Filed Pursuant to Rule 424(b)(2)
Registration No. 333-63853
PROSPECTUS
8,625,000 Common Units
Genesis Energy, L.P.
Representing Limited Partner Interests
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The Common Units offered hereby represent limited partner interests in
Genesis Energy, L.P., a Delaware limited partnership ("Genesis" or the
"Partnership"). The Partnership was formed in September 1996 to acquire, own
and operate the crude oil gathering, marketing and pipeline related operations
(the "Combined Operations") of Basis Petroleum, Inc. ("Basis"), a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc. ("Salomon"), and Howell
Corporation ("Howell"). Genesis Energy, L.L.C., a Delaware limited liability
company which is owned 54% by Salomon and 46% by Howell, serves as general
partner of the Partnership and its subsidiary operating partnership.
Limited partner interests are inherently different from capital stock of a
corporation. Prospective purchasers of Common Units should carefully consider
the risk factors set forth on pages 5-16 under the caption "Risk Factors" in
evaluating an investment in the Partnership.
The Common Units trade on the New York Stock Exchange (the "NYSE") under
the symbol "GEL." The reported last sale price of the Common Units on the NYSE
on September 18, 1998 was $14 1/2 per Common Unit. See "Price Range of Common
Units."
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.
This Prospectus is being used by Salomon in connection with offers and
sales of the Common Units in agency transactions, in private transactions or
otherwise at negotiated prices related to prevailing market prices at the time
of sale. Such Common Units may include Common Units issued in the Initial
Public Offering and other Common Units acquired from time to time in agency
transactions. The Partnership will not receive any of the proceeds from the
sale of the Common Units in such agency transactions.
The date of this Prospectus is September 28, 1998.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and should be read only in
conjunction with the entire Prospectus. Unless otherwise specified, references
to the Partnership in this Prospectus include the Operating Partnership and
references to percentage ownership in the Partnership reflect the approximate
effective ownership interest of the Unitholders and the General Partner in the
Partnership and the Operating Partnership on a combined basis. Holders of the
Common Units and the Common OLP Units are collectively referred to herein as
"Common Unitholders" and holders of Subordinated OLP Units are referred to as
"Subordinated Unitholders." The Subordinated Unitholders and the Common
Unitholders are collectively referred to herein as "Unitholders." The Common
Units, the Common OLP Units and the Subordinated OLP Units are collectively
referred to herein as the "Units." Unless otherwise specified, references to
Howell in this Prospectus include Howell Corporation and its subsidiaries. A
glossary of certain terms used in this Prospectus is included as Appendix A to
this Prospectus. Capitalized terms not otherwise defined herein have the
meanings given in the glossary.
Genesis Energy, L.P.
General
Genesis is a Delaware limited partnership formed in September 1996. With
the proceeds of its Initial Public Offering of Common Units to the public,
Genesis, through its affiliated limited partnership, Genesis Crude Oil, L.P.,
acquired the crude oil gathering and marketing operations of Basis and the crude
oil gathering, marketing and pipeline operations of Howell. The Partnership is
one of the largest independent gatherers and marketers of crude oil in North
America. Genesis' operations are concentrated in Texas, Louisiana, Alabama,
Florida, Mississippi, New Mexico, Kansas and Oklahoma. In its gathering and
marketing business, Genesis is principally engaged in the purchase and
aggregation of crude oil at the wellhead and the bulk purchase of crude oil at
pipeline and terminal facilities for resale at various points along the crude
oil distribution chain, which extends from the wellhead to aggregation and
terminal stations, refineries and other end markets (the "Distribution Chain").
The Partnership's gathering and marketing margins are generated by buying crude
oil at competitive prices, efficiently transporting or exchanging the crude oil
along the Distribution Chain and marketing the crude oil to refineries or other
customers at favorable prices. In addition to its gathering and marketing
business, Genesis' operations include transportation at regulated published
tariffs on its three common carrier pipeline systems. For the first six months
of 1998, the gathering and marketing operations contributed approximately 64% of
the Partnership's total gross margin and the pipeline operations contributed the
remaining 36%.
Genesis currently purchases approximately 126,000 barrels per day ("bpd")
of crude oil at the wellhead from approximately 9,900 leases ("lease
gathering"). Genesis utilizes its trucking fleet of approximately 92 tractor-
trailers and its gathering lines to transport crude oil purchased at the
wellhead to pipeline injection points, terminals and refineries for sale to its
customers. It also transports purchased crude oil on trucks, barges and
pipelines owned and operated by third parties. In addition, as part of its
gathering and marketing business, Genesis makes purchases of crude oil in bulk
at pipeline and terminal facilities for resale to refineries or other customers.
When opportunities arise to increase margin or to acquire a grade of crude oil
that more nearly matches the specifications for crude oil the Partnership is
obligated to deliver, Genesis exchanges crude oil with third parties through
exchange or buy/sell agreements.
Genesis currently transports a total of approximately 85,000 bpd on its
three common carrier crude oil pipeline systems and related gathering lines.
These systems consist of a 553-mile system in Texas (the "Texas System"), a 117-
mile system extending between Florida and Alabama (the "Jay System"), and a 281-
mile system extending between Mississippi and Louisiana (the "Mississippi
System"). Approximately 1.8 million barrels of associated storage capacity are
owned by Genesis.
Genesis Energy, L.L.C., a Delaware limited liability company (the "General
Partner"), serves as the sole general partner of Genesis and as the operating
general partner of its affiliated limited partnership, Genesis Crude Oil, L.P.
(the "Operating Partnership"). The General Partner is owned 54% by Salomon and
46% by Howell.
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Salomon also owns 1,163,700 Subordinated OLP Units, representing 10.58% of
the Operating Partnership. Howell owns 991,300 Subordinated OLP Units,
representing 9.01% of the Operating Partnership.
The principal executive offices of the Partnership and the Operating
Partnership are located at 500 Dallas, Suite 2500, Houston, Texas 77002. The
telephone number at such offices is (713) 860-2500.
<PAGE> 4
The Offering
8,625,000 Common Units are offered hereby. However, because this
Prospectus is being used by Salomon in connection with offers and sales of the
Common Units in agency transactions, the Partnership will not receive any of the
proceeds from the sale of the Common Units in such agency transactions. The
Common Units trade on the NYSE under the symbol "GEL."
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RISK FACTORS
A prospective investor should carefully consider the following risk
factors, as well as the other information set forth in this Prospectus, before
purchasing the Common Units offered hereby.
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 from operations, ability to maintain or
increase purchases of crude oil from producers, capital expenditures, costs of
acquisitions (including related debt service payments), issuances of debt and
equity securities by the Partnership, fluctuations in working capital, debt
service requirements, adjustments in reserves, prevailing economic conditions
and financial, business and other factors, many of which will be beyond the
control of the Partnership and the General Partner. In addition, the
Partnership Agreement gives the General Partner broad discretion in establishing
reserves for the proper conduct of the Partnership's business. Additions to
reserves established for the Partnership by the General Partner will reduce the
amount of Available Cash. As a result of these and other factors, there can be
no assurance regarding the actual levels of cash distributions to partners by
the Partnership.
The obligation of Salomon to purchase APIs is subject to certain
limitations and does not constitute a guarantee that the Minimum Quarterly
Distribution will be made on the Common Units. The Partnership is not required
to distribute to holders of Common Units the cash received from the issuance of
APIs, and the Partnership may use such cash for other purposes. Therefore,
under certain circumstances, the support obligations may not ensure that there
is cash sufficient to permit the Partnership to distribute the Minimum Quarterly
Distribution on the Common Units.
Unitholders Will Have Limited Voting Rights; The General Partner Will Control
the Partnership
The General Partner manages and controls the operations of the Partnership.
Unlike the holders of common stock in a corporation, holders of Common Units
have only limited voting rights on matters affecting the Partnership's business.
Holders of Common Units have no right to elect the General Partner on an annual
or other continuing basis. As a result, holders of Common Units 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 May Call The Common Units
If at any time less than 20% of the then issued and outstanding Common
Units are held by persons other than the General Partner and its affiliates, the
General Partner has 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 Common
Units held by such unaffiliated persons at a price generally equal to the then
current market price of the Common Units. 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.
The Partnership's Credit Standing And Capital Resources May Not Be Sufficient To
Maintain The Level Of Its Purchasing And Marketing Activities
The Partnership engages in transactions involving large dollar amounts, and
therefore the Partnership's credit standing and capital resources will be major
aspects of its business. The Partnership's financial resources will be a major
consideration for parties that enter into transactions with the Partnership, and
such parties may require letters of credit, other credit support or evidence of
financial responsibility prior to entering into transactions with the
Partnership. The General Partner believes that the Partnership's ability to
obtain letters of credit to support its purchases of crude oil will be
fundamental to the Partnership's basic purchasing, exchange and marketing
activities.
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Any significant decrease in the Partnership's financial strength, regardless of
the reason for such decrease, may increase the number of transactions requiring
letters of credit or other financial support or increase the cost of obtaining
letters of credit. In such event, the Partnership's ability to maintain or
increase the level of its purchasing and marketing activities, and its
profitability, could be adversely affected.
Pursuant to the Master Credit Support Agreement, Salomon provides
transitional credit support in the form of guarantees, up to prescribed limits
that will decline over a period ending December 31, 1999. The cost of such
credit support by Salomon will increase throughout such period from a below-
market rate to a rate that may be higher than rates paid to independent
financial institutions for similar credit. The amount available at any time
under the Salomon guarantee support pursuant to the Master Credit Support
Agreement will be reduced by the amount of any obligation to a third party to
the extent that such third party has a prior security interest in the collateral
under the Master Credit Support Agreement. Salomon has received a security
interest in all of the Partnership's receivables, inventories, general
intangibles and cash to secure obligations under the Master Credit Support
Agreement, subject to the terms of an Intercreditor Agreement with a major
commercial bank.
The credit support limit established in the Master Credit Support Agreement
was established by reference to historical requirements of Basis Gathering as
well as market conditions. The amount of credit support in the form of
guarantees or stand-by letters of credit required for the conduct of the
Partnership's business depends on the aggregate price it pays for crude oil, the
extent to which crude oil producers require the Partnership to obtain guarantees
or stand-by letters of credit in connection with its crude oil purchases and the
extent to which the Partnership is able to offset the credit required for its
crude oil purchases and sales through a compromise of claims with other industry
participants. If crude oil prices increase or if producers require a
significantly higher percentage of crude oil purchases to be supported by
guarantees or letters of credit, the credit support available to the Partnership
through Salomon or through financial institutions could be insufficient to
support crude oil purchases at current levels. At June 30, 1998, the aggregate
amount of obligations covered by guarantees was $174 million, including $103
million in payable obligations and $71 million in estimated crude oil purchase
obligations for July 1998. At June 30, 1998, no letters of credit were
outstanding.
Salomon's obligations to provide credit support pursuant to the Master
Credit Support Agreement are subject to certain operating and financial
covenants. Payment or covenant defaults under such agreement, unless cured
within applicable time limitations, would result in the termination of the
credit support obligations of Salomon. Salomon's obligations under the Master
Credit Support Agreement are transferable subject to certain conditions and may
be terminable prior to the expiration of the initial three-year commitment if
the Partnership enters into a substitute facility under the conditions set forth
in the Master Credit Support Agreement. The Common Unitholders have no rights,
separate and apart from the Partnership, to enforce the obligations of Salomon
to provide credit support.
The Partnership has established a $35 million revolving credit facility
with a major commercial bank, secured by its accounts receivable and inventory
subject to the terms of an Intercreditor Agreement with Salomon. No assurance
can be given that the Partnership will be able to obtain additional credit
facilities, if necessary, that such credit facilities will be adequate to
support the Partnership's working capital needs or capital expenditure
requirements or that the General Partner will not limit the Partnership's
business or expansion activities because of concerns regarding limitations on
the Partnership's ability to obtain financing. The Partnership's liquidity and
access to capital will be important factors in its ability to expand its
business through acquisitions or otherwise. The Partnership's working capital
needs will depend on a number of other factors beyond the control of the General
Partner. A significant increase in margin requirements relating to the
Partnership's NYMEX hedging activities (which could result from changes in
regulations or a significant crude oil price increase) could increase the
Partnership's needs for working capital and credit.
Distribution Support Is Limited
The obligation of Salomon to contribute additional cash to the Partnership
pursuant to the Distribution Support Agreement does not constitute a guarantee
that the Minimum Quarterly Distribution will be made on the Common Units.
Salomon's obligation is limited to a maximum amount outstanding at any one time
of approximately $17.6 million and will terminate with the quarter ending
December 31, 2001 (although the actual
<PAGE> 7
distribution support payment would be paid after December 31, 2001) and, in
certain circumstances, may be assigned. Such obligation is subject to early
termination after December 31, 1999 if the Partnership satisfies certain cash
distribution and earnings tests, and is subject to certain other limitations and
adjustments. The Partnership has no obligation to distribute any funds provided
by Salomon. The Common Unitholders have no rights, separate and apart from the
Partnership, to enforce the obligation of Salomon to make such cash
contributions.
Minimum Quarterly Distribution And Target Distribution Levels May Be Adjusted
Downward
The Minimum Quarterly Distribution and the Target Distribution Levels are
subject to downward adjustment in the event that Unitholders receive
distributions of Available Cash from Capital Surplus. The Minimum Quarterly
Distribution and the Target Distribution Levels are also subject to downward
adjustment in the event 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 Unit Price and any outstanding
Common Unit Arrearages, and any outstanding APIs are redeemed, the General
Partner will be entitled to receive the maximum level of incentive compensation
payments to which it is entitled for providing management and other services to
the Partnership (the "Incentive Compensation Payments"). The reduction of the
Minimum Quarterly Distribution will also proportionately reduce Salomon's
obligation to purchase APIs pursuant to the Distribution Support Agreement.
Subordinated OLP Units Share Equally In Cash Distributions After Conversion
The Subordinated OLP Units will convert into Common OLP Units upon the
expiration of the Subordination Period. In addition, up to one quarter of the
Subordinated OLP Units may convert into Common OLP Units prior to the end of the
Subordination Period (after June 30, 2001) if the Partnership satisfies certain
cash distribution and earnings tests. Subordinated OLP Units that have
converted into Common OLP Units will share equally in distributions of Available
Cash with the Common Units, thereby increasing the amount of Available Cash
necessary to meet the Minimum Quarterly Distribution on all of the Common Units
and Common OLP Units. Upon the request of Salomon or Howell, the Operating
Partnership will be obligated to redeem the Common OLP Units with the net
proceeds of a sale of Common Units by the Partnership.
The Partnership May Issue Additional Common Units, Thereby Diluting Existing
Unitholders' Interests
The Partnership may issue additional Common Units and other interests in
the Partnership 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 of the Partnership ranking prior or senior to
the Common Units or an aggregate of more than 3,750,000 additional Common Units
(which excludes Common Units outstanding under the Restricted Unit Plan) or an
equivalent number of securities ranking on a parity with the Common Units
without the approval of the holders of a majority of the outstanding Common
Units. After the end of the Subordination Period, the Partnership may issue an
unlimited number of Partnership securities of any type without the approval of
the Unitholders. The Partnership Agreement does not impose any restriction on
the Partnership's ability to issue Partnership 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 senior to or 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. Furthermore, the
conversion of some or all of the Subordinated OLP Units into Common OLP Units
will increase the Partnership's Minimum Quarterly Distribution obligation with
respect to the Common Units while simultaneously reducing the Partnership's
Minimum Quarterly Distribution obligation with respect to the Subordinated OLP
Units. The conversion of Subordinated OLP Units into Common OLP Units prior to
the end of the Subordination Period will increase the total number of Common
Units outstanding, thereby reducing the maximum amount of Salomon's API
contribution obligation available per Common Unit.
<PAGE> 8
No Removal Of The General Partner Without Cause
The General Partner may not be removed without Cause. The General Partner
may be removed for Cause upon the approval of such removal and the election of a
successor general partner by the holders of at least 66 2/3% of the outstanding
Common Units (including Common Units held by the General Partner and its
affiliates). 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 or otherwise change the management of the
Partnership. If the General Partner is removed as general partner of the
Partnership without its consent, Salomon's credit support obligations will
terminate, subject to rights of third parties for scheduled transactions prior
to such termination. Further, if at any time any person or group (other than
the General Partner or its affiliates) beneficially owns 20% or more of the
total Common Units, such person or group will lose voting rights with respect to
all of its Common 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.
Potential Change Of Control Of The General Partner
There are no restrictions on the ability of either Salomon or Howell to
transfer its membership interest in the General Partner. If Salomon or Howell
were to transfer all or part of its membership interest, a change of control of
the General Partner could occur, and, under certain circumstances, the General
Partner could be managed by an entity unrelated to Salomon or Howell.
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 the General Partner with Cause, 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 any improper distribution for a period of three
years from the date of the distribution.
Payments To The General Partner
Prior to making any distribution on the Common Units, the Partnership will
reimburse the General Partner and its affiliates for all expenses incurred on
behalf of the Partnership. Approximately $15.0 million of expenses (primarily
wages and salaries) were reimbursed by the Partnership to the General Partner
and its affiliates in fiscal 1997. 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. In return for providing management and other services to the
Partnership, the General Partner will receive Incentive Compensation Payments to
the extent the Target Distribution Levels are reached.
Holders of Common Units Have Not Been Represented By Counsel
The holders of Common Units have not been represented by counsel in
connection with the offering or the other agreements referred to herein.
<PAGE> 9
Conflicts Of Interest And Fiduciary Responsibilities
Conflicts Of Interest Could Arise Between The Partnership And The General
Partner
Conflicts of interest could arise as a result of the relationships between
the Partnership and holders of the Common Units, on the one hand, and the
General Partner and its affiliates, including Salomon, on the other. The
General Partner, which is a limited liability company, is managed by its
members, Salomon and Howell. 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 interests of the members of the General Partner and its
affiliates. In resolving conflicts of interest, including conflicts that may
involve Salomon under the Distribution Support Agreement or the Master Credit
Support Agreement, the Partnership Agreement permits the General Partner to
consider the interests of all parties involved in the conflict, including the
interests of the General Partner and its affiliates. Furthermore, the principal
terms of the Partnership Agreement, the Operating Partnership Agreement, the
Master Credit Support Agreement, the Contribution Agreement, the Distribution
Support Agreement and other agreements referred to herein did not result from
arm's-length discussions with unrelated parties.
The Partnership does not have any employees and relies solely on employees
of the General Partner and its affiliates. Under the terms of the Partnership
Agreement, the Partnership reimburses 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.
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. 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, is primarily responsible for enforcing such
obligations.
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.
Affiliates Of The General Partner Are Permitted To Compete With The Partnership
And Enter Into Transactions With The Partnership
Affiliates of the General Partner are not prohibited from engaging in any
activities other than the business of (a) crude oil gathering at the wellhead in
the states of Alabama, Florida, Kansas, Louisiana, Mississippi, New Mexico,
Oklahoma or Texas, or any states contiguous to such states, or (b) transporting
for third parties crude oil by pipeline along the routes of the Partnership's
crude oil pipelines owned at the time of completion of the Initial Public
Offering. The restrictions are subject to certain exceptions, including: (w)
affiliates will not be restricted from any activity incidental to their refinery
operations so long as such activities are not substantially in competition with
the lease gathering operations of the Partnership, (x) if Salomon or Howell were
to sell or otherwise dispose of its entire interest (direct and indirect) in the
General Partner to an unaffiliated party, such restrictions would no longer
apply to the party making such sale or disposition or its affiliates or to the
transferee of such interest and (y) such restrictions will not prevent
affiliates from entering into joint ventures or strategic alliances with the
Partnership. Except as specifically restricted, any affiliates of the General
Partner may engage in any business or activity whether or not such activity may
be in competition with the Partnership, including purchasing crude oil in bulk,
executing crude oil exchanges, executing trades in the crude oil futures market,
providing hedges and risk management services and conducting pipeline operations
not precluded by clause (b) of the first sentence of this paragraph. In
addition, all of the restrictions described above lapse after December 3, 2006.
Furthermore, the Partnership
<PAGE> 10
Agreement provides that the General Partner and its affiliates have no
obligation to present business opportunities to the Partnership. It shall not
constitute a breach of the Partnership Agreement for the affiliates of the
General Partner to engage in any competitive activities not specifically
precluded by the Partnership Agreement. The Partnership has ongoing
relationships and transactions with Salomon and Howell.
Affiliates Of The General Partner May Exercise Control Over The Partnership
Decisions of the General Partner with respect to the amount and timing of
cash expenditures, participation in capital expansions and acquisitions,
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. Such decisions by the
General Partner may have the effect of (a) enabling Salomon and Howell to
receive distributions on the Subordinated OLP Units and the General Partner to
receive Incentive Compensation Payments, (b) reducing the contribution
obligations of Salomon pursuant to the Distribution Support Agreement or (c)
accelerating the redemption of APIs, the expiration of the Subordination Period
or the conversion of Subordinated OLP Units into Common OLP Units. 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. Under the terms of the Master Credit Support Agreement and through
its control of the General Partner, Salomon can control the risk management
policies, and thereby the business activities and transactions, of the
Partnership. The obligation of Salomon to provide distribution support and
credit support to the Partnership may affect the criteria used by the General
Partner (which is controlled by Salomon) in evaluating, and may reduce the
likelihood of Salomon approving, certain business opportunities, such as the
issuance of debt, the issuance of additional Common Units and the consummation
of possible acquisitions.
The General Partner's Fiduciary Duty Is Limited
Unless provided for otherwise in the Partnership Agreement, Delaware law
generally requires a general partner of a Delaware limited partnership to adhere
to fiduciary duty standards under which it owes its limited partners the highest
duties of good faith, fairness and loyalty and which generally prohibit such
general partner from taking any action or engaging in any transaction as to
which it has a conflict of interest. The Partnership Agreement expressly
permits the General Partner to resolve conflicts of interest between itself or
its affiliates, on the one hand, and the Partnership or the Unitholders, on the
other, and to consider, in resolving such conflicts of interest, the interests
of other parties in addition to the interests of the Unitholders. In addition,
the Partnership Agreement provides that a purchaser of Common Units is deemed to
have consented to certain conflicts of interest and actions of the General
Partner and its affiliates that might otherwise be prohibited and to have agreed
that such conflicts of interest and actions do not constitute a breach by the
General Partner of any duty stated or implied by law or equity. The General
Partner will not be in breach of its obligations under the Partnership Agreement
or its duties to the Partnership or the Unitholders (i) by virtue of any action
to which the holders of Common Units are deemed to have consented by purchasing
Common Units or (ii) if the General Partner's resolution of any conflict of
interest is fair and reasonable to the Partnership. The latitude given in the
Partnership Agreement to the General Partner in resolving conflicts of interest
may significantly limit the ability of a Unitholder to challenge what might
otherwise be a breach of fiduciary duty. The General Partner believes, however,
that such latitude is necessary and appropriate to enable it to serve as the
general partner of the Partnership without undue risk of liability.
The Partnership Agreement expressly limits the liability of the General
Partner by providing that the General Partner, its affiliates and its officers
and directors will not be liable for monetary damages to the Partnership, the
limited partners or assignees for errors of judgment or for any acts or
omissions if the General Partner and such other persons acted in good faith. In
addition, the Partnership is required to indemnify the General Partner, its
affiliates and their respective officers, directors, employees and agents to the
fullest extent permitted by law, against liabilities, costs and expenses
incurred by the General Partner or such other persons, if the General Partner or
such persons acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the Partnership and, with respect
to any criminal proceedings, had no reasonable cause to believe the conduct was
unlawful.
<PAGE> 11
The provisions of Delaware law that allow the common law fiduciary duties
of a general partner to be modified by a partnership agreement have not been
tested in a court of law, and the General Partner has not obtained an opinion of
counsel covering the provisions set forth in the Partnership Agreement that
purport to waive or restrict the fiduciary duties of the General Partner that
would be in effect under common law were it not for the Partnership Agreement.
Risks Inherent In The Partnership's Business
The Partnership's Operating Margins Are Variable And May Be Insufficient To Pay
Cash Distributions
The Partnership's margins from its gathering and marketing operations are
generated by the difference between the price of the crude oil at the point of
purchase and the price of crude oil at the point of sale, minus the associated
costs of aggregation and transportation, and the margins from its pipeline
operations are generated by the difference between the regulated published
tariff and the fixed and variable costs of operating the pipeline. The
Partnership's ability to generate cash for distribution depends upon the margins
realized in its gathering, marketing and pipeline operations. The Partnership's
margins vary in both its gathering and marketing and its pipeline operations
from period to period and are affected by factors outside the control of the
General Partner, such as changes in U.S. crude oil inventories. Margins in the
first half of 1996 reflected, in part, unusually favorable market conditions
that subsequently deteriorated in the second half of 1996. Margins since 1996
have declined due in part to the effects of increased U.S. crude oil
inventories, a decline in the premium received for prompt delivery of crude oil,
the expiration of a favorable contract provision with one of the Partnership's
principal customers, increased competition and delays in negotiating lower
producer payments and bonuses in response to changed market conditions. The
volatility of crude oil gathering and marketing margins results primarily from
changes in market conditions, increases in competition and other factors outside
the General Partner's control.
Dependence Upon Volumes Of Crude Oil
The Partnership's profitability depends in large part on the volumes of
crude oil it purchases and gathers at the wellhead. To maintain its volumes of
crude oil purchased, the Partnership must continually contract for new supplies
of crude oil in amounts sufficient to offset volumes lost because of natural
declines in crude oil production from depleting wells or volumes lost to
competitors. Replacement of lost volumes of crude oil is particularly difficult
in an environment where production is low and competition to gather available
production is intense. Generally, because producers experience inconveniences
in switching crude oil purchasers (such as delays in receipt of proceeds while
awaiting the preparation of new division orders), producers typically do not
change purchasers on the basis of minor variations in price. Thus, the
Partnership may experience difficulty acquiring crude oil at the wellhead in
areas where there are existing relationships between producers and other
gatherers and purchasers of crude oil.
Sustained low crude oil prices could lead to a decline in drilling activity
and production levels or the shutting-in or abandonment of marginal wells. To
the extent that low crude oil prices result in lower volumes of crude oil
available for purchase at the wellhead, the Partnership may experience lower
margins as competition for available crude oil intensifies. In addition, a
sustained depression in crude oil prices could result in the bankruptcy of
certain producers. Although bankruptcy proceedings are not likely to terminate
production from oil wells, they may disrupt purchasing arrangements and have
other adverse consequences. Alternatively, sustained high crude oil prices
could limit the volumes of crude oil purchases by the Partnership if sufficient
credit support for its activities is unavailable.
Dependence Upon The Partnership's Crude Oil Supply To Its Pipelines
The Partnership's pipeline systems are dependent upon the demand for crude
oil by refineries connected to the Partnership's pipelines as well as the level
of supply of crude oil received from the geographic regions surrounding the
Partnership's pipeline systems and the volumes of crude oil shipped from
connecting pipelines. These volumes are in part determined by the sale price
that a shipper can receive by utilizing the Partnership's pipelines to access
end markets. If a decline in refinery demand for crude oil occurs or a decline
in the crude oil production in those geographic regions occurs or market
conditions adversely affect the level of supply from
<PAGE> 12
connecting pipelines, the throughput on the Partnership's pipeline systems, and
therefore the Partnership's profitability, will also decline.
Certain Of The Partnership's Price Risks Are Not Hedged; Cost Increase
Generally, as Genesis purchases crude oil, it simultaneously establishes a
margin by selling crude oil for physical delivery to third party users, such as
independent refiners or major oil companies, or by entering into a future
delivery obligation with respect to futures contracts on the NYMEX. Through
these transactions, the Partnership seeks to maintain a position that is
substantially balanced between crude oil purchases, on the one hand, and sales
or future delivery obligations, on the other hand. It is the Partnership's
policy not to acquire and hold crude oil, futures contracts or derivative
products for the purpose of speculating on price changes. These price risk
management strategies cannot, however, eliminate all price risks. Any event
that disrupts the Partnership's anticipated physical supplies of crude oil may
expose it to risk of loss resulting from price changes. For example, if the
General Partner inaccurately forecasts the shut-in of production as the result
of apportionment of pipeline space on common carrier pipelines, the Partnership
might be unable to meet its supply commitments with the barrels purchased at the
wellhead. The Partnership would be forced to make purchases elsewhere in order
to meet its commitments, and in the event prices change adversely, the
Partnership's margins also may be adversely affected. Moreover, the Partnership
will be exposed to some risks that are not hedged, including certain basis risks
(the risk that price differentials between delivery points, delivery periods or
types of crude oil will change) and price risks on certain portions of its
inventory, such as its pipeline fill, which must be maintained in order to
transport crude oil on the pipelines.
Partnership Profitability Is Affected By Competition
There is intense competition among all participants in the business for
purchases of crude oil at the wellhead. As an example, in the third quarter of
1996, as sales prices for crude oil fell, many competitors of the Partnership
attempted to increase market share by continuing to pay higher bonuses to
producers. The Partnership's largest competitors in the purchase of crude oil
at the wellhead are Koch Oil Company, Scurlock Permian Oil Company, Texaco
Trading & Transportation Co., Inc. and EOTT Energy Partners, L.P., each of which
has substantial financial resources. In most areas, Genesis competes with other
pipelines for crude oil to transport. Competing crude oil pipelines lie near
Genesis' pipelines, except for the Jay System, which is the only crude oil
pipeline system serving its geographic area.
The Partnership Is Dependent Upon Key Personnel
The Partnership's management group includes certain key employees which
include John P. vonBerg, Mark J. Gorman, John M. Fetzer and Allyn R. Skelton,
II. The failure of the Partnership to retain key members of its senior
management team could adversely affect its operations.
Credit Review And Analysis Is A Major Aspect Of The Partnership's Overall
Business
Credit review and analysis is a major aspect of the Partnership's overall
business. Because the Partnership may extend credit to certain customers in
large amounts, it is important that its credit review, evaluation and control
mechanisms work properly and also comply with management practices required
pursuant to the Master Credit Support Agreement. In those cases where the
Partnership provides division order services for crude oil purchased at the
wellhead, the Partnership may be responsible for distribution of proceeds to all
parties. In other cases, the Partnership pays a portion of the production
proceeds to an operator who distributes these proceeds to the various interest
owners. This arrangement exposes the Partnership to operator credit risk, and
therefore it must determine that operators have sufficient financial resources
to make such payments and distributions and to indemnify and defend the
Partnership in case of a protest, action or complaint. Even if the
Partnership's credit review and analysis mechanisms work properly, there can be
no assurance that the Partnership will not experience losses in dealings with
other parties.
<PAGE>13
The Partnership May Not Be Successful In Growing Through Acquisitions
The Partnership intends to expand its business in part through selective
acquisitions. Although the Partnership evaluates acquisition opportunities on a
regular basis, there can be no assurance that any such acquisitions will be
consummated or that the Partnership will be able to identify attractive
acquisition candidates in the future, to acquire assets or businesses on
economically acceptable terms or to finance any such acquisitions. Furthermore,
there can be no assurance that any debt incurred to finance an acquisition will
not adversely affect the ability of the Partnership to make distributions to the
Unitholders, or that any acquisitions will not be dilutive of earnings and
distributions to the Unitholders.
Costs And Restrictions Of Environmental Regulation
The business of the Partnership is subject to the jurisdiction of
governmental agencies with respect to safety, health and environmental and other
regulatory matters. Although the General Partner believes that the Partnership
is in compliance in all material respects with applicable environmental laws and
regulations, the Partnership could be adversely affected by environmental costs
and liabilities that may be incurred, such as those arising from pipeline
ruptures or oil spills, or increased costs resulting from failure to obtain all
required operating or other regulatory consents and approvals. Federal and
state agencies also could change the tariffs pipelines may charge or impose
additional safety requirements, any of which could affect the Partnership's
profitability.
The Partnership's Business Is Subject To Governmental Regulation
The Partnership's interstate common carrier pipeline systems are subject to
regulation by FERC under the Interstate Commerce Act, which requires, among
other things, that pipeline rates be just and reasonable and not unduly
discriminatory. The Interstate Commerce Act permits challenges by an
economically interested person to proposed new or changed rates by protest, and
to rates that are already effective by complaint. Proposed new or changed rates
may be suspended by FERC for up to seven months and allowed to become effective
subject to investigation and potential refund. Rates that are already effective
may be ordered to be reduced for the future and, upon an appropriate showing,
reparations may be awarded for damages sustained by a complainant as a result of
such rates for up to two years prior to the filing of a complaint. FERC's
regulatory authority extends to such matters as the cost of service from tariff,
rate of return on equity, the services that the Partnership is permitted to
perform or abandon, the ability of the Partnership to seek recovery of various
categories of costs, the acquisition, construction and disposition of assets by
the Partnership and the level of competition within the interstate pipeline
industry, all in relation to the Mississippi and Jay Systems. No assurance can
be given that FERC will continue to permit the Partnership's Mississippi and Jay
Systems to use their respective forms and levels of tariff. Under FERC
regulations, customers will have the opportunity to contest the Partnership's
rates or rate structure and may raise any issues. While the Partnership is
optimistic that existing rates will be maintained, if the Partnership's rates
were successfully challenged, the amount of cash available for distribution to
holders of Units could be materially reduced.
In a proceeding involving Lakehead Pipe Line Company, Limited Partnership
(Opinion No. 397), FERC concluded that for pipelines owned by partnerships
there should not be a corporate income tax allowance built into a pipeline's
rates to reflect income attributable to individual partners since individual
partners, unlike corporate partners, do not pay a corporate income tax. Opinion
No. 397 was affirmed on rehearing in May 1996. On October 18, 1996, FERC
approved a settlement that resolved all of the appeals of the Lakehead opinions
that had been taken before the Court of Appeals of the District of Columbia
Circuit. The order approving the settlement cautioned that approval of the
settlement did not constitute approval of, or precedent regarding, any principle
or issue raised in the Lakehead opinions. If a challenge were made to Genesis'
rates and FERC were to disallow the corporate income tax allowance in the cost
of service of the Jay and Mississippi Systems on the basis set forth in the
Lakehead order, Genesis might be required to reduce its tariffs.
Some local government jurisdictions in Texas have taken or are proposing to
take actions to force pipeline transmission companies to pay franchise fees for
pipelines, including crude oil pipelines, that pass through their jurisdiction
or that cross city streets. Should these proposals be implemented, the
Partnership may be required to pay additional fees.
<PAGE> 14
The Partnership must comply with the Commodity Exchange Act and the
requirements of the NYMEX in connection with its risk management system, and if
additional legislation or regulations are adopted under the Commodity Exchange
Act, costs incurred by the Partnership in connection with its risk management
system could increase. Costs of the Partnership's risk management system are
not billed to its customers.
The Partnership's Activities Will Be Subject To Certain Interruptions And
Operational Hazards
The Partnership's activities are subject to certain operational hazards and
unforeseen interruptions. The Partnership's operations could be interrupted by
natural disasters, adverse weather or other events beyond the General Partner's
control. Although the Partnership will carry insurance with respect to certain
casualty occurrences, a casualty occurrence might result in the uninsured loss
of equipment or life, as well as uninsured injury and extensive property or
environmental damage.
Year 2000
The Partnership utilizes software and technologies throughout its
operations that will be affected by the date change in the year 2000. The
General Partner has developed and initiated a plan to identify, evaluate and
ensure its systems are compliant with the requirements to process transactions
in the year 2000 and beyond. Many of the Partnership's operating and financial
systems are already compliant. The Partnership's remaining operational and
financial systems are scheduled for enhancements in phases and will be compliant
by the year 2000. The Partnership is communicating with software venders,
business partners and others with which it conducts business to obtain
assurances that the systems of those parties will be year 2000 compliant. The
General Partner does not believe that the total future cost associated with
potential year 2000 compliance issues and conversion of systems will materially
impact its results of operations.
Tax Risks
Tax Treatment is Dependent on Partnership Status
The availability to a holder of Common Units of the federal income tax
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. No ruling from the IRS as to such status has been or will be
requested. Moreover, in order for the Partnership to continue to be classified
as a partnership for federal income tax purposes, at least 90% of the
Partnership's gross income for each taxable year must consist of qualifying
income.
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 (currently at a 35% federal rate), 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 Genesis 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.
There can be no assurance that the law will not be changed 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 relating to the subordination of distributions on
Subordinated OLP Units 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.
<PAGE>15
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 or any other
matter affecting the Partnership. However, effective January 1, 1997, certain
unincorporated entities are automatically classified as a partnership for
federal tax purposes unless an election is made otherwise to tax such entity as
a corporation. Under Treasury Regulation Section 301.7701-3(a), a business
entity that has two or more members can be properly classified as a partnership
for tax purposes. At this time, the General Partner does not anticipate making
an election for the Partnership to be treated as a corporation for tax purposes.
Uncertainty Of Ability To Amortize Partnership Intangibles
The Partnership has been amortizing certain intangible assets purchased by
the Partnership from Basis and Howell in exchange for cash (the "Purchased
Intangibles") and certain intangible assets contributed to the Partnership by
Basis and Howell in exchange for Subordinated OLP Units and a general partner
interest (the "Contributed Intangibles"). The ability of the Partnership to
amortize both the Purchased Intangibles and Contributed Intangibles depends on
the inapplicability of a certain provision of the anti-churning rules under
Section 197 of the Internal Revenue Code of 1986, as amended and in effect from
time to time. No assurance can be given that the amortization will be sustained
if challenged. If such amortization were successfully challenged, the
Partnership estimates that the ratio of taxable income to distributions through
December 31, 1999 would increase significantly. Furthermore, there is
additional uncertainty about the ability of the Partnership to amortize the
Contributed Intangibles under a different provision of Section 197. If the
Partnership were able to amortize the Purchased Intangibles but not the
Contributed Intangibles, the Partnership estimates that the ratio of taxable
income to distributions through December 31, 1999 would increase significantly.
Tax Liability Exceeding Cash Distributions
A holder of Common Units 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. No assurance can be given 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.
Taxable Income To Tax-Exempt Organizations And Certain Other Investors
Investment in Common Units by certain tax-exempt entities, regulated
investment companies and foreign persons raises issues unique to such persons.
For example, virtually all of the taxable income derived by most organizations
exempt from federal income tax (including 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 to the extent that the entity has
$1,000 of unrelated business taxable income.
Nondeductibility Of Losses
In the case of taxpayers subject to the passive loss rules (generally
individuals 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 that are not deductible
because they exceed the Unitholder's income generated by the Partnership may be
deducted in full when the Unitholder disposes of all of his Units in a fully
taxable transaction with 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.
<PAGE> 16
Uniformity Of Common Units And Risks Of 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, the
Partnership will adopt certain depreciation and amortization conventions that do
not conform with all aspects of certain proposed and final Treasury Regulations.
The IRS may challenge those conventions and, if such a challenge were sustained,
the uniformity of Common Units could be affected. Non-uniformity could
adversely affect the amount of tax depreciation and amortization available to a
purchaser of Common Units and could have a negative impact on the value of the
Common Units.
State, Local And Other Tax Filings And Payments By Unitholders
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. The Partnership has not received an opinion
on the state or local tax consequences of an investment in the Partnership.
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%
profits interest in the Partnership to participate in the income tax audit
process are very limited. Further, any adjustments in the Partnership's returns
will lead to adjustments in the Unitholders' returns and may lead to audits of
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.
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 will use various accounting and
reporting conventions and adopt 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.
<PAGE> 17
PRICE RANGE OF COMMON UNITS
The Partnership's Common Units are listed on the NYSE and trade under the
symbol "GEL." The following table presents the high and low sales prices for
the Partnership's Common Units, as reported by the NYSE.
1996 High Low
---- ---- ---
One Month Ended December 31, 1996 $21 1/8 $20 1/4
1997
----
First Quarter 21 1/2 20 3/8
Second Quarter 21 3/8 18 1/8
Third Quarter 20 3/4 19 5/8
Fourth Quarter 21 1/4 16 3/8
1998
----
First Quarter 20 3/8 16 5/8
Second Quarter 19 7/8 17 1/4
Third Quarter (through September 18, 1998) 18 13 11/16
On September 18, 1998, the last reported sales price for the Common Units
on the NYSE was $14 1/2 per Unit. As of September 16, 1998, the Units were held
by 277 holders of record. The number of record holders may not be
representative of the number of beneficial holders because many shares are held
by depositaries, brokers, or other nominees.
SELLING STOCKHOLDER
The General Partner of the Partnership is owned 54% by Salomon. Salomon
also owns 1,163,700 Subordinated OLP Units, representing 10.58% of the Operating
Partnership. This Prospectus is being used by Salomon in connection with offers
and sales of the Common Units in agency transactions.
PLAN OF DISTRIBUTION
This Prospectus is being used by Salomon in connection with offers and
sales of the Common Units in agency transactions, in private transactions or
otherwise at negotiated prices related to prevailing market prices at the time
of sale. Such Common Units may include Common Units issued in the Initial
Public Offering and other Common Units acquired from time to time in agency
transactions. The Partnership will not receive any of the proceeds from the
sale of the Common Units in such agency transactions.
VALIDITY OF THE COMMON UNITS
The validity of the Common Units will be passed upon for the Partnership by
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., Houston, Texas.
<PAGE> 18
EXPERTS
The consolidated financial statements 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 incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said report.
<PAGE>
AVAILABLE INFORMATION
The Partnership is subject to the information requirements of the Exchange
Act, and in accordance therewith, files reports and other information with the
SEC. The reports and other information filed by the Partnership with the SEC
can be inspected and copied at the public reference facilities maintained by the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the SEC located at Seven World Trade
Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained at prescribed rates from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC
also maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. In addition, such reports, proxy and information
statements and other information may be inspected at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Partnership has filed with the SEC a registration statement on Form S-3
(the "Registration Statement") under the Securities Act with respect to the
Common Units offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Partnership and
the Common Units, reference is made to the Registration Statement and the
exhibits and schedules filed as a part thereof. Statements made in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference
to such exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected and copies thereof may be obtained as described in the
preceding paragraph with respect to periodic reports and other information filed
by the Partnership under the Exchange Act.
<PAGE> 19
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Partnership with the SEC under the
Exchange Act, are incorporated in this Prospectus by reference:
(a) The Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
(b) The Partnership's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998;
(c) The Partnership's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998; and
(d) The description of the Common Units contained in a registration
statement on Form 8-A filed under Section 12 of the Exchange Act.
All documents filed by the Partnership pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Common Units offered hereby shall be
deemed to be incorporated by reference in this Prospectus and to 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 herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Partnership will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits to such documents which are not specifically incorporated by reference
in such documents). Written requests for such copies should be directed to Paul
A. Scoff, Corporate Secretary, 500 Dallas, Suite 2500, Houston, Texas 77002,
telephone number (713) 860-2500.
<PAGE> A-1
APPENDIX A
GLOSSARY OF TERMS
Acquisition: Any transaction in which any member of the Partnership Group
acquires (through an asset acquisition, merger, stock acquisition or other form
of investment) control over all or a portion of the assets, properties or
business of another Person for the purpose of increasing the operating capacity
or revenues of the Partnership Group over the operating capacity or revenues of
the Partnership Group existing immediately prior to such transaction.
Adjusted Operating Surplus: With respect to any period, Operating Surplus
generated during such period (a) less (i) any net increase in working capital
borrowings during such period and (ii) any net reduction in cash reserves for
Operating Expenditures during such period not relating to an Operating
Expenditure made during such period, and (b) plus (i) any net decrease in
working capital borrowings during such period and (ii) any net increase in cash
reserves for Operating Expenditures during such period required by any debt
instrument for the repayment of principal, interest or premium. Adjusted
Operating Surplus does not include that portion of Operating Surplus included in
clause (a)(i) of the definition of Operating Surplus.
APIs: Additional partnership interests to be issued by the Operating
Partnership in exchange for any cash contributions made to support the
Partnership's ability to pay the Minimum Quarterly Distribution on all
outstanding Common Units through the period ending September 30, 2001.
Available Cash: With respect to any quarter ending prior to liquidation:
(a) the sum of (i) all cash and cash equivalents of the Partnership on hand at
the end of such quarter and (ii) all additional cash and cash equivalents of the
Partnership on hand on the date of determination of Available Cash with respect
to such quarter resulting from borrowings for working capital purposes
subsequent to the end of such quarter, less
(b) the amount of any cash reserves that is necessary or appropriate in the
reasonable discretion of the General Partner to (i) provide for the proper
conduct of the business of the Partnership (including reserves for future
capital expenditures) subsequent to such quarter and (ii) comply with applicable
law or any loan agreement, security agreement, mortgage, debt instrument or
other agreement or obligation to which any member of the Partnership Group is a
party or by which it is bound or its assets are subject; provided, however, that
disbursements made by the Partnership or cash reserves established, increased or
reduced after the end of such quarter but on or before the date of determination
of Available Cash with respect to such quarter shall be deemed to have been
made, established, increased or reduced, for purposes of determining Available
Cash, within such quarter if the General Partner so determines.
Basis Gathering: The crude oil marketing and gathering operations of Basis
historically conducted through its gathering division.
Capital Improvements: Additions or improvements to the capital assets owned by
any member of the Partnership Group or the acquisition of existing or the
construction of new capital assets (including pipeline systems, storage
facilities and related assets), made to increase the operating capacity of the
Partnership Group from the operating capacity of the Partnership Group existing
immediately prior to such addition, improvement, acquisition or construction.
Capital Surplus: All Available Cash distributed by the Partnership from any
source will be treated as distributed from Operating Surplus until the sum of
all Available Cash distributed since the commencement of the Partnership equals
the Operating Surplus as of the end of the quarter prior to such distribution.
Any excess Available Cash will be deemed to be Capital Surplus.
<PAGE> A-2
Cause: Means a court of competent jurisdiction has entered a final, non-
appealable judgment finding the General Partner liable for actual fraud, gross
negligence or willful or wanton misconduct in its capacity as general partner of
the Partnership.
Closing Date: December 3, 1996, the first date on which Common Units were sold
by the Partnership to the Underwriters pursuant to the provisions of the
Underwriting Agreement in connection with the Initial Public Offering.
Common OLP Units: A Unit representing a fractional part of the partnership
interests of all limited partners and assignees and having the rights and
obligations specified with respect to Common OLP Units in the Operating
Partnership Agreement.
Common Unit Arrearage: The amount by which the Minimum Quarterly Distribution
in respect of a quarter during the Subordination Period exceeds the distribution
of Available Cash from Operating Surplus actually made for such quarter on a
Common Unit, cumulative for such quarter and all prior quarters during the
Subordination Period.
Common Units: A Unit representing a fractional part of the partnership
interests of all limited partners and assignees and having the rights and
obligations specified with respect to Common Units in the Partnership Agreement.
Contribution Agreement: The Contribution and Conveyance Agreement dated as of
November 26, 1996, among the Operating Partnership, the General Partner, Basis,
Howell and certain subsidiaries of Howell, together with the additional
conveyance documents and instruments contemplated or referenced thereunder.
Distribution Support Agreement: means the Distribution Support Agreement, dated
as of the Closing Date, among Salomon and the Operating Partnership, which sets
forth the agreement of Salomon and the Operating Partnership relating to the
purchase of APIs.
Exchange Act: The Securities Exchange Act of 1934, as amended, supplemented or
restated from time to time and any successor to such statute.
FERC: The Federal Energy Regulatory Commission.
General Partner: Genesis Energy, L.L.C., a Delaware limited liability company,
and its successors and permitted assigns as general partner of the Partnership.
Incentive Distributions: The distributions of Available Cash from Operating
Surplus initially made to the General Partner that are in excess of the General
Partner's aggregate 2% general partner interest. The General Partner may
transfer its right to receive such distributions to one or more persons.
Initial Public Offering: The offering of 7,500,000 Common Units by the
Partnership pursuant to the Registration Statement on Form S-1 filed with the
SEC by the Partnership on September 6, 1996, as amended.
Initial Unit Price: $20.625, the amount per Unit equal to the Initial Public
Offering price of the Common Units.
Interim Capital Transactions: The following transactions if they occur prior to
liquidation: (a) borrowings, refinancings or refundings of indebtedness and
sales of debt securities (other than for working capital purposes and other than
for items purchased on open account in the ordinary course of business) by any
member of the Partnership Group; (b) sales of equity interests by any member of
the Partnership Group (other than APIs and excluding the Common Units sold to
the Underwriters pursuant to the exercise of their over- allotment option); and
(c) sales or other voluntary or involuntary dispositions of any assets of any
member of the Partnership Group (other than (i) sales or other dispositions of
inventory in the ordinary course of business, (ii) sales or other dispositions
of other current assets, including, without limitation, receivables and
accounts, in the ordinary course of business and (iii) sales or other
dispositions of assets as a part of normal retirements or replacements).
<PAGE> A-3
IRS: The Internal Revenue Service.
Master Credit Support Agreement: means the Master Credit Support Agreement, as
amended, dated as of the Closing Date, among the Operating Partnership, Salomon
and Basis which sets forth the agreement of the Operating Partnership and
Salomon relating to the credit support to be provided by Salomon to the
Operating Partnership.
Minimum Quarterly Distribution: $0.50 per Unit with respect to each quarter or
$2.00 per Unit on an annualized basis, subject to adjustment as described in
"Cash Distribution Policy-Distributions from Capital Surplus" and "Cash
Distribution Policy-Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels" in the Partnership's Registration Statement on Form S-1
(Reg. No. 333-11545) (the "Form S-1").
NASD: The National Association of Securities Dealers, Inc.
NYMEX: The New York Mercantile Exchange.
NYSE: The New York Stock Exchange.
Operating Expenditures: All Partnership Group expenditures, including, but not
limited to, taxes, reimbursements of the General Partner, debt service payments,
and capital expenditures, subject to the following:
(a) Payments (including prepayments) of principal of and premium on
indebtedness shall not be an Operating Expenditure if the payment is (i)
required in connection with the sale or other disposition of assets or (ii) made
in connection with the refinancing or refunding of indebtedness with the
proceeds from new indebtedness or from the sale of equity interests. For
purposes of the foregoing, at the election and in the reasonable discretion of
the General Partner, any payment of principal or premium shall be deemed to be
refunded or refinanced by any indebtedness incurred or to be incurred by the
Partnership Group within 180 days before or after such payment to the extent of
the principal amount of such indebtedness.
(b) Operating Expenditures shall not include (i) capital expenditures made for
Acquisitions or for Capital Improvements, (ii) payment of transaction expenses
relating to Interim Capital Transactions or (iii) distributions to partners.
Where capital expenditures are made in part for Acquisitions or for Capital
Improvements and in part for other purposes, the General Partner's good faith
allocation between the amounts paid for each shall be conclusive.
Operating Partnership: Genesis Crude Oil, L.P., a Delaware limited partnership,
and any successors thereto.
Operating Partnership Agreement: The Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, as it may be amended, supplemented or
restated from time to time (the form of which is incorporated by reference as
Exhibit 4.4 to the registration statement of which this Prospectus is a part).
Operating Surplus: With respect to any period prior to liquidation on a
cumulative basis and without duplication:
(a) the sum of (i) $20 million plus all cash and cash equivalents of the
Partnership Group on hand as of the close of business on the Closing Date, (ii)
all cash receipts of the Partnership Group for the period beginning on the
Closing Date and ending with the last day of such period, other than cash
receipts from Interim Capital Transactions (except to the extent specified in
Section 6.5 of the Operating Partnership Agreement) and (iii) all cash receipts
of the Partnership Group after the end of such period but on or before the date
of determination of Operating Surplus with respect to such period resulting from
borrowings for working capital purposes, less
(b) the sum of (i) Operating Expenditures for the period beginning on the
Closing date and ending with the last day of such period and (ii) the amount of
cash reserves that is necessary or advisable in the reasonable discretion of the
General Partner to provide funds for future Operating Expenditures, provided
however, that disbursements made (including contributions to a member of the
Partnership Group or disbursements on behalf of a member of the Partnership
Group) or cash reserves established, increased or reduced after the end of such
period but on or before the date of determination of Available Cash with respect
to such period shall be deemed to have been made,
<PAGE> A-4
established, increased or reduced for purposes of determining Operating Surplus,
within such period if the General Partner so determines.
Partnership: Genesis Energy, L.P., a Delaware limited partnership, and any
successors thereto.
Partnership Agreement: The Amended and Restated Agreement of Limited
Partnership of the Partnership (the form of which incorporated by reference as
Exhibit 4.2 to the registration statement of which this Prospectus is a part),
as it may be amended, restated or supplemented from time to time. Unless the
context requires otherwise, references to the Partnership Agreement constitute
references to the Partnership Agreements of the Partnership and of the Operating
Partnership, collectively.
Partnership Group: The Partnership, the Operating Partnership and any other
subsidiary of the Partnership, treated as a single consolidated entity.
Restricted Unit Plan: The Amended and Restated Restricted Unit Plan of the
General Partner.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, supplemented or
restated from time to time and any successor to such statute.
Subordinated OLP Unit: A Unit representing a fractional part of the limited
partner partnership interests of all limited partners of the Operating
Partnership and assignees of any such limited partner interest and having the
rights and obligations specified with respect to Subordinated OLP Units in the
Operating Partnership Agreement.
Subordination Period: The Subordination Period will generally extend from the
closing of the Initial Public Offering until the first day of any quarter
beginning after December 31, 2001 in respect of which (i) distributions of
Available Cash from Operating Surplus on all of the outstanding 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 three consecutive four-quarter periods immediately
preceding such date equaled or exceeded the sum of Minimum Quarterly
Distribution on all of the outstanding Common Units and Subordinated OLP 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.
Prior to the end of the Subordination Period, a portion of the Subordinated OLP
Units will convert into Common OLP Units on a one-for-one basis on the first day
after the record date for distributions in respect of any quarter ending on or
after (a) June 30, 2001 (with respect to one quarter, or 538,750 of the
Subordinated OLP Units) and (b) June 30, 2002 (with respect to an additional
538,750 Subordinated OLP Units), on a cumulative basis, in respect of which (i)
distributions of Available Cash from Operating Surplus on the Common Units and
the Subordinated OLP 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 OLP 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 OLP 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 OLP Units may not occur until at least one year following the early
conversion of the first tranche of Subordinated OLP Units. In addition, 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 OLP Units will immediately
convert into Common OLP 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 incentive
distribution rights) into Common Units or to receive cash in exchange for such
interests.
<PAGE> A-5
Target Distribution Levels: The distribution levels at which the General
Partner's interest in distributions will increase from 2% to 15% (the "First
Target Distribution"), from 15% to 25% (the "Second Target Distribution") and
from 25% to 50% (the "Third Target Distribution"). See "Cash Distribution
Policy-- Quarterly Distributions of Available Cash" in the Form S-1.
Unitholders: Holders of the Common Units, the Common OLP Units and the
Subordinated OLP Units.
Units: The Common Units, the Common OLP Units and the Subordinated OLP Units,
collectively, but shall not include the right to receive Incentive
Distributions.
