
acceptable terms, that any acquisition will not be dilutive to earnings and
distributions or that any additional debt incurred to finance an acquisition
will not affect the ability of the Partnership to make distributions to
Unitholders.
In order to facilitate the Partnership acquisition strategy, the
Operating Partnership entered into a bank credit facility (the "Bank Credit
Facility"). The Bank Credit Facility consists of a $35.0 million acquisition
facility to be used for acquisitions and improvements and a $15.0 million
working capital facility to be used for working capital and other general
partnership purposes. The Partnership also has the ability to fund
acquisitions through the issuance of additional partnership interests.
Internal Growth. In addition to pursuing expansion through
acquisitions, the Partnership has aggressively focused on internal growth at
its existing district locations. The Partnership believes that, by
concentrating its operations in areas experiencing higher-than-average
population growth, it is well positioned to achieve internal growth by adding
new customers. The Partnership also believes that its decentralized structure,
in which operational decisions are made at the district and regional level,
together with a bonus system that allocates a significant portion of a
district's EBITDA in excess of budget to district employees, has fostered an
entrepreneurial environment that has allowed the Partnership to achieve its
high rates of internal growth. The Partnership believes that its rate of
internal growth exceeds the average growth rate in the industry.
Low Cost, Decentralized Operations. The Partnership focuses on
controlling costs at the corporate and district levels. While the Partnership
has realized certain economies of scale as a result of its acquisitions, it
attributes its low overhead primarily to its decentralized structure. By
delegating all customer billing and collection activities to the district
level, the Partnership has been able to operate without a large corporate
staff. Of the Partnership's 847 full-time employees as of August 31, 1997,
only 39, or approximately 4%, were general and administrative. In addition,
the Partnership's plant bonus system encourages district employees at all
levels to control costs and expand revenues.
As a result of the implementation of the strategy described above, the
Partnership has achieved the retail sales volumes per fiscal year set forth
below:
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail Propane Gallons Sold (in millions) 37.5 48.2 63.2 73.4 79.7 98.3 118.2 125.6
</TABLE>
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<PAGE> 6
THE COMMON UNITS
Securities Offered...................... 2,000,000 Common Units from time to
time in connection with the
acquisition of other businesses,
properties or securities in
business combination transactions.
Distributions of Available Cash......... The Partnership will distribute all
of its Available Cash within 45
days after the end of each quarter
to the Unitholders of record on the
applicable record date and to the
General Partner. "Available Cash"
for any quarter will consist
generally of all cash on hand at
the end of such quarter, as
adjusted for reserves. The
complete definition of Available
Cash is set forth in the Amended
and Restated Partnership Agreement
of the Partnership (the
"Partnership Agreement"), which is
an exhibit to the Registration
Statement of which this Prospectus
forms a part of. The General
Partner has broad discretion in
making cash disbursements and
establishing reserves, thereby
affecting the amount of Available
Cash that will be distributed with
respect to any quarter. In
addition, the terms of the
Partnership's indebtedness require
that certain reserves for the
payment of principal and interest
be maintained. Available Cash will
generally be distributed 98% to
Unitholders and 2% to the General
Partner except that if
distributions of Available Cash
from Operating Surplus exceed
specified target levels ("Target
Distribution Levels") in excess of
the Minimum Quarterly Distribution,
the General Partner will receive a
percentage of such excess
distributions that will increase to
up to 50% of the excess
distributions above the highest
Target Distribution Level.
Distribution to Common and Subordinated
Unitholders...................... The Partnership intends, to the
extemt there is sufficient
Available Cash from Operating
Surplus, to distribute to each
holder of Common Units at least the
Minimum Quarterly Distribution of
$0.50 per Common Unit per quarter.
The Minimum Quarterly Distribution
is not guaranteed and is subject to
adjustment.
With respect to each quarter
during the Subordination Period,
which will generally not end prior
to May 31, 2001, the Common
Unitholders will generally have the
right to receive the Minimum
Quarterly Distribution, plus any
arrearages thereon ("Common Unit
Arrearages"), before any
distribution of Available Cash from
Operating Surplus is made to the
Subordinated Unitholders. All of
the 3,702,943 Subordinated Units
outstanding are currently held by
the General Partner. This
subordination feature will enhance
the Partnership's ability to
distribute the Minimum Quarterly
Distribution on the Common Units
during the Subordination Period.
Subordinated Units will not accrue
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<PAGE> 7
distribution arrearages. Upon
expiration of the Subordination
Period, Common Units will no longer
accrue distribution arrearages.
Subordination Period.................... The Subordination Period will
generally extend until the first
day of any quarter beginning after
May 31, 2001 in respect of which
(i) distributions of Available Cash
from Operating Surplus on the
Common Units and the Subordinated
Units with respect to each of the
three consecutive four- quarter
periods immediately preceding such
date equaled or exceeded the sum of
the Minimum Quarterly Distribution
on all of the outstanding Common
Units and Subordinated Units during
such periods, (ii) the Adjusted
Operating Surplus (as defined in
the Partnership Agreement)
generated during each of the three
consecutive four-quarter periods
immediately preceding such date
equaled or exceeded the sum of the
Minimum Quarterly Distribution on
all of the outstanding Common Units
and Subordinated Units and the
related distribution on the general
partner interest in the Partnership
during such periods, and (iii)
there are no outstanding Common
Unit Arrearages. Upon expiration of
the Subordination Period, all
remaining Subordinated Units will
convert into Common Units on a
one-for-one basis and will
thereafter participate pro rata
with the other Common Units in
distributions of Available Cash.
Early Conversion of Subordinated Units.. A portion of the Subordinated Units
will convert into Common Units on
the first day after the record date
established for the distribution in
respect of any quarter ending on or
after (a) May 31, 1999 (with
respect to one-quarter of the
Subordinated Units) and (b) May 31,
2000 (with respect to one-quarter
of the Subordinated Units), in
respect of which (i) distributions
of Available Cash from Operating
Surplus on the Common Units and the
Subordinated Units with respect to
each of the three consecutive
four-quarter periods immediately
preceding such date equaled or
exceeded the sum of the Minimum
Quarterly Distribution on all of
the outstanding Common Units and
Subordinated Units during such
periods, (ii) the Adjusted
Operating Surplus generated during
each of the two consecutive
four-quarter periods immediately
preceding such date equaled or
exceeded the sum of the Minimum
Quarterly Distribution on all of
the outstanding Common Units and
Subordinated Units and the related
distribution on the general partner
interest in the Partnership during
such periods, and (iii) there are
no outstanding Common Unit
Arrearages; provided, however, that
the early conversion of the second
tranche of Subordinated Units may
not occur until at least one year
following the early conversion of
the first tranche of Subordinated
Units.
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<PAGE> 8
Incentive Distributions................ If quarterly distributions of
Available Cash exceed the Target
Distribution Levels, the General
Partner will receive distributions
which are generally equal to 15%,
then 25% and then 50% of the
distributions of Available Cash
that exceed such Target
Distribution Levels. The Target
Distribution Levels are based on
the amounts of Available Cash from
Operating Surplus distributed that
exceed distributions made with
respect to the Minimum Quarterly
Distribution and Common Unit
Arrearages, if any. The
distributions to the General
Partner described above that are in
excess of its aggregate 2% general
partner interest are referred to
herein as the "Incentive
Distributions."
Adjustment of Minimum Quarterly Distribution
and Target Distribution Levels.. The Minimum Quarterly Distribution
and the Target Distribution Levels
are subject to downward adjustments
in the event that the Unitholders
receive distributions of Available
Cash from Capital Surplus (as
defined in the Partnership
Agreement) or legislation is
enacted or existing law is modified
or interpreted by the relevant
governmental authority in a manner
that causes the Partnership to be
treated as an association taxable
as a corporation or otherwise
taxable as an entity for federal,
state or local income tax purposes.
If, as a result of distributions of
Available Cash from Capital
Surplus, the Unitholders receive a
full return of the initial public
offering price of the Common Units
and any unpaid Common Unit
Arrearages, the distributions of
Available Cash payable to the
General Partner will increase to
50% of all amounts distributed
thereafter.
Partnership's Ability to Issue Additional
Units........................... The Partnership Agreement generally
authorizes the Partnership to issue
an unlimited number of additional
limited partner interests and other
equity securities of the
Partnership for such consideration
and on such terms and conditions as
shall be established by the General
Partner in its sole discretion
without the approval of the
Unitholders. During the
Subordination Period, however, the
Partnership may not issue equity
securities ranking prior or senior
to the Common Units or an aggregate
of more than 2,012,500 Common Units
(excluding Common Units issued upon
conversion of Subordinated Units or
in connection with certain
acquisitions (including the
acquisitions made hereunder) or
capital improvements or the
repayment of certain indebtedness)
or an equivalent number of
securities ranking on a parity with
the Common Units, without the
approval of the holders of a Unit
Majority.
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<PAGE> 9
Limited Call Right..................... If at any time less than 20% of the
issued and outstanding Common Units
are held by persons other than the
General Partner and its affiliates,
the General Partner may purchase
all of the remaining Common Units
at a price generally equal to the
then current market price of the
Common Units.
Limited Voting Rights.................. Holders of Common Units will have
only limited voting rights on
matters affecting the Partnership's
business.
Change of Management Provisions........ Any person or group (other than the
General Partner or its affiliates)
that acquires beneficial ownership
of 20% or more of the Common Units
will lose its voting rights with
respect to all of its Common Units.
In addition, if the General Partner
is removed other than for Cause (as
defined in the Partnership
Agreement) and Units held by the
General Partner and its affiliates
are not voted in favor of such
removal, (i) the Subordination
Period will end and all outstanding
Subordinated Units will immediately
convert into Common Units on a
one-for-one basis, (ii) any
existing Common Units Arrearages
will be extinguished and (iii) the
General Partner will have the right
to convert its general partner
interests (and its right to receive
Incentive Distributions) into
Common Units or to receive cash in
exchange for such interests. These
provisions are intended to
discourage a person or group from
attempting to remove the current
General Partner or otherwise change
the management of the Partnership.
The effect of these provisions may
diminish the price at which the
Common Units would trade under
certain circumstances.
Removal and Withdrawal of the General
Partner.......................... Subject to certain conditions, the
General Partner may be removed upon
the approval of the holders of at
least 66 2/3% of the outstanding
Units (including Units held by the
General Partner and its affiliates)
and the election of a successor
general partner by the vote of the
holders of not less than a Unit
Majority. A meeting of holders of
the Common Units may be called only
by the General Partner or by the
holders of 20% or more of the
outstanding Common Units. The
General Partner's ownership of the
Subordinated Units effectively
gives the General Partner the
ability to prevent its removal.
The General Partner has agreed not
to voluntarily withdraw as general
partner of the Partnership and the
Operating Partnership prior to June
30, 2006, subject to limited
exceptions, without obtaining the
approval of at least a Unit
Majority and furnishing an Opinion
of Counsel (as defined in the
Partnership Agreement).
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<PAGE> 10
Distributions Upon Liquidation.......... In the event of any liquidation of
the Partnership during the
Subordination Period, the
outstanding Common Units will be
entitled to receive a distribution
out of the net assets of the
Partnership in preference to
liquidating distributions on the
Subordinated Units to the extent of
their Unrecovered Capital (as
defined in the Partnership
Agreement) and any unpaid Common
Unit Arrearages. Under certain
circumstances there may be
insufficient gain for the holders
of Common Units to fully recover
all such amounts, even though there
may be cash available for
distribution to holders of
Subordinated Units. Following
conversion of the Subordinated
Units into Common Units, all Units
will be treated the same upon
liquidation of the Partnership.
Listing................................ The Common Units have been approved
for listing on the NYSE, subject to
official notice of issuance.
NYSE Symbol............................ "HPG"
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<PAGE> 11
RISK FACTORS
A prospective recipient of Common Units offered hereby should carefully
consider the following risk factors as well as the other information set forth
in this Prospectus, before making a decision to accept the Common Units offered
hereby.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Prospectus or incorporated by
reference herein including statements regarding the cyclicality of the
Company's industry, current and future industry conditions and the potential
effects of such matters on the Company's business strategy, results of
operations and financial position are forward-looking statements. Although the
Company believes that the expectations reflected in the forward-looking
statements contained herein are reasonable, no assurance can be given that such
expectations will prove to have been correct. Certain important factors that
could cause actual results to differ materially from expectations ("Cautionary
Statements") are stated herein in conjunction with the forward-looking
statements or are included elsewhere in this Prospectus. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements.
RISKS INHERENT IN THE PARTNERSHIP'S BUSINESS
Weather Conditions Affect the Demand for Propane
Weather conditions have a significant impact on the demand for propane
for both heating and agricultural purposes. Many customers of the Partnership
rely heavily on propane as a heating fuel. Accordingly, the volume of propane
sold is at its highest during the six-month heating season of October through
March and is directly affected by the severity of the winter weather.
Historically, approximately 66% of the Partnership's retail propane volume and
in excess of 80% of the Partnership's EBITDA are attributable to sales during
the peak heating season. Actual weather conditions can vary substantially from
year to year, significantly affecting the Partnership's financial performance.
Furthermore, variations in weather in one or more regions in which the
Partnership operates can significantly affect the total volume of propane sold
by the Partnership and the margins realized on such sales and, consequently,
the Partnership's results of operations. Agricultural demand is also affected
by weather during the harvest season as poor harvests reduce demand for propane
used in crop drying.
The Partnership Will be Subject to Pricing and Inventory Risks
The retail propane business is a "margin-based" business in which gross
profits depend on the excess of sales prices over propane supply costs.
Consequently, the Partnership's profitability will be sensitive to changes in
wholesale propane prices. Propane is a commodity, and as such, its market
price is subject to volatile changes in response to change in supply or other
market conditions. The Partnership will have no control over these market
conditions. Consequently, the unit price of propane purchased by the
Partnership, as well as other propane marketers, can change rapidly over a
short period of time. In general, product supply contracts permit suppliers to
charge posted prices (plus transportation costs) at the time of delivery or the
current prices established at major delivery points. Since rapid increases in
the wholesale cost of propane may not be immediately passed on to customers,
such increases could reduce the Partnership's gross profits. See --"The Retail
Propane Business is Highly Competitive".
Propane is readily available from numerous sources, including integrated
international oil companies, independent refiners and independent wholesalers.
The Partnership purchases propane from a variety of suppliers pursuant to
supply contracts or on the spot market. In 1997, approximately 71% of the
propane purchased by the Partnership was purchased from domestic suppliers with
the remainder being procured from M-P Oils Partnership, a Canadian partnership
in which the Partnership owns an indirect 60% interest. To the extent that the
Partnership
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purchases propane from foreign (including Canadian) sources, its propane
business will be subject to risks of disruption in foreign supply. The
Partnership generally attempts to minimize inventory risk by purchasing propane
on a short-term basis. However, the Partnership has on occasion purchased, and
may in the future purchase, large volumes of propane during periods of low
demand, which generally occur during the summer months, at the then current
market price, for storage both at its service centers and in the Partnership's
major store facilities for future resale. Because of the potential volatility
of propane prices, the market price for propane could fall below the price at
which the Partnership purchased propane held in inventory, thereby adversely
affecting gross margins or rendering sales from such inventory unprofitable.
The Retail Propane Business is Highly Competitive
The Partnership's profitability is affected by the competition for
customers among all participants in the retail propane business. The
Partnership competes with other distributors of propane, including a number of
large national and regional firms and several thousand small independent firms.
Some of these competitors are larger or have greater financial resources than
the Partnership. Should a competitor attempt to increase market share by
decreasing prices, the Partnership's financial condition and results of
operations could be materially adversely affected. Generally,
warmer-than-normal weather further intensifies competition. The Partnership
believes that its ability to compete effectively depends on the reliability of
its service, its responsiveness to customers and its ability to maintain
competitive retail prices.
The Retail Propane Business Faces Competition from Alternative Energy Sources
Propane competes with other sources of energy, some of which are less
costly for equivalent energy value. The Partnership competes for customers
against suppliers of electricity, natural gas and fuel oil. Electricity is a
major competitor of propane, but propane generally enjoys a competitive price
advantage over electricity. Except for certain industrial and commercial
applications, propane is generally not competitive with natural gas in areas
where natural gas pipelines already exist because natural gas is a
significantly less expensive source of energy than propane. The gradual
expansion of the nation's natural gas distribution systems has resulted in the
availability of natural gas in many areas that previously depended upon
propane. Although propane is similar to fuel oil in certain applications and
market demand, propane and fuel oil compete to a lesser extent primarily
because of the cost of converting from one to the other. In addition, the
Partnership cannot predict the effect that the development of alternative
energy sources might have on its operations.
The Partnership May Not Be Successful in Growing Through Acquisitions
The retail propane industry is mature, and the Partnership foresees only
limited growth in total retail demand for propane. Moreover, as a result of
long-standing customer relationships that are typical in the retail propane
industry, the inconvenience of switching tanks and suppliers and propane's
higher cost than certain other energy sources, such as natural gas, the
Partnership may experience difficulty in acquiring new retail customers, other
than through acquisitions. Therefore, while the Partnership's business
strategy includes opening new locations, adding new retail customers and
retaining existing customers, the ability of the Partnership's propane business
to grow will depend primarily upon its ability to acquire other retail propane
distributors. There can be no assurance that the Partnership will identify
attractive acquisition candidates in the future, that the Partnership will be
able to acquire such businesses on economically acceptable terms, that any
acquisition will not be dilutive to earnings and distributions to the
Unitholders or that any additional debt incurred to finance an acquisition will
not affect the ability of the Partnership to make distributions to the
Unitholders. The Partnership is subject to certain covenants in agreements
governing its indebtedness that might restrict the Partnership's ability to
incur indebtedness to finance acquisitions. In addition, to the extent that
warm weather adversely affects the Partnership's operating and financial
results, the Partnership's access to capital and its acquisition activities may
be limited.
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The Partnership Is Subject to Operating and Litigation Risks Which May Not Be
Covered by Insurance
The Partnership's operations are subject to all operating hazards and
risks normally incidental to handling, storing and delivering combustible
liquids such as propane. As a result, the Partnership has been, and is likely
to continue to be, a defendant in various legal proceedings and litigation
arising in the ordinary course of business. The Partnership will maintain
insurance policies with insurers in such amounts and with such coverages and
deductibles as it believes are reasonable and prudent. However, there can be
no assurance that such insurance will be adequate to protect the Partnership
from all material expenses related to potential future claims for personal and
property damage or that such levels of insurance will be available in the
future at economical prices.
The Partnership Will Be Dependent Upon Key Personnel
The Partnership believes its success has been dependent to a significant
extent upon the efforts and abilities of its senior management team. The
failure of the Partnership to retain any of such executive offices could
adversely affect the Partnership's operations. The Partnership maintains key
man life insurance for James E. Bertelsmeyer in the amount of $5 million. The
Partnership does not currently maintain key man insurance for any other members
of its senior management team. The General Partner has entered into employment
agreements (the "Employment Agreements") with Messrs. Bertelsmeyer, Mills, Darr
and Krimbill (each an "Executive"). See "Directors and Executive Officers of
the General Partner." The Employment Agreements have an initial term of five
years ending June 1, 2001 for Mr. Bertelsmeyer and three years for each of
Messrs. Mills, Darr and Krimbill, ending June 1, 1999, but will be
automatically extended for successive one year periods, respectively, unless
earlier terminated by the affirmative vote of at least a majority of the entire
membership of the Board of Heritage upon a finding that a sufficient reason
exists for such termination or by the Executive for any reason or otherwise
terminated in accordance with the Employment Agreements.
Energy Efficiency and Technology Advances May Affect Demand
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. The Partnership cannot predict the
materiality of the effect of future conservation measures or the effect that
any technological advances in heating, conservation, energy generation or other
devices might have on its operations.
RISKS INHERENT IN AN INVESTMENT IN THE PARTNERSHIP
Cash Distributions Are Not Guaranteed and May Fluctuate with Partnership
Performance
Although the Partnership will distribute all of its Available Cash,
there can be no assurance regarding the amounts of Available Cash to be
generated by the Partnership. The actual amounts of Available Cash will depend
upon numerous factors, including cash flow generated by operations, required
principal and interest payments on the Partnership's debt, the costs of
acquisitions (including related debt service payments), restrictions contained
in the Partnership's debt instruments, issuances of debt and equity securities
by the Partnership, fluctuations in working capital, capital expenditures,
adjustments in reserves, prevailing economic conditions and financial, business
and other factors, a number of which will be beyond the control of the
Partnership and the General Partner. 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 may be made
during periods when the Partnership records losses and may not be made during
periods when the Partnership records profits.
The amount of Available Cash from Operating Surplus needed to distribute
the Minimum Quarterly Distribution for four quarters on the Common and
Subordinated Units outstanding immediately before this offering and on the
General Partner's aggregate 2% general partner interest is approximately $16.7
million ($9.0 million for the Common Units, $7.4 million for the Subordinated
Units and $0.3 million for the aggregate 2% general partner interest).
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The Partnership distributed the full Minimum Quarterly Distribution on all
Common and Subordinated Units for fiscal year 1997.
The Partnership Agreement gives the General Partner broad discretion in
establishing reserves for the proper conduct of the Partnership's business that
will affect the amount of Available Cash. Because the business of the
Partnership is seasonal, the Partnership expects that it will make additions to
reserves during certain of the Partnership's quarters in order to fund
operating expenses, interest payments and cash distributions to partners with
respect to other quarters. In addition, the Partnership is required to
establish reserves in respect of future payments of principal and interest on
approximately $120 million of notes which are currently outstanding (the
"Notes") and any indebtedness under the Bank Credit Facility. The Notes and
the Bank Credit Facility limit the Operating Partnership's ability to
distribute cash to the Partnership. Distributions from the Operating
Partnership is the Partnership's primary source of Available Cash. Any
subsequent refinancing of the Notes, the Bank Credit Facility or any other
indebtedness incurred by the Partnership may have similar restrictions, and the
Partnership's ability to distribute cash may also be limited during the
existence of defaults under any of the Partnership's debt instruments. As a
result of these and other factors, there can be no assurance regarding the
actual levels of cash distributions to Unitholders by the Partnership.
Partnership Assumptions Concerning Future Operations and Weather May Not Be
Realized
The Partnership relies on certain assumptions concerning its operations,
including the assumptions that normal weather conditions will prevail in the
Partnership's operating areas, that the Partnership's operating margins and
internal growth rates will remain constant, that the Partnership will
consummate certain acquisitions and that market and overall economic conditions
will not change substantially. Although the Partnership believes its
assumptions are within a range of reasonableness, whether the assumptions are
realized is not, in many cases, within the control of the Partnership and
cannot be predicted with any degree of certainty. In the event that the
Partnership's assumptions are not realized, the actual Available Cash from
Operating Surplus generated by the Partnership could deviate substantially from
that currently expected.
Because a substantial portion of the Partnership's propane is used in
the heating-sensitive residential and commercial markets, the temperatures
realized in the Partnership's areas of operations, particularly during the
six-month peak heating season, have a significant effect on the financial
performance of the Partnership. In any given area, sustained above-normal
temperatures will tend to result in reduced propane use, while sustained
below-normal temperatures will tend to result in greater propane use.
The Partnership believes that its assumptions concerning the weather are
within a range of reasonableness as they are based on historical averages for
the years 1961-1990 as published by the National Weather Service Climate
Analysis Center for each measuring point in each of the Partnership's regions.
However, there is a substantial risk that the Partnership's assumptions
concerning the weather will not prove to be correct in any year or series of
years. Actual weather conditions can vary substantially from historical
averages and there can be no assurance that weather conditions in the future
will not be warmer than weather conditions in the past. For example, the
Partnership believes that during its eight years of existence, weather
affecting its operations, measured on a Partnership-wide basis, has been warmer
than normal. Should weather conditions in the Partnership's operating areas be
warmer than the normal in the future, particularly during the October through
March peak heating season, the Partnership's results of operations could be
adversely affected.
The Partnership's Indebtedness May Limit the Partnership's Ability to Make
Distributions and May Affect Operations
As of August 31, 1997, the Partnership had outstanding $120 million in
Notes and $37.2 million outstanding under the Bank Credit Facility. The
Partnership may in the future incur additional indebtedness in order to finance
acquisitions or for general business purposes, which could result in a
significant increase in the Partnership's leverage. The Partnership has
granted liens on substantially all of its properties to secure its existing
indebtedness. If an event of default occurs, the lenders will have the right
to foreclose on such collateral. The ability of the Partnership to make
principal and interest payments depends on future performance, which
performance is subject to many factors, a number
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of which will be outside the Partnership's control. The Notes and the Bank
Credit Facility contain provisions relating to change in ownership. If such
change in ownership provisions are triggered, such outstanding indebtedness may
become due. In such event, there is no assurance that the Partnership would be
able to pay the indebtedness. There is no restriction on the ability of the
General Partner or its stockholders from entering into a transaction which
would trigger such change in ownership provisions. The Notes and the Bank
Credit Facility contain restrictive covenants that limit the ability of the
Operating Partnership to distribute cash and to incur additional indebtedness.
The payment of principal and interest on such indebtedness and the reserves
required by the terms of the Partnership's indebtedness for the future payment
thereof will reduce the cash available to make distributions on the Units. The
Partnership's leverage also may adversely affect the ability of the Partnership
to finance its future operations and capital needs, may limit ability to pursue
acquisitions and other business opportunities and may make its results of
operations more susceptible to adverse economic conditions.
The General Partner Manages and Operates the Partnership; Unitholders Will Have
Certain Limits on their Voting Rights
The operations of the Partnership are conducted through, and the
operating assets are owned by, the Operating Partnership. The Partnership owns
a 98.9899% limited partner interest in the Operating Partnership. The General
Partner owns an aggregate 2% general partner interest in the Partnership and
the Operating Partnership. The General Partner manages and operates the
Partnership. The General Partner does not receive any management fee or other
compensation in connection with its management of the Partnership, but is
reimbursed at cost for all direct and indirect expenses incurred on behalf of
the Partnership and all other necessary or appropriate expenses allocable to
the Partnership or otherwise reasonably incurred by the General Partner or its
affiliates in connection with the operation of the Partnership's business.
Unlike the holders of common stock in a corporation, holders of Common Units
will have only limited voting rights on matters affecting the Partnership's
business. Holders of Common Units will have no right to elect the General
Partner on an annual or other continuing basis, and the General Partner may not
be removed except pursuant to the vote of the holders of not less than 66 2/3%
of the outstanding Units (including units owned by the General Partner and its
affiliates) and the Partnership receives an Opinion of Counsel. Any such
removal is also subject to the election of a successor general partner by the
vote of the holders of not less than a Unit Majority. The General Partner's
ownership of the Subordinated Units effectively gives the General Partner the
ability to prevent its removal. As a result, holders of Common Units will have
limited influence on matters affecting the operation of the Partnership, and
third parties may find it difficult to attempt to gain control or influence the
activities of the Partnership.
The General Partner has agreed not to withdraw voluntarily as a general
partner of the Partnership and the Operating Partnership prior to June 30, 2006
(with limited exceptions) without obtaining the approval of the holders of a
Unit majority and furnishing an Opinion of Counsel.
The Partnership May Issue Additional Common Units thereby Diluting Existing
Unitholders' Interests
The Partnership has the authority to issue an unlimited number of
additional Common Units or other equity securities for such consideration and
on such terms and conditions as are established by the General Partner, in its
sole discretion without the approval of the Unitholders. During the
Subordination Period, however, the Partnership may not issue equity securities
ranking prior or senior to the Common Units or an aggregate of more than
2,012,500 additional Common Units (excluding Common Units issued upon
conversion of Subordinated Units or in connection with certain acquisitions
(including those made hereunder) or capital improvements or the repayment of
certain indebtedness) or an equivalent number of securities ranking on a parity
with the Common Units without the approval of holders of a Unit Majority.
After the end of the Subordination Period, the Partnership may issue an
unlimited number of limited partner interests of any type without the approval
of the Unitholders. The Partnership Agreement does not give the holders of
Common Units the right to approve the issuance by the Partnership of equity
securities ranking junior to the Common Units at any time. Based on the
circumstances of each case, the issuance of additional Common Units or
securities ranking on a parity with the Common Units may dilute the value of
the interests of the then-existing holders of Common Units in the net assets of
the Partnership.
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The conversion of some or all the Subordinated Units into Common Units
will increase the Partnership's Minimum Quarterly Distribution obligation with
respect to the Common Units while simultaneously reducing or eliminating the
Minimum Quarterly Distribution obligation with respect to the Subordinated
Units.
Change of Management Provisions
The General Partner's ownership of Subordinated Units will preclude the
removal of the General Partner without its consent. In addition, the
Partnership Agreement contains certain provisions that may have the effect of
discouraging a person or group from attempting to remove the General Partner of
the Partnership or otherwise change the management of the Partnership. If the
General Partner is removed as general partner of the Partnership under
circumstances where Cause does not exist and Units held by the General Partner
and its affiliates are not voted in favor of such removal (i) the Subordination
Period will end and all outstanding Subordinated Units will immediately convert
into Common Units on a one-for-one basis, (ii) any existing Common Unit
Arrearages will be extinguished and (iii) the General Partner will have the
right to convert its general partner interests (including the right to receive
Incentive Distributions) into Common Units or to receive cash in exchange for
such interests. Further, if any person or group (other than the General
Partner or its affiliates) acquires beneficial ownership of 20% or more of any
class of Units then outstanding, such person or group will lose voting rights
with respect to all of its Units. In addition, the Partnership has substantial
latitude in issuing equity securities without Unitholder approval. The
Partnership Agreement also contains provisions limiting the ability of
Unitholders to call meetings of Unitholders or to acquire information about the
Partnership's operations as well as other provisions limiting the Unitholders'
ability to influence the manner or direction of management. The effect of
these provisions may be to diminish the price at which the Common Units will
trade under certain circumstances.
The General Partner Will Have a Limited Call Right with Respect to the Limited
Partner Interests
If at any time less than 20% of the then issued and outstanding limited
partner interests of any class are held by persons other than the General
Partner and its affiliates, the General Partner will have the right, which it
may assign to any of its affiliates or the Partnership, to acquire all, but not
less than all, of the remaining limited partner interests of any class held by
such unaffiliated persons at a price generally equal to the then-current market
price of the limited partner interest of any class. As a consequence, a holder
of Common Units may be required to sell his Common Units at a time when he may
not desire to sell them or at a price that is less than the price he would
desire to receive upon such sale.
Cost Reimbursements and Fees Due to the General Partner May be Substantial
Prior to making any distribution on the Common Units, the Partnership
will reimburse the General Partner and its affiliates at cost for all expenses
incurred on behalf of the Partnership. During fiscal 1997, approximately $28.7
million of expenses (primarily wages and salaries) were reimbursed by the
Partnership to the General Partner. In addition, the General Partner and its
affiliates may provide additional services to the Partnership, for which the
Partnership will be charged reasonable fees as determined by the General
Partner.
Unitholders May Not Have Limited Liability in Certain Circumstances; Liability
for Return of Certain Distributions
The limitations on the liability of holders of limited partner interests
for the obligations of a limited partnership have not been clearly established
in some states. If it were determined that the Partnership had been conducting
business in any state without compliance with the applicable limited
partnership statute, or that the right or the exercise of the right by the
Unitholders as a group to remove or replace the General Partner, to make
certain amendments to the Partnership Agreement or to take other action
pursuant to the Partnership Agreement constituted participation in the
"control" of the Partnership's business, then the Unitholders could be held
liable in certain circumstances for the Partnership's obligations to the same
extent as a general partner. In addition, under certain circumstances a
Unitholder may be liable to the Partnership for the amount of distribution for
a period of three years from the date of the distribution.
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CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES
Conflicts of interest could arise as a result of the relationships
between the Partnership, on the one hand, and the General Partner and its
affiliates on the other. The directors and officers of the General Partner
have fiduciary duties to manage the General Partner in a manner beneficial to
its stockholders. At the same time, the General Partner has fiduciary duties
to manage the Partnership in a manner beneficial to the Partnership and the
Unitholders. The duties of the General Partner, as general partner, to the
Partnership and the Unitholders, therefore, may come into conflict with the
duties of management of the General Partner to its stockholders.
Such conflicts of interest might arise in the following situation, among
others:
(i) Decisions of the General Partner with respect to the amount
and timing of cash expenditures, borrowings, issuances of additional
Units and reserves in any quarter will affect whether or the extent to
which there is sufficient Available Cash from Operating Surplus to meet
the Minimum Quarterly Distribution and Target Distribution Levels on all
Units in a given quarter. In addition, actions by the General Partner
may have the effect of enabling the General Partner to receive
distributions on the Subordinated Units or Incentive Distributions or
hastening the expiration of the Subordination Period or the conversion
of Subordinated Units into Common Units.
(ii) The Partnership does not have any employees and relies
solely on employees of the General Partner and its affiliates.
(iii) Under terms of the Partnership Agreement, the Partnership
will reimburse the General Partner and its affiliates for costs incurred
in managing and operating the Partnership, including costs incurred in
providing corporate staff and support services to the Partnership.
(iv) Whenever possible, the General Partner intends to limit the
Partnership's liability under contractual arrangements to all or
particular assets of the Partnership, with the other party thereto to
have no recourse against the General Partner or its assets.
(v) Any agreements between the Partnership and the General
Partner and its affiliates will not grant to the holders of Common
Units, separate and apart from the Partnership, the right to enforce the
obligations of the General Partner and such affiliates in favor of the
Partnership. Therefore, the General Partner, in its capacity as the
general partner of the Partnership, will be primarily responsible for
enforcing such obligations.
(vi) Under the terms of the Partnership Agreement, the General
Partner is not restricted from causing the Partnership to pay the
General Partner or its affiliates for any services rendered on terms
that are fair and reasonable to the Partnership or entering into
additional contractual arrangements with any of such entities on behalf
of the Partnership. Neither the Partnership Agreement nor any of the
other agreements, contracts and arrangements between the Partnership, on
the one hand, and the General Partner and its affiliates, on the other,
are or will be the result of arm's-length negotiations.
(vii) The General Partner may exercise its right to call for and
purchase Units as provided in the Partnership Agreement or assign such
right to one of its affiliates or to the Partnership.
(viii) The Partnership Agreement does not restrict the ability
of affiliates of the General Partner to engage in any activities, except
for the retail sale of propane to end users in the continental United
States. The General Partner's affiliates may compete with the
Partnership in other propane-related activities, such as trading,
transportation, storage and wholesale distribution of propane.
Furthermore, the Partnership Agreement provides that the General Partner
and its affiliates have no obligation to present business opportunities
to the Partnership.
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TAX RISKS
Tax Treatment is Dependent on Partnership Status
The availability to a Common Unitholder of the economic benefits of an
investment in the Partnership depends, in large part, on the classification of
the Partnership as a partnership for federal income tax purposes. Assuming the
accuracy of certain factual matters as to which the General Partner and the
Partnership have made representations, Andrews & Kurth L.L.P. ("Counsel") is of
the opinion that, under current law, the Partnership will be classified as a
partnership for federal income tax purposes. No ruling from the IRS as to
classification has been or is expected to be requested. Instead, the
Partnership intends to rely on such opinion of Counsel (which is not binding on
the IRS). One of the representations of the Partnership on which the opinion
of Counsel is based is that at least 90% of the Partnership's gross income for
each taxable year in the future will be "qualifying income." Whether the
Partnership will continue to be classified as a partnership in part depends,
therefore, on the Partnership's ability to continue to meet this qualifying
income test in the future.
If the Partnership were classified as an association taxable as a
corporation for federal income tax purposes, the Partnership would pay tax on
its income at corporate rates, distributions would generally be taxed again to
the Unitholders as corporate distributions, and no income, gains, losses or
deductions would flow through to the Unitholders. Because a tax would be
imposed upon the Partnership as an entity, the cash available for distribution
to the holders of Common Units would be substantially reduced. Treatment of
the Partnership as an association taxable as a corporation or otherwise as a
taxable entity would result in a material reduction in the anticipated cash
flow and after-tax return to the holders of Common Units and thus would likely
result in a substantial reduction in the value of the Common Units.
There can be no assurance that the law will not change so as to cause
the Partnership to be treated as an association taxable as a corporation for
federal income tax purposes or otherwise to be subject to entity-level
taxation. The Partnership Agreement provides that, if a law is enacted or
existing law is modified or interpreted in a manner that subjects the
Partnership to taxation as a corporation or otherwise subjects the Partnership
to entity-level taxation for federal, state or local income tax purposes,
certain provisions of the Partnership Agreement will be subject to change,
including a decrease in the Minimum Quarterly Distribution and the Target
Distribution Levels to reflect the impact of such law on the Partnership.
No IRS Ruling With Respect to Tax Consequences
No ruling has been requested from the IRS with respect to classification
of the Partnership as a partnership for federal income tax purposes, whether
the Partnership's propane operations generate "qualifying income" under Section
7704 of the Code or any other matter affecting the Partnership. Accordingly,
the IRS may adopt positions that differ from Counsel's conclusions expressed
herein. It may be necessary to resort to administrative or court proceedings
in an effort to sustain some or all of Counsel's conclusions, and some or all
of such conclusions ultimately may not be sustained. Any such contest with the
IRS may materially and adversely impact the market for the Common Units and the
prices at which the Common Units 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.
Tax Liability Exceeding Cash Distributions
A Unitholder will be required to pay federal income taxes and, in
certain cases, state and local income taxes on his allocable share of the
Partnership's income, whether or not he receives cash distributions from the
Partnership. There is no assurance that a Unitholder will receive cash
distributions equal to his allocable share of taxable income from the
Partnership or even the tax liability to him resulting from that income.
Further, a holder of Common Units may incur a tax liability, in excess of the
amount of cash received, upon the sale of his Common Units.
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Ownership of Common Units by Tax-Exempt Organizations and Certain Other
Investors
Investment in Common Units by certain tax-exempt entities, regulated
investment companies, foreign persons and non-calendar year taxpayers, raises
issues unique to such persons. For example, virtually all of the taxable
income derived by most organizations exempt from federal income tax (including
individual retirement accounts (IRAs) and other retirement plans) from the
ownership of a Common Unit will be unrelated business taxable income and thus
will be taxable to such a Unitholder.
Partners Limited to Calendar-Year Taxpayers
Investment in Common Units is limited to calendar-year taxpayers. Any
holder of a Common Unit who is not a calendar year taxpayer will not be
admitted to the Partnership as a partner, will not be entitled to receive
distributions or federal income tax allocations from the Partnership and may
only transfer such interests to a purchaser or other transferee.
Deductibility of Losses
In the case of taxpayers subject to the passive loss rules (generally,
individual and closely held corporations), losses generated by the Partnership,
if any, will only be available to offset future income generated by the
Partnership and cannot be used to offset income from other activities,
including passive activities or investments. Passive losses which are not
deductible because they exceed the Unitholder's income generated by the
Partnership may be deducted in full when the Unitholder disposes of his entire
investment in the Partnership in a fully taxable transaction to an unrelated
party. Net passive income from the Partnership may be offset by unused
Partnership losses carried over from prior years, but not by losses from other
passive activities, including losses from other publicly traded partnerships.
Tax Shelter Registration; Potential IRS Audit
The Partnership is registered with the IRS as a "tax shelter". No
assurance can be given that the Partnership 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% profit interest in the Partnership to participate in the income tax
audit process have been substantially reduced. Further, any adjustments in
the Partnership's returns will lead to adjustments in the Unitholders' returns
and may lead to audits of the Unitholders' returns and adjustments of items
unrelated to the Partnership. Each Unitholder would bear the cost of any
expenses incurred in connection with an examination of such Unitholder's
personal tax return.
Disposition of Common Units
A Unitholder who sells Common Units will recognize gain or loss equal to
the difference between the amount realized (including his share of Partnership
nonrecourse liabilities) and his adjusted tax basis in such Common Units.
Thus, prior Partnership distributions in excess of cumulative net taxable
income in respect of 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 Units,
even if the price is less than his original cost. A portion of the amount
realized (whether or not representing gain) may be ordinary income.
Uniformity of Common Units and Nonconforming Depreciation Conventions
Because the Partnership 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 must be maintained. To maintain
uniformity and for other reasons, the Partnership has adopted certain
depreciation and amortization conventions that do not conform with all aspects
of certain proposed and final Treasury Regulations. A successful challenge of
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.
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<PAGE> 20
State, Local and Other Tax Considerations
In addition to federal income taxes, Unitholders will be subject to
other taxes, such as state and local taxes, unincorporated business taxes, and
estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which the Partnership does business or owns property. A
Unitholder may 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 the Partnership does business or owns 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 such Unitholder. Counsel has not
rendered an opinion on the state or local tax consequences of an investment in
the Partnership.
Partnership Tax Information and Audits
The Partnership will furnish each holder of Common Units with a Schedule
K-1 that sets forth his allocable share of income, gains, losses and
deductions. In preparing these schedules, the Partnership uses various
accounting and reporting conventions and has adopted various depreciation and
amortization methods. There is no assurance that these schedules will yield a
result that conforms to statutory or regulatory requirements or to
administrative pronouncements of the IRS. Further, the Partnership's tax
return may be audited, and any such audit could result in an audit of a
partner's individual tax return as well as increased liabilities for taxes
because of adjustments resulting from the audit.
PRICE RANGE OF COMMON UNITS
The Common Units are listed on the New York Stock Exchange, which is the
principal trading market for such securities, under the symbol "HPG". The
following table sets forth, for the periods indicated, the high and low sales
prices per Common Unit, as reported on the New York Stock Exchange Composite
Tape, and the amount of cash distributions paid per Common Unit.
<TABLE>
<CAPTION>
PRICE RANGE CASH
HIGH LOW DISTRIBUTION
---- --- ------------
<S> <C> <C> <C>
1996 FISCAL YEAR
Fourth Quarter Ended August 31, 1996 $20.625 $19.875 $0.353*
1997 FISCAL YEAR
First Quarter Ended November 30, 1996 $21.375 $20.000 $0.500
Second Quarter Ended February 28, 1997 $21.875 $19.875 $0.500
Third Quarter Ended May 31, 1997 $21.375 $20.000 $0.500
Fourth Quarter Ended August 31, 1997 $22.9375 $20.875 $0.500
</TABLE>
* Prorated for the period between the closing of the Partnership's initial
public offering ("IPO") on June 28, 1996 and the fourth quarter ended August
31, 1996.
As of September 30, 1997, there were approximately 244 record holders of
the Partnership's Common Units, representing approximately seven thousand
individual common unitholders. The Partnership also has Subordinated Units,
all of which are held by the General Partner, for which there is no established
public trading market. The Partnership will distribute to its partners on a
quarterly basis, all of its Available Cash in the manner described herein.
Available Cash generally means, with respect to any quarter of the Partnership,
all cash on hand at the end of such quarter less the amount of cash reserves
that are necessary or appropriate in the reasonable discretion of the General
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<PAGE> 21
Partner to (i) provide for the proper conduct of the Partnership's business,
(ii) comply with applicable law or any Partnership debt instrument or other
agreement, or (iii) provide funds for distributions to Unitholders and the
General Partner in respect of any one or more of the next four quarters.
Available Cash is more fully defined in the Partnership Agreement. The
Partnership Agreement defines Minimum Quarterly Distributions as $0.50 per Unit
for each full fiscal quarter. Distributions of Available Cash to the holder of
the Subordinated Units are subject to the prior rights of the holders of the
Common Units to receive Minimum Quarterly Distributions for each quarter during
the subordination period, and to receive any arrearages in the distribution of
Minimum Quarterly Distributions on the Common Units for prior quarters during
the subordination period. The subordination period will not end earlier than
June 1, 2001.
USE OF PROCEEDS
All of the Common Units offered hereby may be issued from time to time
by the Partnership in connection with the Partnership's acquisition of other
businesses, properties or securities in business combination transactions. See
"Plan of Distribution". The Partnership is from time to time engaged in
ongoing discussions with respect to acquisitions, and expects to continue to
pursue such acquisition opportunities actively. As of the date of this
Prospectus, the Partnership does not have any agreements with respect to any
material acquisitions but is involved in ongoing discussions with several
companies and is continuing to assess these and other acquisition
opportunities.
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The following table sets forth certain information with respect to the
executive officers and members of the Board of Directors of the General
Partner. Executive officers and directors are elected for one-year terms.
<TABLE>
<CAPTION>
NAME POSITION WITH GENERAL PARTNER
---- -----------------------------
<S> <C>
James E. Bertelsmeyer Chairman of the Board, Chief Executive Officer
and a Director of the General Partner
R. C. Mills Executive Vice President and Chief Operating Officer
G. A. Darr Vice President - Corporate Development
H. Michael Krimbill Vice President and Chief Financial Officer,
Treasurer and Secretary
J. T. Atkins Director of the General Partner
Bill W. Byrne Director of the General Partner
J. Charles Sawyer Director of the General Partner
</TABLE>
James E. Bertelsmeyer. Mr. Bertelsmeyer, age 55, has 22 years of
experience in the propane industry, including six years as President of Buckeye
Gas Products Company, at the time the nation's largest retail propane marketer.
Mr. Bertelsmeyer has served as Chief Executive Officer of Heritage since its
formation. Mr. Bertelsmeyer began his career with Conoco Inc. where he spent
ten years in positions of increasing responsibility in the pipeline and gas
products departments. Mr. Bertelsmeyer has been a Director of the National
Propane Gas Association, (the "NPGA"), for the past 22 years, and is currently
President Elect of the NPGA.
R. C. Mills. Mr. Mills, age 60, has 39 years of experience in the
propane industry. Mr. Mills joined Heritage in 1991 as Executive Vice
President and Chief Operating Officer. Before coming to Heritage, Mr. Mills
spent 25 years with Texgas Corporation and its successor, Suburban Propane,
Inc. At the time he left Suburban in 1991, Mr. Mills was Vice President of
Supply and Wholesale.
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<PAGE> 22
G. A. Darr. Mr. Darr, age 64, has over 40 years of experience in the
propane industry. Mr. Darr came to Heritage in June 1989, as Director of
Corporate Development and was promoted to Vice President, Corporate Development
in 1990. Prior to joining Heritage, Mr. Darr served for 10 years as Director
of Corporate Development with CalGas Corporation and its successor, AmeriGas
Propane, Inc. Mr. Darr began his career in the propane division of Phillips
Petroleum Company. Mr. Darr is a Director of the NPGA.
H. Michael Krimbill. Before joining Heritage in 1990 as Vice President
and Chief Financial Officer, Mr. Krimbill, age 44, was Treasurer of Total
Petroleum, Inc. ("Total"). Total was a publicly traded, fully-integrated oil
company located in Denver, Colorado.
J. T. Atkins. Mr. Atkins, age 40, is a managing director of Oppenheimer
& Co., Inc., an investment banking firm. Prior to his joining Oppenheimer in
July of 1995, Mr. Atkins held a similar position with the investment banking
firm of Houlihan, Lokey, Howard & Zukin, Inc. Mr. Atkins was elected a
Director October 1, 1996.
Bill W. Byrne. Mr. Byrne, age 67, served as Vice President of Warren
Petroleum Company, the gas liquids division of Chevron Corporation, from 1982-
1992. Since that time Mr. Byrne has served as the principal of Byrne &
Associates, L.L.C., a gas liquids consulting group based in Tulsa, Oklahoma.
Mr. Byrne has been a Director of Heritage since 1992. Mr. Byrne is a past
president and Director of the NPGA.
J. Charles Sawyer. Mr. Sawyer, age 61, has served as President and
Chief Executive Officer of Computer Energy, Inc., a provider of software to the
propane industry, since 1981. Mr. Sawyer was formerly Chief Executive Officer
of Sawyer Gas Co., a regional propane distributor that was purchased by
Heritage in 1991. Mr. Sawyer has served as a Director of Heritage since 1991.
Mr. Sawyer is a past president and Director of the NPGA.
TAX CONSIDERATIONS
This section is a summary of material tax considerations that may be
relevant to prospective Unitholders and, to the extent set forth below under
"--Legal Opinions and Advice," expresses the opinion of Andrews & Kurth L.L.P.,
special counsel to the General Partner and the Partnership ("Counsel"), insofar
as it relates to matters of law and legal conclusions. This section is based
upon current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change.
Subsequent changes in such authorities may cause the tax consequences to vary
substantially from the consequences described below. Unless the context
otherwise requires, references in this section to the Partnership are
references to both the Partnership and the Operating Partnership.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting the Partnership or the Unitholders.
Moreover, the discussion focuses on Unitholders who are individual citizens or
residents of the United States and has only limited application to
corporations, estates, trusts, non-resident aliens or other Unitholders subject
to specialized tax treatment (such as tax-exempt institutions, foreign persons,
individual retirement accounts, REITs or mutual funds). Accordingly, each
prospective Unitholder should consult, and should depend on, his own tax
advisor in analyzing the federal, state, local and foreign tax consequences
peculiar to him of the ownership or disposition of Common Units.
LEGAL OPINIONS AND ADVICE
Counsel is of the opinion that, based on 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.
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<PAGE> 23
Although no attempt has been made in the following discussion to comment
on all federal income tax matters affecting the Partnership or prospective
Unitholders, Counsel has advised the Partnership that, based on current law,
the following is a general description of the principal federal income tax
consequences that should arise from the ownership and disposition of Common
Units and, insofar as it relates to matters of law and legal conclusions,
addresses the material tax consequences to Unitholders who are individual
citizens or residents of the United States.
No ruling has been or will be requested from the Internal Revenue
Service (the "IRS") with respect to classification of the Partnership as a
partnership for federal income tax purposes, whether the Partnership's propane
operations generate "qualifying income" under Section 7704 of the Code or any
other matter affecting the Partnership or prospective Unitholders. An opinion
of counsel represents only that counsel's best legal judgment and does not bind
the IRS or the courts. Thus, 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. 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 the treatment of the Partnership or an investment
therein 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: (i)
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
Operations--Treatment of Short Sales"), (ii) whether a Unitholder acquiring
Common Units in separate transactions must maintain a single aggregate adjusted
tax basis in his Common Units (see "--Disposition of Common Units--Recognition
of Gain or Loss"), (iii) whether the Partnership's monthly convention for
allocating taxable income and losses is permitted by existing Treasury
Regulations (see "--Disposition of Common Units--Allocations Between
Transferors and Transferees"), (iv) whether the Partnership's method for
depreciating Section 743 adjustments is sustainable (see "--Tax Treatment of
Operations--Section 754 Election") and (v) whether the allocations of recapture
income contained in the Partnership Agreement will be respected for federal
income tax purposes (see -- "Allocation of Partnership Income, Gain, Loss and
Deduction").
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 his
allocable share of items of income, gain, loss and deduction of the partnership
in computing his federal income tax liability, regardless of whether cash
distributions are made. Distributions by a partnership to a partner are
generally not taxable unless the amount of any cash distributed is in excess of
the partner's adjusted basis in his partnership interest.
No ruling has been or will be sought from the IRS as to the status of
the Partnership or the Operating Partnership as a partnership for federal
income tax purposes. Instead the Partnership has relied on the opinion of
Counsel that, based upon the Code, the regulations thereunder, published
revenue rulings and court decisions, the Partnership and the Operating
Partnership have been and will each be classified as a partnership for federal
income tax purposes.
In rendering its opinion with respect to periods beginning before
January 1, 1997, Counsel relied on different factual matters which the General
Partner believes are true. In rendering its opinion as to taxable years
beginning after December 31, 1996, Counsel has relied on certain factual
representations made by the Partnership and the General Partner. Such factual
matters are as follows:
(a) Neither the Partnership nor the Operating Partnership has and
will elect to be treated as an association or corporation;
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<PAGE> 24
(b) The Partnership and the Operating Partnership have been and will
be operated in accordance with (i) all applicable partnership statutes, (ii)
the applicable Partnership Agreement, and (iii) the description thereof in this
Prospectus;
(c) For each taxable year, more than 90% of the gross income of the
Partnership will be (i) derived from the exploration, development, production,
processing, refining, transportation or marketing of any mineral or natural
resource, including oil, gas or products thereof, or (ii) other items of
"qualifying income" within the meaning of Section 7704(d) of the Code; and
(d) The General Partner has and will at all times act independently
of the limited partners.
Section 7704 of the Code provides that publicly-traded partnerships
will, as a general rule, be taxed as corporations. However, an exception (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 crude oil, natural gas, and products
thereof, including the retail and wholesale marketing of propane and the
transportation of propane and natural gas liquids. Based upon the
representations of the Partnership and the General Partner and a review of the
applicable legal authorities, Counsel is of the opinion that at least 90% of
the Partnership's gross income will constitute qualifying income.
If the Partnership fails 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), the Partnership will be
treated as if it had transferred all of its assets (subject to liabilities) to
a newly formed corporation (on the first day of the year in which it fails 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 the Partnership. This contribution and liquidation should be tax-
free to Unitholders and the Partnership, so long as the Partnership, at that
time, does not have liabilities in excess of the tax basis of its assets.
Thereafter, the Partnership would be treated as a corporation for federal
income tax purposes.
If the Partnership 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 its net income would
be taxed to the Partnership or the Operating Partnership at corporate rates.
In addition, any distribution made to a Unitholder would be treated as either
taxable dividend income (to the extent of the Partnership'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 the
Partnership 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 Units.
The discussion below is based on the assumption that the Partnership
will be classified as a partnership for federal income tax purposes.
LIMITED PARTNER STATUS
Unitholders who have become limited partners of the Partnership will be
treated as partners of the Partnership for federal income tax purposes.
Counsel is also of the opinion that (a) assignees who have executed and
delivered Transfer Applications, and are awaiting admission as limited partners
and (b) Unitholders whose Common Units are held in street name or by a nominee
and who have the right to direct the nominee in the exercise of all substantive
rights attendant to the ownership of their Common Units will be treated as
partners of the Partnership for federal income tax purposes. As there is no
direct authority addressing assignees of Common Units who are entitled to
execute and
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<PAGE> 25
deliver Transfer Applications and thereby become entitled to direct the
exercise of attendant rights, but who fail to execute and deliver Transfer
Applications, Counsel's opinion does not extend to these persons. Income,
gain, deductions or losses would not appear to be reportable by a Unitholder
who is not a partner for federal income tax purposes, and any cash
distributions received by such a Unitholder would therefore be fully taxable as
ordinary income. These holders should consult their own tax advisors with
respect to their status as partners in 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.
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 "--Treatment of Operations--Treatment of Short Sales."
TAX CONSEQUENCES OF UNIT OWNERSHIP
Treatment of Transfer of Property to the Partnership
In general, no gain or loss will be recognized by a Unitholder upon a
contribution of property to the Partnership for Units, except to the extent a
Unitholder's share of liabilities assumed by the Partnership exceeds his tax
basis in the contributed property immediately prior to such contribution.
Flow-through of Taxable Income
No federal income tax will be paid by the Partnership. Instead, each
Unitholder will be required to report on his income tax return his allocable
share of the income, gains, losses and deductions of the Partnership without
regard to whether corresponding cash distributions are received by such
Unitholder. Consequently, a Unitholder may be allocated income from the
Partnership even if he has not received a cash distribution. Each Unitholder
will be required to include in income his allocable share of Partnership
income, gain, loss and deduction for the taxable year of the Partnership ending
with or within the taxable year of the Unitholder.
Treatment of Partnership Distributions
Distributions by the Partnership to a Unitholder generally will not be
taxable to the Unitholder for federal income tax purposes to the extent of his
tax basis in his Common Units immediately before the distribution. 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 the Partnership's liabilities
for which no partner, including the General Partner, bears the economic risk of
loss ("nonrecourse liabilities") will be treated as a distribution of cash to
that Unitholder. A decrease in a Unitholder's percentage interest in the
Partnership because of the issuance by the Partnership of additional Units will
decrease such Unitholder's share of nonrecourse liabilities of the Partnership,
and thus will result in a corresponding deemed distribution of cash. To the
extent that Partnership distributions cause a Unitholder's "at risk" amount to
be less than zero at the end of any taxable year, he must recapture any losses
deducted in previous years. See "--Limitations on Deductibility of Partnership
Losses."
Basis of Common Units
A Unitholder's initial tax basis for his Common Units will be the amount
of cash he paid for the Common Units or the tax basis of any property
contributed to the Partnership for his Common Units (increased by gain, if any,
recognized on such contribution) plus his share of the Partnership's
nonrecourse liabilities. That basis will be increased by his share of
Partnership income and by any increases in his share of Partnership nonrecourse
liabilities. That basis will be decreased (but not below zero) by
distributions from the Partnership, by the Unitholder's share of Partnership
losses, by any decrease in his share of Partnership nonrecourse liabilities and
by his share of expenditures of the
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<PAGE> 26
Partnership that are not deductible in computing its taxable income and are not
required to be capitalized. A limited partner will have no share of
Partnership debt which is recourse to the General Partner, but will have a
share, generally based on his share of profits, of Partnership debt which is
not recourse to any partner. See "--Disposition of Common Units--Recognition
of Gain or Loss."
Limitations on Deductibility of Partnership Losses
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 publicly-traded
partnership. Consequently, any passive losses generated by the Partnership
will only be available to offset future income generated by the Partnership 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 income generated by the Partnership may be deducted in full when
he disposes of his entire investment in the Partnership 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 described below.
The deduction by a Unitholder of his share of Partnership losses will be
limited to the tax basis in his Units and, in the case of an individual
Unitholder or a corporate Unitholder (if more than 50% of the value of 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 the Partnership's activities, if that is less
than the Unitholder's tax basis. A Unitholder must recapture losses deducted
in previous years to the extent that Partnership 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) is
subsequently increased. Upon the taxable disposition of a Unit, any gain
recognized by a Unitholder can be offset by losses that were previously
suspended by the at risk limitation but may not be offset by losses suspended
by the basis limitation. Any excess loss (above such gain) previously
suspended by the at risk or basis limitations is no longer utilizable.
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 the Partnership will
be treated as investment income for this purpose. In addition, the
Unitholder's share of the Partnership's portfolio income will be treated as
investment income. Investment interest expense includes (i) interest on
indebtedness properly allocable to property held for investment, (ii) the
Partnership's interest expense attributed to portfolio income, and (iii) the
portion of interest expense incurred to purchase or carry an interest in a
passive activity to the extent attributable to portfolio income. The
computation of a Unitholder's investment interest expense will take into
account interest on any margin account borrowing or other loan incurred to
purchase or carry a Unit. Net investment income includes gross income from
property held for investment and amounts treated as portfolio income 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.
ALLOCATION OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTION
In general, if the Partnership has a net profit, items of income, gain,
loss and deduction will be allocated among the General Partner and the
Unitholders in accordance with their respective percentage interests in the
Partnership. At any time that distributions are made to the Common Units and
to the Subordinated Units, or that Incentive Distributions are made to the
General Partner, gross income will be allocated to the recipients to the extent
of such distribution. If the Partnership has a net loss, items of income,
gain, loss and deduction will generally be allocated first, to the General
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<PAGE> 27
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 Code and as permitted by
Regulations thereunder, certain items of Partnership income, deduction, gain
and loss will be allocated to account for the difference between the tax basis
and fair market value of property contributed to the Partnership by the General
Partner and any subsequent property contributor ("Contributed Property"). The
effect of these allocations to a Unitholder contributing property to the
Partnership will be that over time the Unitholder will recognize in income the
difference between the Contributed Property's tax basis at the time of
contribution and its fair market value at the time of contribution. In
addition, certain items of recapture income will be 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 the
Partnership does not expect that its operations will result in the creation of
negative capital accounts, if negative capital accounts nevertheless result,
items of Partnership 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 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 partner's
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.
Counsel is of the opinion that, with the exception of the allocation of
recapture income discussed above, allocations under the Partnership Agreement
will be given effect for federal income tax purposes in determining a partner's
distributive share of an item of income, gain, loss or deduction.
TAX TREATMENT OF OPERATIONS
Accounting Method and Taxable Year
The Partnership uses the fiscal year ending December 31 as its taxable
year and has adopted the accrual method of accounting for federal income tax
purposes. Each Unitholder will be required to include in income his allocable
share of Partnership income, gain, loss and deduction for the fiscal year of
the Partnership ending within or with the taxable year of the Unitholder. In
addition, a Unitholder who disposes of Units following the close of the
Partnership's taxable year but before the close of his taxable year must
include his allocable share of Partnership income, gain, loss and deduction in
income for his taxable year with the result that he will be required to report
in income for his taxable year his distributive share of more than one year of
Partnership income, gain, loss and deduction. See "--Disposition of Common
Units--Allocations Between Transferors and Transferees."
Initial Tax Basis, Depreciation and Amortization
The tax basis of the various assets of the Partnership will be used for
purposes of computing depreciation and cost recovery deductions and,
ultimately, gain or loss on the disposition of such assets. The Partnership
assets initially had an aggregate tax basis equal to the tax basis of the
assets in the possession of the General Partner immediately prior to the
formation of the Partnership. The Partnership's tax basis in assets
contributed to the Partnership pursuant to this offering will equal such tax
basis in the hands of the transferor. The federal income tax burden associated
with the difference between the fair market value of property held by the
Partnership and its tax basis immediately prior to this offering will be borne
by partners holding interests in the Partnership prior to this offering and the
federal income tax
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burden associated with the difference between the fair market value of property
contributed to the Partnership pursuant to this offering and its tax basis at
the time of contribution will be borne by the partners acquiring Units pursuant
to this offering. See "--Allocation of Partnership Income, Gain, Loss and
Deduction."
If the Partnership disposes 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 the
Partnership may be required to recapture such deductions as ordinary income
upon a sale of his interest in the Partnership. See "--Allocation of
Partnership Income, Gain, Loss and Deduction" and "--Disposition of Common
Units--Recognition of Gain or Loss."
Costs incurred in organizing the Partnership are being amortized over a
period of 60 months. The costs incurred in promoting the issuance of Units
(i.e. syndication expenses) must be capitalized and cannot be deducted
currently, ratably or upon termination of the Partnership. There are
uncertainties regarding the classification of costs as organization expenses,
which may be amortized, and as syndication expenses, which may not be
amortized.
Section 754 Election
The Partnership has made the election permitted by Section 754 of the
Code. The election is irrevocable without the consent of the IRS. The
election generally permits the Partnership to adjust a Common Unit purchaser's
(other than a Common Unit purchaser that purchases Common Units from the
Partnership) tax basis in the Partnership's assets ("inside basis") pursuant to
Section 743(b) of the Code to reflect his purchase price. 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 the Partnership's assets will
be considered to have two components: (1) his share of the Partnership's tax
basis in such assets ("common basis") and (2) his Section 743(b) adjustment to
that basis.)
Although Counsel is unable to opine as to the validity of such an
approach, the Partnership intends 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, or treat
that portion as non-amortizable to the extent attributable to property the
common basis of which is not amortizable, despite its inconsistency with
Proposed Treasury Regulation Section 1.168-2(n), Treasury Regulation Section
1.167(c)-1(a)(6) or Proposed Treasury Regulation 1.197-2(g)(3) (none of which
is expected to directly apply to a material portion of the Partnership's
assets). See "--Uniformity of Units."
The allocation of the Section 743(b) adjustment must be made in
accordance with the Code. The IRS may seek to reallocate some or all of any
Section 743(b) adjustment not so allocated by the Partnership to goodwill
which, as an intangible asset, would be amortizable over a longer period of
time than the Partnership's tangible assets.
A Section 754 election is advantageous if the transferee's tax basis in
his Units is higher than such Units' share of the aggregate tax basis to the
Partnership of the Partnership's 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 the Partnership's 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 the Partnership's assets. Conversely, a Section
754 election is disadvantageous if the transferee's tax basis in such Units is
lower than such Unit's share of the aggregate tax basis of the Partnership's
assets immediately prior to the transfer. Thus, the fair market value of the
Units may be affected either favorably or adversely by the election.
The calculations involved in the Section 754 election are complex and
will be made by the Partnership on the basis of certain assumptions as to the
value of Partnership assets and other matters. There is no assurance that the
determinations made by the Partnership 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 the Partnership's opinion, the expense of compliance
exceed the benefit of the election, the Partnership
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may seek permission from the IRS to revoke the Section 754 election for the
Partnership. If such permission is granted, a subsequent purchaser of Units
may be allocated more income than he would have been allocated had the election
not been revoked.
Alternative Minimum Tax
Although it is not expected that the Partnership will generate
significant tax preference items or adjustments, each Unitholder will be
required to take into account his distributive share of any items of
Partnership income, gain, deduction or loss for purposes of the alternative
minimum tax. The minimum tax rate for noncorporate taxpayers is 26% on the
first $175,000 of alternative minimum taxable income in excess of the exemption
amount and 28% on any additional alternative minimum taxable income.
Prospective Unitholders should consult with their tax advisors as to the impact
of an investment in Units on their liability for the alternative minimum tax.
Valuation of Partnership Property and Basis of Properties
The federal income tax consequences of the ownership and disposition of
Units will depend in part on estimates by the Partnership of the relative fair
market values, and determinations of the initial tax bases, of the assets of
the Partnership. Although the Partnership may from time to time consult with
professional appraisers with respect to valuation matters, many of the relative
fair market value estimates will be made by the Partnership. 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.
Treatment of Short Sales
A Unitholder whose Units are loaned to a "short seller" to cover a short
sale of Units may be considered as having disposed of ownership of those Units.
If so, he would no longer be a partner with respect to those Units during the
period of the loan and may recognize gain or loss from the disposition. As a
result, during this period, any Partnership income, gain, deduction or loss
with respect to those Units would not be reportable by the Unitholder, any cash
distributions received by the Unitholder with respect to those 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 Units. The
IRS has announced that it is actively studying issues relating to the tax
treatment of short sales of Partnership interests. See also "--Disposition of
Common Units--Recognition of Gain or Loss."
DISPOSITION OF COMMON UNITS
Recognition of Gain or Loss
Gain or loss will be recognized on a sale of Units equal to the
difference between the amount realized and the Unitholder's tax basis for the
Units sold. A Unitholder's amount realized will be measured by the sum of the
cash or the fair market value of other property received plus his share of
Partnership nonrecourse liabilities. Because the amount realized includes a
Unitholder's share of Partnership nonrecourse liabilities, the gain recognized
on the sale of Units could result in a tax liability in excess of any cash
received from such sale.
Prior Partnership distributions in excess of cumulative net taxable
income in respect of 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.
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Should the IRS successfully contest the convention used by the
Partnership to amortize only a portion of the Section 743(b) adjustment
(described under "--Tax Treatment of Operations--Section 754 Election")
attributable to an amortizable Section 197 intangible after a sale by the
General Partner of Units, a Unitholder could realize additional gain from the
sale of Units than had such convention been respected. In that case, the
Unitholder may have been entitled to additional deductions against income in
prior years but may be unable to claim them, with the result to him of greater
overall taxable income than appropriate. Counsel is unable to opine as to the
validity of the convention but believes such a contest by the IRS to be
unlikely because a successful contest could result in substantial additional
deductions to other Unitholders.
Gain or loss recognized by a Unitholder (other than a "dealer" in Units)
on the sale or exchange of a Unit will generally be taxable as capital gain or
loss. Capital gain recognized on the sale of Units held for more than 18
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 Code to the
extent attributable to assets giving rise to depreciation recapture or other
"unrealized receivables" or to "inventory items" owned by the Partnership. 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 Unit and may be recognized even if there is
a net taxable loss realized on the sale of the Unit. Thus, a Unitholder may
recognize both ordinary income and a capital loss upon a disposition of 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 Common Unitholder
will be unable to select high or low basis Common Units to sell as would be the
case with corporate stock. It is not clear whether the ruling applies to the
Partnership because, similar to corporate stock, interests in the Partnership
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.
The Taxpayer Relief Act of 1997 (the "TRA of 1997") affects 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 related persons (i)
enter into a short sale of, (ii) enter into an offsetting notional principal
contract with respect to, (iii) enter into a futures or forward contract to
deliver, (iv) or in the case of an appreciated financial position that is a
short sale or offsetting notional principal or futures or forward contract,
acquire, the same or substantially identical property. The Secretary of
Treasury is also authorized to issue regulations that treat a taxpayer that
enters in 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, the Partnership's taxable income and losses will be
determined annually, will be prorated on a monthly basis and will be
subsequently apportioned among the Unitholders in proportion to the number of
Units owned by each of them as of the opening of the 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 Partnership assets other than in the
ordinary course of business will be allocated among the Unitholders on the
Allocation Date in the month in which that gain or loss is recognized. As a
result, a Unitholder transferring Common Units in the open market may be
allocated income, gain, loss and deduction accrued after the date of transfer.
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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 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), taxable income or losses of the Partnership might be reallocated
among the Unitholders. The Partnership is authorized to revise its 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.
A Unitholder who owns Units at any time during a quarter and who
disposes of such Units prior to the record date set for a cash distribution
with respect to such quarter will be allocated items of Partnership 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 Units is required to notify the
Partnership 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. The Partnership is
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 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 Unit. Failure to satisfy these reporting
obligations may lead to the imposition of substantial penalties.
Constructive Termination
The Partnership and the Operating Partnership will be considered to have
been terminated if there is a sale or exchange of 50% or more of the total
interests in Partnership capital and profits within a 12-month period. Under
regulations, a termination of the Partnership would result in a deemed transfer
by the Partnership of its assets to a new partnership in exchange for an
interest in the new partnership followed by a deemed distribution of interests
in the new partnership to the Unitholders in liquidation of the Partnership.
Under the TRA of 1997, electing large partnerships will not terminate by reason
of the sale or exchange of interests in the partnership. A termination of the
Partnership will also cause a termination of the Operating Partnership. A
termination of the Partnership will result in the closing of the Partnership's
taxable year for all Unitholders. In the case of a Unitholder reporting on a
taxable year other than a fiscal year ending December 31, the closing of the
Partnership's taxable year may result in more than 12 months' taxable income or
loss of the Partnership being includable in his taxable income for the year of
termination. New tax elections required to be made by the Partnership,
including a new election under Section 754 of the Code, must be made subsequent
to a termination, and a termination could result in a deferral of Partnership
deductions for depreciation. A termination could also result in penalties if
the Partnership were unable to determine that the termination had occurred.
Moreover, a termination might either accelerate the application of, or subject
the Partnership to, any tax legislation enacted prior to the termination.
Entity-Level Collections
If the Partnership is required or elects under applicable law to pay any
federal, state or local income tax on behalf of any Unitholder or any General
Partner or any former Unitholder, the Partnership is authorized to pay those
taxes from Partnership funds. Such payment, if made, will be treated as a
distribution of cash to the partner on whose behalf the payment was made. If
the payment is made on behalf of a person whose identity cannot be determined,
the Partnership is authorized to treat the payment as a distribution to current
Unitholders. The Partnership is authorized to amend the Partnership Agreement
in the manner necessary to maintain uniformity of intrinsic tax characteristics
of Units and to adjust subsequent distributions, so that after giving effect to
such distributions, the priority and characterization of distributions
otherwise applicable under the Partnership Agreement is maintained as nearly as
is practicable.
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Payments by the Partnership 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.
UNIFORMITY OF UNITS
Because the Partnership cannot match transferors and transferees of
Units, uniformity of the economic and tax characteristics of the Units to a
purchaser of such 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 a literal application of Proposed Treasury Regulation Section 1.168-2(n).
Treasury Regulation Section 1.167(c)-1(a)(6) and Proposed Treasury Regulation
1.197-2(g)(3). Any non-uniformity could have a negative impact on the value of
the Units. See "--Tax Treatment of Operations--Section 754 Election."
The Partnership intends to 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, or treat that portion as nonamortizable, to the extent
attributable to property the common basis of which is not amortizable, despite
its inconsistency with Proposed Treasury Regulation Section 1.168-2(n),
Treasury Regulation Section 1.167(c)-1(a)(6) (neither of which is expected to
directly apply to a material portion of the Partnership's assets) and Proposed
Treasury Regulation 1.197-1(a)(3). See "--Tax Treatment of Operations--Section
754 Election." These positions are commonly taken by publicly traded
partnerships. Nevertheless, 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 Units might be affected, and the gain from
the sale of 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 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 ("IRAs") and other retirement plans)
are subject to federal income tax on unrelated business taxable income. Much
of the taxable income derived by such an organization from the ownership of a
Unit will be unrelated business taxable income and thus will be taxable to such
a Unitholder.
A regulated investment Partnership 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 the Partnership's gross
income will include that type of income.
Non-resident aliens and foreign corporations, trusts or estates which
hold Units will be considered to be engaged in business in the United States on
account of ownership of Units. As a consequence they will be required to file
federal tax returns in respect of their share of Partnership 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, the Partnership may withhold (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 the Transfer Agent of the Partnership on a Form W-8 in order to
obtain credit for the taxes withheld. A change in applicable law may require
the Partnership to change these procedures.
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Because a foreign corporation which owns 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 the Partnership's income and gain
(as adjusted for changes in the foreign corporation's "U.S. net equity") which
are effectively connected with the conduct of a United States trade or
business. That tax may be reduced or eliminated by an income tax treaty
between the United States and the country with respect to which the foreign
corporate Unitholder is a "qualified resident." In addition, such a Unitholder
is subject to special information reporting requirements under Section 6038C of
the Code.
Under a ruling of the IRS a foreign Unitholder who sells or otherwise
disposes of a Unit will be subject to federal income tax on gain realized on
the disposition of such 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 Unit if that foreign Unitholder has held less than 5% in value
of the Units during the five-year period ending on the date of the disposition
and if the Units are regularly traded on an established securities market at
the time of the disposition.
ADMINISTRATIVE MATTERS
Partnership Information Returns and Audit Procedures
The Partnership intends to furnish to each Unitholder, within 90 days
after the close of each fiscal year, certain tax information, including a
Schedule K-1, which sets forth each Unitholder's share of the Partnership's
income, gain, loss and deduction for the preceding Partnership taxable year.
In preparing this information, which will generally not be reviewed by counsel,
the Partnership 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 Code, regulations or administrative interpretations of the
IRS. The Partnership 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 negatively
affect the value of the Units.
The federal income tax information returns filed by the Partnership may
be audited by the IRS. Adjustments resulting from any such audit may require
each Unitholder to adjust a prior year's tax liability, and possibly may result
in an audit of the Unitholder's own return. Any audit of a Unitholder's return
could result in adjustments of non-Partnership as well as Partnership items.
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 Code provides for
one partner to be designated as the "Tax Matters Partner" for these purposes.
The Partnership Agreement appoints the General Partner as the Tax Matters
Partner of the Partnership.
The Tax Matters Partner will make certain elections on behalf of the
Partnership and Unitholders and can extend the statute of limitations for
assessment of tax deficiencies against Unitholders with respect to Partnership
items. The Tax Matters Partner may bind a Unitholder with less than a 1%
profits interest in the Partnership 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 the profits of the Partnership 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.
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 the Partnership's return. Intentional or
negligent
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disregard of the consistency requirement may subject a Unitholder to
substantial penalties. Under the TRA of 1997, partners in electing large
partnerships would be required to treat all Partnership items in a manner
consistent with the Partnership return.
Under the reporting provisions of the TRA of 1997, each partner of an
electing large partnership takes 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.
The TRA of 1997 also made a number of changes to the tax compliance and
administrative rules relating to electing large partnerships. One provision
would require that each partner in an electing large partnership, such as the
Partnership, take into account his share of any adjustments to partnership
items in the year such adjustments are made. Under prior law, adjustments
relating to partnership items for a previous taxable year are taken into
account by those persons who were partners in the previous taxable year.
Alternatively, under the TRA of 1997, a 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 could bear
significant economic burdens associated with tax adjustments relating to
periods predating their acquisition of Units. It is not expected that the
Partnership will elect to have these provisions apply because of the cost of
their application.
Nominee Reporting
Persons who hold an interest in the Partnership as a nominee for another
person are required to furnish to the Partnership (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 Units held, acquired or
transferred for the beneficial owner; and (d) certain information including the
dates of acquisitions and transfers, means of acquisitions and transfers, and
acquisition cost for purchases, as well as the amount of net proceeds from
sales. Brokers and financial institutions are required to furnish additional
information, including whether they are United States persons and certain
information on 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 Code for failure to report such information to the Partnership.
The nominee is required to supply the beneficial owner of the Units with the
information furnished to the Partnership.
Registration as a Tax Shelter
The 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 Code are extremely broad. It is
arguable that the Partnership is not subject to the registration requirement on
the basis that it will not constitute a tax shelter. However, the General
Partner, as a principal organizer of the Partnership, has registered the
Partnership as a tax shelter with the Secretary of the Treasury in the absence
of assurance that the Partnership will not be subject to tax shelter
registration and in light of the substantial penalties which might be imposed
if registration is required and not undertaken. The IRS has issued the
following tax shelter registration number to the Partnership: 96234000014.
ISSUANCE OF THE REGISTRATION NUMBER DOES NOT INDICATE THAT AN INVESTMENT IN THE
PARTNERSHIP OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR
APPROVED BY THE IRS. The Partnership must furnish the registration number to
the Unitholders, and a Unitholder who sells or otherwise transfers a Unit in a
subsequent transaction must furnish the registration number to the transferee.
The penalty for failure of the transferor of a Unit to furnish the registration
number to the transferee is $100 for each such failure. The Unitholders must
disclose the tax shelter registration number of the Partnership on Form 8271 to
be attached to the tax return on
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which any deduction, loss or other benefit generated by the Partnership is
claimed or income of the Partnership 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 of certain listed
causes, including negligence or disregard of rules or regulations, substantial
understatements of income tax and substantial valuation misstatements, is
imposed by the 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 if
the amount of the understatement exceeds the greater of 10% of the tax required
to be shown on the return for the taxable year or $5,000 ($10,000 for most
corporations). The amount of any understatement subject to penalty generally
is reduced if any portion is attributable to a position adopted on the return
(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. Certain more stringent rules apply to "tax
shelters," a term that in this context does not appear to include the
Partnership. If any Partnership item of 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, the
Partnership must disclose the pertinent facts on its return. In addition, the
Partnership will make a reasonable effort to furnish sufficient information for
Unitholders to make adequate disclosure on their returns to avoid liability for
this penalty.
A substantial valuation misstatement exists if the value of any property
(or the adjusted basis of any property) claimed on a tax return is 200% or more
of the amount determined to be the correct amount of such valuation or adjusted
basis. No penalty is imposed unless the portion of the underpayment
attributable to a substantial valuation misstatement exceeds $5,000 ($10,000
for most corporations). If the valuation claimed on a return is 400% or more
than the correct valuation, the penalty imposed increases to 40%.
STATE, LOCAL AND OTHER TAX CONSIDERATIONS
In addition to federal income taxes, Unitholders 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 the Partnership does business or owns property.
Although an analysis of those various taxes is not presented here, each
prospective Unitholder should consider their potential impact on his investment
in the Partnership. The Partnership owns property and conducts business in 23
states. A Unitholder will be required to file state income tax returns and to
pay state income taxes in most of the states in which the Partnership does
business or owns property and may be subject to penalties for failure to comply
with those requirements. In certain states, tax losses may not produce a tax
benefit in the year incurred (if, for example, the Partnership has no income
from sources within that state) and also may not be available to offset income
in subsequent taxable years. Some of the states may require the Partnership,
or the Partnership 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 the Partnership. See "--Disposition
of Common Units--Entity-Level Collections." Based on current law and its
estimate of future Partnership operations, the General Partner anticipates that
any amounts required to be withheld will not be material.
It is the responsibility of each Unitholder to investigate the legal and
tax consequences, under the laws of pertinent states and localities of his
investment in the Partnership. Accordingly, each prospective Unitholder should
consult, and must depend upon, his own tax counsel or other advisor with regard
to those matters. Further, it is the
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<PAGE> 36
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
the Partnership.
PLAN OF DISTRIBUTION
This Prospectus may be used by the Partnership for the offer and sale of
up to 2,000,000 Common Units from time to time in connection with the
acquisition of other businesses, properties or securities in business
combination transactions. The consideration offered by the Partnership in such
acquisitions, in addition to any Common Units offered by this Prospectus, may
include assets, debt or other securities or assumption by the Partnership of
liabilities of the business being acquired, or a combination thereof. The
terms of acquisitions are typically determined by negotiations between the
Partnership and the owners of the businesses, properties or securities to be
acquired, with the Partnership taking into account the quality of management,
the past and potential earning power and growth of the businesses, properties
or securities to be acquired, and other relevant factors. Common Units issued
to the owners of the businesses, properties or securities to be acquired are
generally valued at a price reasonably related to the market value of the
Common Units either at the time the terms of the acquisition are tentatively
agreed upon or at or about the time or times of delivery of the Common Units.
DESCRIPTION OF SECURITIES TO BE REGISTERED
A complete description of the Common Units which is contained in the
Partnership's registration statement on Form 8-A (File No. 1-11727) under the
Exchange Act filed on May 14, 1996 is incorporated herein by reference.
VALIDITY OF THE COMMON UNITS
The validity of the Common Units is being passed upon by Andrews & Kurth
L.L.P., Houston, Texas, as counsel for the Partnership.
INTERESTS OF NAMED EXPERTS AND COUNSEL
The consolidated financial statements of the Partnership and its
subsidiaries incorporated by reference in this Prospectus and elsewhere in the
registration statement, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report, with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
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<PAGE> 37
HERITAGE PROPANE
PARTNERS, L.P.
2,000,000 COMMON UNITS REPRESENTING LIMITED
PARTNER INTERESTS
PROSPECTUS
NOVEMBER , 1997
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<PAGE> 38
PART II
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.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the estimated expenses and costs expected to be
incurred in connection with the issuance and distribution of securities
registered hereby. All of such costs will be borne by the Partnership.
<TABLE>
<S> <C>
SEC Registration Fee.................................. $
Printing and Engraving Costs.......................... 5,000
Legal Fees and Expenses............................... 20,000
Accounting Fees and Expense........................... 10,000
Transfer Agent and Registrar Fees and Expenses........ 1,000
Miscellaneous......................................... 1,000
----------
Total.......................................... $ 37,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Partnership Agreement provides that the Partnership will indemnify
the General Partner, any Departing Partner, any person who is or was an
Affiliate of the General Partner or any Departing Partner, and Person who is or
was an officer, director, partner or trustee of the General Partner or any
Departing Partner or any affiliate of the General Partner or any Departing
Partner, or any Person who is or was serving at the request of the General
Partner or any Departing Partner or any Affiliate of the General Partner or any
Departing Partner as an officer, director, employee, partner, agent or trustee
of another Person ("Indemnitees"), to the fullest extent permitted by law, from
and against any and all losses, claims, damages, liabilities (joint and
several), expenses (including, without limitation, legal fees and expenses),
judgments, fines, penalties, interest, settlements and other amounts arising
from any and all claims, demands, actions, suits or proceedings, whether civil,
criminal, administrative or investigative, in which any Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, by reason
of its status as any of the foregoing; provided that in each case the
Indemnitee acted in good faith and in a manner that such Indemnitee reasonably
believed to be in or not opposed to the best interests of the Partnership and,
with respect to any criminal proceeding, had no reasonable cause to believe its
conduct was unlawful. Any indemnification under these provisions will be only
out of the assets of the Partnership, and the General Partner shall not be
personally liable for, or have any obligation to contribute or loan funds or
assets to the Partnership to enable it to effectuate, such indemnification.
The Partnership is authorized to purchase (or to reimburse the General Partner
or its affiliates for the cost of) insurance against liabilities asserted
against and expenses incurred by such persons in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such person against such liabilities under the provisions
described above.
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<PAGE> 39
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibit No. Description
---------- -----------
<S> <C>
3.1* Form of Agreement of Limited Partnership of Heritage Propane
Partners, L.P.
3.2* Form of Agreement of Limited Partnership of Heritage Operating, L.P.
3.3* Certificate of Limited Partnership of Heritage Propane Partners, L.P.
3.4* Certificate of Limited Partnership of Heritage Operating, L.P.
5.1 Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities being registered.
8.1 Opinion of Andrews & Kurth L.L.P. relating to tax matters.
10.1* Form of Bank Credit Facility
10.1.3** Third Amendment to Credit Agreement dated as of September 30, 1997
10.2* Form of Note Purchase Agreement
10.3* Form of Contribution, Conveyance and Assumption Agreement among
Heritage Holdings, Inc., Heritage Propane Partners, L.P. and
Heritage Operating, L.P.
10.4* 1989 Stock Option Plan
10.5* 1995 Stock Option Plan
10.6* Restricted Unit Plan
10.7* Unit Purchase Plan
10.8* Employment Agreement for R.C. Mills
10.9* Employment Agreement for G.A. Darr
10.10* Employment Agreement for H. Michael Krimbill
10.11* Employment Agreement for James E. Bertelsmeyer
10.12* Severance Plan for Executive Employees
10.13* Severance Plan for Management Employees
10.14* Severance Plan for General Employees
21.1* List of Subsidiaries of the Company
23.1 Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1)
23.2 Consent of Andrews & Kurth L.L.P. (included in Exhibit 8.1)
23.3 Consent of Arthur Andersen LLP
24.1 Powers of Attorney (included on the signature page contained in
Part II of this Registration Statement)
27.1** Financial Data Schedule
</TABLE>
* Incorporated by reference to the Registration Statement on Form S-1
(File No. 333-4018) of the Company.
** Incorporated by reference to the Annual Report on Form 10-K (File No.
1-11727) for the fiscal year ended August 31, 1997.
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<PAGE> 40
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provision, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the "Exchange
Act") that are incorporated by reference into the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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 of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
-38-
<PAGE> 41
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Tulsa, State of Oklahoma, on November 17, 1997
HERITAGE PROPANE PARTNERS, L.P.
BY: HERITAGE HOLDINGS, INC.
General Partner of Heritage Propane
Partners, L.P.
By: /s/ James E. Bertelsmeyer
-----------------------------------
James E. Bertelsmeyer
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James E. Bertelsmeyer and H. Michael Krimbill
and each of them his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign, execute and file this registration
statement under the Securities Act and any and all amendments (including,
without limitation, post-effective amendments and any amendment or amendments
or additional registration statements filed pursuant to Rule 462 under the
Securities Act increasing the amount of securities for which registration is
being sought) to this registration statement, and to file the same, with all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, to sign any and all applications,
registration statements, notices or other documents necessary or advisable to
comply with the applicable state security laws, and to file the same, together
with other documents in connection therewith, with the appropriate state
securities authorities, granting unto said attorney-in-fact and agents full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or him or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ James E. Bertelsmeyer Chairman of the Board, Chief November 17, 1997
-------------------------------------- Executive Officer and Director
James E. Bertelsmeyer (Principal Executive Officer)
/s/ J.T. Atkins Director November 17, 1997
--------------------------------------
J.T. Atkins
</TABLE>
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<PAGE> 42
<TABLE>
<S> <C> <C>
/s/ Bill W. Byrne Director November 17, 1997
--------------------------------------
Bill W. Byrne
/s/ J. Charles Sawyer Director November 17, 1997
--------------------------------------
J. Charles Sawyer
/s/ H. Michael Krimbill Vice President and Chief November 17, 1997
-------------------------------------- Financial Officer (Principal
H. Michael Krimbill Financial and Accounting
Officer)
</TABLE>
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<PAGE> 43
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
---------- -----------
<S> <C>
3.1* Form of Agreement of Limited Partnership of Heritage Propane
Partners, L.P.
3.2* Form of Agreement of Limited Partnership of Heritage Operating, L.P.
3.3* Certificate of Limited Partnership of Heritage Propane Partners, L.P.
3.4* Certificate of Limited Partnership of Heritage Operating, L.P.
5.1 Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities being registered.
8.1 Opinion of Andrews & Kurth L.L.P. relating to tax matters.
10.1* Form of Bank Credit Facility
10.1.3** Third Amendment to Credit Agreement dated as of September 30, 1997
10.2* Form of Note Purchase Agreement
10.3* Form of Contribution, Conveyance and Assumption Agreement among
Heritage Holdings, Inc., Heritage Propane Partners, L.P. and
Heritage Operating, L.P.
10.4* 1989 Stock Option Plan
10.5* 1995 Stock Option Plan
10.6* Restricted Unit Plan
10.7* Unit Purchase Plan
10.8* Employment Agreement for R.C. Mills
10.9* Employment Agreement for G.A. Darr
10.10* Employment Agreement for H. Michael Krimbill
10.11* Employment Agreement for James E. Bertelsmeyer
10.12* Severance Plan for Executive Employees
10.13* Severance Plan for Management Employees
10.14* Severance Plan for General Employees
21.1* List of Subsidiaries of the Company
23.1 Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1)
23.2 Consent of Andrews & Kurth L.L.P. (included in Exhibit 8.1)
23.3 Consent of Arthur Andersen LLP
24.1 Powers of Attorney (included on the signature page contained in
Part II of this Registration Statement)
27.1** Financial Data Schedule
</TABLE>
* Incorporated by reference to the Registration Statement on Form S-1
(File No. 333-4018) of the Company.
** Incorporated by reference to the Annual Report on Form 10-K (File No.
1-11727) for the fiscal year ended August 31, 1997.
<PAGE> 1
[ANDREWS & KURTH LETTERHEAD]
November 17, 1997
Heritage Propane Partners, L.P.
8801 South Yale Avenue
Suite No. 310
Tulsa, Oklahoma 74137
Gentlemen:
We have acted as counsel to Heritage Propane Partners, L.P., a
Delaware limited partnership (the "Partnership"), and Heritage Holdings, Inc.,
a Delaware corporation and the general partner of the Partnership, in
connection with the registration under the Securities Act of 1933, as amended
(the "Act"), of the offering from time to time of up to an aggregate of
2,000,000 common units representing limited partner interests in the
Partnership (the "Common Units") in connection with business combination
transactions.
As the basis for the opinion hereinafter expressed, we have
examined such statutes, regulations, corporate records and documents,
certificates of corporate and public officials, and other instruments as we
have deemed necessary or advisable for the purposes of this opinion. In such
examination we have assumed the authenticity of all documents submitted to us
as originals and the conformity with the original documents of all documents
submitted to us as copies.
Based on the foregoing and on such legal considerations as we
deem relevant, we are of the opinion that the Common Units will, when issued
and paid for as described in the Partnership's Registration Statement on Form
S-4 relating to the Common Units, as amended (the "Registration Statement"), be
duly authorized, validly issued, fully paid and nonassessable, except as such
nonassessability may be affected by the matters described in the prospectus
included in the Registration Statement (the "Prospectus") under the caption
"Risk Factors--Risks Inherent in an Investment in the Partnership."
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Validity
of the Common Units" in the Prospectus.
Very truly yours,
/s/ ANDREWS & KURTH L.L.P.
Andrews & Kurth L.L.P.
<PAGE> 1
[ANDREWS & KURTH LETTERHEAD]
November 17, 1997
Heritage Propane Partners, L.P.
8801 S. Yale Avenue
Suite 310
Tulsa, Oklahoma 74137
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have acted as counsel in connection with the Registration Statement
on Form S-4, Registration No.: 333- ______(the "Registration Statement") of
Heritage Propane Partners, L.P. (the "Partnership"), relating to the
registration of the offering and sale (the "Offering") of up to 2,000,000
common units representing limited partner interests in the Partnership (the
"Common Units"). In connection therewith, we have participated in the
preparation of the discussion set forth under the caption "Tax Considerations"
(the "Discussion") in the Registration Statement. Capitalized terms used and
not otherwise defined herein are used as defined in the Registration Statement.
The Discussion, subject to the qualifications stated therein,
constitutes our opinion as to the material United States federal income tax
consequences for purchasers of Common Units pursuant to the Offering.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Discussion. The
issuance of such consent does not concede that we are an "expert" for the
purposes of the Securities Act of 1933.
Very truly yours,
/s/ ANDREWS & KURTH L.L.P.
Andrews & Kurth L.L.P.
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated October 10, 1997,
included in Heritage Propane Partners, L.P.'s Form 10-K for the year ended
August 31, 1997, and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSON LLP
