As filed with the Securities and Exchange Commission on December 21, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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Enterprise Products Partners L.P.
Enterprise Products Operating L.P.
(Name of Registrant as specified in its charter)
Delaware 76-0568219
Delaware 76-0568220
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Richard H. Bachmann
2727 North Loop West 2727 North Loop West
Houston, Texas 770008 Houston, Texas 77008
(713) 880-6500 (713) 880-6500
(Address, including zip code, (name, address, including zip
and telephone number, including code, and telephone number,
area code, of Registrant's including area code, of agent
principalexecutive offices) for service)
Copies to:
Vinson & Elkins L.L.P.
1001 Fannin
Houston, Texas 77002-6760
(713) 758-2222
Attn: Michael P. Finch
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount to be Proposed Maximum Proposed Amount of
Securities to be Registered Registered (1) Offering Price Per Unit Maximum Aggregate Registration Fee (2)
Offering Price
<S> <C> <C> <C> <C>
Common Units of Enterprise
Products Partners L.P.(3).....
Debt Securities of Enterprise
Products Operating L.P........
Guaranties of Debt Securities
by Enterprise Products Partners
L.P...........................
Total $ 800,000,000 $ 800,000,000 $222,400
</TABLE>
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(1) The amount of securities to be registered consists of $800,000,000 of an
indeterminate number or amount of Common Units of Enterprise Products
Partners L.P. ("Enterprise"), Debt Securities of Enterprise's subsidiary,
Enterprise Products Operating L.P. ("Operating") and Guaranties of
Operating's Debt Securities by Enterprise.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended. No
separate consideration will be received for any Guaranties of Debt
Securities.
(3) Includes Common Units that may be sold by or for the account of selling
unitholders.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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The information in this offering memorandum is not complete and may be changed.
We may not sell these securities or accept any offer to buy these securities
until we deliver this offering memorandum to you in final form. We are not using
this offering memorandum to offer to sell these securities or to solicit offers
to buy these securities in any place where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 21, 1999
PROSPECTUS
[Logo of Company appears here]
$800,000,000
ENTERPRISE PRODUCTS PARTNERS L.P.
ENTERPRISE PRODUCTS OPERATING L.P.
COMMON UNITS
DEBT SECURITIES
We may offer the following securities under this Prospectus:
- - Common Units representing limited partner interests in Enterprise Products
Partners L.P., and
- - Debt Securities of Enterprise Products Operating L.P., which will be
guaranteed by its parent company, Enterprise Products Partners L.P.
This Prospectus provides you with a general description of the securities
we may offer. Each time we sell securities we will provide a Prospectus
Supplement that will contain specific information about the terms of that
offering. The Prospectus Supplement may also add, update or change information
contained in this prospectus. You should read this Prospectus and any Prospectus
Supplement carefully before you invest.
In addition, Common Units may be offered from time to time by other holders
thereof. Any selling unitholders will be identified, and the number of Common
Units to be offered by them will be specified, in a Prospectus Supplement to
this Prospectus. We will not receive proceeds of any sale of shares by any such
selling unitholders.
The Common Units are listed on the New York Stock Exchange under the
trading symbol "EPD." Any Common Units sold pursuant to a Prospectus Supplement
will be listed on that exchange, subject to official notice of issuance. On
December 20, 1999, the closing price of a Common Unit on that exchange was
$19.50.
Unless otherwise specified in a Prospectus Supplement, the senior debt
securities, when issued, will be unsecured and will rank equally with our other
unsecured and unsubordinated indebtedness. The subordinated debt securities,
when issued, will be subordinated in right of payment to our senior debt.
YOU SHOULD CAREFULLY REVIEW "RISK FACTORS" BEGINNING ON PAGE 2 FOR A
DISCUSSION OF THINGS YOU SHOULD CONSIDER WHEN INVESTING IN OUR SECURITIES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus may not be used to consummate sales of securities unless
accompanied by a Prospectus Supplement.
The date of this Prospectus is December 21, 1999.
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TABLE OF CONTENTS
Page
FORWARD-LOOKING STATEMENTS.....................................................1
WHERE YOU CAN FIND MORE INFORMATION............................................2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................2
THE COMPANY....................................................................2
RISK FACTORS...................................................................3
USE OF PROCEEDS................................................................7
RATIO OF EARNINGS TO FIXED CHARGES.............................................7
DESCRIPTION OF DEBT SECURITIES.................................................8
DESCRIPTION OF COMMON UNITS...................................................20
FEDERAL INCOME TAX CONSIDERATIONS.............................................28
SELLING UNITHOLDERS...........................................................41
PLAN OF DISTRIBUTION..........................................................41
LEGAL MATTERS.................................................................42
EXPERTS.......................................................................42
FORWARD-LOOKING STATEMENTS
The statements in this Prospectus and the documents incorporated by
reference that are not historical facts are forward-looking statements. We have
based these forward-looking statements on our current expectations and
projections about future events based upon our knowledge of facts as of the date
of this Prospectus and our assumptions about future events. Although we believe
that the expectations reflected in these forward-looking statements are
reasonable, we can give no assurance that these expectations will prove to be
correct. These statements are subject to certain risks, uncertainties, and
assumptions. If one or more of these risks or uncertainties materialize, or if
underlying assumptions provide incorrect, actual results may vary materially
from those anticipated, estimated, projected, or expected. Among the key risk
factors that may have a direct bearing on our results of operations and
financial condition are:
- competitive practices in the industries in which we compete,
- fluctuations in oil, natural gas, and NGL product prices and
production,
- operational and systems risks,
- environmental liabilities that are not covered by indemnity or
insurance,
- the impact of current and future laws and governmental regulations
(including environmental regulations) affecting the NGL industry in
general, and our operations in particular,
- loss of a significant customer, and
- failure to complete one or more new projects on time or within budget.
We use words like "anticipate," "estimate," "project," "expect," "plan,"
"forecast," "intend," "could," and "may," and similar expressions and statements
regarding our business strategy, plans and objectives for future operations to
help identify forward-looking statements. We have no obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
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WHERE YOU CAN FIND MORE INFORMATION
Enterprise Products Partners L.P. files annual, quarterly and current
reports, proxy statements and other information with the Securities and Exchange
Commission. Under the rules and policies of the Commission, it is not expected
that Enterprise Products Operating L.P. will file separate periodic reports with
the Commission. You may read and copy any document we file at the Commission's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the Commission at (800) SEC-0330 for further information
on the public reference rooms. Our filings are also available to the public at
the Commission's web site at http://www.sec.gov. In addition, documents filed by
us can be inspected at the offices of the New York Stock Exchange, Inc. 20 Broad
Street, New York, New York 10002.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" into this Prospectus
the information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this Prospectus, and later
information that we file with the Commission will automatically update and
supersede this information. We incorporate by reference the documents listed
below and any future filings made with the Commission under section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until our offering is
completed:
(1) Annual Report on Form 10-K for the fiscal year ended December 31, 1998
(the "1998 Form 10-K");
(2) Current Reports on Form 8-K filed with the Commission on April 21,
1999, September 20, 1999 and October 4, 1999, and Amended Current
Reports on Form 8-K/A filed with the Commission on October 27, 1999
and November 29, 1999.
(3) Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
1999, June 30, 1999 and September 30, 1999; and
(4) The description of the Common Units contained in the Registration
Statement on Form S-1 (Registration No. 333-52537), initially filed
with the Commission on May 13, 1998, and any subsequent amendment
thereto filed for the purposes of updating such description.
We will provide without charge to each person, including any beneficial
owner, to whom this Prospectus is delivered, upon written or oral request, a
copy of any document incorporated by reference in this Prospectus, other than
exhibits to any such document not specifically described above. Requests for
such documents should be directed to Investor Relations, Enterprise Products
Partners L.P., 2727 North Loop West, Suite 700, Houston, Texas 77008-1038;
telephone number: (713) 880-6694.
THE COMPANY
Enterprise Products Partners L.P. (the "Company") is a publicly traded
master limited partnership that was formed in April 1998 to acquire, own, and
operate all of the NGL processing and distribution assets of Enterprise Products
Company. We conduct all of our business through our 99% owned subsidiary,
Enterprise Products Operating L.P. (the "Operating Partnership") and its
subsidiaries and joint ventures. Enterprise Products GP, LLC (the "General
Partner") is the general partner of the Company and the Operating Partnership,
owning 1.0% and 1.0101% equity interests, respectively, in those partnerships.
We are a leading integrated North American provider of processing and
transportation services to domestic producers of natural gas, domestic and
foreign producers of natural gas liquids ("NGLs") and other liquid hydrocarbons
and domestic and foreign consumers of NGL and liquid hydrocarbon products. We
manage a fully integrated and diversified portfolio of midstream energy assets.
We own and operate:
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- natural gas processing plants;
- NGL fractionation facilities;
- storage facilities;
- pipelines;
- rail transportation facilities;
- rail cars; and
- methyl tertiary butyl ether ("MTBE") production and propylene
production and transportation facilities.
Certain of these facilities are owned jointly by us and other industry
partners, either through co-ownership arrangements or joint ventures. Some of
these jointly owned facilities are operated by other owners.
Our principal executive office is located at 2727 North Loop West, Houston,
Texas 77008-1038, and our telephone number is (713) 880-6500.
Recent Acquisitions
Effective August 1, 1999, we acquired Tejas Natural Gas Liquids, LLC from
an affiliate of Shell Oil Company, in exchange for 14,500,000 of our convertible
special limited partner units and a cash payment of $166.0 million. We have also
agreed to issue up to 6,000,000 additional convertible special units to the
Shell affiliate in the future if the volumes of natural gas that we process for
Shell Oil Company and its affiliates reach certain agreed upon levels in 2000
and 2001. The businesses we acquired include natural gas processing and NGL
fractionation, transportation and storage in Louisiana and Mississippi and its
NGL supply and marketing business. The assets acquired include varying interests
in:
- eleven natural gas processing plants (including Neptune gas plant
which is under construction) with a combined gross capacity of 11.0
billion cubic feet per day (Bcfd) and net capacity of 3.1 Bcfd;
- four NGL fractionation facilities with a combined gross capacity of
281,000 barrels per day (BPD) and net capacity of 131,500 BPD;
- four NGL storage facilities with approximately 29.5 million barrels of
gross capacity and 8.8 million barrels of net capacity; and
- over 2,100 miles of NGL pipelines (including an 11.5% interest in
Dixie Pipeline Company).
Effective July 1, 1999, we acquired an additional 25% interest in our Mont
Belvieu NGL fractionation facility from Kinder Morgan Energy Partners L.P. for a
purchase price of approximately $41 million in cash and assumption of $4 million
in debt, and we acquired an additional 0.5% interest in the facility from
Enterprise Products Company for a cash purchase price of $0.9 million. These
acquisitions increased our effective economic interest in the Mont Belvieu
facility from 37.0% to 62.5%.
RISK FACTORS
An investment in the securities involves a significant degree of risk,
including the risks described below. You should carefully consider the following
risk factors and the other information in this Prospectus before deciding to
invest in the securities. The risks described below are not the only ones facing
us. This Prospectus also contains forward-looking statements that involve risks
and uncertainties. See "Forward-Looking Statements." Our actual results could
differ materially from those anticipated in the forward-looking statements as a
result of certain factors, including the risks described below and elsewhere in
this Prospectus.
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Risks Inherent in Our Business
The Profitability of Our Operations Depends Upon the Spread Between Natural
Gas Prices and NGL.
Prices for natural gas and NGLs are subject to fluctuations in response to
changes in supply, market uncertainty and a variety of additional factors that
are beyond our control. These factors include:
- the level of domestic production;
- the availability of imported oil and gas;
- actions taken by foreign oil and gas producing nations,;
- the availability of transportation systems with adequate capacity;
- the availability of competitive fuels;
- fluctuating and seasonal demand for oil, gas and NGLs;
- conservation and the extent of governmental regulation of production
and the overall economic environment.
A decrease in the difference between natural gas and NGL prices results in lower
margins on volumes processed.
The Profitability of Our Operations Depends Upon the Demand and Prices for
Our Products and Services.
The products that we process are principally used as feedstocks in
petrochemical manufacturing and in the production of motor gasoline and as fuel
for residential and commercial heating. A reduction in demand for our products
by the petrochemical, refining or heating industries, whether because of general
economic conditions, reduced demand by consumers for the end products made with
NGL products, increased competition from petroleum-based products due to pricing
differences, adverse weather conditions, government regulations affecting prices
and production levels of natural gas or the content of motor gasoline or other
reasons, could have a material adverse effect on our results of operations.
Ethane. Ethane is primarily used in the petrochemical industry as feedstock
for ethylene, one of the basic building blocks for a wide range of plastics and
other chemical products. Although ethane is typically separated from the natural
gas stream at gas processing plants, if natural gas prices increase
significantly in relation to NGL product prices or if the demand for ethylene
falls, it may be more profitable for natural gas producers to leave the ethane
in the natural gas stream to be burned as fuel than to extract the ethane from
the mixed NGL stream for sale as an ethylene feedstock thereby reducing the
volume of NGLs for fractionation.
Propane. Propane is used both as a petrochemical feedstock in the
production of ethylene and propylene and as a heating, engine and industrial
fuel. The demand for propane as a heating fuel is significantly affected by
weather conditions. The volume of propane sold is at its highest during the
six-month peak heating season of October through March.
Isobutane. Isobutane is predominantly used in refineries to produce
alkylates to enhance octane levels and in the production of MTBE, which is used
in motor gasoline. Accordingly, any action that reduces demand for motor
gasoline in general or MTBE in particular would similarly reduce demand for
isobutane. Further, we purchase almost all of the normal butane feedstock that
we convert into isobutane for our non-tolling customers in the spot and import
markets. It is generally profitable for us to convert normal butane into
isobutane when the prevailing price of isobutane exceeds the prevailing price of
normal butane by approximately 2.0 cents per gallon. On those occasions where
the spread between isobutane and normal butane is narrow, we may find it more
economical to purchase isobutane on the spot market for delivery to customers
than to process the normal butane in our inventory. We frequently retain the
normal butane in our inventory until pricing differentials improve or until
product prices increase. However, if the price of normal butane declines, our
inventory may decline in value. During periods in which isobutane spreads are
narrow or inventory values are high relative to current prices for normal butane
or isobutane, our operating margin from selling isobutane will be reduced.
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MTBE. The production of MTBE is driven by oxygenated fuels programs enacted
under the federal Clean Air Amendments of 1990 and other legislation. Any
changes to these programs that enable localities to opt out of these programs,
lessen the requirements for oxygenates or favor the use of non-isobutane based
oxygenated fuels would reduce the demand for MTBE and could have a material
adverse effect on our results of operations. On March 25, 1999, the Governor of
California ordered the phase-out of MTBE in California by the end of 2002 due to
allegations by several public advocacy and protest groups that MTBE contaminates
water supplies, causes health problems and has not been as beneficial in
reducing air pollution as originally contemplated. In addition, legislation to
amend the federal Clean Air Act has been introduced in the House of
Representatives to ban the use of MTBE as a fuel additive within three years.
Legislation introduced in the Senate would eliminate the Clean Air Act's
oxygenate requirement in order to foster the elimination of MTBE in fuel. No
assurance can be given as to whether this or similar legislation ultimately will
be adopted or whether Congress or the EPA might take steps to override the MTBE
ban in California.
In November 1998, the EPA formed a panel to investigate the air quality
benefits and water quality concerns associated with oxygenates in gasoline and
to provide independent advice and recommendations on ways to maintain air
quality while protecting water quality. The panel issued a report on their
findings and recommendations in July 1999. The panel urged widespread reduction
in the use of MTBE due to the growing threat to drinking water sources despite
the fact that use of reformulated gasolines have contributed to significant air
quality improvements. The panel credited reformulated gasoline with "substantial
reductions" in toxic emissions from vehicles and recommended that those
reductions be maintained by the use of cleaner-burning fuels that rely on
additives other than MTBE and improvements in refining processes. The panel
stated that the problems associated with MTBE can be characterized as a
low-level, widespread problem that had not reached the state of a being a public
health threat. The panel's recommendations are geared towards confronting the
problems associated with MTBE now rather than letting the issue grow into a
larger problem. The panel did not call for an outright ban on MTBE but stated
that its use should be curtailed significantly. The panel also encouraged a
public educational campaign on the potential harm posed by gasoline when it
leaks into ground water from storage tanks or while in use. Based on the panel's
recommendations, the EPA will ask Congress to revise the Clean Air Act in a
manner that maintains air quality gains and allows for the removal of oxygenates
from gasoline.
Propylene. Propylene is sold to petrochemical companies for a variety of
uses, principally for the production of polypropylene. Propylene is subject to
rapid and material price fluctuations. Any downturn in the domestic or
international economy could cause reduced demand for, and result in an
oversupply of, propylene, which could cause a reduction in the volumes of
propylene that we produce and expose our investment in inventories of
propane/propylene mix to pricing risk due to requirements for short-term price
discounts in the spot or short-term propylene markets.
The Profitability of Our Operations Depends upon the Availability of a
Supply of NGL Feedstock.
Our profitability is materially impacted by the volume of NGLs processed at
our facilities. A material decrease in natural gas production or crude oil
refining, as a result of depressed commodity prices or otherwise, or a decrease
in imports of mixed butanes, could result in a decline in the volume of NGLs
delivered to our facilities for processing, thereby reducing revenue and
operating income.
We Depend on Certain Key Customers and Contracts.
We currently derive a significant portion of our revenues from contracts
with certain key customers. The loss of these or other significant customers
could materially adversely affect our results of operations. Lyondell Worldwide
accounted for approximately 38.9% of our isomerization volumes in 1998. Our
current contract with Lyondell has a ten-year term which expires in
December 2009. Our unconsolidated affiliate, BEF, has an agreement with Sunoco
pursuant to which Sunoco is required to purchase all of BEF's MTBE production
through May 2005. Our contract for sales of high purity propylene to Montell
accounted for approximately 42.5% of 1998 production. We are a party to a
natural gas processing contract with Shell and certain of its affiliates which
provides us with the right to process substantially all natural gas produced
from the Shell entities' Gulf of Mexico properties for the next 20 years.
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We Experience Significant Competition.
We face competition from oil, natural gas, natural gas processing and
petrochemical companies. The principal areas of competition include obtaining
gas supplies for processing operations, obtaining supplies of raw product for
fractionation and the marketing and transportation of natural gas liquids.
Competition typically arises as a result of the location and operating
efficiency of facilities, the reliability of services and price and delivery
capabilities. Our NGL fractionation facilities at Mont Belvieu compete for
volumes of mixed NGLs with three other fractionators at Mont Belvieu. In
addition, certain major producers fractionate NGLs for their own account in
captive facilities. The Mont Belvieu fractionation facilities also compete on a
more limited basis with two fractionators in Conway, Kansas. We also compete
with large, integrated energy and petrochemical companies in our isomerization,
MTBE, propylene and natural gas processing businesses. Our customers who are
significant producers or consumers of NGLs or natural gas may develop their own
processing facilities in lieu of using our services or co-investing with us in
new projects. In addition, certain of our competitors may have advantages in
competing for acquisitions or other new business opportunities because of their
financial resources and access to NGL supplies.
We Are Subject to Operating and Litigation Risks Which May Not Be Covered
by Insurance.
Our operations are subject to all operating hazards and risks normally
incidental to processing, storing and transporting, and otherwise providing for
use by third parties, natural gas, NGLs, propane/propylene mix and MTBE. As a
result, we may be a defendant in various legal proceedings and litigation
arising in the ordinary course of business. We cannot assure you that the
insurance we maintain will be adequate to protect us from all material expenses
related to potential future claims for personal and property damage.
Our Businesses are Subject to Governmental Regulation With Respect to
Environmental, Safety and Other Regulatory Matters.
Our business is subject to the jurisdiction of governmental agencies with
respect to a wide range of environmental, safety and other regulatory matters.
We could be adversely affected by increased costs due to more strict pollution
control requirements or liabilities resulting from non-compliance with required
operating or other regulatory permits. New environmental regulations might
adversely impact our products and activities, including processing, storage and
transportation. Federal and state agencies also could impose additional safety
requirements, any of which could affect profitability. In addition, there are
risks of accidental releases or spills associated with our operations, and we
cannot assure you that material costs and liabilities will not be incurred,
including those relating to claims for damages to property and persons.
We Depend Upon Our Key Personnel.
We believe that our success has been dependent to a significant extent upon
the efforts and abilities of our senior management team and in particular Dan
Duncan, Chairman of the Board (age 66) and O. S. Andras, President and Chief
Executive Officer (age 64). The failure to retain the key members of our senior
management team, or to implement a succession plan to prepare qualified
individuals to join the senior management team upon the retirement of Mr. Duncan
and Mr. Andras, could materially adversely affect our financial condition or
results. We do not maintain any life insurance for these persons.
Risks Inherent in an Investment in the Securities.
The Prospectus Supplement accompanying this Prospectus will describe any
additional risk factors inherent in an investment in the particular securities
being offering.
USE OF PROCEEDS
Except as may be set forth in a Prospectus Supplement, we will use the net
proceeds from any sale of securities described in this Prospectus for future
business acquisitions and other general corporate purposes, such as working
capital, investments in subsidiaries, the retirement of existing debt and/or the
repurchase of common units or other securities. The exact amounts to be used and
when the net proceeds will be applied to corporate purposes will depend on a
number of factors, including our funding requirements and the availability of
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alternative funding sources. We routinely review acquisition opportunities. A
Prospectus Supplement will disclose any future proposal to use net proceeds from
an offering of our securities to finance any specific acquisition, if
applicable.
We will not receive any proceeds from any sale of common units by any
selling unitholders.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods indicated is
as follows:
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------ --------------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
1.65 1.73 2.38 2.11 1.16 5.99
The pro forma ratio of earnings to fixed charges assuming we acquired Tejas
Natural Gas Liquids LLC and the additional 25.5% interest in the Mont Belvieu
NGL fractionation facility on January 1, 1998 for each of the periods indicated
is as follows:
Year Ended Nine Months Ended
December 31, 1998 September 30, 1999
------------------------- --------------------------
1.34 4.37
These computations include us and our subsidiaries, and 50% or less equity
companies. For these ratios, "earnings" is the amount resulting from adding and
subtracting the following items.
Add the following:
- pre-tax income from continuing operations before adjustment for
minority interests in consolidated subsidiaries or income or loss from
equity investees;
- fixed charges;
- amortization of capitalized interest;
- distributed income of equity investees; and
- our share of pre-tax losses of equity investees for which charges
arising from guarantees are included in fixed charges.
From the total of the added items, subtract the following:
- interest capitalized;
- preference security dividend requirements of consolidated
subsidiaries; and
- minority interest in pre-tax income of subsidiaries that have not
incurred fixed charges.
The term "fixed charges" means the sum of the following:
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- interest expensed and capitalized;
- amortized premiums, discounts and capitalized expenses related to
indebtedness;
- an estimate of the interest within rental expenses; and
- preference security dividend requirements of consolidated
subsidiaries.
We calculated the pro forma ratio of earnings to fixed charges using the
pro forma financial statements incorporated by reference in this prospectus.
DESCRIPTION OF DEBT SECURITIES
The debt securities will be issued under an Indenture (the "Indenture")
among the Operating Partnership, as issuer, the Company, as guarantor, and a
commercial bank to be selected, as trustee (the "Trustee"). The terms of the
debt securities will include those expressly set forth in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). Capitalized terms used in this
Description of Debt Securities have the meanings specified in the Indenture.
This Description of Debt Securities is intended to be a useful overview of
the material provisions of the debt securities and the Indenture. Since this
Description of Debt Securities is only a summary, you should refer to the
Indenture for a complete description of our obligations and your rights.
References to the "Issuer" mean only Enterprise Products Operating L.P. and
not its subsidiaries. References to the "Guarantor" mean only Enterprise
Products Partners L.P. and not its subsidiaries. References to "we" and "us"
mean the Issuer and the Guarantor collectively.
General
The Indenture does not limit the amount of debt securities that may be
issued thereunder. Debt securities may be issued under the Indenture from time
to time in separate series, each up to the aggregate amount authorized for such
series. The debt securities will be general obligations of the Issuer and the
Guarantor and may be subordinated to Senior Indebtedness of the Issuer and the
Guarantor. See "Description of Debt Securities -- Subordination."
A prospectus supplement and a supplemental indenture relating to any series
of debt securities being offered will include specific terms relating to the
offering. These terms will include some or all of the following:
- the form and title of the debt securities;
- the total principal amount of the debt securities;
- the portion of the principal amount which will be payable if the
maturity of the debt securities is accelerated;
- the currency or currency unit in which the debt securities will be
paid, if not U.S. dollars;
- any right we may have to defer payments of interest by extending the
dates payments are due whether interest on those deferred amounts will
be payable as well;
- the dates on which the principal of the debt securities will be
payable;
- the interest rate which the debt securities will bear and the interest
payment dates for the debt securities;
- any optional redemption provisions;
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- any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities;
- any changes to or additional Events of Default or covenants;
- whether the debt securities are to be issued as Registered Securities
or Bearer Securities or both; and any special provisions for Bearer
Securities;
- the subordination, if any, of the debt securities and any changes to
the subordination provisions of the Indenture; and
- any other terms of the debt securities.
The Prospectus Supplement will also describe any material United States
federal income tax consequences or other special considerations applicable to
the applicable series of debt securities, including those applicable to:
- Bearer Securities,
- debt securities with respect to which payments of principal, premium
or interest are determined with reference to an index or formula,
including changes in prices of particular securities, currencies or
commodities,
- debt securities with respect to which principal, premium or interest
is payable in a foreign or composite currency,
- debt securities that are issued at a discount below their stated
principal amount, bearing no interest or interest at a rate that at
the time of issuance is below market rates, and
- variable rate debt securities that are exchangeable for fixed rate
debt securities.
At our option, we may make interest payments, by check mailed to the
registered holders thereof or, if so stated in the applicable Prospectus
Supplement, at the option of a holder by wire transfer to an account designated
by the holder. Except as otherwise provided in the applicable Prospectus
Supplement, no payment on a Bearer Security will be made by mail to an address
in the United States or by wire transfer to an account in the United States.
Unless otherwise provided in the applicable Prospectus Supplement,
Registered Securities may be transferred or exchanged at the office of the
Trustee at which its corporate trust business is principally administered in the
United States or at the office of the Trustee or the Trustee's agent in New York
City, subject to the limitations provided in the Indenture, without the payment
of any service charge, other than any applicable tax or governmental charge.
Bearer Securities will be transferable only by delivery. Provisions with respect
to the exchange of Bearer Securities will be described in the applicable
Prospectus Supplement.
Any funds we pay to a paying agent for the payment of amounts due on any
debt securities that remain unclaimed for two years will be returned to us, and
the holders of the debt securities must thereafter look only to us for payment
thereof.
Guarantee
The Guarantor will unconditionally guarantee to each holder and the Trustee
the full and prompt payment of principal of, premium, if any, and interest on
the debt securities, when and as the same become due and payable, whether at
maturity, upon redemption or repurchase, by declaration of acceleration or
otherwise.
Certain Covenants
Except as set forth below or as may be provided in a Prospectus Supplement
and Supplemental Indenture, neither the Issuer nor the Guarantor will be
restricted by the Indenture from incurring any type of indebtedness or other
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obligation, from paying dividends or making distributions on its partnership
interests or capital stock or purchasing or redeeming its partnership interests
or capital stock. The Indenture will not require the maintenance of any
financial ratios or specified levels of net worth or liquidity. In addition, the
Indenture will not contain any provisions that would require the Issuer to
repurchase or redeem or otherwise modify the terms of any of the debt securities
upon a change in control or other events involving the Issuer which may
adversely affect the creditworthiness of the debt securities.
Limitations on Liens. The Indenture will provide that the Guarantor will
not, nor will it permit any Subsidiary to, create, assume, incur or suffer to
exist any mortgage, lien, security interest, pledge, charge or other encumbrance
("liens") other than Permitted Liens (as defined below) upon any Principal
Property (as defined below) or upon any shares of capital stock of any
Subsidiary owning or leasing any Principal Property, whether owned or leased on
the date of the Indenture or thereafter acquired, to secure any indebtedness for
borrowed money ("debt") of the Guarantor or the Issuer or any other person
(other than the debt securities), without in any such case making effective
provision whereby all of the debt securities outstanding shall be secured
equally and ratably with, or prior to, such debt so long as such debt shall be
so secured. "Principal Property" means, whether owned or leased on the date of
the Indenture or thereafter acquired:
(1) any pipeline assets of the Guarantor or any Subsidiary, including any
related facilities employed in the transportation, distribution,
storage or marketing of refined petroleum products, natural gas
liquids, and petrochemicals, that are located in the United States of
America or any territory or political subdivision thereof; and
(2) any processing or manufacturing plant or terminal owned or leased by
the Guarantor or any Subsidiary that is located in the United States
or any territory or political subdivision thereof,
except, in the case of either of the foregoing clauses (1) or (2):
(a) any such assets consisting of inventories, furniture, office
fixtures and equipment (including data processing equipment),
vehicles and equipment used on, or useful with, vehicles; and
(b) any such assets, plant or terminal which, in the opinion of the
board of directors of the General Partner, is not material in
relation to the activities of the Issuer or of the Guarantor and
its Subsidiaries taken as a whole.
Notwithstanding the foregoing, under the Indenture, the Guarantor may, and
may permit any Subsidiary to, create, assume, incur, or suffer to exist any lien
upon any Principal Property to secure debt of the Guarantor or any other person
(other than the debt securities) other than a Permitted Lien without securing
the debt securities, provided that the aggregate principal amount of all debt
then outstanding secured by such lien and all similar liens, together with all
Attributable Indebtedness from Sale-Leaseback Transactions (excluding
Sale-Leaseback Transactions permitted by clauses (1) through (4), inclusive, of
the first paragraph of the restriction on sale-leasebacks covenant described
below) does not exceed 10% of Consolidated Net Tangible Assets.
"Permitted Liens" means:
(1) liens upon rights-of-way for pipeline purposes;
(2) any statutory or governmental lien or lien arising by operation of
law, or any mechanics', repairmen's, materialmen's, suppliers',
carriers', landlords', warehousemen's or similar lien incurred in the
ordinary course of business which is not yet due or which is being
contested in good faith by appropriate proceedings and any
undetermined lien which is incidental to construction, development,
improvement or repair; or any right reserved to, or vested in, any
municipality or public authority by the terms of any right, power,
franchise, grant, license, permit or by any provision of law, to
purchase or recapture or to designate a purchaser of, any property;
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(3) liens for taxes and assessments which are (a) for the then current
year, (b) not at the time delinquent, or (c) delinquent but the
validity or amount of which is being contested at the time by the
Guarantor or any Subsidiary in good faith by appropriate proceedings;
(4) liens of, or to secure performance of, leases, other than capital
leases; or any lien securing industrial development, pollution control
or similar revenue bonds;
(5) any lien upon property or assets acquired or sold by the Guarantor or
any Subsidiary resulting from the exercise of any rights arising out
of defaults on receivables;
(6) any lien in favor of the Guarantor or any Subsidiary; or any lien upon
any property or assets of the Guarantor or any Subsidiary in existence
on the date of the execution and delivery of the Indenture;
(7) any lien in favor of the United States of America or any state
thereof, or any department, agency or instrumentality or political
subdivision of the United States of America or any state thereof, to
secure partial, progress, advance, or other payments pursuant to any
contract or statute, or any debt incurred by the Issuer or any
Subsidiary for the purpose of financing all or any part of the
purchase price of, or the cost of constructing, developing, repairing
or improving, the property or assets subject to such lien;
(8) any lien incurred in the ordinary course of business in connection
with workmen's compensation, unemployment insurance, temporary
disability, social security, retiree health or similar laws or
regulations or to secure obligations imposed by statute or
governmental regulations;
(9) liens in favor of any person to secure obligations under provisions of
any letters of credit, bank guarantees, bonds or surety obligations
required or requested by any governmental authority in connection with
any contract or statute; or any lien upon or deposits of any assets to
secure performance of bids, trade contracts, leases or statutory
obligations;
(10) any lien upon any property or assets created at the time of
acquisition of such property or assets by the Guarantor or any
Subsidiary or within one year after such time to secure all or a
portion of the purchase price for such property or assets or debt
incurred to finance such purchase price, whether such debt was
incurred prior to, at the time of or within one year after the date of
such acquisition; or any lien upon any property or assets to secure
all or part of the cost of construction, development, repair or
improvements thereon or to secure debt incurred prior to, at the time
of, or within one year after completion of such construction,
development, repair or improvements or the commencement of full
operations thereof (whichever is later), to provide funds for any such
purpose;
(11) any lien upon any property or assets existing thereon at the time of
the acquisition thereof by the Guarantor or any Subsidiary and any
lien upon any property or assets of a person existing thereon at the
time such person becomes a Subsidiary by acquisition, merger or
otherwise; provided that, in each case, such lien only encumbers the
property or assets so acquired or owned by such person at the time
such person becomes a Subsidiary;
(12) liens imposed by law or order as a result of any proceeding before any
court or regulatory body that is being contested in good faith, and
liens which secure a judgment or other court-ordered award or
settlement as to which the Guarantor or the applicable Subsidiary has
not exhausted its appellate rights;
(13) any extension, renewal, refinancing, refunding or replacement (or
successive extensions, renewals, refinancing, refunding or
replacements) of liens, in whole or in part, referred to in clauses
(1) through (12) above; provided, however, that any such extension,
renewal, refinancing, refunding or replacement lien shall be limited
to the property or assets covered by the lien extended, renewed,
refinanced, refunded or replaced and that the obligations secured by
any such extension, renewal, refinancing, refunding or replacement
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lien shall be in an amount not greater than the amount of the
obligations secured by the lien extended, renewed, refinanced,
refunded or replaced and any expenses of the Guarantor and its
Subsidiaries (including any premium) incurred in connection with such
extension, renewal, refinancing, refunding or replacement; or
(14) any lien resulting from the deposit of moneys or evidence of
indebtedness in trust for the purpose of defeasing debt of the
Guarantor or any Subsidiary.
"Consolidated Net Tangible Assets" means, at any date of determination, the
total amount of assets after deducting therefrom:
(1) all current liabilities (excluding (A) any current liabilities that by
their terms are extendable or renewable at the option of the obligor
thereon to a time more than 12 months after the time as of which the
amount thereof is being computed, and (B) current maturities of
long-term debt); and
(2) the value (net of any applicable reserves) of all goodwill, trade
names, trademarks, patents and other like intangible assets, all as
set forth, or on a pro forma basis would be set forth, on the
consolidated balance sheet of the Guarantor and its consolidated
subsidiaries for the Guarantor's most recently completed fiscal
quarter, prepared in accordance with generally accepted accounting
principles.
Restriction on Sale-Leasebacks. The Indenture will provide that the
Guarantor will not, and will not permit any Subsidiary to, engage in the sale or
transfer by the Guarantor or any Subsidiary of any Principal Property to a
person (other than the Issuer or a Subsidiary) and the taking back by the
Guarantor or any Subsidiary, as the case may be, of a lease of such Principal
Property (a "Sale-Leaseback Transaction"), unless:
(1) such Sale-Leaseback Transaction occurs within one year from the date
of completion of the acquisition of the Principal Property subject
thereto or the date of the completion of construction, development or
substantial repair or improvement, or commencement of full operations
on such Principal Property, whichever is later;
(2) the Sale-Leaseback Transaction involves a lease for a period,
including renewals, of not more than three years;
(3) the Guarantor or such Subsidiary would be entitled to incur debt
secured by a lien on the Principal Property subject thereto in a
principal amount equal to or exceeding the Attributable Indebtedness
from such Sale-Leaseback Transaction without equally and ratably
securing the debt securities; or
(4) the Guarantor or such Subsidiary, within a one-year period after such
Sale-Leaseback Transaction, applies or causes to be applied an amount
not less than the Attributable Indebtedness from such Sale-Leaseback
Transaction to (a) the prepayment, repayment, redemption, reduction or
retirement of any debt of the Guarantor or any Subsidiary that is not
subordinated to the debt securities, or (b) the expenditure or
expenditures for Principal Property used or to be used in the ordinary
course of business of the Guarantor or its Subsidiaries. "Attributable
Indebtedness," when used with respect to any Sale-Leaseback
Transaction, means, as at the time of determination, the present value
(discounted at the rate set forth or implicit in the terms of the
lease included in such transaction) of the total obligations of the
lessee for rental payments (other than amounts required to be paid on
account of property taxes, maintenance, repairs, insurance,
assessments, utilities, operating and labor costs and other items that
do not constitute payments for property rights) during the remaining
term of the lease included in such Sale-Leaseback Transaction
(including any period for which such lease has been extended). In the
case of any lease that is terminable by the lessee upon the payment of
a penalty or other termination payment, such amount shall be the
lesser of the amount determined assuming termination upon the first
date such lease may be terminated (in which case the amount shall also
include the amount of the penalty or termination payment, but no rent
shall be considered as required to be paid under such lease subsequent
to the first date upon which it may be so terminated) or the amount
determined assuming no such termination.
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Notwithstanding the foregoing, under the Indenture the Guarantor may, and
may permit any Subsidiary to, effect any Sale-Leaseback Transaction that is not
excepted by clauses (1) through (4), inclusive, of the first paragraph under "--
Restrictions On Sale-Leasebacks," provided that the Attributable Indebtedness
from such Sale-Leaseback Transaction, together with the aggregate principal
amount of outstanding debt (other than the debt securities) secured by liens
other than Permitted Liens upon Principal Property, do not exceed 10% of
Consolidated Net Tangible Assets.
In the Indenture, the term "Subsidiary" means:
(1) the Issuer; or
(2) any corporation, association or other business entity of which more
than 50% of the total voting power of the equity interests entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof or any partnership
of which more than 50% of the partners' equity interests (considering
all partners' equity interests as a single class) is, in each case, at
the time owned or controlled, directly or indirectly, by the
Guarantor, the Issuer or one or more of the other Subsidiaries of the
Guarantor or the Issuer or combination thereof.
Merger, Consolidation or Sale of Assets. The Indenture will provide that
each of the Guarantor and the Issuer may, without the consent of the holders of
any of the debt securities, consolidate with or sell, lease, convey all or
substantially all of its assets to, or merge with or into, any partnership,
limited liability company or corporation if:
(1) the partnership, limited liability company or corporation formed by or
resulting from any such consolidation or merger or to which such
assets shall have been transferred (the "successor") is either the
Guarantor or the Issuer, as applicable, or assumes all the Guarantor's
or the Issuer's, as the case may be, obligations and liabilities under
the Indenture and the debt securities (in the case of the Issuer) and
the Guarantee (in the case of the Guarantor).
(2) the successor is organized under the laws of the United States, any
state or the District of Columbia; and
(3) immediately after giving effect to the transaction no Default or Event
of Default shall have occurred and be continuing.
The successor will be substituted for the Guarantor or the Issuer, as the
case may be, in the Indenture with the same effect as if it had been an original
party to the Indenture. Thereafter, the successor may exercise the rights and
powers of the Guarantor or the Issuer, as the case may be, under the Indenture,
in its name or in its own name. If the Guarantor or the Issuer sells or
transfers all or substantially all of its assets, it will be released from all
liabilities and obligations under the Indenture and under the debt securities
(in the case of the Issuer) and the Guarantee (in the case of the Guarantor)
except that no such release will occur in the case of a lease of all or
substantially all of its assets.
Events of Default
Each of the following will be an Event of Default under the Indenture with
respect to a series of debt securities:
(1) default in any payment of interest on any debt securities of that
series when due, continued for 30 days;
(2) default in the payment of principal of or premium, if any, on any debt
securities of that series when due at its stated maturity, upon
optional redemption, upon declaration or otherwise;
(3) failure by the Guarantor or the Issuer to comply for 60 days after
notice with its other agreements contained in the Indenture;
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(4) certain events of bankruptcy, insolvency or reorganization of the
Issuer or the Guarantor (the "bankruptcy provisions"); or
(5) the Guarantee ceases to be in full force and effect or is declared
null and void in a judicial proceeding or the Guarantor denies or
disaffirms its obligations under the Indenture or the Guarantee.
However, a default under clause (3) of this paragraph will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount of
the outstanding debt securities of that series notify the Issuer and the
Guarantor of the default such default is not cured within the time specified in
clause (3) of this paragraph after receipt of such notice.
If an Event of Default (other than an Event of Default described in clause
(4) above) occurs and is continuing, the Trustee by notice to the Issuer, or the
holders of at least 25% in principal amount of the outstanding debt securities
of that series by notice to the Issuer and the Trustee, may, and the Trustee at
the request of such holders shall, declare the principal of, premium, if any,
and accrued and unpaid interest, if any, on all the debt securities of that
series to be due and payable. Upon such a declaration, such principal, premium
and accrued and unpaid interest will be due and payable immediately. If an Event
of Default described in clause (4) above occurs and is continuing, the principal
of, premium, if any, and accrued and unpaid interest on all the debt securities
will become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any holders. The holders of a majority in
principal amount of the outstanding debt securities of a series may waive all
past defaults (except with respect to nonpayment of principal, premium or
interest) and rescind any such acceleration with respect to the debt securities
of that series and its consequences if rescission would not conflict with any
judgment or decree of a court of competent jurisdiction and all existing Events
of Default, other than the nonpayment of the principal of, premium, if any, and
interest on the debt securities of that series that have become due solely by
such declaration of acceleration, have been cured or waived.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium, if any, or interest when due, no holder may pursue any
remedy with respect to the Indenture or the debt securities unless:
(1) such holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding debt
securities of that series have requested the Trustee to pursue the
remedy;
(3) such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after
the receipt of the request and the offer of security or indemnity; and
(5) the holders of a majority in principal amount of the outstanding debt
securities of that series have not given the Trustee a direction that,
in the opinion of the Trustee, is inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding debt securities of a series are given the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or of exercising any trust or power conferred on the
Trustee with respect to that series of debt securities. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder or that would involve the Trustee in personal liability. Prior to taking
any action under the Indenture, the Trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
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The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, premium, if any, or interest on any debt securities, the
Trustee may withhold notice if and so long as a committee of trust officers of
the Trustee in good faith determines that withholding notice is in the interests
of the holders. In addition, the Issuer is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Issuer also is required to deliver to the Trustee, within 30
days after the occurrence thereof, written notice of any events which would
constitute certain Defaults, their status and what action the Issuer is taking
or proposes to take in respect thereof.
Amendments and Waivers
Modifications and amendments of the Indenture may be made by the Issuer,
the Guarantor and the Trustee with the consent of the holders of a majority in
principal amount of all debt securities then outstanding under the Indenture
(including consents obtained in connection with a tender offer or exchange offer
for the debt securities). However, without the consent of each holder of
outstanding debt securities of each series affected thereby, no amendment may,
among other things:
(1) reduce the amount of debt securities whose holders must consent to an
amendment;
(2) reduce the stated rate of or extend the stated time for payment of
interest on any debt securities;
(3) reduce the principal of or extend the stated maturity of any debt
securities;
(4) reduce the premium payable upon the redemption of any debt securities
or change the time at which any debt securities may be redeemed as
described above under "Optional Redemption" or any similar provision;
(5) make any debt securities payable in money other than that stated in
the debt securities;
(6) impair the right of any holder to receive payment of, premium, if any,
principal of and interest on such holder's debt securities on or after
the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such holder's debt securities;
(7) make any change in the amendment provisions which require each
holder's consent or in the waiver provisions; or
(8) release the Guarantor or modify the Guarantee in any manner adverse to
the holders.
The holders of a majority in aggregate principal amount of the outstanding
debt securities of each series affected thereby, on behalf of all such holders,
may waive compliance by the Issuer and the Guarantor with certain restrictive
provisions of the Indenture. Subject to certain rights of the Trustee as
provided in the Indenture, the holders of a majority in aggregate principal
amount of the debt securities of each series affected thereby, on behalf of all
such holders, may waive any past default under the Indenture (including any such
waiver obtained in connection with a tender offer or exchange offer for the debt
securities), except a default in the payment of principal, premium or interest
or a default in respect of a provision that under the Indenture that cannot be
modified or amended without the consent of all holders of the series of debt
securities that is affected.
Without the consent of any holder, the Issuer, the Guarantor and the
Trustee may amend the Indenture to:
(9) cure any ambiguity, omission, defect or inconsistency;
(10) provide for the assumption by a successor corporation, partnership,
trust or limited liability company of the obligations of the Guarantor
or the Issuer under the Indenture;
(11) provide for uncertificated debt securities in addition to or in place
of certificated debt securities (provided that the uncertificated debt
securities are issued in registered form for purposes of
Houston:60055.2
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Section 163(f) of the Code, or in a manner such that the
uncertificated debt securities are described in Section 163(f) (2) (B)
of the Code);
(12) add guarantees with respect to the debt securities;
(13) secure the debt securities;
(14) add to the covenants of the Guarantor or the Issuer for the benefit of
the holders or surrender any right or power conferred upon the
Guarantor or the Issuer;
(15) make any change that does not adversely affect the rights of any
holder; or
(16) comply with any requirement of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment. After an amendment under the
Indenture becomes effective, the Issuer is required to mail to the holders a
notice briefly describing such amendment. However, the failure to give such
notice to all the holders, or any defect therein, will not impair or affect the
validity of the amendment.
Defeasance
The Issuer at any time may terminate all its obligations under a series of
debt securities and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the debt securities, to replace mutilated,
destroyed, lost or stolen debt securities and to maintain a registrar and paying
agent in respect of the debt securities. If the Issuer exercises its legal
defeasance option, the Guarantee will terminate with respect to that series.
The Issuer at any time may terminate its obligations under covenants
described under "Certain Covenants" (other than "Merger and Consolidation"), the
bankruptcy provisions with respect to the Guarantor and the Guarantee provision
described under "Events of Default" above with respect to a series of debt
securities ("covenant defeasance").
The Issuer may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Issuer exercises its
legal defeasance option, payment of the affected series of debt securities may
not be accelerated because of an Event of Default with respect thereto. If the
Issuer exercises its covenant defeasance option, payment of the affected series
of debt securities may not be accelerated because of an Event of Default
specified in clause (3), (4), (with respect only to the Guarantor) or (5) under
"Events of Default" above.
In order to exercise either defeasance option, the Issuer must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium, if any, and
interest on the series of debt securities to redemption or maturity, as the case
may be, and must comply with certain other conditions, including delivery to the
Trustee of an opinion of counsel (subject to customary exceptions and
exclusions) to the effect that holders of the series of debt securities will not
recognize income, gain or loss for Federal income tax purposes as a result of
such deposit and defeasance and will be subject to Federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred. In the case of legal
defeasance only, such opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law.
No Personal Liability of General Partner
The General Partner and its directors, officers, employees, incorporators
and stockholders, as such, shall have no liability for any obligations of the
Guarantor or the Issuer under the debt securities, the Indenture or the
Guarantee or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder by accepting a debt security waives
Houston:60055.2
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and releases all such liability. The waiver and release are part of the
consideration for issuance of the debt securities. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
Subordination
Debt securities of a series may be subordinated to Senior Indebtedness (as
defined below) to the extent set forth in the Prospectus Supplement relating
thereto. Subordinated debt securities will be subordinate in right of payment,
to the extent and in the manner set forth in the Indenture and the Prospectus
Supplement relating thereto, to the prior payment of all indebtedness of the
Issuer and the Guarantor that is designated as "Senior Indebtedness" with
respect to the series. "Senior Indebtedness" is defined generally to include all
notes or other evidences of indebtedness for money borrowed by the Issuer,
including guarantees, not expressed to be subordinate or junior in right of
payment to any other indebtedness of the Issuer.
Upon any payment or distribution of assets of the Issuer to creditors or
upon a total or partial liquidation or dissolution of the Issuer or in a
bankruptcy, receivership or similar proceeding relating to the Issuer or its
property, holders of Senior Indebtedness shall be entitled to receive payment in
full in cash of the Senior Indebtedness before holders of subordinated debt
securities shall be entitled to receive any payment of principal, premium or
interest with respect to the subordinated debt securities, and until the Senior
Indebtedness is paid in full, any distribution to which holders of subordinated
debt securities would otherwise be entitled shall be made to the holders of
Senior Indebtedness (except that the holders may receive shares of stock and any
debt securities that are subordinated to Senior Indebtedness to at least the
same extent as the subordinated debt securities).
We may not make any payments of principal, premium or interest with respect
to subordinated debt securities, make any deposit for the purpose of defeasance
of the subordinated debt securities, or repurchase, redeem or otherwise retire
(except, in the case of subordinated debt securities that provide for a
mandatory sinking fund, by our delivery of subordinated debt securities to the
Trustee in satisfaction of our sinking fund obligation) any subordinated debt
securities if (a) any principal, premium or interest with respect to Senior
Indebtedness is not paid within any applicable grace period (including at
maturity), or (b) any other default on Senior Indebtedness occurs and the
maturity of the Senior Indebtedness is accelerated in accordance with its terms,
unless, in either case, the default has been cured or waived and the
acceleration has been rescinded, the Senior Indebtedness has been paid in full
in cash, or the Issuer and the Trustee receive written notice approving the
payment from the representatives of each issue of "Designated Senior
Indebtedness" (which will include the Bank Indebtedness and any other specified
issue of Senior Indebtedness of at least $100 million). During the continuance
of any default (other than a default described in clause (a) or (b) above) with
respect to any Senior Indebtedness pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect the acceleration) or the expiration of any applicable grace
periods, the Issuer may not pay the subordinated debt securities for a period
(the "Payment Blockage Period") commencing on the receipt by the Issuer and the
Trustee of written notice of the default from the representative of any
Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period (a "Blockage Notice"). The Payment Blockage Period may be
terminated before its expiration by written notice to the Trustee and us from
the person who have the Blockage Notice, by repayment in full in cash of the
Senior Indebtedness with respect to which the Blockage Notice was given, or
because the default giving rise to the Payment Blockage Period is no longer
continuing. Unless the holders of the Senior Indebtedness shall have accelerated
the maturity thereof, the Issuer may resume payments on the subordinated debt
securities after the expiration of the Payment Blockage Period. Not more than
one Blockage Notice may be given in any period of 360 consecutive days unless
the first Blockage Notice within the 360-day period is given by or on behalf of
holders of Designated Senior Indebtedness other than the Bank Indebtedness, in
which case, the representative of the Bank Indebtedness may give another
Blockage Notice within the period. In no event, however, may the total number of
days during which any Payment Blockage Period or Periods is in effect exceed 179
days in the aggregate during any period of 360 consecutive days. After all
Senior Indebtedness is paid in full and until the subordinated debt securities
are paid in full, holders of the subordinated debt securities shall be
subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness.
By reason of the subordination, in the event of insolvency, our creditors
who are holders of Senior Indebtedness, as well as certain of our general
creditors, may recover more, ratably, than the holders of the subordinated debt
securities.
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Book Entry, Delivery and Form
The debt securities of a series may be issued in whole or in part in the
form of one or more global certificates that will be deposited with a depositary
identified in a Prospectus Supplement.
Unless otherwise stated in any Prospectus Supplement, The Depository Trust
Company, New York, New York ("DTC") will act as depositary. Book-entry debt
securities of a series will be issued in the form of a global security that will
be deposited with DTC. This means that we will not issue certificates to each
holder. One global security will be issued to DTC who will keep a computerized
record of its participants (for example, your broker) whose clients have
purchased the debt securities. The participant will then keep a record of its
clients who purchased the debt securities. Unless it is exchanged in whole or in
part for a certificated securities, a global security may not be transferred;
except that DTC, its nominees and their successors may transfer a global
security as a whole to one another.
Beneficial interests in global securities will be shown on, and transfers
of global securities will be made only through, records maintained by DTC and
its participants.
DTC has provided us the following information: DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking organization"
with the meaning of the New York Banking Law, a member of the United States
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants ("Direct Participants") deposit with DTC. DTC
also records the settlement among Direct Participants of securities
transactions, such as transfers and pledges, in deposited securities through
computerized records for Direct Participant's accounts. This eliminates the need
to exchange certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations.
DTC's book-entry system is also used by other organizations such as
securities brokers and dealers, banks and trust companies that work through a
Direct Participant. The rules that apply to DTC and its participants are on file
with the Commission.
DTC is owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., The American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc.
We will wire principal and interest payments to DTC's nominee. We and the
Trustee will treat DTC's nominee as the owner of the global securities for all
purposes. Accordingly, we, the Trustee and any paying agent will have no direct
responsibility or liability to pay amounts due on the global securities to
owners of beneficial interests in the global securities.
It is DTC's current practice, upon receipt of any payment of principal or
interest, to credit Direct Participants' accounts on the payment date according
to their respective holdings of beneficial interests in the global securities as
shown on DTC's records. In addition, it is DTC's current practice to assign any
consenting or voting rights to Direct Participants whose accounts are credited
with debt securities on a record date, by using an omnibus proxy. Payments by
participants to owners of beneficial interests in the global securities, and
voting by participants, will be governed the customary practices between the
participants and owners of beneficial interests, as is the case with debt
securities held for the account of customers registered in "street name."
However, payments will be the responsibility of the participants and not of DTC,
the Trustee or us.
Debt securities represented by a global security will be exchangeable for
certificated securities with the same terms in authorized denominations only if:
- DTC notifies us that it is unwilling or unable to continue as
depositary or if DTC ceases to be a clearing agency registered under
applicable law and a successor depositary is not appointed by us
within 90 days; or
- we determine not to require all of the debt securities of a series to
be represented by a global security and notify the Trustee of our
decision.
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Limitations on Issuance of Bearer Securities
The debt securities of a series may be issued as Registered Securities
(which will be registered as to principal and interest in the register
maintained by the registrar for the debt securities) or Bearer Securities (which
will be transferable only by delivery). If the debt securities are issuable as
Bearer Securities, certain special limitations and conditions will apply.
In compliance with United States federal income tax laws and regulations,
we and any underwriter, agent or dealer participating in an offering of Bearer
Securities will agree that, in connection with the original issuance of the
Bearer Securities and during the period ending 40 days after the issue date,
they will not offer, sell or deliver any such Bearer Securities, directly or
indirectly, to a United States Person (as defined below) or to any person within
the United States, except to the extent permitted under United States Treasury
regulations.
Bearer Securities will bear a legend to the following effect: "Any United
States person who holds this obligation will be subject to limitations under the
United States federal income tax laws, including the limitations provided in
Sections 165(j) and 1287(a) of the Internal Revenue Code." The sections referred
to in the legend provide that, with certain exceptions, a United States taxpayer
who holds Bearer Securities will not be allowed to deduct any loss with respect
to, and will not be eligible for capital gain treatment with respect to any gain
realized on the sale, exchange, redemption or other disposition of, the Bearer
Securities.
For this purpose, "United States" includes the United States of America and
its possessions, and "United States person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States, or an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source.
Pending the availability of a definitive global security or individual
Bearer Securities, as the case may be, debt securities that are issuable as
Bearer Securities may initially be represented by a single temporary global
security, without interest coupons, to be deposited with a common depositary in
London for Morgan Guaranty Trust Company of New York, Brussels Office, as
operator of the Euroclear System ("Euroclear"), or Centrale de Livraison de
Valeurs Mobilieres S.A. ("CEDEL") for credit to the accounts designated by or on
behalf of the purchasers thereof. Following the availability of a definitive
global security in bearer form, without coupons attached, or individual Bearer
Securities and subject to any further limitations described in the applicable
Prospectus Supplement, the temporary global security will be exchangeable for
interests in the definitive global security or for the individual Bearer
Securities, respectively, only upon receipt of a "Certificate of Non-U.S.
Beneficial Ownership," which is a certificate to the effect that a beneficial
interest in a temporary global security is owned by a person that is not a
United States Person or is owned by or through a financial institution in
compliance with applicable United States Treasury regulations. No Bearer
Security will be delivered in or to the United States. If so specified in the
applicable Prospectus Supplement, interest on a temporary global security will
be paid to each of Euroclear and CEDEL with respect to that portion of the
temporary global security held for its account, but only upon receipt as of the
relevant interest payment date of a Certificate of Non-U.S. Beneficial
Ownership.
The Trustee
We may appoint a separate Trustee for any series of debt securities. As
used herein in the description of a series of debt securities, the term
"Trustee" refers to the Trustee appointed with respect to the series of debt
securities.
We may maintain banking and other commercial relationships with the Trustee
and its affiliates in the ordinary course of business, and the Trustee may own
debt securities.
Governing Law
The Indenture provides that it and the debt securities will be governed by,
and construed in accordance with, the laws of the State of New York.
Houston:60055.2
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DESCRIPTION OF COMMON UNITS
The Units
As of September 30, 1999, we have outstanding 45,552,915 Common Units,
21,409,870 Subordinated Units and 14,500,000 Convertible Special Units. The
Common units, the Subordinated Units and the Convertible Special Units represent
limited partner interests in the Company, which entitle the holders thereof to
participate in Company distributions and exercise the rights or privileges
available to limited partners under our Partnership Agreement. A Summary of the
important provisions of our Partnership Agreement and a copy of our Partnership
Agreement are included in our reports filed with the Commission. Capitalized
terms used in this Description of Common Units have the meanings specified in
the Partnership Agreement.
The outstanding Common Units are listed on the New York Stock Exchange
under the symbol "EPD." Any additional Common Units we issue will also be listed
on the NYSE.
Cash Distribution Policy
General
We distribute to our partners, on a quarterly basis, all of our Available
Cash. Available Cash is defined in the Partnership Agreement and generally
means, with respect to any calendar quarter, all cash on hand at the end of such
quarter less the amount of cash reserves that is necessary or appropriate in the
reasonable discretion of the General Partner to (i) provide for the proper
conduct of the Company's business, (ii) comply with applicable law or any
Company 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.
Cash distributions are characterized as distributions from either Operating
Surplus or Capital Surplus. This distinction affects the amounts distributed to
Unitholders relative to the General Partner, and under certain circumstances it
determines whether holders of Subordinated Units receive any distributions. See
"--Quarterly Distributions of Available Cash."
Operating Surplus is defined in the Partnership Agreement and refers
generally to (a) the sum of (i) the cash balance of the Company on July 31,
1998, the closing date of our initial public offering of Common Units (excluding
$46.5 million expected to be spent from the proceeds of that offering on new
projects), (ii) all cash receipts of the Company from its operations since
July 31, 1998 (excluding cash receipts from Interim Capital Transactions, except
for up to $60 million of such cash receipts from Interim Capital Transactions
that the General Partner designates as Operating Surplus), less (b) the sum of
(i) all Company operating expenses, (ii) debt service payments (including
reserves therefor but not including payments required in connection with the
sale of assets or any refinancing with the proceeds of new indebtedness or an
equity offering), (iii) maintenance capital expenditures and (iv) reserves
established for future Company operations, in each case since July 31, 1998.
Capital Surplus is also defined in the Partnership Agreement and is generally
generated only by borrowings (other than borrowings for working capital
purposes), sales of debt and equity securities and sales or other dispositions
of assets for cash (other than inventory, accounts receivable and other assets
all as disposed of in the ordinary course of business).
To avoid the difficulty of trying to determine whether Available Cash
distributed by the Company is from Operating Surplus or from Capital Surplus,
all Available Cash distributed by the Company from any source will be treated as
distributed from Operating Surplus until the sum of all Available Cash
distributed since July 31, 1998 equals the Operating Surplus as of the end of
the quarter prior to such distribution. Any Available Cash in excess of such
amount will be deemed to be from Capital Surplus and distributed accordingly.
If Available Cash from Capital Surplus is distributed in respect of each
Common Unit in an aggregate amount per Common Unit equal to the $22.00 initial
public offering price of the Common Units (the "Initial Unit Price"), plus any
Common Unit Arrearages, the distinction between Operating Surplus and Capital
Surplus will cease, and all distributions of Available Cash will be treated as
if they were from Operating Surplus. We do not anticipate that there will be
significant distributions from Capital Surplus.
The Subordinated Units are a separate class of interests in the Company,
and the rights of holders of such interests to participate in distributions to
partners differ from the rights of the holders of Common Units. For any given
quarter, any Available Cash will be distributed to the General Partner and to
the holders of Common Units, and may also be distributed to the holders of
Subordinated Units depending upon the amount of Available Cash for the quarter,
the amount of Common Unit Arrearages, if any, and other factions discussed
below.
Houston:60055.2
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The 14,500,000 Convertible Special Units were issued as part of the
purchase price of Tejas Natural Gas Liquids LLC. These Units do not accrue
distributions and are not entitled to cash distributions until their conversion
into an equal number of Common Units between August 1, 2000 and August 1, 2001.
We will also issue up to 6,000,000 more Convertible Special Units to the seller
if the volumes of natural gas that we process for Shell Oil Company and its
affiliates reach certain agreed upon levels in 2000 and 2001. These additional
Units would convert into an equal number of Common Units between August 1, 2002
and August 1, 2003.
The Incentive Distributions represent the right of the General Partner to
receive an increasing percentage of quarterly distributions of Available Cash
from Operating Surplus after the Target Distribution Levels have been achieved.
The Target Distribution Levels are based on the amounts of Available Cash from
Operating Surplus distributed in excess of the payments made with respect to the
Minimum Quarterly Distribution and Common Unit Arrearages, if any, and the
related 2% distribution to the General Partner.
Subject to certain limitations contained in the Partnership Agreement, the
Company has the authority to issue additional Common Units or other equity
securities of the Company for such consideration and on such terms and
conditions as are established by the General Partner in its sole discretion and
without the approval of the Unitholders. It is possible that the Company will
fund acquisitions of assets or other capital projects through the issuance of
additional Common Units or other equity securities of the Company. Holders of
any additional Common Units issued by the Company will be entitled to share
equally with the then-existing holders of Common Units in distributions of
Available Cash by the Company. In addition, the issuance of additional Common
Units may dilute the value of the interests of the then-existing holders of
Common Units in the net assets of the Company. The General Partner will be
required to make an additional capital contribution to the Company or the
Operating Partnership in connection with the issuance of additional Common
Units.
The discussion in the sections below indicates the percentages of cash
distributions required to be made to the General Partner and the holders of
Common Units and the circumstances under which holders of Subordinated Units are
entitled to receive cash distributions and the amounts thereof.
Quarterly Distributions of Available Cash
The Company will make distributions to its partners with respect to each
calendar quarter of the Company prior to its liquidation in an amount equal to
100% of its Available Cash for such quarter. The Company expects to make
distributions of all Available Cash within approximately 45 days after the end
of each quarter, commencing with the quarter ending September 30, 1998, to
holders of record on the applicable record date. The Minimum Quarterly
Distribution and the Target Distribution Levels for the period from the closing
of this offering through September 30, 1998 will be adjusted downward based on
the actual length of such period. The Minimum Quarterly Distribution and the
Target Distribution Levels are also subject to certain other adjustments as
described below under "--Distributions from Capital Surplus" and "--Adjustment
of Minimum Quarterly Distribution and Target Distribution Levels."
With respect to each quarter during the Subordination Period, to the extent
there is sufficient Available Cash, the holders of Common Units will have the
right to receive the Minimum Quarterly Distributions, plus any Common Unit
Arrearages, prior to any distribution of Available Cash to the holders of
Subordinated Units. This subordination feature will enhance the Company's
ability to distribute the Minimum Quarterly Distribution on the Common Units
during the Subordination Period. There is no guarantee, however, that the
Minimum Quarterly Distribution will be made on the Common Units. Upon expiration
of the Subordination Period, all Subordinated Units will be converted on a
one-for-one basis into Common Units and will participate pro rata with all other
Common Units in future distributions of Available Cash. Under certain
circumstances, up to 50% of the Subordinated Units may convert into Common Units
prior to the expiration of the Subordination Period. Common Units will not
accrue arrearages with respect to distributions for any quarter after the
Subordination Period, and Subordinated Units will not accrue any arrearages with
respect to distributions for any quarter.
Distributions from Operating Surplus during Subordinated Period
The Subordination Period will generally extend from July 31, 1998 until the
first day of any quarter beginning after June 30, 2003 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,
Houston:60055.2
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non-overlapping, four-quarter periods immediately preceding such date equaled or
exceeded the sum of the Minimum Quarterly Distribution on all of the outstanding
Common Units and Subordinated Units during such periods, (ii) the Adjusted
Operating Surplus generated during each of the three consecutive,
non-overlapping, four-quarter periods immediately preceding such date equaled or
exceeded the sum of the Minimum Quarterly Distribution on all of the Common
Units and Subordinated Units that were outstanding during such period on a fully
diluted basis and the related distribution on the general partner interests in
the Company and the Operating Partnership and (iii) there are no outstanding
Common Unit Arrearages.
Prior to the end of the Subordination Period, a portion of the Subordinated
Units will convert into Common Units on a one-for-one basis on the first day
after the record date established for the distribution in respect of any quarter
ending on or after (a) June 30, 2001 with respect to one-quarter of the
Subordinated Units (5,352,468 Subordinated Units), and (b) June 30, 2002 with
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, non- overlapping, four-quarter periods immediately preceding such
date equaled or exceeded the sum of the Minimum Quarterly Distribution on all of
the outstanding Common Units and Subordinated Units that were outstanding during
such period on a fully diluted basis and the related distribution on the general
partner interests in the Company and the Operating Partnership and (iii) there
are no outstanding Common Unit Arrearages; provided, however, that the early
conversion of the second one-quarter of Subordinated Units may not occur until
at least one year following the early conversion of the first one-quarter of
Subordinated Units.
Upon expiration of the Subordination Period, all remaining Subordinated
Units will convert into Common Units on a one-for-one basis and will thereafter
participate, pro rata, with the other Common Units in distribution on Available
Cash. In addition, if the General Partner is removed as the general partner of
the Company under circumstances where Cause does not exist and Units held by the
General Partner and its affiliates are not voted in favor of such removal, (i)
the Subordination Period will end 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 interest into Common Units or to
receive cash in exchange for such interests.
Adjusted Operating Surplus for any period generally means Operating Surplus
generated during such period, less (a) any net increase in working capital
borrowing during such period and (b) any net reduction in cash reserves for
Operating Expenditures during such period not relating to an Operating
Expenditure made during such period, and plus (x) any net decrease in working
capital borrowings during such period and (y) any net increase in cash reserves
for Operating Expenditures during such period required by any debt instrument
for the repayment of principal, interest or premium. Operating Surplus Generated
during a period is equal to the difference between (i) the Operating Surplus
determined at the end of such period and (ii) the Operating Surplus determined
at the beginning of such period.
Distributions by the Company of Available Cash from Operating Surplus with
respect to any quarter during the Subordination Period will be made in the
following manner:
first, 98% to the Common Unitholders, pro rata, and 2% to the General
Partner, until there has been distributed in respect of each outstanding Common
Unit an amount equal to the Minimum Quarterly Distribution for such quarter.
second, 98% to the Common Unitholders, pro rata, and 2% to the General
Partner, until there has been distributed in respect of each outstanding Common
Unit an amount equal to any Common Unit Arrearages accrued and unpaid with
respect to any prior quarters during the Subordination Period;
third, 98% to the Subordinated Unitholders, pro rata and 2% to the General
Partner, until there has been distributed in respect of each outstanding Common
Unit an amount equal to the Minimum Quarterly Distribution for such quarter. and
thereafter, in the manner described in "-Incentive Distributions-
Hypothetical Annualized Yield" below.
The above references to the 2% of Available Cash from Operating Surplus
distributed to the General Partner are references to the amount of the
Houston:60055.2
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percentage interest in distributions from the Company and the Operating
Partnership of the General Partner (exclusive of its or any of its affiliates'
interests as holders of Common Units or Subordinated Units). The General Partner
owns a 1% general partner interests in the Company and a 1.0101% general partner
interests in the Operating Partnership. With respect to any Common Unit, the
term "Common Unit Arrearages" refers to the amount by which the Minimum
Quarterly Distribution in any quarter during the Subordination Period exceeds
the distribution of Available Cash from Operating Surplus actually made for such
quarter on a Common Unit issued in our initial public offering, cumulative for
such quarter and all prior quarters during the Subordination Period. Common Unit
Arrearages will not accrue interest.
Distributions from Operating Surplus after Subordination Period
Distributions by the Company of Available Cash from the Operating Surplus
with respect to any quarter after the Subordination Period will be made in the
following manner:
first, 98% to all Unitholders, pro rata and 2% to the General Partner,
until there has been distributed in respect of each Unit an amount equal to the
Minimum Quarterly Distribution for such quarter; and
thereafter, in the manner described in "- Incentive Distributions" below.
Incentive Distributions
For any quarter for which Available Cash from Operating Surplus is
distributed to the Common and Subordinated Unitholders in an amount equal to the
Minimum Quarterly Distribution on all Units and to the Common Unitholders in an
amount equal to any unpaid Common Unit Arrearages, then any additional Available
Cash from Operating Surplus in respect of such quarter will be distributed among
the Unitholders and the General Partner in the following manner:
first, 98% to all Unitholders, pro rata, and 2% to the General Partner,
until the Unitholders have received (in addition to any distribution to Common
Unitholders to eliminate Common Unit Arrearages) a total of $0.506 for such
quarter in respect of each outstanding Unit ( the "First Target Distribution");
second, 85% to all Unitholders, pro rata, and 15% to the General Partner,
until the Unitholders have received (in addition to any distribution to Common
Unitholders to eliminate Common Unit Arrearages) a total of $0.617 for such
quarter in respect of each outstanding Unit (the "Second Target Distribution");
third, 75% to all Unitholders, pro rata, and 25% to the General Partner,
until the Unitholders have received ( in addition to any distributions to Common
Unitholders to eliminate Common Unit Arrearages) a total of $0.784 for such
quarter in respect of each outstanding Unit ( the "Third Target Distribution");
and
thereafter, 50% to all Unitholders, pro rate, and 50% to the General
Partner.
The distribution to the General Partner set forth above that are in excess
of its aggregate 2% general partner interest represent the Incentive
Distributions.
Distributions from Capital Surplus
Distributions by the Company of Available Cash from Capital Surplus will be
made in the following manner:
first, 98% to all Unitholders, pro rata, and 2% to the General Partner,
until the Company has distributed, in respect of each outstanding Common Unit
issued in our initial public offering, Available Cash from Capital Surplus in an
aggregate amount per Common Unit equal to the Initial Unit Price;
second, 98% to the holders of Common Units, pro rata, and 2% to the General
Partner, until the Company has distributed, in respect of each outstanding
Common Unit, Available Cash from Capital Surplus in an aggregate amount equal to
Houston:60055.2
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<PAGE>
any unpaid Common Unit Arrearages with respect to such Common Unit; and
thereafter, all distributions of Available Cash from Capital Surplus will be
distributed as if they were from Operating Surplus.
As a distribution of Available Cash from Capital Surplus is made, it is
treated as if it were a repayment of the Initial Unit Price. To reflect such
repayment, the Minimum Quarterly Distribution and the Target Distribution Levels
will be adjusted downward by multiplying each such amount by a fraction, the
numerator of which is the Unrecovered Capital of the Common Units immediately
after giving effect to such repayment and the denominator of which is the
Unrecovered Capital of the Common Units immediately prior to such repayment.
This adjustment to the Minimum Quarterly Distribution may make it more likely
that Subordinated Units will be converted into Common Units (whether pursuant to
the termination of the Subordination Period or to the provisions permitting
early conversion of some Subordinated Units) and may accelerate the dates at
which such conversions occur.
When "payback" of the Initial Unit Price has occurred, i.e., when the
Unrecovered Capital of the Common Units is zero (and any accrued Common Unit
Arrearages have been paid), the Minimum Quarterly Distribution and each of the
Target Distribution Levels will have been reduced to zero for subsequent
quarters. Thereafter, all distributions of Available Cash from all sources will
be treated as if they were from Operating Surplus. Because the Minimum Quarterly
Distribution and the Target Distribution Levels will have been reduced to zero,
the General Partner will be entitled thereafter to receive 50% of all
distributions of Available Cash in its capacity as General Partner (in addition
to any distributions to which it or its affiliates may be entitled as holders of
Units).
Distributions of Available Cash from Capital Surplus will not reduce the
Minimum Quarterly Distribution or Target Distribution Levels for the quarter
with respect to which they are distributed.
Adjustment of Minimum Quarterly Distribution and Target Distribution Levels
In addition to reductions of the Minimum Quarterly Distribution and Target
Distribution Levels made upon a distribution of Available Cash from Capital
Surplus, the Minimum Quarterly Distribution, the Target Distribution Levels, the
Unrecovered Capital, the number of additional Common Units issuable during the
Subordination Period without a Unitholder vote, the number of Common Units
issuable upon conversion of the Subordinated Units and other amounts calculated
on a per Unit basis will be proportionately adjusted upward or downward, as
appropriate, in the event of any combination or subdivision of Common Units
(whether effected by a distribution payable in Common Units or otherwise), but
not by reason of the issuance of additional Common Units for cash or property.
For example, in the event of a two-for-one split of the Common Units (assuming
no prior adjustments), the Minimum Quarterly Distribution, each of the Target
Distribution Levels and the Unrecovered Capital of the Common Units would each
be reduced to 50% of its initial level.
The Minimum Quarterly Distribution and the Target Distribution Levels may
also be adjusted if legislation is enacted or if existing law is modified or
interpreted by the relevant governmental authority in a manner that causes the
Company to become taxable as a corporation or otherwise subjects the Company to
taxation as an entity for federal, state or local income tax purposes. In such
event, the Minimum Quarterly Distribution and the Target Distribution Levels
would be reduced to an amount equal to the product of (i) the Minimum Quarterly
Distribution and each of the Target Distribution Levels, respectively,
multiplied by (ii) one minus the sum of (x) the maximum effective federal income
tax rate to which the Company is then subject as an entity plus (y) any increase
that results from such legislation in the effective overall state and local
income tax rate to which the Company is subject as an entity for the taxable
year in which such event occurs (after taking into account the benefit of any
deduction allowable for federal income tax purposes with respect to the payment
of state and local income taxes). For example, assuming the Company was not
previously subject to state and local income tax, if the Company were to become
taxable as an entity for federal income tax purposes and the Company became
subject to a maximum marginal federal, and effective state and local, income tax
rate of 38%, then the Minimum Quarterly Distribution and the Target Distribution
Levels would each be reduced to 62% of the amount thereof immediately prior to
such adjustment.
Distributions of Cash upon Liquidation
Following the commencement of the dissolution and liquidation of the
Company, assets will be sold or otherwise disposed of from time to time and the
partners' capital account balances will be adjusted to reflect any resulting
gain or loss in the manner provided in the Partnership Agreement. The proceeds
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of such liquidation will first be applied to the payment of creditors of the
Company in the order of priority provided in the Partnership Agreement and bylaw
and, thereafter, by distributed to the Unitholders and the General Partner in
accordance with their respective capital account balances as so adjusted.
Partners are entitled to liquidating distributions in accordance with
capital account balances. The allocations of gains and losses upon liquidation
are intended, to the extent possible, to entitle the holders of outstanding
Common Units to a preference over the holders of outstanding Subordinated Units
upon the liquidation of the Company, to the extent required to permit Common
Unitholders to receive their Unrecovered Capital plus any unpaid Common Unit
Arrearages. Thus, net losses recognized upon liquidation of the Company will be
allocated to the holders of the Subordinated Units to the extent of their
capital account balances before any loss is allocated to the holders of the
Common Units, and net gains recognized upon liquidation will be allocated first
to restore negative balances in the capital account of the General Partner and
any Unitholders and then to the Common Unitholders until their capital account
balances equal their Unrecovered Capital plus unpaid Common Unit Arrearages.
However, no assurance can be given that there will be sufficient gain upon
liquidation of the Company to enable the holders of Common Units to fully
recover all of such amounts, even though there may be cash available after such
allocation for distribution to the holders of Subordinated Units.
If the liquidation of the Company occurs before the end of the
Subordination Period, any net gain (or unrealized gain attributable to assets
distributed in kind) will be allocated to the partners as follows:
first, to the General Partner and the holders of Units having negative
balances in their capital accounts to the extent of and in proportion to such
negative balances:
second, 98% to the holders of Common Units, pro rata, and 2% to the General
Partner, until the capital account for each Common Unit is equal to the sum of
(i) the Unrecovered Capital in respect of such Common Unit, (ii) the amount of
the Minimum Quarterly Distribution for the quarter during which liquidation of
the Company occurs and (iii) any unpaid Common Unit Arrearages in respect of
such Common Unit;
third, 98% to the holders of Subordinated Units, pro rata, and 2% to the
General Partner, until the capital account for each Common Unit is equal to the
sum of (i) the Unrecovered Capital in respect of such Common Unit, (ii) the
amount of the Minimum Quarterly Distribution for the quarter during which
liquidation of the Company occurs and (iii) any unpaid Common Unit Arrearages in
respect of such Common Unit;
fourth, 98% to all Unitholders, pro rata, and 2% to the General Partner,
until there has been allocated under this paragraph fourth an amount per Unit
equal to (a) the sum of the excess of the First Target Distribution per Unit
over the Minimum Quarterly Distribution per Unit for each quarter of the
Company's existence, less (b) the cumulative amount per Unit of any
distributions of Available Cash from Operating Surplus in excess of the Minimum
Quarterly Distribution per Unit that were distributed 98% to the Unitholders,
pro rata, and 2% to the General Partner for each quarter of the Company's
existence;
fifth, 85% to all Unitholders, pro rata, and 15% to the General Partner,
until there has been allocated under this paragraph fifth an amount per Unit
equal to (a) the sum of the excess of the Second Target Distribution per Unit
over the First Target Distribution per Unit for each quarter of the Company's
existence, less (b) the cumulative amount per Unit of any distributions of
Available Cash from Operating Surplus in excess of the First Target Distribution
per Unit that were distributed 85% to the Unitholders, pro rata, and 15% to the
General Partner for each quarter of the Company's existence;
sixth, 75% to all Unitholders, pro rata, and 25% to the General Partner,
until there has been allocated under this paragraph sixth an amount per Unit
equal to (a) the sum of the excess of the Third Target Distribution per Unit
over the Second Target Distribution per Unit for each quarter of the Company's
existence, less (b) the cumulative amount per Unit of any distributions of
Available Cash from Operating Surplus in excess of the Second Target
Distribution per Unit that were distributed 75% to the Unitholders, pro rata,
and 25% to the General Partner for each quarter of the Company's existence; and
thereafter, 50% to all Unitholders, pro rata, and 50% to the General
Partner.
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If the liquidation occurs after the Subordination Period, the distinction
between Common Units and Subordinated Units will disappear, so that clauses (ii)
and (iii) of paragraph second above and all of paragraph third above will no
longer be applicable.
Upon liquidation of the Company, any loss will generally be allocated to
the General Partner and the Unitholders as follows:
first, 98% to holders of Subordinated Units in proportion to the positive
balances in their respective capital accounts and 2% to the General Partner,
until the capital accounts of the holders of the Subordinated Units have been
reduced to zero;
second, 98% to the holders of Common Units in proportion to the positive
balances in their respective capital accounts and 2% to the General Partner,
until the capital accounts of the Common Unitholders have been reduced to zero;
and
thereafter, 100% to the General Partner.
If the liquidation occurs after the Subordination Period, the distinction
between Common Units and Subordinated Units will disappear, so that all of
paragraph first above will no longer be applicable.
In addition, interim adjustments to capital accounts will be made at the
time the Company issues additional partnership interests in the Company or makes
distributions of property. Such adjustments will be based on the fair market
value of the partnership interests or the property distributed and any gain or
loss resulting therefrom will be allocated to the Unitholders and the General
Partner in the same manner as gain or loss is allocated upon liquidation. In the
event that positive interim adjustments are made to the capital accounts, any
subsequent negative adjustments to the capital accounts resulting from the
issuance of additional partnership interests in the Company, distributions of
property by the Company, or upon liquidation of the Company, will be allocated
in a manner which results, to the extent possible, in the capital account
balances of the General Partner equaling the amount which would have been the
General Partner's capital account balances if no prior positive adjustments to
the capital accounts had been made.
Transfer Agent and Registrar
ChaseMellon Shareholder Services, LLC is our registrar and transfer agent
for the Common Units. You may contact them at the following address:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Center
85 Challenger Road
Ridgefield Park, NJ 07760
All fees charged by the Transfer Agent for transfers of Common Units will be
borne by us and not by the holders of Common Units, except that fees similar to
those customarily paid by stockholders for surety bond premiums to replace lost
or stolen certificates, taxes and other governmental charges, special charges
for services requested by a holder of a Common Unit and other similar fees or
charges will be borne by the affected holder.
Transfer of Common Units
Until a Common Unit has been transferred on the books of the Company, the
Company and the Transfer Agent, notwithstanding any notice to the contrary, may
treat the record holder thereof as the absolute owner for all purposes, except
as otherwise required by law or stock exchange regulations. Any transfers of a
Common Unit will not be recorded by the Transfer Agent or recognized by the
Company unless the transferee executes and delivers a Transfer Application. By
executing and delivering a Transfer Application (the form of which is set forth
on the reverse side of the certificates representing the Common Units), the
transferee of Common Units (i) becomes the record holder of such Common Units
and shall constitute an assignee until admitted into the Company as a substitute
limited partner, (ii) automatically requests admission as a substituted limited
partner in the Company, (iii) agrees to be bound by the terms and conditions of,
and executes, the Partnership Agreement, (iv) represents that
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such transferee has the capacity, power and authority to enter into the
Partnership Agreement, (v) grants powers of attorney to officers of the General
Partner and any liquidator of the Company as specified in the Partnership
Agreement and (vi) makes the consents and waivers contained in the Partnership
Agreement. An assignee will become a substituted limited partner of the Company
in the respect of the transferred Common Units upon the consent of the General
Partner and the recordation of the name of the assignee on the books and records
of the company. Such consent may be withheld in the sole discretion of the
General Partner.
Common Units are securities and are transferable according to the laws
governing transfer of securities. In addition to other rights acquired upon
transfer, the transferor gives the transferee the right to request admission as
a substituted limited partner in the Company in the respect of transferred
Common Units. A purchaser or transferee of Common Units who does not execute and
deliver a Transfer Application obtains only (a) the right to assign the Common
Units to a purchaser or other transferee and (b) the right to transfer the right
to seek admission as a substituted limited partner in the Company with respect
to the transferred Common Units. Thus, a purchaser or transferee of Common Units
who does not execute and deliver a Transfer Application will not receive cash
distributions or federal income tax allocations unless the Common Units are held
in a nominee or "street name" account and the nominee or broker has executed and
delivered a Transfer Application with respect to such Common Units, and may not
receive certain federal income tax information or reports furnished to record
holders of Common Units. The transferor of Common Units will have a duty to
provide such transferee with all information that may be necessary to obtain
registration of the transfer of Common Units, that the transferor will not have
a duty to insure the execution of the Transfer Application by the transferee and
will have no liability or responsibility if such transferee neglects to or
chooses not to execute and forward the Transfer Application to the Transfer
Agent.
FEDERAL INCOME TAX CONSIDERATIONS
This section is a summary of material federal income 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 our counsel,
Vinson & Elkins L.L.P., ("Counsel"), insofar as it relates to matters of United
States federal income tax law and legal conclusions. This section is based upon
current provisions of the Code, existing and proposed Treasury regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change at any time. 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
"we," "our," and "us" refer to both the Company and the Operating Partnership.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting our Unitholders or us. Moreover, the
discussion focuses on our Unitholders who are individual citizens or residents
of the United States and has only limited application to corporations, estates,
trusts, nonresident aliens or other Unitholders subject to specialized tax
treatment (such as tax-exempt institutions, foreign persons, IRAs, REITs or
mutual funds). Prospective investors are urged to consult their own tax advisors
as to the particular tax consequences to them of the acquisition, ownership and
disposition of an investment in the Common Units, including the applicability of
any federal income, federal estate or gift tax, state, local and foreign tax
laws, changes in applicable tax laws and any pending or proposed legislation.
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) we 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 our partners (but not partners of 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.
We have not requested any ruling from the IRS with respect to the foregoing
issues or any other matter affecting our Unitholders or us. An opinion of
counsel represents only that counsel's best legal judgment and does not bind the
IRS or the courts. Thus, we cannot assure you that the opinions and statements
set forth in this prospectus 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
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indirectly by the Unitholders and the General Partner. Furthermore, we cannot
assure you that the treatment of the Company or an investment therein will not
be significantly modified by future legislative or administrative changes or
court decisions. Any modification may or may not be retroactively applied.
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, deduction and credit of the partnership in
computing his federal income tax liability, regardless of whether cash
distributions are made. Distributions by a partnership to a partner generally
are not taxable unless the amount of any cash distributed is in excess of the
partner's adjusted basis in his partnership interest.
An entity generally will be classified as a partnership rather than as a
corporation for federal income tax purposes if the entity (i) is treated as a
partnership under Treasury regulations, effective January 1, 1997, relating to
entity classification (the "Check-the-Box Regulations") and (ii) is not a
"publicly traded partnership" taxed as a corporation under Section 7704 of the
Code. In general, under the Check-the-Box Regulations, an unincorporated
domestic entity with at least two members may elect to be classified either as
an association taxable as a corporation or as a partnership. If such an entity
fails to make any election, it will be treated as a partnership for federal
income tax purposes.
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 exploration,
development, mining or production, processing, refining, transportation and
marketing of any mineral or natural resource. In the instant case, the Company's
gross income that is derived from the processing or refining of ethane, propane,
MTBE, isobutane, natural gasoline, propylene and the transportation of NGLs is
qualifying income. We estimate that less than [ ]% of our gross income is not
qualifying income under this test; however, this estimate could change from time
to time. Based upon and subject to that estimate, the factual representations
made by us and the General Partner and a review of the applicable legal
authorities, Counsel is of the opinion that at least 90% of our gross income
constitutes qualifying income.
If we fail to meet the Qualifying Income Exception (other than a failure
which is determined by the IRS to be inadvertent and which is cured within a
reasonable time after discovery), we will be treated as if we had transferred
all of our assets (subject to liabilities) to a newly formed corporation (on the
first day we fail to meet the Qualifying Income Exception) in return for stock
in the corporation, and then distributed that stock to the partners in
liquidation of their interests in us. This contribution and liquidation should
be tax-free to Unitholders and us, so long as we, at such time, do not have
liabilities in excess of the tax basis of our assets. Thereafter, we would be
treated as a corporation for federal income tax purposes.
If we or the Operating Partnership were treated as an association or
otherwise taxable as a corporation in any taxable year, as a result of a failure
to meet the Qualifying Income Exception or otherwise, our items of income, gain,
loss and deduction would be reflected only on our tax return rather than being
passed through to the Unitholders, and our net income would be taxed at the
entity level at corporate rates. In addition, any distribution made to a
Unitholder would be treated as either taxable dividend income (to the extent of
our current or accumulated earnings and profits), in the absence of earnings and
profits as 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
us or the Operating Partnership as an association or otherwise taxable as a
corporation would result in a material reduction in a Unitholder's cash flow and
after-tax return.
No ruling has been or will be sought from the IRS as to our status or the
status of the Operating Partnership as a partnership for federal income tax
purposes. Instead we have relied on the opinion of Counsel that, based upon the
Code, the Treasury regulations promulgated thereunder, published revenue rulings
and court decisions, the Company and the Operating Partnership will each be
classified as a partnership for federal income tax purposes.
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In rendering its opinion, Counsel has relied on certain factual
representations made by the General Partner and us. Such factual matters are as
follows:
(a) neither we nor the Operating Partnership has elected or will elect to
be treated as an association taxable as a corporation;
(b) the General Partner will at all times act independently of the limited
partners;
(c) for each taxable year, more than 90% of our gross income will be
income from sources that Counsel has or will opined is "qualifying
income";
(d) we and the Operating Partnership are organized and will be operated in
accordance with (i) all applicable partnership statutes, (ii) its and
our respective partnership agreements, and (iii) its and our
description in the Registration Statement.
The discussion below is based on the assumption that the Company and the
Operating Partnership will be classified as a partnership for federal income tax
purposes.
Limited Partner Status
Our Unitholders who have become limited partners will be treated as
partners of the Company for federal income tax purposes. Moreover, the IRS has
ruled that assignees of partnership interests who have not been admitted to a
partnership as partners, but who have the capacity to exercise substantial
dominion and control over the assigned partnership interests, will be treated as
partners for federal income tax purposes. On the basis of this ruling, 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 our partners
for federal income tax purposes. As this ruling does not extend, on its facts,
to assignees of common units who are entitled to execute and deliver Transfer
Applications and thereby become entitled to direct the exercise of attendant
rights, but who fail to execute and deliver Transfer Applications, Counsel's
opinion does not extend to these persons. Income, gain, deductions, losses or
credit would not appear to be reportable by these Unitholders, and any cash
distributions received by such Unitholders would therefore be fully taxable as
ordinary income. These holders should consult their own tax advisors with
respect to their status as partners for federal income tax purposes. 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
"--Tax Treatment of Operations--Treatment of Short Sales."
Tax Consequences of Unit Ownership
Flow-through of Taxable Income
We will pay no federal income tax. Instead, each of our Unitholders will be
required to report on his income tax return his allocable share of our income,
gains, losses and deductions without regard to whether corresponding cash
distributions are received by him. Consequently, we may allocate income to our
Unitholders although they have not received a cash distribution in respect of
that income.
Treatment of Company Distributions
Our distributions to any of our Unitholders 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
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the sale or exchange of the Common Units, taxable in accordance with the rules
described under "--Disposition of Common Units" below. Any reduction in a
Unitholder's share of our liabilities for which no partner, including the
General Partner, bears the economic risk of loss ("nonrecourse liabilities")
will be treated as a distribution of cash to that Unitholder.
Basis of Common Units
A Unitholder's initial tax basis for his Common Units will be the amount he
paid for the Common Units plus his share of our nonrecourse liabilities. The
initial tax basis for a Common Unit will be increased by the Unitholder's share
of our income and by any increase in the Unitholder's share of our nonrecourse
liabilities. The basis for a Common Unit will be decreased (but not below zero)
by our distributions, including any decrease in the Unitholder's share of our
nonrecourse liabilities, by the Unitholder's share of our losses and by his
share of our expenditures that are not deductible in computing the Unitholder's
taxable income and are not required to be capitalized. A Unitholder's share of
our nonrecourse liabilities generally will be based on the Unitholder's share of
our profits.
Limitations on Deductibility of Company Losses
To the extent we incur losses, a Unitholder's share of deductions for the
losses will be limited to the tax basis of his Units or, 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 or for five or fewer individuals or
some tax-exempt organizations, to the amount that the Unitholder is considered
to be "at risk" with respect to our activities, if that is less than the
Unitholder's basis. A Unitholder must recapture losses deducted in previous
years to the extent that our distributions cause the Unitholder's at risk amount
to be less than zero at the end of any taxable year. Losses disallowed to a
Unitholder or recaptured as a result of these limitations will carry forward and
will be allowable to the extent that the Unitholder's basis or at risk amount
(whichever is the limiting factor) is increased.
In general, a Unitholder will be at risk to the extent of the purchase
price of his Units, but this will be less than the Unitholder's basis for his
Units by the amount of the Unitholder's share of any of our nonrecourse
liabilities. A Unitholder's at risk amount will increase or decrease as the
basis for the Unitholder's Units increases or decreases except that changes in
our nonrecourse liabilities will not increase or decrease the at risk amount.
The passive loss limitations generally provide that individuals, estates,
trusts and some closely-held corporations and personal service corporations can
only deduct losses from passive activities (generally, activities in which the
taxpayer does not materially participate) that are not in excess of the
taxpayer's income from passive activities or investments. The passive loss
limitations are applied separately with respect to each publicly-traded
partnership. Consequently, any losses generated by us will only be available to
offset future income that we generate 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 that are not
deductible because they exceed the Unitholder's income that we generate may be
deducted in full when the Unitholder disposes of his entire investment in us in
a fully taxable transaction to an unrelated party. The passive activity loss
rules are applied after other applicable limitations on deductions such as the
at risk rules and the basis limitation.
A Unitholder's share of our net income may be offset by any of our
suspended passive losses, but it may not be offset by any other current or
carryover losses from other passive activities, including those attributable to
other publicly-traded partnerships. The IRS has announced that Treasury
Regulations will be issued that characterize net passive income from a
publicly-traded partnership as investment income for purposes of the limitations
on the deductibility of investment interest.
Limitations on Interest Deductions
The deductibility of a non-corporate taxpayer's "investment interest
expense" is generally limited to the amount of the taxpayer's "net investment
income." As noted, a Unitholder's share of our net passive income will be
treated as investment income for this purpose. In addition, the Unitholder's
share of our portfolio income will be treated as investment income. Investment
interest expense includes.
- interest on indebtedness properly allocable to property held for
investment;
- our interest expense attributed to portfolio income; and
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- 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 to the extent attributable to his portfolio income. Net
investment income includes gross income from property held for investment, gain
attributable to the disposition of property held for investment and amounts
treated as portfolio income pursuant to the passive loss rule for deductible
expenses (other than interest) directly connected with the production of
investment income.
Allocation of Income, Gain, Loss and Deduction
Our partnership agreement provides that a capital account be maintained for
each partner, that the capital accounts generally be maintained in accordance
with the applicable tax accounting principles set forth in applicable Treasury
Regulations and that all allocations to a partner be reflected by an appropriate
increase or decrease in his capital account. Distributions upon our liquidation
are generally to be made in accordance with positive capital account balances.
In general, if we have a net profit, items of income, gain, loss and
deduction will be allocated among the General Partner and our Unitholders in
accordance with their respective percentage interests in us. A class of our
Unitholders that receives more cash than another class, on a per unit basis,
with respect to a year, will be allocated additional income equal to that
excess. If we have a net loss, items of income, gain, loss and deduction will
generally be allocated for both book and tax purposes (1) first, to the General
Partner and the Unitholders in accordance with their respective Percentage
Interests to the extent of their positive capital accounts and (2) second, to
the General Partner.
Notwithstanding the above, as required by Section 704(c) of the Code, some
items of our 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 us ("Contributed Property") or owned by us at the time new Units
are sold by us ("Adjusted Property"). In addition, some items of recapture
income will be allocated to the extent possible to the partner allocated the
deduction giving rise to the treatment of the gain as recapture income in order
to minimize the recognition of ordinary income by some Unitholders. Finally,
although we do not expect that our operations will result in the creation of
negative capital accounts, if negative capital accounts nevertheless result,
items of our income and gain will be allocated in an amount and manner
sufficient to eliminate the negative balance as quickly as possible.
Regulations provide that an allocation of items of our income, gain, loss,
deduction or credit, other than an allocation required by Section 704(b) of the
Code to eliminate the disparity between a partner's "book" capital account
(credited with the fair market value of Contributed Property and credited or
debited with any gain of loss attributable to an Adjusted 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 us, which will be determined by taking
into account all the facts and circumstances, including the partner's relative
contributions to us, the interests of the partners in economic profits and
losses, the interest of the partners in cash flow and other non-liquidating
distributions and rights of the partners to distributions of capital upon
liquidation.
Counsel is of the opinion that allocations under the Partnership Agreement
will be given effect for federal income tax purposes in determining a
Unitholde's distributive share of an item of income, gain, loss or deduction.
Tax Treatment of Operations
Accounting Method and Taxable Year
We use the calendar year as our taxable year and adopt the accrual method
of accounting for federal income tax purposes.
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Initial Tax Basis, Depreciation and Amortization
The tax basis established for our various assets will be used for purposes
of computing depreciation and cost recovery deductions and, ultimately, gain or
loss on the disposition of those assets. Our assets initially had an aggregate
tax basis equal to the tax basis of the assets in the possession of EPCO
immediately prior to our formation.
To the extent allowable, our General Partner may elect to use the
depreciation and cost recovery methods that will result in the largest
depreciation deductions in our early years. Property that we subsequently
acquired or construct may be depreciated using accelerated methods permitted by
the Code.
If we dispose of depreciable property by sale, foreclosure or otherwise,
all or a portion of any gain (determined by reference to the amount of
depreciation previously deducted and the nature of the property) may be subject
to the recapture rules and taxed as ordinary income rather than capital gain.
Similarly, a partner who has taken cost recovery or depreciation deductions with
respect to property owned by us may be required to recapture such deductions as
ordinary income upon a sale of his interest. See "--Tax Consequences of Common
Unit Ownership--Allocation of Our Income, Gain, Loss , Deduction and Credit" and
"--Tax Consequences of Common Unit Ownership--Disposition of Common
Units--Recognition of Gain or Loss."
Costs we incurred in organizing may be amortized over any period we select
not shorter than 60 months. The costs incurred in promoting the issuance of
Units must be capitalized and cannot be deducted currently, ratably or upon
termination. 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
We previously made the election permitted by Section 754 of the Code. This
election is irrevocable without the consent of the IRS. The election generally
permits a purchaser of a Unit to adjust his share of the basis in our properties
("inside basis") pursuant to Section 743(b) of the Code to fair market value (as
reflected by his Unit price). See "Tax Considerations -- Allocation of Our
Income, Gain, Loss and Deduction." The Section 743(b) adjustment is attributed
solely to a purchaser of units and is not added to the basis of our assets
associated with all of our Unitholders. (For purposes of this discussion, a
partner's inside basis in the Company's assets will be considered to have two
components: (1) his share of our actual basis in our assets (the "Common Basis")
and (2) his Section 743(b) adjustment allocated to each of our assets.)
Proposed Treasury Regulation Section 1.197-2(g)(3) generally requires that
the Section 743(b) adjustment attributable to amortizable intangible assets
should be treated as a newly-acquired asset placed in service on the date when
the transfer occurs. Under Treasury Regulation Section 1.167(c)- 1(a)(6), a
Section 743(b) adjustment attributable to property subject to depreciation under
Section 167 of the Code rather than cost recovery deductions under Section 168
is generally required to be depreciated using either the straight-line method or
the 150% declining balance method. The depreciation and amortization methods and
useful lives associated with the Section 743(b) adjustment, therefore, may
differ from the methods and useful lives generally used to depreciate the common
basis in such properties. Pursuant to the Partnership Agreement, our General
Partner is authorized to adopt a convention to preserve the uniformity of Units
even if such convention is not consistent with Treasury Regulation Section
1.197-2(g)(3) or Proposed Treasury Regulation Section 1.167(c)-1(a)(6). See
"--Tax Consequences of Common Unit Ownership--Uniformity of Units."
Although Counsel is unable to opine as to the validity of such an approach,
we intend 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 our property. This method
is consistent with the proposed regulations under Section 743 but is arguably
inconsistent with Treasury Regulation Section 1.197-2(g)(3). To the extent that
the Section 743(b) adjustment is attributable to appreciation in value in excess
of the unamortized Book-Tax Disparity, we will apply the rules described in the
Treasury Regulations and legislative history. If we determine that this position
cannot reasonably be taken, we may adopt a depreciation or amortization
convention under which all purchasers acquiring Units in the same month would
receive depreciation or amortization, whether attributable to the Common Basis
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or the Section 743(b) basis, based upon the same applicable rate as if they had
purchased a direct interest in our property. This aggregate approach may result
in lower annual depreciation or amortization deductions than would otherwise be
allowable to some of our Unitholders. See "--Tax Consequences of Common Unit
Ownership--Uniformity of Units."
The allocation of the Section 743(b) adjustment must be made in accordance
with the principles of section 1060 of the Code. Based on these principles, the
IRS may seek to reallocate some or all of any Section 743(b) adjustment not so
allocated by us to goodwill. Alternatively, it is possible that the IRS may seek
to treat the portion of the Section 743(b) adjustment attributable to the
Underwriter's discount as if allocable to a non-deductible syndication cost.
A Section 754 election is advantageous if the transferee's basis in his
Units is higher than his Units' share of the aggregate basis of our assets
immediately prior to the transfer. In such a case, pursuant to the election, the
transferee would take a new and higher basis in his share of our assets for
purposes of calculating, among other items, his depreciation deductions and his
share of any gain or loss on a sale of our assets. Conversely, a Section 754
election is disadvantageous if the transferee's basis in his Units is lower than
his Units' share of the aggregate basis of our assets immediately prior to the
transfer. Thus, the amount that a Unitholder will be able to obtain upon the
sale of his Units may be affected either favorably or adversely by the election.
The calculations involved in the Section 754 election are complex and we
will make them on the basis of some assumptions as to the value of our assets
and other matters. There is no assurance that the determinations we make will
not be successfully challenged by the IRS and that the deductions attributable
to them will not be disallowed or reduced. Should the IRS require a different
basis adjustment to be made, and should, in our General Partner's opinion, the
expense of compliance exceed the benefit of the election, our General Partner
may seek permission from the IRS to revoke our Section 754. If such permission
is granted, a purchaser of Units probably will incur increased tax liability.
Alternative Minimum Tax
Each Unitholder will be required to take into account his distributive
share of any items of our income, gain or loss for purposes of the alternative
minimum tax. A portion of our depreciation deductions may be treated as an item
of tax preference for this purpose.
A Unitholder's alternative minimum taxable income derived from us may be
higher than his share of our net income because we may use more accelerated
methods of depreciation for purposes of computing federal taxable income or
loss. The minimum tax rate for individuals 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. You should consult with your
tax advisors as to the impact of an investment in Units on your liability for
the alternative minimum tax.
Valuation of Our Property
The federal income tax consequences of the ownership and disposition of
Units will depend in part on our estimates of the relative fair market values,
and determinations of the initial tax basis, of our assets. Although we 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 solely by
us. These estimates are subject to challenge and will not be binding on the IRS
or the courts. In the event the estimates of fair market value are subsequently
found to be incorrect, the character and amount of items of income, gain, loss,
deductions or credits previously reported by Unitholders might change, and
Unitholders might be required to amend their previously filed tax returns or to
file claims for refunds.
Treatment of Short Sales
A Unitholder who engages in a short sale (or a transaction having the same
effect) with respect to the Units will be required to recognize the gain (but
not the loss) inherent in the Units that are sold short. See"--Tax Consequences
of Common Unit Ownership -- Disposition of Common Units." In addition, it would
appear that a Unitholder whose Units are loaned to a "short seller" to cover a
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short sale of Units may be considered as having transferred beneficial ownership
of those Units, and would, thus, no longer be a partner with respect to those
Units during the period of the loan. As a result, during this period, any of our
income, gain, deduction, loss or credit with respect to those Units would appear
not to be reportable by the Unitholder, any cash distributions received by the
Unitholder with respect to those Units would be fully taxable and all of those
distributions would appear to be treated as ordinary income. The IRS may also
contend that a loan of common units to a "short seller" constitutes a taxable
exchange. If the IRS successfully made this contention, the lending Unitholder
may be required to recognize gain or loss. Unitholders desiring to assure their
status as partners should modify any of their brokerage account agreements to
prohibit their brokers from borrowing their Units.
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 our nonrecourse
liabilities. Since the amount realized includes a Unitholder's share of our
nonrecourse liabilities, the gain recognized on the sale of Units may result in
a tax liability in excess of any cash received from the sale.
Gain or loss recognized by a Unitholder (other than a "dealer" in Units) on
the sale or exchange of a Unit held for more than twelve months will generally
be taxable as long-term capital gain or loss. A substantial portion of this gain
or loss, 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" we own. The term "unrealized receivables" includes potential
recapture items, including depreciation recapture. Ordinary income attributable
to unrealized receivables, inventory items and depreciation recapture may exceed
net taxable gain realized upon the sale of the Unit and may be recognized even
if there is a net taxable loss realized on the sale of the Unit. Any loss
recognized on the sale of Units will generally be a capital loss. 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 a corporation.
The IRS has ruled that a partner acquiring interests in a partnership in
separate transactions at different prices must maintain an aggregate adjusted
tax basis in a single partnership interest and that, upon sale or other
disposition of some of the interests, a portion of the aggregate tax basis must
be allocated to the interests sold on the basis of some equitable apportionment
method. This ruling is unclear as to how the holding period of these interests
is affected by this aggregation concept. If this ruling is applicable to you,
the aggregation of your tax basis effectively prohibits you from choosing among
Units with varying amounts of unrealized gain or loss as would be possible in a
stock transaction. Thus, the ruling may result in an acceleration of gain or
deferral of loss on a sale of a portion of your Units. It is not clear whether
the ruling applies to publicly-traded partnerships, such as us, the interests in
which are evidenced by separate interest, and accordingly Counsel is unable to
opine as to the effect this ruling will have on you. If you are considering the
purchase of additional Common Units or a sale of Common Units purchased at
differing prices, you should consult your tax advisor as to the possible
consequences of this ruling.
Allocations Between Transferors and Transferees
In general, our taxable income and losses will be determined annually and
will be prorated on a monthly basis and subsequently apportioned among the
Unitholders in proportion to the number of Units they owned as of the close of
the first business day of the month (the "Allocation Date"). However, gain or
loss realized on a sale or other disposition of our assets other than in the
ordinary course of business will be allocated among the Unitholders on the
Allocation Date in the month in which the gain or loss is recognized. As a
result of this allocation procedure, a Unitholder transferring Common Units in
the open market may be allocated income, gain, loss, deduction, and credit
accrued after the date of transfer.
The use of the allocation procedure discussed above may not be permitted by
existing Treasury regulations and, 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 an allocation procedure is not
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allowed by the Treasury Regulations (or only applies to transfers of less than
all of the Unitholder's interest), our taxable income or losses might be
reallocated among the Unitholders. We are authorized to revise our method of
allocation between transferors and transferees (as well as among partners whose
interests otherwise vary during a taxable period) to conform to a method
permitted under future Treasury Regulations.
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 distribution with respect to
that quarter will be allocated items of our income and gain attributable to the
quarter during which his Units were owned but will not be entitled to receive
distributions with respect to that quarter.
Notification Requirements
A Unitholder who sells or exchanges Units is required to notify us in
writing of the sale or exchange within 30 days after the sale or exchange and in
any event by no later than January 15 of the year following the calendar year in
which the sale or exchange occurred. We are required to notify the IRS of that
transaction and to furnish certain information to the transferor and transferee.
However, these reporting requirements do not apply with respect to a sale by an
individual who is a citizen of the United States and who effects the sale
through a broker. Additionally, a transferor and a transferee of a Unit will be
required to furnish statements to the IRS, filed with their income tax returns
for the taxable year in which the sale or exchange occurred, that set forth the
amount of the consideration paid for the Unit that is allocated to our goodwill
or going concern value. Failure to satisfy these reporting obligations may lead
to the imposition of substantial penalties.
Constructive Termination
We and the Operating Partnership will be considered to be terminated if
there is a sale or exchange of 50% or more of the total interests in Company
capital and profits within a 12-month period. A constructive termination results
in the closing of a partnership's taxable year for all partners. A termination
could result in non-uniformity of Units for federal income tax purposes. Our
constructive termination will cause a termination of our operating limited
partnerships. A termination could also result in penalties or loss of basis
adjustments under the Code if we were unable to determine that the termination
had occurred.
In the case of a Unitholder reporting on a fiscal year other than a
calendar year, the closing of our tax year may result in more than 12 months of
our taxable income or loss of the Company being includable in his taxable income
for the year of termination. In addition, each Unitholder will realize taxable
gain to the extent that any money constructively distributed to him (including
any net reduction in his share of partnership nonrecourse liabilities) exceeds
the adjusted basis of his Units. New tax elections we are required to make,
including a new election under Section 754 of the Code, must be made subsequent
to the constructive termination. A constructive termination would also result in
a deferral of our deductions for depreciation. In addition, a termination might
either accelerate the application of or subject us to any tax legislation
enacted with effective dates after the closing of the offering made hereby.
Entity-Level Collections
If we are required 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, we are authorized to pay those taxes from our funds. The payments,
if made, will be deemed current distributions of cash to the Unitholder and the
General Partner. Our general Partner 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 the deemed distributions, the priority and characterization of
distributions otherwise applicable under the Partnership Agreement is maintained
as nearly as is practicable. These payments 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
Since we 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
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substantially diminished. A lack of uniformity can result from a literal
application of Treasury Regulation Section 1.167(c)-1(a)(6) or Proposed Treasury
Regulation Section 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."
We intend 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
the rate of depreciation derived from the depreciation method and useful life
applied to the Common Basis of our property, consistent with the proposed
regulations under Section 743, but despite its inconsistency with Treasury
Regulation Section 1.167(c)-1(a)(6) or Proposed Treasury Regulation Section
1.197-2(g)(3). See "--Tax Treatment of Operations--Section 754 Election." If we
determine that this position cannot reasonably be taken, we may adopt
depreciation and amortization conventions under which all purchasers acquiring
Units in the same month would receive depreciation and amortization deductions,
whether attributable to the Common Basis or the Section 743(b) basis, based upon
the same applicable rate as if they had purchased a direct interest in our
property. If this aggregate approach is adopted, it may result in lower annual
depreciation and amortization deductions than would otherwise be allowable to
some of our Unitholders and risk the loss of depreciation and amortization
deductions not taken in the year that such deductions are otherwise allowable.
We will not adopt this convention if we determine that the loss of depreciation
and amortization deductions will have a material adverse effect on the
Unitholders. If we choose not to utilize this aggregate method, we may use any
other reasonable depreciation and amortization convention to preserve the
uniformity of the intrinsic tax characteristics of any Units that would not have
a material adverse effect on the Unitholders. The IRS may challenge any method
of depreciating or amortizing the Section 743(b) adjustment described in this
paragraph. If this challenge were sustained, the uniformity of Units might be
affected.
Tax-Exempt Organizations and Some 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 these persons and, as
described below, may have substantially adverse tax consequences.
Employee benefit plans and most other organizations exempt from federal
income tax (including IRAs and other retirement plans) are subject to federal
income tax on unrelated business taxable income. Much of the taxable income
derived by these organizations from the ownership of a Unit will be unrelated
business taxable income and thus will be taxable to these Unitholder.
Regulated investment companies are required to derive 90% or more of their
gross income from interest, dividends, gains from the sale of stocks or
securities or foreign currency or some related sources. It is not anticipated
that any significant amount of our gross income will qualify as income from
these sources.
Non-resident aliens and foreign corporations, trusts or estates that
acquire Units will be considered to be engaged in business in the United States
on account of their ownership of Units, and as a consequence they will be
required to file federal tax returns in respect of their distributive shares of
our income, gain, loss, deduction or credit and pay federal income tax at
regular rates on our income. Generally, a partnership is required to pay a
withholding tax on the portion of the partnership's income which is effectively
connected with the conduct of a United States trade or business and which is
allocable to the foreign partners, regardless of whether any actual
distributions have been made to such partners. However, under rules applicable
to publicly-traded partnerships, we will withhold 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 Company on a Form W-8 in order to
obtain credit for the taxes withheld. Subsequent adoption of Treasury
Regulations or the issuance of other administrative pronouncements may require
us to change these procedures.
Because a foreign corporation that owns Units will be treated as engaged in
a United States trade or business, it may be subject to United States branch
profits tax at a rate of 30%, in addition to regular federal income tax, on its
allocable share of our earnings and profits (as adjusted for changes in the
foreign corporation's "U.S. net equity") that 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."
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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
Company Information Returns and Audit Procedures
We intend to furnish to each Unitholder, within 90 days after the close of
each calendar year, tax information, including a Schedule K-1, that sets forth
each Unitholder's allocable share of our income, gain, loss, deduction and
credit. In preparing this information that will generally not be reviewed by
counsel, we will use various accounting and reporting conventions, some of which
have been mentioned in the previous discussion, to determine the respective
Unitholder's allocable share of income, gain, loss, deduction and credit. 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 Company cannot assure prospective Unitholders that the IRS will
not successfully contend in court that such accounting and reporting conventions
are impermissible.
The federal income tax information returns we file may be audited by the
IRS. Adjustments resulting from any IRS audit may require some or all of the
Unitholders to file amended tax returns, and possibly may result in an audit of
Unitholders' own returns. Any audit of a Unitholder's return could result in
adjustments of non-Company as well as Company 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, deduction and credit are determined are determined at the
partnership level in a unified 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. Our Partnership
Agreement appoints the General Partner as the Tax Matters Partner.
The Tax Matters Partner will make certain elections on our behalf and on
our Unitholders' behalf and can extend the statute of limitations for assessment
of tax deficiencies against Unitholders with respect to our items. The Tax
Matters Partner may bind a Unitholder with less than a 1% profits interest in
the Company to a settlement with the IRS unless that Unitholder elects, by
filing a statement with the IRS, not to give such authority to the Tax Matters
Partner. The Tax Matters Partner may seek judicial review (by which all the
Unitholders are bound) of a final partnership administrative adjustment and, if
the Tax Matters Partner fails to seek judicial review, such review may be sought
by any Unitholder having at least a 1% interest in our profits and by the
Unitholders having in the aggregate at least a 5% profits interest. However,
only one action for judicial review will go forward, and each Unitholder with an
interest in the outcome may participate.
A Unitholder must file a statement with the IRS identifying the treatment
of any item on his federal income tax return that is not consistent with the
treatment of the item on our return to avoid the requirement that all items be
treated consistently on both returns. Intentional or negligent disregard of the
consistency requirement may subject a Unitholder to substantial penalties.
Nominee Reporting
Persons who hold an interest in the Company as a nominee for another person
are required to furnish to us:
- the name, address and taxpayer identification number of the beneficial
owner and the nominee;
- 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;
- the amount and description of Units held, acquired or transferred for
the beneficial owner; and
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- 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 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 this information to us. The nominee is required to supply
the beneficial owner of the Units with the information furnished to us.
Registration as a Tax Shelter
The 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 we
are not subject to the registration requirement on the basis that (i) we do not
constitute a tax shelter or (ii) we constitute a projected income investment
exempt from registration. However, the General Partner, as our principal
organizer, has registered us as a tax shelter with the Secretary of the Treasury
because of the absence of assurance that we will not be subject to tax shelter
registration and in light of the substantial penalties which might be imposed if
registration is required and not undertaken. ISSUANCE OF THE REGISTRATION NUMBER
DOES NOT INDICATE THAT AN INVESTMENT IN THE COMPANY OR THE CLAIMED TAX BENEFITS
HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE IRS. We must furnish the
registration number to the Unitholders, and a Unitholder who sells or otherwise
transfers a 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 Company
on Form 8271 to be attached to the tax return on which any income, gain, loss,
deduction or credit of the Company 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 $50 penalty for each failure. Any
penalties discussed herein are not deductible for federal income tax purposes.
Accuracy-Related Penalties
An additional tax equal to 20% of the amount of any portion of an
underpayment of tax that is attributable to one or more of certain listed
causes, including 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 the position are
disclosed on the return. More stringent rules apply to "tax shelters," a term
that in this context does not appear to include us. If items of our income,
gain, loss, deduction or credit included in the distributive shares of
Unitholders might result in such an "understatement" of income for which no
"substantial authority" exists, we must disclose the pertinent facts on our
return. In addition, we will make a reasonable effort to furnish sufficient
information for Unitholders to make adequate disclosure on their returns to
avoid liability for this penalty.
A substantial valuation misstatement exists if the value of any property
(or the adjusted basis of any property) claimed on a tax return is 200% or more
of the amount determined to be the correct amount of the valuation or adjusted
basis. No penalty is imposed unless the portion of the underpayment attributable
to a substantial valuation misstatement exceeds $5,000 ($ 10,000 for most
corporations). If the valuation claimed on a return is 400% or more than the
correct valuation, the penalty imposed increases to 40%.
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
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estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property. Although an analysis of
those various taxes is not presented here, each prospective Unitholder should
consider the potential impact of such taxes on his investment in us. A
Unitholder will be required to file state income tax returns and to pay state
income taxes in some or all of the states in which we do business or own
property and may be subject to penalties for failure to comply with those
requirements. In certain states, tax losses may not produce a tax benefit in the
year incurred (if, for example, we have 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 us, or we may elect, to withhold a
percentage of income from amounts to be distributed to a Unitholder who is not a
resident of the state. Withholding, the amount of which may be greater or less
than a particular Unitholder's income tax liability to the state, generally does
not relieve the non-resident Unitholder from the obligation to file an income
tax return. Amounts withheld may be treated as if distributed to Unitholders for
purposes of determining the amounts distributed by us. See "--Disposition of
Common Units - Entity--Level Collections". Based on current law and its estimate
of our future 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 us. Accordingly, each prospective Unitholder should consult, and
must depend upon, his own tax counsel or other advisor with regard to those
matters. Further, it is the responsibility of each Unitholder to file all state
and local, as well as U.S. federal, tax returns that may be required of such
Unitholder. Counsel has not rendered an opinion on the state or local tax
consequences of an investment in us.
Tax Consequences of Ownership of Debt Securities
A description of the material federal income tax consequences of the
acquisition, ownership and disposition of debt securities will be set forth in
the prospectus supplement relating to the offering of debt securities.
SELLING UNITHOLDERS
In addition to covering our offering of securities, this Prospectus covers
the offering for resale of an unspecified number of Common Units by Selling
Unitholders. The applicable Prospectus Supplement will set forth, with respect
to each Selling Unitholder,
(1) the name of the Selling Unitholder,
(2) the nature of any position, office or other materials relationship
which the Selling Unitholder will have had within the prior three
years with us or any of our predecessors or affiliates,
(3) the number of Common Units owned by the Selling Unitholders prior to
the offering,
(4) the amount of Common Units to be offered for the Selling Unitholder's
account, and
(5) the amount and (if one percent or more) the percentage of the Common
Units to be owned by the Selling Unitholders after completion of the
offering.
PLAN OF DISTRIBUTION
We may sell the Common Units or Debt Securities directly, through agents,
or to or through underwriters or dealers. Please read the Prospectus Supplement
to find the terms of the Common Unit or Debt Securities offering including:
- the names of any underwriters, dealers or agents;
- the offering price;
- underwriting discounts;
- sales agents' commissions;
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- other forms of underwriter or agent compensation;
- discounts, concessions or commissions that underwriters may pass on to
other dealers;
- any exchange on which the Common Units or Debt Securities are listed.
We may change the offering price, underwriter discounts or concessions, or
the price to dealers when necessary. Discounts or commissions received by
underwriters or agents and any profits on the resale of Common Units or Debt
Securities by them may constitute underwriting discounts and commissions under
the Securities Act of 1933.
Unless we state otherwise in the Prospectus Supplement, underwriters will
need to meet certain requirements before purchasing Common Units or Debt
Securities. Agents will act on a "best efforts" basis during their appointment.
We will also state the net proceeds from the sale in the Prospectus Supplement.
Any brokers or dealers that participate in the distribution of the Common
Units or Debt Securities may be "underwriters" within the meaning of the
Securities Act for such sales. Profits, commissions, discounts or concessions
received by such broker or dealer may be underwriting discounts and commissions
under the securities act.
When necessary, we may fix Common Unit or Debt Securities distribution
using changeable, fixed prices, market prices at the time of sale, prices
related to market prices, or negotiated prices.
We may, through agreements, indemnify underwriters, dealers or agents who
participate in the distribution of the Units or Debt Securities against certain
liabilities including liabilities under the Securities Act. We may also provide
funds for payments such underwriters, dealers or agents may be required to make.
Underwriters, dealers and agents, and their affiliates may transact with us and
our affiliates in the ordinary course of their business.
Distribution by Selling Unitholders
Distribution of any Common Units to be offered by one or more of the
Selling Unitholders may be effected from time to time in one or more
transactions (which may involve block transactions) (1) on the New York Stock
Exchange, (2) in the over-the-counter market, (3) in transactions otherwise than
on the New York Stock Exchange or in the over-the-counter market or (4) in a
combination of any of these transactions. The transactions may be effected by
the Selling Unitholders at market prices prevailing at the time of sale, at
prices related to the prevailing market prices, at negotiated prices or at fixed
prices. The Selling Unitholders may offer their shares through underwriters,
brokers, dealers or agents, who may receive compensation in the form of
underwriting discounts, commissions or concessions from the Selling Unitholders
and/or the purchasers of the shares for whom they act as agent. The Selling
Unitholders may engage in short sales, short sales against the box, puts and
calls and other transactions in our securities, or derivatives thereof, and may
sell and deliver their Common Units in connection therewith. In addition, the
Selling Unitholders may from time to time sell their Common Units in
transactions permitted by Rule 144 under the Securities Act.
As of the date of this Prospectus, we have not engaged any underwriter,
broker, dealer or agent in connection with the distribution of Common Units
pursuant to this Prospectus by the Selling Unitholders. To the extent required,
the number of Common Units to be sold, the purchase price, the name of any
applicable agent, broker, dealer or underwriter and any applicable commissions
with respect to a particular offer will be set forth in the applicable
Prospectus Supplement. The aggregate net proceeds to the Selling Unitholders
from the sale of their Common Units offered hereby will be the sale price of
those shares, less any commissions, if any, and other expenses of issuance and
distribution not borne by us.
The Selling Unitholders and any brokers, dealers, agents or underwriters
that participate with the Selling Unitholders in the distribution of shares may
be deemed to be "underwriters" within the meaning of the Securities Act, in
which event any discounts, concessions and commissions received by such brokers,
dealers, agents or underwriters and any profit on the resale of the shares
purchased by them may be deemed to be underwriting discounts and commissions
under the Securities Act.
Houston:60055.2
40
<PAGE>
The applicable Prospectus Supplement will set forth the extent to which we
will have agreed to bear fees and expenses of the Selling Unitholders in
connection with the registration of the Common Units being offered hereby by
them. We may, if so indicated in the applicable Prospectus Supplement, agree to
indemnify Selling Unitholders against certain civil liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Vinson & Elkins L.L.P., our counsel, will issue an opinion for us about the
legality of the Common Units and Debt Securities and the material federal income
tax considerations regarding the Common Units. Any underwriter will be advised
about other issues relating to any offering by their own legal counsel.
EXPERTS
The consolidated financial statements of Enterprise Products Partners L.P.
and the financial statements of Belvieu Environmental Fuels, which are
incorporated by reference in this prospectus from the Annual Report on Form 10-K
of Enterprise Products Partners L.P. for the year ended December 31, 1998 and
the financial statements of Tejas Natural Gas Liquids, LLC and Subsidiary which
are incorporated by reference in this prospectus from the Amended Current Report
on Form 8-K/A No. 1 of Enterprise Products Partners L.P., have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports, which
are incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
Houston:60055.2
41
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses payable by Enterprise
Products Partners L.P. ("Enterprise") and Enterprise Products Operating L.P.
("Operating") in connection with the issuance and distribution of the securities
covered by this Registration Statement.
Registration fee................................................... $222,400
Fees and expenses of accountants................................... 100,000
Fees and expenses of legal counsel ................................ 200,000
Rating Agencies.................................................... 200,000
Fees and expenses of Trustee and counsel........................... 25,000
Printing and engraving expenses.................................... 100,000
Miscellaneous...................................................... 19,200
------
Total............................................ $866,600
========
Item 15. Indemnification of Directors and Officers.
Section 17-108 of the Delaware Revised Limited Partnership Act empowers a
Delaware limited partnership to indemnify and hold harmless any partner or other
person from and against all claims and demands whatsoever. The Partnership
Agreement of Enterprise Products Partners L.P. and the Partnership Agreement of
Enterprise Products Operating L.P. each provide that the Partnership will
indemnify (i) the General Partner, (ii) any Departing Partner, (iii) any Person
who is or was an affiliate of a General Partner or any Departing Partner,
(iv) any Person who is or was a member, partner, officer director, employee,
agent or trustee of a General Partner or any Departing Partner or any affiliate
of a General Partner or any Departing Partner, or (v) any Person who is or was
serving at the request of a General Partner or any Departing Partner or any
affiliate of any such person, any affiliate of a General Partner or any
Departing Painter as an officer, director, employee, member, partner, agent,
fiduciary or trustee of another Person ("Indemnitees"), to the fullest extent
permitted by law, from and against any and all losses, claims, damages,
liabilities (joint or several), expenses (including, without limitation, legal
fees and expenses), judgments, fines, penalties, interest, settlements and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
whether civil, criminal, administrative or investigative, in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as an Indemnitee; provided that in each case
the Indemnitee acted in good faith and in a manner that such Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Partnership and, with respect to any criminal proceeding, had no reasonable
cause to believe its conduct was unlawful. Any indemnification under these
provisions will be only out of the assets of the Partnership, and the General
Partner shall not be personally liable for, or have any obligation to contribute
or lend funds or assets to the Partnership to enable it to effectuate, such
indemnification. The Partnership is authorized to purchase (or to reimburse the
General Partner or its affiliates for the cost of) insurance against liabilities
asserted against and expenses incurred by such persons in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such person against such liabilities under the provisions
described above.
The Underwriting Agreements that the Company and the Issuer may enter into
with respect to the offer and sale of securities covered by this Registration
Statement will contain certain provisions for the indemnification of directors
and officers of the Company and the Issuer and the Underwriters or Sales Agent,
as applicable, against civil liabilities under the Securities Act.
Item 16. Exhibits.
The following documents are filed as exhibits to this Registration
Statement, including those exhibits incorporated herein by reference to a prior
filing of the Company under the Securities Act or the Exchange Act as indicated
in parentheses:
Houston:60055.2
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<PAGE>
Exhibit
No. Exhibit
- --- -------
*1.1 Form of Underwriting Agreement (Debt Securities).
*1.2 Form of Underwriting Agreement (Common Units).
3.1 Second Amended and Restated Agreement of Limited Partnership of Enterprise
Products Partners L.P. dated as of September 17, 1999 (incorporated by
reference to Exhibit 4 on Form 8-K dated October 4, 1999).
3.2 First Amended and Restated Limited Liability Company Agreement of the
General Partner dated as of September 17, 1999 (incorporated by reference
to Exhibit 99.8 on the Form 8-K/A-1 dated October 27, 1999).
3.3 Form of Amended and Restated Agreement of Limited Partnership of Enterprise
Products Operating L.P. (incorporated by reference to Exhibit 3.2 to
Registration Statement on Form S-1/A, File No. 333-52537, filed on July 21,
1998).
*4.1 Form of Debt Securities Indenture.
*4.2 Form of Debt Securities.
4.3 Form of Common Unit certificate (incorporated by reference to Exhibit 4.1
to Registration Statement on Form S-1/A, File No. 333-52537, filed on July
21, 1998).
4.4 Credit Agreement among Enterprise Products Operating L.P., the Several
Banks from Time to Time Parties Hereto, Den Norske Bank ASA, and Bank of
Tokyo-Mitsubishi, Ltd., Houston Agency as Co- Arrangers, The Bank of Nova
Scotia, as Co-Arranger and as Documentation Agent and The Chase Manhattan
Bank as Co-Arranger and as Agent dated as of July 27, 1998 as Amended and
Restated as of September 30, 1998 (incorporated by reference to Exhibit 4.2
to Form 10-K-105 filed on March 17, 1999).
4.5 First Amendment to $200 million Credit Agreement dated July 28, 1999 among
Enterprise Products Operating and certain banks (incorporated by reference
to Exhibit 99.9 on Form 8-/A-1 dated October 27, 1999).
4.6 $350 million Credit Agreement dated July 28, 1999 among Enterprise Products
Operating and certain banks (incorporated by reference to Exhibit 99.10 on
Form 8-K/A-1 dated October 27, 1999).
4.7 Unitholder Rights Agreement dated September 17, 1999 (incorporated by
reference to Exhibit 99.5 on Form 8-K dated October 4, 1999).
4.8 Contribution Agreement dated September 17, 1999 (incorporated by reference
to Exhibit 1 on Form 8-K dated October 4, 1999).
4.9 Registration Rights Agreement dated September 17, 1999 (incorporated by
reference to Exhibit 3 on Form 8-K dated October 4, 1999).
4.10 Unitholder Rights Agreement dated September 17, 1999 (incorporated by
reference to Exhibit 2 on Form 8-K dated October 4, 1999).
***5.1 Opinion of Vinson & Elkins L.L.P.
***8.1 Opinion of Vinson & Elkins L.L.P. relating to certain tax matters.
**12.1 Calculation of Ratio of Earnings to Fixed Charges.
**23.1 Consent of Deloitte Touche L.L.P.
23.3 Consent of Vinson & Elkins L.L.P. (included in Exhibits 5.1 and 8.1).
24.1 Powers of Attorney (included on signature page).
*25.1Form T-1 Statement of Eligibility of Trustee under the Debt Securities
Indenture.
- ---------------------------
* The Company will file as an exhibit to a Current Report on Form 8-K (i) any
form of Debt Securities Indenture, Debt Securities, Depositary Receipts or
Depositary Agreement, (ii) any form of underwriting agreement to be used in
connection with an offering of securities, and (iii) any statement of
eligibility of a trustee in connection with an offering of Debt Securities.
** Filed herewith.
*** To be filed by amendment.
Houston:60055.2
II-2
<PAGE>
Item 17. Undertakings.
(a) The registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that the undertakings set forth in clauses (i) and (ii) above
do not apply if the information required to be included in a post-effective
amendment by those clauses is contained in periodic reports filed with or
furnished to the Securities and Exchange Commission by the registrants pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post- effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) The registrants hereby undertake that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
Houston:60055.2
II-3
<PAGE>
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the provisions set forth in Item 15, or otherwise,
the registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by them is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(e) The registrants hereby undertake to file an application for the purpose
of determining the eligibility of the trustee to act under subsection (a) of
section 310 of the Trust Indenture Act ("Act") in accordance with the rules and
regulations prescribed by the Commission under section 305(b)(2) of the Act.
Houston:60055.2
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on December 21, 1999.
ENTERPRISE PRODUCTS PARTNERS, L.P.
By: ENTERPRISE PRODUCTS G.P., LLC
As General Partner
By: /s/ O.S. Andras
O.S. Andras
President and Chief Executive Officer
ENTERPRISE PRODUCTS OPERATING, L.P.
By: ENTERPRISE PRODUCTS G.P., LLC
As General Partner
By: /s/ O.S. Andras
O.S. Andras
President and Chief Executive Officer
Houston:60055.2
II-5
<PAGE>
SIGNATURES
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary L. Miller, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement and any
additional registration statement pursuant to Rule 462(b), and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and ratifying and confirming all that said attorney-in-fact and agent
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, as amended,
this registration statement has been signed below by the following persons in
the capacities indicated on the 21st day of December, 1999.
Signature Title
(of Enterprise Products GP, LLC)
/s/ Dan L. Duncan
- -------------------------------- Chairman of the Board and Director
Dan L. Duncan
/s/ O.S. Andras
- -------------------------------- President, Chief Executive Officer and Director
O. S. Andras (Principal Executive Officer)
/s/ Randa L. Duncan
- -------------------------------- Group Executive Vice President and Director
Randa L. Duncan
/s/ Gary L. Miller
- ------------------------------Executive Vice President, Chief Financial Officer,
Gary L. Miller Treasurer and Director (Principal Financial and
Accounting Officer)
- -------------------------------- Director
Charles R. Crisp
/s/ Dr. Ralph S. Cunningham
- -------------------------------- Director
Dr. Ralph S. Cunningham
- -------------------------------- Director
Curtis R. Frasier
/s/ Lee W. Marshall, Sr.
- -------------------------------- Director
Lee W. Marshall, Sr.
/s/ Stephen H. McVeigh
- ------------------------------- Director
Stephen H. McVeigh
Houston:60055.2
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<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Exhibit
*1.1 Form of Underwriting Agreement (Debt Securities).
*1.2 Form of Underwriting Agreement (Common Units).
3.1 Second Amended and Restated Agreement of Limited Partnership of Enterprise
Products Partners L.P. dated as of September 17, 1999 (incorporated by
reference to Exhibit 4 on Form 8-K dated October 4, 1999).
3.2 First Amended and Restated Limited Liability Company Agreement of the
General Partner dated as of September 17, 1999 (incorporated by reference
to Exhibit 99.8 on the Form 8-K/A-1 dated October 27, 1999).
3.3 Form of Amended and Restated Agreement of Limited Partnership of Enterprise
Products Operating L.P. (incorporated by reference to Exhibit 3.2 to
Registration Statement on Form S-1/A, File No. 333-52537, filed on July 21,
1998).
*4.1 Form of Debt Securities Indenture.
*4.2 Form of Debt Securities.
4.3 Form of Common Unit certificate (incorporated by reference to Exhibit 4.1
to Registration Statement on Form S-1/A, File No. 333-52537, filed on July
21, 1998).
4.4 Credit Agreement among Enterprise Products Operating L.P., the Several
Banks from Time to Time Parties Hereto, Den Norske Bank ASA, and Bank of
Tokyo-Mitsubishi, Ltd., Houston Agency as Co- Arrangers, The Bank of Nova
Scotia, as Co-Arranger and as Documentation Agent and The Chase Manhattan
Bank as Co-Arranger and as Agent dated as of July 27, 1998 as Amended and
Restated as of September 30, 1998 (incorporated by reference to Exhibit 4.2
to Form 10-K-105 filed on March 17, 1999).
4.5 First Amendment to $200 million Credit Agreement dated July 28, 1999 among
Enterprise Products Operating and certain banks (incorporated by reference
to Exhibit 99.9 on Form 8-/A-1 dated October 27, 1999).
4.6 $350 million Credit Agreement dated July 28, 1999 among Enterprise Products
Operating and certain banks (incorporated by reference to Exhibit 99.10 on
Form 8-K/A-1 dated October 27, 1999).
4.7 Unitholder Rights Agreement dated September 17, 1999 (incorporated by
reference to Exhibit 99.5 on Form 8-K dated October 4, 1999).
4.8 Contribution Agreement dated September 17, 1999 (incorporated by reference
to Exhibit 1 on Form 8-K dated October 4, 1999).
4.9 Registration Rights Agreement dated September 17, 1999 (incorporated by
reference to Exhibit 3 on Form 8-K dated October 4, 1999).
4.10 Unitholder Rights Agreement dated September 17, 1999 (incorporated by
reference to Exhibit 2 on Form 8-K dated October 4, 1999).
***5.1 Opinion of Vinson & Elkins L.L.P.
***8.1 Opinion of Vinson & Elkins L.L.P. relating to certain tax matters.
**12.1 Calculation of Ratio of Earnings to Fixed Charges.
**23.1 Consent of Deloitte Touche L.L.P.
23.3 Consent of Vinson & Elkins L.L.P. (included in Exhibits 5.1 and 8.1).
24.1 Powers of Attorney (included on signature page).
*25.1Form T-1 Statement of Eligibility of Trustee under the Debt Securities
Indenture.
- ---------------------------
* The Company will file as an exhibit to a Current Report on Form 8-K (i) any
form of Debt Securities Indenture, Debt Securities, Depositary Receipts or
Depositary Agreement, (ii) any form of underwriting agreement to be used in
connection with an offering of securities, and (iii) any statement of
eligibility of a trustee in connection with an offering of Debt Securities.
** Filed herewith.
*** To be filed by amendment.
Houston:60055.2
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12.1
ENTERPRISE PRODUCTS PARTNERS L.P.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(amounts in millions $)
Pro Forma
---------
Nine Months Year Nine Months
Ended Ended Ended
Year Ended December 31, September 30, December 31, September 30,
1994 1995 1996 1997 1998 1999 1998 1999
-------------------------------------------------- ------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before minority
interest and equity investments $ 16.2 $ 22.9 $ 45.7 $ 37.0 $ (5.5) $ 59.1 $ 3.2 $ 71.0
Add:
Fixed charges 33.9 36.5 36.6 37.6 21.0 12.6 36.8 22.5
Amortization of
capitalized interest 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Distributed income of
equity investees 7.1 5.0 7.2 7.3 9.1 4.6 9.7 5.4
Less:
Capitalized interest (1.2) (1.1) (1.6) (2.0) (0.2) (0.1) (0.2) (0.1)
Minority interest (0.2) (0.4) (0.6) (0.5) (0.1) (0.7) (0.2) (0.8)
================================================== ============= ===============================
Total Earnings $ 55.9 $ 63.0 $ 87.4 $ 79.4 $ 24.5 $ 75.7 $ 49.5 $ 98.2
================================================== ============= ===============================
Fixed charges:
Interest expense 25.4 27.6 26.3 25.7 14.7 8.0 30.5 17.9
Capitalized interest 1.2 1.1 1.6 2.0 0.2 0.1 0.2 0.1
Interest portion of
rental expense 7.3 7.8 8.8 9.9 6.2 4.6 6.2 4.6
================================================== ============= ===============================
Total $ 33.9 $ 36.5 $ 36.6 $ 37.6 $ 21.0 $ 12.6 $ 36.8 $ 22.5
================================================== ============= ===============================
Ratio of Earnings to Fixed charges 1.65x 1.73x 2.38x 2.11x 1.16x 5.99x 1.34x 4.37x
================================================== ============= ===============================
</TABLE>
II-8
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Enterprise Products Partners L.P. on Form S-3 of our report dated
February 15, 1999 with respect to Enterprise Products Partners L.P. and our
report dated February 15, 1999 with respect to Belvieu Environmental Fuels,
appearing in the Annual Report on Form 10-K of Enterprise Products Partners L.P.
for the year ended December 31, 1998, and our report dated September 17, 1999
with respect to Tejas Natural Gas Liquids, LLC and Subsidiaries appearing in the
Amended Current Report on Form 8-K/A No. 1 of Enterprise Products Partners L.P.
We also consent to the reference to us under the headings "Experts" in the
Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Houston, Texas
December 13, 1999
Houston:60055.2
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