<PAGE> 1
As filed with the Securities and Exchange Commission on August 18, 1998
Registration No. 333-59767
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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KANEB PIPE LINE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2287571
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2435 NORTH CENTRAL EXPRESSWAY
RICHARDSON, TX 75080
(972) 699-4000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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EDWARD D. DOHERTY
2435 NORTH CENTRAL EXPRESSWAY
RICHARDSON, TX 75080
(972) 699-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
FULBRIGHT & JAWORSKI L.L.P. CHAPMAN AND CUTLER
1301 MCKINNEY, SUITE 5100 111 WEST MONROE STREET
HOUSTON, TX 77010 CHICAGO, IL 60603
(713) 651-5151 (312) 845-3000
ATTENTION: JOHN A. WATSON ATTENTION: EDWARD L. LEMBITZ, JR.
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this registration statement becomes effective, as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUBJECT TO COMPLETION, DATED AUGUST 18, 1998
PROSPECTUS
KANEB PIPE LINE PARTNERS, L.P.
500,000 UNITS REPRESENTING
LIMITED PARTNER INTERESTS
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This Prospectus has been prepared for use in connection with the sale
upon foreclosure, if any, by Harris Trust and Savings Bank (the "Selling
Unitholder") of an aggregate of 500,000 Units representing limited partnership
interests (the "Units") in Kaneb Pipe Line Partners, L.P. (the "Partnership").
Such Units are currently owned by a subsidiary of Kaneb Pipe Line Company
("KPL"), the general partner of the Partnership, and pledged to the Selling
Unitholder as security for a revolving credit facility of such subsidiary under
which the maximum amount available thereunder is currently limited to $20
million. If acquired by the Selling Unitholder pursuant to such pledges, the
Units may be sold from time to time by or for the account of the Selling
Unitholder in the over-the-counter market, on the New York Stock Exchange
("NYSE") or otherwise at prices and on terms then prevailing or at prices
related to the then current market price, directly or through agents designated
from time to time, or through dealers or underwriters to be designated or in
negotiated transactions. The Units may be sold by any one or more of the
following methods: (a) a block trade (which may involve crosses) in which the
broker or dealer so engaged will attempt to sell the securities as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; (c) exchange
distributions and/or secondary distributions in accordance with the rules of the
NYSE; (d) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; (e) through the writing of options on Units (whether such
options are listed on an options exchange or otherwise); or (f) privately
negotiated transactions. To the extent required by applicable law, the specific
Units to be sold, the purchase price and public offering price, the names of any
such agent, dealer or underwriter and any applicable commissions or discounts
with respect to a particular offer will be set forth in an accompanying
Prospectus Supplement. See "Plan of Distribution."
The Units are traded on the NYSE under the symbol "KPP." On August 14,
1998, the last reported sale price for the Units on the NYSE was $32 7/16 per
Unit.
The Partnership will receive no portion of the proceeds of the sale of
the Units offered hereby and will bear certain of the expenses incident to their
registration, which expenses will be reimbursed by KPL. See "Plan of
Distribution" and "Selling Unitholder."
The Units have not been registered for sale under the securities laws
of any state or jurisdiction as of the date of this Prospectus. Brokers or
dealers effecting transactions in the Units should confirm the registration
thereof under the securities laws of the states in which such transactions
occur, or the existence of any exemption from registration.
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PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
MATTERS SET FORTH IN THIS PROSPECTUS ON PAGES 4 THROUGH 7
UNDER THE CAPTION "RISK FACTORS."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC-
URITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE
The date of this Prospectus is August , 1998
<PAGE> 3
AVAILABLE INFORMATION
The Partnership has filed a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended
("Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering the Units offered by this Prospectus. As permitted by the
rules and regulations of the Commission, this Prospectus omits certain
information, exhibits and undertakings contained in the Registration Statement.
For further information pertaining to the securities offered hereby, reference
is made to the Registration Statement, including the exhibits filed as a part
thereof.
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by the
Partnership can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549; and at its Regional Offices located at Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661; and 7 World Trade Center, New York, New York
10048 or may be obtained on the Internet at http://www.sec.gov. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Units
are traded on the NYSE and such reports, proxy statements and other information
concerning the Partnership can be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS
The Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1998, and Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1998, are hereby incorporated herein by reference.
All documents filed by the Partnership pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, after the date of this Prospectus and
prior to the termination of the offering of the securities offered by this
Prospectus, shall be deemed to be incorporated by reference in this Prospectus
and be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
in this Prospectus shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained in this Prospectus, or
in any other subsequently filed document that also is or is deemed to be
incorporated by reference, modifies or replaces such statement.
The Partnership undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon written or oral request
of any such person, a copy of any or all of the documents incorporated by
reference herein, other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference into the information that this
Prospectus incorporates. Written or oral requests for such copies should be
directed to: Kaneb Pipe Line Partners, L.P., 2435 North Central Expressway,
Richardson, Texas 75080, Attention: Investor Relations Department, telephone
(972) 699-4055.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and notes set forth and incorporated by reference in this
Prospectus.
Kaneb Pipe Line Partners, L.P. (the "Partnership") is a publicly held
Delaware limited partnership engaged through operating subsidiaries in the
refined petroleum products pipeline business and the terminaling of petroleum
products and specialty liquids. The pipeline system was initially created in
1953. In September 1989, the Partnership was formed to acquire, own and operate
the refined petroleum products pipeline business previously conducted by KPL, a
wholly owned subsidiary of Kaneb Services, Inc., a Delaware corporation ("KSI").
KPL owns a combined 2% interest as general partner of the Partnership and of
Kaneb Pipe Line Operating Partnership, L.P., a Delaware limited partnership
("KPOP"). The pipeline operations of the Partnership are conducted through KPOP,
of which the Partnership is the sole limited partner and KPL is the sole general
partner. The terminaling business of the Partnership is conducted through (i)
Support Terminals Operating Partnership, L.P. ("STOP"), (ii) Support Terminal
Services, Inc. ("STS"), (iii) StanTrans, Inc. ("STI"), (iv) StanTrans Partners
L.P. ("STPP"), and (v) StanTrans Holdings, Inc. KPOP, STOP and STPP are
collectively referred to as the "Operating Partnerships."
The Partnership's pipeline business consists primarily of the
transportation, as a common carrier, of refined petroleum products in Kansas,
Iowa, Nebraska, South Dakota, North Dakota, Wyoming and Colorado. The
Partnership owns a 1,917-mile pipeline system (the "East Pipeline") that extends
through Kansas, Iowa, Nebraska, South Dakota and North Dakota and a 550-mile
pipeline system (the "West Pipeline") that extends through Wyoming, South Dakota
and Colorado. The East Pipeline was constructed by KPL commencing in the 1950's.
KPOP acquired the West Pipeline in February 1995 through an asset purchase from
WYCO Pipe Line Company for a purchase price of $27.1 million. The acquisition of
the West Pipeline increased the Partnership's pipeline business in South Dakota
and expanded it into Wyoming and Colorado. The West Pipeline system includes
approximately 550 miles of underground pipeline in Wyoming, Colorado and South
Dakota, four truck loading terminals and numerous pump stations situated along
the system. The West Pipeline's four product terminals have a total storage
capacity of over 1.7 million barrels. The East Pipeline and the West Pipeline
are collectively referred to as the "Pipelines." The Pipelines primarily
transport gasoline, diesel oil, fuel oil and propane. The products are
transported from refineries connected to the Pipeline, directly or through other
pipelines, to agricultural users, railroads and wholesale customers in the
states in which the Pipelines are located and in portions of other states.
Substantially all of the Pipelines' operations constitute common carrier
operations that are subject to Federal or state tariff regulations. The
Partnership has not engaged, nor does it currently intend to engage, in the
merchant function of buying and selling refined petroleum products.
The Partnership is the third largest independent liquids terminaling
company in the United States. The terminaling business is conducted under the
name ST Services ("ST"). ST operates 32 facilities in 16 states and the District
of Columbia with an aggregate tankage capacity of approximately 18 million
barrels. ST and its predecessors have been in the terminaling business for over
40 years and handle a wide variety of products from petroleum products to
specialty chemicals to edible liquids. ST's terminal facilities provide storage
on a fee basis for petroleum products, specialty chemicals and other liquids.
ST's five largest terminal facilities are located in Piney Point, Maryland;
Jacksonville, Florida; Texas City, Texas; Baltimore, Maryland; and Westwego,
Louisiana.
The principal executive offices of the Partnership are located at 2435
North Central Expressway, Richardson, Texas 75080, and its telephone number is
(972) 699-4000.
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RISK FACTORS
Prospective purchasers of the Units should consider the following
matters in evaluating an investment in the Units.
RISKS INHERENT IN THE PARTNERSHIP'S BUSINESS
Uncertainties in Rate Making Methodologies. Tariff rates for the
Partnership's interstate common carrier pipeline operations are regulated by the
Federal Energy Regulatory Commission (the "FERC") under the Interstate Commerce
Act. To be lawful under that Act, tariff rates must be just and reasonable and
not unduly discriminatory. The lawfulness of new or changed tariff rates may be
protested by shippers and investigated by the FERC, which can suspend such
tariff rates for a period of up to seven months, and require refunds of amounts
collected under rates ultimately found to be unlawful. Tariff rates that have
become final and effective may also be challenged by complaint in a court or
before the FERC. Because of the complexity of rate making, the lawfulness of any
rate is never assured.
Order No. 561, issued by the FERC on October 22, 1993, established a
primary rate making methodology, which pipelines are required to utilize unless
they qualify and elect to use one of several alternative methodologies. The
primary rate making methodology is a rate indexing mechanism, which ties a
pipeline's rate increase or decrease to the Producer Price Index for Finished
Goods minus 1%. The intent of Order No. 561 is to minimize the degree of rate
scrutiny by the FERC, reduce uncertainty to the carrier and promote uniformity
in the rate making process. However, it appears that the use of indexing will
not allow pipelines to fully recover their actual increased costs.
In June 1995, the FERC issued a decision involving Lakehead Pipe Line
Company, Limited Partnership ("Lakehead"), an unrelated oil pipeline limited
partnership. In this decision, the FERC partially disallowed Lakehead's
inclusion of income taxes in its cost of service. Specifically, the FERC held
that Lakehead was entitled to receive an income tax allowance with respect to
income attributable to its corporate partners, but was not entitled to receive
such an allowance for income attributable to the partnership interests held by
individuals. In 1996, Lakehead reached an agreement with its shippers on all
contested rates and withdrew its appeal of the June 1995 decision. In another
FERC proceeding involving a different oil pipeline limited partnership, the
Administrative Law Judge followed the FERC's decision in Lakehead and held that
the oil pipeline limited partnership may claim an income tax allowance with
respect to income attributable to its general partner interest and income
attributable to corporations holding publicly traded limited partnership
interests, but not for income attributable to non-corporate limited partners,
both individuals and other entities. If the FERC were to disallow the income tax
allowance in the cost of service of the Pipelines on the basis set forth in the
Lakehead order, the General Partner believes that the Partnership's ability to
pay the Minimum Quarterly Distribution to the holders of the all Units would not
be impaired; however, in view of the uncertainties involved in this issue, there
can be no assurance in this regard.
The intrastate operations of the East Pipeline in Kansas are subject to
regulation by the Kansas Corporation Commission. In addition, intrastate
operations of the West Pipeline in Colorado and Wyoming are subject to
regulation by the Colorado Public Utility Commission and the Wyoming Public
Service Commission.
Competition. While the FERC's current cost-based rate regulation caps
the Pipelines' maximum rates, competitive conditions sometimes require that the
Pipelines file individual rates that are less than the permissible maximum. The
East Pipeline's major competitor is an independent regulated common carrier
pipeline system owned by The Williams Companies, Inc. ("Williams"), which
operates approximately 100 miles east of and parallel to the East Pipeline. This
competing pipeline system is a substantially more extensive system than the East
Pipeline. Furthermore, Williams and its affiliates have capital and financial
resources substantially greater than those of the Partnership. Fourteen of the
Partnership's 15 delivery terminals on the East Pipeline are in direct
competition with Williams' terminals located within two to 145 miles. The West
Pipeline competes with the truck loading racks of the Cheyenne and Denver
refineries and the Denver terminals of the Chase Pipeline Company and Phillips
Petroleum pipelines. Diamond Shamrock terminals in Denver and Colorado Springs
connected to a Diamond Shamrock pipeline from their Texas Panhandle refinery,
are major competitors to the West Pipeline's Fountain terminals, respectively.
The independent liquids terminaling industry is fragmented and includes
both large, well-financed companies that own many terminal locations and small
companies that may own a single terminal location. Several companies
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offering liquids terminaling facilities have significantly more capacity than
ST, particularly those used primarily for petroleum related products. ST also
faces competition from prospective customers that have their own terminal
facilities.
Reduced Demand Could Affect Shipments on the Pipelines. The
Partnership's pipeline business depends in large part on the level of demand for
refined petroleum products in the markets served by the Pipelines and the
ability and willingness of refiners and marketers having access to the Pipelines
to supply such demand by deliveries through the Pipelines. Most of the refined
petroleum products delivered through the East Pipeline are ultimately used as
fuel for railroads or in agricultural operations, including fuel for farm
equipment, irrigation systems, trucks transporting crops and crop drying
facilities. Demand for refined petroleum products for agricultural use, and the
relative mix of products required, is affected by weather conditions in the
geographic areas served by the East Pipeline. Although periods of drought
suppress agricultural demand for some refined petroleum products, particularly
those used for fueling farm equipment, during such times the demand for fuel for
irrigation systems often increases. The agricultural sector is also affected by
government agricultural policies and crop prices.
The West Pipeline serves the growing Denver and northeastern Colorado
markets. The West Pipeline also supplies the jet fuel for Ellsworth Air Force
Base at Rapid City, South Dakota. The West Pipeline has a relatively small
number of shippers, who, with only a few exceptions, are also shippers on the
East Pipeline.
The Partnership cannot predict the impact of future fuel conservation
measures. Governmental regulation, technological advances in fuel economy and
energy generation devices could reduce the demand for refined petroleum products
in the Pipelines' market areas.
Dependence on Crude Oil Supplies. The Pipelines are dependent upon
adequate levels of production of refined petroleum products by refineries
connected to the Pipelines, directly or through connecting pipelines. The
refineries are, in turn, dependent upon adequate supplies of suitable grades of
crude oil. The refineries connected directly to the East Pipeline obtain crude
oil from producing fields located primarily in Kansas, Oklahoma and Texas, and,
to a much lesser extent, from other domestic or foreign sources. Refineries in
Kansas, Oklahoma and Texas are connected to the East Pipeline through other
pipelines. These refineries obtain their supplies of crude oil from a variety of
sources. The refineries connected directly to the West Pipeline are located in
Casper and Cheyenne, Wyoming and Denver, Colorado. Refineries in Billings and
Laurel, Montana are connected to the West Pipeline through other pipelines.
These refineries obtain their supplies of crude oil primarily from Rocky
Mountain sources. If operations at any one refinery were discontinued, the
Partnership believes (assuming unchanged demand for refined petroleum products
in markets served by the Pipelines) that the effects thereof would be short-term
in nature, and the Partnership's business would not be materially adversely
affected over the long term because such discontinued production could be
replaced by other refineries or by other sources.
Possible Reduction of Business with the Department of Defense. The
storage and transport of jet fuel for the U.S. Department of Defense is an
important part of ST's business. Eleven of ST's terminal sites are involved in
the terminaling or transport (via pipeline) of jet fuel for the Department of
Defense and 7 of the 11 locations have been utilized solely by the U.S.
Government. Two of these locations are presently without government business.
The Partnership cannot predict whether additional bases served by ST will be
closed or whether other customers will replace any loss of business with the
Department of Defense.
Risk of Environmental Costs and Liabilities. The operations of the
Partnership are subject to federal, state and local laws and regulations
relating to protection of the environment. Although the Partnership believes
that the operations of the Pipelines and ST are in general compliance with
applicable environmental regulations, risks of substantial costs and liabilities
are inherent in pipeline operations and terminaling operations, and there can be
no assurance that substantial costs and liabilities will not be incurred. The
Partnership currently owns or leases, and has in the past owned or leased,
numerous properties that have been used for terminaling or storage of petroleum
products or other chemicals for many years. Hydrocarbons or other solid wastes
may have been disposed of or released on or under the properties owned or leased
by the Partnership. Additionally, some of the sites operated by the Partnership
that are located near current or historical refining and terminal operations may
be at risk of experiencing contamination that has migrated from such sites. It
is possible that developments, such as increasingly strict environmental laws,
regulations and enforcement policies thereunder, and claims for damages to
property or persons resulting from the operations of the Partnership or previous
owners or operators, could result in substantial costs and liabilities to the
Partnership.
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RISKS RELATING TO PARTNERSHIP STRUCTURE
Reliance Upon Distributions and Dividends from Subsidiaries. The
Partnership conducts all of its operations through direct and indirect wholly
owned corporate and partnership subsidiaries. Distributions and dividends of
cash generated by such subsidiaries are the principal source of Available Cash
of the Partnership available for the payment of distributions to the holders of
Units.
Absence of Arms' Length Negotiation of Contract Terms. Neither the
Partnership Agreement nor any of the other agreements, contracts and
arrangements between the Partnership, on the one hand, and the General Partner,
KSI and its affiliates, on the other hand, were or will be the result of arm's
length negotiations.
Risk of Dilution of Outstanding Units Through Issuance of Senior
Securities. The Partnership Agreement authorizes the General Partner to cause
the Partnership to issue additional Units or other equity securities of the
Partnership for such consideration and on such terms and conditions as shall be
established by the General Partner including, without limitation, any additional
equity securities with rights to distributions or in liquidation ranking prior
or senior to or on a parity with Units.
Limited Voting Rights; Management and Control. Unitholders have only
limited voting rights on matters affecting the Partnership's business. All
amendments to the Partnership Agreement and major Partnership actions may be
proposed solely by, or otherwise require the consent of, the General Partner.
The General Partner manages and controls the activities of the
Partnership. Holders of Units will have no right to elect the General Partner on
an annual or other continuing basis. If the General Partner withdraws or is
removed, however, its successor may be elected by the holders of a majority of
the outstanding Units (including for purposes of such determination Units owned
by the departing General Partner and its affiliates). The General Partner may
not be removed as general partner of the Partnership except upon approval by the
affirmative vote of the holders of not less than 85% of the outstanding Units,
including for purposes of such determination Units owned by the General Partner
and its affiliates. KPL and its affiliates own sufficient Units to prevent KPL's
removal as the General Partner without its consent. Unitholders may not remove
the General Partner until after receipt of an opinion of counsel that such
action will not result in the loss of limited liability of the Unitholders or
cause the Partnership to be taxable as a corporation or to be treated as an
association taxable as a corporation for federal income tax purposes. The
general partners of the Operating Partnerships may be removed upon approval of
the Partnership.
Conflicts of Interest. Certain conflicts of interest could arise as a
result of the General Partner's relationships with KSI, the parent company of
the General Partner, on the one hand, and the Partnership, on the other. Such
conflicts may include, among others, the following situations: (i) the General
Partner's determination of the timing and amount of cash expenditures,
borrowings and reserves; (ii) the General Partner's determination of which
portion of an expenditure constitutes a capital expenditure which increases the
throughput or deliverable capacity or terminaling capacity of the assets of the
Partnership; (iii) the issuance of additional Units or the purchase of
outstanding Units; (iv) the payment to KSI and its subsidiaries and affiliates
for any services rendered on behalf of the Partnership to KPL; (v) the General
Partner's determination of which direct and indirect costs are reimbursable by
the Partnership; (vi) the decision to liquidate the Partnership; (vii) the
decision to retain separate counsel, accountants or others to perform services
on behalf of the Partnership; and (viii) the General Partner's and its
affiliates' decision to engage in activities that might compete with the
Partnership. The Audit Committee of the Board of Directors of the General
Partner will review matters as to which such conflicts of interest could arise.
The Partnership has not adopted any guidelines, other than those contained in
the Partnership Agreement, that must be followed by the General Partner in the
event of a conflict of interest. In addition, the General Partner owes certain
fiduciary duties to the Unitholders and is liable for all the debts other than
nonrecourse debt of the Partnership to the extent not paid by the Partnership.
Modification of Fiduciary Duties. The General Partner is generally
accountable to the Partnership and to the Unitholders as a fiduciary.
Consequently, the General Partner generally must exercise good faith and
integrity in handling the assets and affairs of the Partnership. The Delaware
Revised Uniform Limited Partnership Act (the "Delaware Act") provides that
Delaware limited partnerships may, in their partnership agreements, modify the
fiduciary duties that might otherwise be applied by a court in analyzing the
duty owed by general partners to limited partners. The Partnership Agreement, as
permitted by the Delaware Act, contains various provisions that have the effect
of restricting the fiduciary
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duties that might otherwise be owed by the General Partner to the Partnership
and its partners. For example, the Partnership Agreement provides that (i)
borrowings by the Partnership or the approval thereof by the General Partner
shall not constitute a breach of any duty of the General Partner to the
Partnership or the Unitholders, (ii) any actions taken by the General Partner
consistent with the standards of reasonable discretion set forth in the
definitions of Available Cash or Cash from Operations will be deemed not to
breach any duty of the General Partner to the Partnership or the Unitholders and
(iii) in the absence of bad faith by the General Partner, the resolution of
conflicts of interest by the General Partner shall not constitute a breach of
the Partnership Agreement or a breach of any standard of care or duty. In
addition, holders of Units are deemed to have consented to certain actions and
conflicts of interest that might otherwise be deemed a breach of fiduciary or
other duties under state law. Such modifications of state law standards of
fiduciary duty may significantly limit a Unitholder's ability to successfully
challenge the actions of the General Partner as being in breach of what would
otherwise have been a fiduciary duty. Provisions of the Partnership Agreement
that purport to limit the liability of the General Partner to the Partnership or
the Unitholders may not be enforceable under Delaware law.
CASH DISTRIBUTIONS
GENERAL
Because the Partnership holds all of its assets and conducts all of its
operations through the Operating Partnerships, STS and STI, all Cash from
Operations will be generated by such subsidiaries, and the distribution of such
cash from such subsidiaries to the Partnership is expected to be the principal
source of Available Cash (see "Glossary") from which to make distributions. The
Operating Partnerships are required under their partnership agreements to
distribute 100% of their available cash. Available cash is defined in the
partnership agreements of the Operating Partnerships in substantially the same
manner as is Available Cash of the Partnership. The board of directors of STI
and STS have adopted a dividend policy under which all available cash (defined
in substantially the same manner as is Available Cash of the Partnership) is to
be distributed to KPOP as a dividend. Since KPL will have a 1% general partner's
interest in all distributions of KPOP and a 1/99th general partner's interest in
all distributions of the Partnership, the holders of Units will have a 98%
interest in Partnership distributions on a combined basis (subject to incentive
distributions to the General Partner as described below). Accordingly, the
following paragraphs describing distributions to Unitholders and the General
Partner, and the percentage interests in distributions by the Partnership, are
stated on the basis of cash available for distribution by the Partnership, KPOP
and KPOP's subsidiaries on a combined basis.
The Partnership will make distributions to Unitholders and the General
Partner with respect to each calendar quarter in an amount equal to 100% of its
Available Cash for such quarter, except in connection with the dissolution and
liquidation of the Partnership. Distributions by the Partnership of its
Available Cash will be made 98% to Unitholders and 2% to the General Partner,
subject to the payment of incentive distributions to the General Partner if
certain target levels of cash distributions to the Unitholders are achieved. See
"--Quarterly Distributions of Available Cash--Distributions of Cash from
Operations."
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The following table sets forth the amount of distributions of Available
Cash constituting Cash from Operations effected with respect to the
Partnership's Units for the quarters in the periods shown:
<TABLE>
<CAPTION>
DISTRIBUTION
QUARTER PER UNIT(1)
- ---------------------------- --------------
1996:
<S> <C>
First....................... 0.55
Second...................... 0.55
Third....................... 0.60
Fourth...................... 0.60
1997:
First....................... 0.60
Second...................... 0.60
Third....................... 0.65
Fourth...................... 0.65
1998:
First....................... 0.65
Second...................... 0.65
</TABLE>
- ---------
(1) Prior to June 30, 1998, the Partnership had three classes of
partnership interests designated Senior Preference Units, Preference
Units and Common Units, respectively. Pursuant to the Amended and
Restated Agreement of Limited Partnership of the Partnership, on August
14, 1998, each of such classes was converted into a single class
designated "Units" effective June 30, 1998. The cash distributions
shown above were paid on each limited partnership interest of the
Partnership of each class.
The priorities of distributions of Available Cash are set forth below
under the captions "--Quarterly Distributions of Available Cash--Distributions
of Cash from Operations" and "--Distributions of Cash from Interim Capital
Transactions." Distributions of Available Cash are characterized as either
distributions of Cash from Operations or Cash from Interim Capital Transactions.
Cash from Operations generally refers to all cash generated by the Partnership's
operations after deducting related expenses and new reserves. Cash from Interim
Capital Transactions will generally be generated by (i) borrowings and sales of
debt securities by the Partnership (other than for working capital purposes),
(ii) sales of equity interests in the Partnership and (iii) sales or other
dispositions of assets of the Partnership. All Available Cash distributed by the
Partnership on any date from any source will be treated as if it were a
distribution of Cash from Operations until the sum of all Available Cash
distributed as Cash from Operations to the Unitholders and to the General
Partner (including any incentive distributions) equals the aggregate amount of
all Cash from Operations generated by the Partnership since the Partnership
commenced operations through the end of the prior calendar quarter; any
remaining Available Cash distributed on such date will be treated as if it were
a distribution of Cash from Interim Capital Transactions, except as otherwise
set forth below under the caption "--Distributions of Cash from Interim Capital
Transactions."
A more complete description of the manner in which distributions of
cash will be made prior to commencement of the dissolution and liquidation of
the Partnership is set forth below under "--Quarterly Distributions of Available
Cash." Distributions of cash in connection with the dissolution and liquidation
of the Partnership will be made as described below under "--Distributions of
Cash Upon Liquidation."
QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
Distributions of Cash from Operations
Distributions by the Partnership of Available Cash that constitutes
Cash from Operations in respect of any calendar quarter will be made in the
following priorities:
first, 98% of such Available Cash to all Unitholders pro rata
and 2% thereof to the General Partner until there has been distributed
in respect of each Unit an amount equal to the Minimum Quarterly
Distribution;
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<PAGE> 10
second, 98% of any such Available Cash then remaining to all
Unitholders pro rata and 2% thereof to the General Partner until there
has been distributed in respect of each Unit an amount equal to the
excess of (i) $0.60 per Unit (the "First Target Distribution") over
(ii) the Minimum Quarterly Distribution;
third, 90% of any such Available Cash then remaining to all
Unitholders pro rata and 10% (8% incentive distribution plus 2% normal
distribution) thereof to the General Partner until there has been
distributed in respect of each Unit an amount equal to the excess of
(i) $0.65 per Unit (the "Second Target Distribution") over (ii) the
First Target Distribution;
fourth, 80% of any such Available Cash then remaining to all
Unitholders pro rata and 20% (18% incentive distribution plus 2% normal
distribution) thereof to the General Partner until there has been
distributed in respect of each Unit an amount equal to the excess of
(i) $0.70 per Unit (the "Third Target Distribution") over (ii) the
Second Target Distribution; and
thereafter, 70% of any such Available Cash then remaining to
all Unitholders pro rata and 30% (28% incentive distribution plus 2%
normal distribution) thereof to the General Partner.
The Minimum Quarterly Distribution, First Target Distribution, Second
Target Distribution and Third Target Distribution are each subject to adjustment
as described below under "--Adjustment of Minimum Quarterly Distribution and
Target Distribution Levels."
Distributions of Cash from Interim Capital Transactions
Distributions by the Partnership of Available Cash that constitutes
Cash from Interim Capital Transactions shall be distributed 98/99ths to all
Limited Partners in proportion to the respective number of Units held by them
and 1/99th to the General Partner until there has been distributed in respect of
each Unit sold in the Initial Offering, since the Closing Date through such
date, distributions of Available Cash that are deemed to be Cash from Interim
Capital Transactions in an aggregate amount equal to $22 per Unit. Thereafter,
all Available Cash shall be distributed as if it were Cash from Operations. No
distributions by the Partnership of Available Cash that constitutes Cash from
Interim Capital Transactions have been made by the Partnership.
ADJUSTMENT OF MINIMUM QUARTERLY DISTRIBUTION AND TARGET DISTRIBUTION LEVELS
The Minimum Quarterly Distribution, First Target Distribution, Second
Target Distribution and Third Target Distribution will be proportionately
adjusted in the event of any combination or subdivision (whether effected by a
distribution payable in Units or otherwise) of Units. In addition, if a
distribution is made of Available Cash constituting Cash from Interim Capital
Transactions, the Minimum Quarterly Distribution, First Target Distribution,
Second Target Distribution and Third Target Distribution will also be adjusted
proportionately downward to equal the product resulting from multiplying each of
the Minimum Quarterly Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution by a fraction, of which the numerator
shall be the Unrecovered Capital (as defined below) immediately after giving
effect to such distribution and of which the denominator shall be the
Unrecovered Capital immediately prior to such distribution. For such purposes,
"Unrecovered Capital" means, at any time, an amount equal to the excess of (i)
$22 over (ii) the sum of all distributions theretofore made in respect of a
hypothetical Unit offered in the initial public offering of the Partnership
(expressed on a per Unit basis) out of Available Cash constituting Cash from
Interim Capital Transactions.
The Minimum Quarterly Distribution, First Target Distribution, Second
Target Distribution and Third Target Distribution also may be adjusted if
legislation is enacted that causes the Partnership to be taxable as a
corporation or to be treated as an association taxable as a corporation for
federal income tax purposes. In such event, the Minimum Quarterly Distribution,
First Target Distribution, Second Target Distribution and Third Target
Distribution for each quarter thereafter would be reduced to an amount equal to
the product of (i) each of the Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target Distribution
multiplied by (ii) 1 minus the sum of (x) the maximum marginal federal corporate
income tax rate (expressed as a fraction) plus (y) the effective overall state
and local income tax rate (expressed as a fraction) applicable to the
Partnership for the taxable year in which such
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<PAGE> 11
quarter 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).
DISTRIBUTIONS OF CASH UPON LIQUIDATION
The Partnership and the Operating Partnerships will dissolve on
December 31, 2039, unless sooner dissolved pursuant to the terms of the
Partnership Agreement. In connection with the dissolution and liquidation of the
Partnership, the proceeds of such liquidation shall be applied, first, in
accordance with the provisions of the Partnership Agreement and applicable law
to the payment of creditors of the Partnership in the order of priority provided
by law and, thereafter, any remaining proceeds (or assets in kind) will be
distributed to Unitholders and the General Partner as set forth below. In the
event of a liquidation of the Partnership, the holders of Units would be
entitled to share with the General Partner in the remainder of the Partnership's
assets in proportion to their capital account balances in the Partnership, after
giving effect to the following allocations of any gain or loss realized from
sales or other dispositions of assets following commencement of the dissolution
and liquidation of the Partnership ("Terminating Capital Transactions"),
including any unrealized gain or loss attributable to assets distributed in
kind. Any such gain will be allocated as follows:
first, to each partner having a deficit balance in such
partner's capital account to the extent of and in proportion to such
deficit balance;
second, any then remaining gain would be allocated 98% to the
holders of Units pro rata and 2% to the General Partner, until the
capital account of each Unit equals the sum of the Remaining Capital
(as defined below) in respect of such Unit;
third, any then remaining gain would be allocated 98% to all
Unitholders pro rata and 2% to the General Partner until the capital
account of each outstanding Unit is equal to the sum of (a) the
Remaining Capital with respect to such Unit plus (b) the excess of the
First Target Distribution over the Minimum Quarterly Distribution of
each quarter of the Partnership's existence less (c) the amount of any
distributions of Cash from Operations in excess of the Minimum
Quarterly Distribution which were distributed 98% to the Unitholders
pro rata and 2% to the General Partner for each quarter of the
Partnership's existence ((c) less (d) being the "Target Amount");
fourth, any then remaining gain would be allocated 90% to all
Unitholders pro rata and 10% (8% incentive allocation plus 2% normal
allocation) to the General Partner, until the capital account of each
outstanding Unit is equal to the sum of (a) the Remaining Capital with
respect to such Unit plus (b) the Target Amount plus (c) the excess of
the Second Target Distribution over the First Target Distribution for
each quarter of the Partnership's existence less (d) the amount of any
distributions of Cash from Operations in excess of the First Target
Distribution which were distributed 90% to the Unitholders pro rata and
10% to the General Partner for each quarter of the Partnership's
existence (the respective Target Amount plus (c) less (d) being
referred to as the "Second Target Amount");
fifth, any then remaining gain would be allocated 80% to all
Unitholders pro rata and 20% (18% incentive allocation plus 2% normal
allocation) to the General Partner, until the capital account of each
outstanding Unit is equal to the sum of (a) the Remaining Capital with
respect to such Unit plus (b) the Second Target Amount plus (c) the
excess of the Third Target Distribution over the Second Target
Distribution for each quarter of the Partnership's existence less (d)
the amount of any distributions of Cash from Operations in excess of
the Second Target Distribution which were distributed 80% to the
Unitholders pro rata and 20% to the General Partner for each quarter of
the Partnership's existence; and
thereafter, any then remaining gain would be allocated 70% to
all Unitholders pro rata and 30% (28% incentive allocation plus 2%
normal allocation) to the General Partner.
For such purposes, "Remaining Capital" means, at any time with respect to any
Units, the price per Unit at which such Units were initially sold by the
Partnership, as determined by the General Partner, less the sum of any
distributions of Available Cash constituting Cash from Interim Capital
Transactions and any distributions of cash (or the fair value of
10
<PAGE> 12
any assets distributed in kind) in connection with the dissolution and
liquidation of the Partnership theretofore made in respect of a Unit that was
sold in the initial offering of the Units.
Any loss realized from sales or other dispositions of assets following
commencement of the dissolution and liquidation of the Partnership, including
any unrealized gain or loss attributable to assets distributed in kind, will be
allocated to the General Partner and the Unitholders: first, in proportion to
the positive balances in such partners' capital accounts until all such balances
are reduced to zero; and second, to the General Partner.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES
The General Partner will make all decisions relating to the management
of the Partnership. In some cases the officers of KPL who make such decisions
also may be officers of KSI. In addition, KSI owns all the capital stock of KPL.
Certain conflicts of interest could arise as a result of the relationships among
the General Partner, KSI and the Partnership. The directors and officers of KSI
have fiduciary duties to manage KSI, including its investments in its
subsidiaries and affiliates, in a manner beneficial to the stockholders of KSI.
The General Partner has a fiduciary duty to manage the Partnership in a manner
beneficial to the Unitholders. The duty of the directors of KSI to the
stockholders of KSI may, therefore, conflict with the duties of the General
Partner to the Unitholders. The Audit Committee of the Board of Directors of the
General Partner will review conflicts of interest that may arise between KSI or
its subsidiaries, on the one hand, and the Partnership or any partner thereof,
on the other hand. In resolving any conflict of interest that may arise, the
Audit Committee may consider (i) the relative interests of any party to such
conflict and the benefits and burdens relating to such interest, (ii) any
customary or accepted industry practices, (iii) any applicable generally
accepted accounting or engineering practices or principles and (iv) such
additional factors as the Audit Committee determines in its sole discretion to
be relevant, reasonable and appropriate under the circumstances. The Audit
Committee will have access to the management of KPL, and independent advisers as
appropriate, and will attempt to resolve any such conflict of interest
consistent with provisions of the Partnership Agreement and the General
Partner's fiduciary duties under Delaware law. While final authority with
respect to all decisions of the General Partner, including those involving
conflicts of interest, is vested in the General Partner's board of directors, it
is anticipated that the board would give considerable weight to the
recommendations of the Audit Committee as to matters involving conflicts of
interest.
Potential conflicts of interest could arise in the situations described
below, among others:
(a) By purchasing a Unit, a Unitholder agrees that borrowings
by the Partnership or the approval thereof by the General Partner shall
not constitute a breach of any duty of the General Partner to the
Partnership or the Unitholders. Further, such purchaser agrees that any
actions taken by the General Partner consistent with the standards of
reasonable discretion set forth in the definitions of Available Cash
and Cash from Operations will be deemed not to breach any duty of the
General Partner to the Partnership or the Unitholders. See "Cash
Distributions." Such provisions purport to limit the liability of the
General Partner to the Partnership and the Unitholders, are not
supported by an opinion of counsel as to their enforceability and may
not be enforceable under Delaware law.
(b) Under the terms of the Amended and Restated Agreement of
Limited Partnership of the Partnership (the "Partnership Agreement"),
the Amended and Restated Agreement of Limited Partnership of KPOP and
the Agreement of Limited Partnership of STOP (the "Operating
Partnership Agreements"; collectively with the Partnership Agreement,
the "Partnership Agreements"), the General Partner will exercise its
discretion in managing the business of the Partnership and, as a
result, the General Partner is not restricted from paying KSI and its
subsidiaries and affiliates for any services rendered on terms fair and
reasonable to the Partnership. In this connection, the General Partner
will determine which of its direct or indirect costs (including costs
allocated to the General Partner by its affiliates) are reimbursable by
the Partnership.
(c) The General Partner or any of its affiliates may lend to
the Partnership or its operating subsidiaries funds needed by such
entities for such periods of time as the General Partner may determine;
provided, however, that the General Partner or such affiliate may not
charge the Partnership or its operating subsidiaries interest at a rate
greater than the lesser of (i) the actual interest cost (including
points or other financing charges or fees) that the General Partner or
such affiliate is required to pay on funds borrowed by it from
commercial banks and (ii) the rate (including points or other financing
charges or fees) that would be charged the borrowing
11
<PAGE> 13
entity (without reference to the General Partner's financial abilities
or guaranties) by unrelated lenders on comparable loans. The borrowing
entity will reimburse the General Partner or such affiliate, as the
case may be, for any costs incurred by it in connection with the
borrowing of funds obtained by the General Partner or such affiliate
and loaned to the borrowing entity. The Partnership may lend or
contribute to its operating subsidiaries and such operating
subsidiaries may borrow funds from the Partnership, on terms and
conditions established at the sole discretion of the General Partner.
(d) KPL (through its ownership of Units and the general
partner interest in the Partnership and KPOP) has certain varying
percentage interests and priorities with respect to Available Cash and
net proceeds of capital transactions. See "Cash Distributions." The
timing and amount of cash receipts and proceeds of capital transactions
received by or allocated to KPL may be affected by various
determinations made by KPL as the general partner under the Partnership
Agreements (including, for example, those relating to the decision to
liquidate the Partnership, the timing of capital transactions, the
establishment and maintenance of reserves, the timing of expenditures,
the incurrence of debt and other matters).
(e) Upon the request of the General Partner or any affiliate
thereof holding Units or other securities of the Partnership, the
Partnership shall be required to register the offer and sale of such
number of such securities (aggregating at least $2.0 million in value)
specified by the General Partner or such affiliate under the Securities
Act and the securities laws of any states reasonably requested by the
General Partner or such affiliate. All costs and expenses of such
registration will be paid by the General Partner or such affiliate and
none of such costs will be allocated to the Partnership. Under certain
circumstances, the General Partner or such affiliate also will have the
right to include such securities in a registration statement under the
Securities Act proposed by the Partnership for an offering of
securities of the Partnership for cash.
(f) Neither the Partnership Agreements nor any of the other
agreements, contracts and arrangements between the Partnership, on the
one hand, and the General Partner, KSI and its affiliates, on the other
hand, were or will be the result of arm's length negotiations.
(g) The decision whether to purchase outstanding Units at any
time may involve the General Partner or KSI in a conflict of interest.
See "Description of the Partnership Agreements--Limited Call Right."
(h) Subject to their fiduciary duties to the Partnership and
the limited partners of the Partnership, KPL and its affiliates are
permitted to engage in activities in competition with the Partnership
and the Operating Partnerships.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
The General Partner will be accountable to the Partnership as a
fiduciary. Consequently, the General Partner must exercise good faith and
integrity in handling the assets and affairs of the Partnership in addition to
such other obligations as the General Partner may assume under the Partnership
Agreement. The Partnership Agreement provides that whenever a conflict of
interest arises between the General Partner or its affiliates, on the one hand,
and the Partnership or any limited partner, on the other hand, the General
Partner will, in resolving such conflict or determining such action, consider
the relative interests of the parties involved in such conflict or affected by
such action, any customary or accepted industry practices and, if applicable,
generally accepted accounting practices or principles. The same considerations
shall apply whenever the Partnership Agreement provides that the General Partner
shall act in a manner that is fair and reasonable to the Partnership or the
limited partners. Thus, unlike the strict duty of a fiduciary who must act
solely in the best interests of his beneficiary, the Partnership Agreement
permits the General Partner to consider the interests of all parties to a
conflict of interest, including the interests of the General Partner, although
it is not clear under Delaware law that such provisions would be enforceable
because of a lack of judicial authority directly on point. Without modifying the
strict fiduciary standard that might otherwise apply, the Partnership's ability
to engage in transactions with the General Partner or its affiliates or
involving conflicts of interest, even if beneficial to the Partnership, would be
impaired. The Partnership Agreement also provides that in certain circumstances
the General Partner shall act in its sole discretion, in good faith or pursuant
to other appropriate standards.
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<PAGE> 14
The Delaware Revised Uniform Limited Partnership Act (the "Delaware
Act") provides that a limited partner may institute legal action on behalf of
the partnership (a partnership derivative action) to recover damages from a
third party where the general partner has failed to institute the action or
where an effort to cause the general partner to do so is not likely to succeed.
In addition, cases have been decided under the common law of partnerships in
Delaware and the common or statutory law of other jurisdictions to the effect
that a limited partner may institute legal action on behalf of himself or all
other similarly situated limited partners (a class action) to recover damages
from a general partner for violations of its fiduciary duties to the limited
partners. In addition, counsel has advised the General Partner that on the basis
of federal statutes and rules and decisions by federal courts, it appears that
limited partners have the right, subject to the provisions of the Federal Rules
of Civil Procedure, to bring partnership derivative actions or actions against a
general partner in the federal courts to enforce federal rights of the limited
partners, including, in each case, rights under certain Securities and Exchange
Commission rules.
The Partnership Agreement also provides that any standard of care and
duty imposed thereby or under the Delaware Act or any applicable law, rule or
regulation will be modified, waived or limited as required to permit the General
Partner to act under the Partnership Agreement or any other agreement
contemplated therein and to make any decision pursuant to the authority
prescribed in the Partnership Agreement so long as such action is not
inconsistent with the overall purposes of the Partnership. Further, the
Partnership Agreement provides that the General Partner will not be liable for
monetary damages to the Partnership, the Unitholders or assignees for any acts
or omissions if the General Partner acted in good faith. The extent to which
these provisions would be enforceable under Delaware law is not clear, however.
In addition, the Partnership is required, under the terms of the Partnership
Agreements, to indemnify the General Partner and its directors, officers,
employees and agents against liabilities, costs and expenses incurred by the
General Partner or other such persons, if the General Partner or such persons
acted in good faith and in a manner they reasonably believed to be in, or not
opposed to, the best interests of the Partnership and such action did not
constitute gross negligence or willful misconduct on the part of the General
Partner or other such persons and, with respect to any criminal proceeding, had
no reasonable cause to believe that their conduct was unlawful. See "Description
of the Partnership Agreements--Indemnification."
The fiduciary obligations of general partners is a developing and
changing area of the law, and Unitholders should consult their own legal counsel
concerning the fiduciary responsibilities of the General Partner and the
remedies available to Unitholders.
DESCRIPTION OF THE UNITS
GENERAL
The Units have been registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder, and the Partnership is subject to the reporting and proxy
solicitation requirements of the Exchange Act. The Partnership is required to
file periodic reports containing financial and other information with the
Securities and Exchange Commission.
Units may be held in "street name" or by any other nominee holder. As
among the Partnership, the beneficial owner and the nominee holder, the
Partnership will be entitled to treat the nominee holder of a Unit as the
absolute owner thereof. Purchasers of Units in this offering and subsequent
transferees of Units (or their brokers, agents or nominees on their behalf) will
be required to execute a transfer application.
The Units are listed on the NYSE under the symbol "KPP."
TRANSFER OF UNITS
Until a Unit has been transferred on the books of the Partnership, the
Partnership, notwithstanding any notice to the contrary or any notation or other
writing on the certificate representing such Unit, may treat the record holder
thereof as the absolute owner for all purposes. A transfer of a Unit will not be
recorded or recognized by the Partnership unless the transferee or his nominee
holder executes and delivers the transfer application. By executing and
delivering the transfer application, the transferee of Units automatically
requests admission as a substituted limited partner in the Partnership, agrees
to be bound by the terms and conditions of, and executes, the Partnership
Agreement, represents that such transferee has capacity and authority to enter
into the Partnership Agreement, grants powers of attorney to the General Partner
and any liquidator of the Partnership and makes the consents and waivers
contained in the Partnership Agreement. An assignee will become a limited
partner of the Partnership in respect of the transferred Units upon the
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<PAGE> 15
consent of the General Partner and the recordation of the name of the assignee
on the books and records of the Partnership. Such consent may be withheld in the
sole discretion of the General Partner. Units are securities and are
transferable according to the laws governing transfers of securities. In
addition to other rights acquired upon transfer, the transferor gives the
transferee who executes and delivers a transfer application the right to request
admission as a substituted limited partner in the Partnership in respect of the
transferred Units. A purchaser or transferee of Units who does not execute and
deliver a transfer application obtains only (i) the right to assign the Units to
a purchaser or other transferee and (ii) the right to transfer the right to seek
admission as a substituted limited partner in the Partnership with respect to
the transferred Units. Thus, a purchaser or transferee of Units who does not
execute and deliver a transfer application will not receive cash distributions
unless the 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
Units and may not receive certain federal income tax information or reports
furnished to record holders of Units. The transferor of Units will have a duty
to provide such transferee with all information that may be necessary to obtain
registration of the transfer of the Units, but a transferee agrees, by
acceptance of the certificate representing such Unit, that the transferor will
not have a duty to see to the execution of the transfer application by the
transferee and will have no liability or responsibility if such transferee
neglects or chooses not to execute and forward the transfer application. See
"Description of the Partnership Agreements--Status as Limited Partner or
Assignee."
In the event the Partnership is or becomes subject to federal, state or
local laws or regulations that create a substantial risk of cancellation or
forfeiture of any property in which the Partnership has an interest because of
the nationality, citizenship or other related status of any Unitholder or
assignee, the General Partner may redeem the Units held by such Unitholder or
assignee. To avoid any such cancellation or forfeiture, the General Partner may
request a record holder of a Unit to furnish to the General Partner certain
information about his nationality, citizenship or other related status. If the
record holder fails to furnish such information or if the General Partner
determines, on the basis of the information furnished by such holder in response
to the request, that the cancellation or forfeiture of any property in which the
Partnership has an interest may occur, the General Partner may be substituted as
the Unitholder for such record holder, who will then be treated as a non-citizen
assignee, and the General Partner will have the right to redeem the Units held
by such record holder. See "Description of the Partnership
Agreements--Non-citizen Assignees; Redemption."
DESCRIPTION OF THE PARTNERSHIP AGREEMENTS
The following paragraphs are a summary of the material provisions of
the Partnership Agreements. A copy of the Partnership Agreements is available on
request (see "Incorporation of Certain Documents"). The following discussion is
qualified in its entirety by reference to the Partnership Agreements.
Certain provisions of the Partnership Agreements are summarized
elsewhere in this Prospectus under various headings. With regard to various
transactions and relationships of the Partnership with KPL and its affiliates,
see "Conflicts of Interest and Fiduciary Responsibilities"; with regard to the
transfer of Units, see "Description of the Units"; with regard to distributions
of Available Cash, see "Cash Distributions." Prospective investors are urged to
review these sections of this Prospectus carefully.
ORGANIZATION AND DURATION
The Partnership and KPOP were organized in 1989 as Delaware limited
partnerships. STOP was organized in 1993 as a Delaware limited partnership. KPL
is the general partner of both the Partnership and KPOP. A wholly owned
corporate subsidiary of KPOP is the sole general partner of STOP. KPL holds a 2%
interest as general partner in the Partnership and KPOP on a combined basis. The
Unitholders (including KSI through its subsidiaries) hold a 98% interest as
limited partners in the Partnership and KPOP on a combined basis. The
Partnership and the Operating Partnerships will dissolve on December 31, 2039,
unless sooner dissolved pursuant to the terms of the Partnership Agreements.
PURPOSE
The purpose of the Partnership under the Partnership Agreement is
limited to serving as the limited partner of KPOP and any other business
permitted under the Delaware Act. The Operating Partnership Agreements provide
that
14
<PAGE> 16
the Operating Partnerships may engage in the transportation of refined
petroleum products through the Pipelines, the specialty liquids storage business
and any other business permitted under the Delaware Act.
The General Partner is authorized in general to perform all acts deemed
necessary to carry out such purposes and to conduct the business of the
Partnership.
POWER OF ATTORNEY
Each limited partner of the Partnership, and each person who acquires a
Unit from a prior holder and executes and delivers a transfer application with
respect thereto, grants to the General Partner and, if a liquidating trustee has
been appointed, the liquidating trustee a power of attorney to, among other
things, execute and file certain documents required in connection with the
qualification, continuance or dissolution of the Partnership or the amendment of
the Partnership Agreement and to make the consents and waivers contained in the
Partnership Agreement.
RESTRICTIONS ON AUTHORITY OF THE GENERAL PARTNER
The authority of the General Partner is limited in certain respects
under the Partnership Agreement. The General Partner is prohibited, without the
prior approval of holders of record of a majority of the Units, from, among
other things, selling or exchanging all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
or approving on behalf of the Partnership the sale, exchange or other
disposition of all or substantially all of the assets of the Partnership,
provided that the Partnership may mortgage, pledge, hypothecate or grant a
security interest in all or substantially all of its assets and may sell all or
substantially all of its assets pursuant to a foreclosure or other realization
upon the foregoing encumbrances without such approval. Except as provided in the
Partnership Agreement and generally described below under "--Amendment of
Partnership Agreements," any amendment to a provision of the Partnership
Agreement generally will require the approval of the holders of a majority of
the Units. A merger or consolidation of the Partnership requires the approval of
the General Partner and the holders of a majority of the Units.
In general, the General Partner may not take any action, or refuse to
take any reasonable action, without the consent of the holders of a majority of
the Units, the effect of which would be to cause the Partnership or either of
the Operating Partnerships to be taxable as corporation or to be treated as an
association taxable as a corporation for federal income tax purposes.
WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER
The General Partner has agreed not to voluntarily withdraw as general
partner of the Partnership and KPOP prior to January 1, 2000 (with limited
exceptions described below) without the approval of the holders of a majority of
the Units, after which time KPL may withdraw as such general partner by giving
90 days' written notice. The holders of a majority of the Units may elect a
successor General Partner, subject to the receipt by the Partnership of an
opinion of counsel that the selection of a successor may be taken without the
approval of all of the limited partners of the Partnership, such action would
not result in the loss of limited liability of the Unitholders or the limited
liability of the Partnership as the limited partner of the Operating
Partnerships or cause the Partnership to be taxable as a corporation or to be
treated as an association taxable as a corporation for federal income tax
purposes and that any required consents by any regulatory authorities have been
obtained. If such an opinion of counsel cannot be obtained, the Partnership will
be dissolved after such withdrawal. Notwithstanding the foregoing, prior to
January 1, 2000, KPL may withdraw without such Unitholder approval upon 90 days'
notice to the limited partners of the Partnership if more than 50% of the Units
are held or controlled by one person and its affiliates other than the
withdrawing General Partner and its affiliates.
KPL may not be removed as general partner of the Partnership unless
such removal is approved by the affirmative vote of the holders of not less than
85% of the Units, including for purposes of such determination Units owned by
KPL and its affiliates, provided that certain other conditions are satisfied.
Any such removal is subject to the approval of the successor general partner by
a majority of the Units then outstanding (including Units held by the removed
general partner and its affiliates) and receipt of an opinion of counsel that
such removal and the approval of a successor may be effected without the
approval of all Partners and that such actions will not result in the loss of
the limited liability of any limited partner of the Partnership or of the
limited partner of the Operating Partnerships or cause
15
<PAGE> 17
the Partnership to be taxable as a corporation or to be treated as an
association taxable as a corporation for federal income tax purposes and that
any required consents by any regulatory authorities have been obtained.
Removal or withdrawal of the General Partner of the Partnership also
constitutes removal or withdrawal, as the case may be, of KPL as the general
partner of KPOP.
In the event of withdrawal of KPL or removal of KPL by the limited
partners of the Partnership or by the limited partner of KPOP, a successor
general partner will have the option to acquire the general partner interests of
the departing general partner (the "Departing Partner") for a cash payment equal
to the fair market value of such interests. Such market value will be determined
by agreement between the Departing Partner and a successor general partner, or
if no agreement is reached, by an independent investment banking firm or other
independent expert selected by the Departing Partner and a successor general
partner (or if no expert can be agreed upon, by the expert chosen by agreement
of the expert selected by each of them). In addition, the Partnership also would
be required to reimburse the Departing Partner for all employee-related
liabilities, including severance liabilities, incurred in connection with the
termination of the employees employed by the Departing Partner for the benefit
of the Partnership.
If the above-described option is not exercised by the successor general
partner, the Departing Partner's general partner interest in the Partnership
will be converted into Units equal to the fair market value of such interests.
KPL may transfer its general partner interests in the Partnership
without the approval of the limited partners of the Partnership (i) to an
affiliate of KPL or (ii) upon its merger or consolidation into another entity or
the transfer of all or substantially all of its assets to another entity
provided in either case that such entity assumes the rights and duties of the
General Partner and agrees to be bound by the provisions of the Partnership
Agreements. In addition KPL may (i) transfer part of its interest in items of
Partnership income, gain, losses, deductions, credits, distributions or surplus,
(ii) transfer all of its interest in items of Partnership income, gain, losses,
deductions, credits, distributions or surplus if KPL agrees to continue as
general partner, (iii) mortgage, pledge, hypothecate or grant a security
interest in its partnership interest or (iv) transfer its Partnership interest
pursuant to a forced sale upon the foreclosure of any encumbrance created
pursuant to clause (iii) above. In each case described above in this paragraph
the transfer, merger, assumption or sale is subject to the requirement that the
transferee furnish to the Partnership an opinion of counsel that such transfer,
merger, assumption or sale (i) may be taken without the approval of all limited
partners of the Partnership to such specific act, (ii) would not cause the loss
of limited liability of the limited partners of the Partnership under the
Partnership Agreements and (iii) would not cause the Partnership to be taxable
as a corporation or treated as an association taxable as a corporation for
federal income tax purposes. In the case of any other transfer, in addition to
the foregoing requirements, the vote of the holders of a majority of the Units
is required.
STATUS AS LIMITED PARTNER OR ASSIGNEE
Except as described under "--Limited Liability," Units are fully paid
and Unitholders will not be required to make additional contributions to the
Partnership.
Each purchaser of Units offered by this Prospectus must execute a
transfer application requesting admission as, and agreeing to become, a
substituted limited partner in the Partnership. If such action is not taken, a
purchaser will not be registered as a record holder of Units on the books of the
transfer agent or issued a Unit. Purchasers may hold Units in nominee accounts.
See "Description of the Units--Transfer of Units" for a more complete
description of the requirements for the transfer of Units.
An assignee, pending its admission as a substituted limited partner in
the Partnership, is entitled to an interest in the Partnership equivalent to
that of a limited partner with respect to the right to share in allocations and
distributions from the Partnership, including liquidating distributions. The
General Partner will vote, and exercise other powers attributable to Units owned
by an assignee who has not become a substituted limited partner, at the written
direction of such assignee. See "--Meetings; Voting" below. Transferees who do
not execute and deliver a transfer application will be treated neither as
assignees nor as record holders of Units, and will not receive cash
distributions, federal income tax allocations or reports furnished to record
holders of Units. The only right such transferees will have is the right to
negotiate such Units to a purchaser or other transferee and the right to
transfer the right to request admission as a limited partner of the Partnership
in respect of the transferred Units to a purchaser or other transferee who
executes a transfer
16
<PAGE> 18
application in respect of the Units. A nominee or broker who has executed a
transfer application with respect to Units held in street name or nominee
accounts will receive such distributions and reports pertaining to such Units.
NON-CITIZEN ASSIGNEES; REDEMPTION
If the Partnership is or becomes subject to federal, state or local
laws or regulations that create a substantial risk of cancellation or forfeiture
of any property in which the Partnership has an interest because of the
nationality, citizenship or other related status of any limited partner of the
Partnership or assignee, the Partnership may redeem the Units held by such
limited partner or assignee. To avoid any such cancellation or forfeiture, the
General Partner may require each limited partner of the Partnership or assignee
to furnish information about his nationality, citizenship, residency or related
status. If a limited partner of the Partnership or assignee fails to furnish
information about his nationality, citizenship, residency or related status
within 30 days after a request for such information, such limited partner or
assignee may be treated as a non-citizen assignee ("non-citizen assignee"). The
Partnership Agreement sets forth the rights of such a limited partner or
assignee upon redemption. Pending such redemption or in lieu thereof, the
General Partner may change the status of any such limited partner or assignee to
that of a non-citizen assignee. In addition to other limitations on the rights
of an assignee who is not a substituted limited partner, a non-citizen assignee
does not have the right to direct the voting of his Units and may not receive
distributions in kind upon liquidation of the Partnership. See "--Status as
limited partner or Assignee."
ISSUANCE OF ADDITIONAL UNITS AND SECURITIES
The Partnership Agreement authorizes the General Partner to cause the
Partnership to issue additional Units and other equity securities of the
Partnership for such consideration and on such terms and conditions as shall be
established by the General Partner including, without limitation, additional
Units with rights to distributions or in liquidation ranking prior or senior to
or on a parity with Units. The General Partner will take into account the
interests of the Unitholders in determining whether to cause the Partnership to
issue additional Units.
LIMITED CALL RIGHT
If at any time less than 750,000 Units are held by persons other than
the General Partner and its affiliates, the General Partner will have the right,
which it may assign and transfer to any of its affiliates or to the Partnership,
on a date to be selected by the General Partner on at least 10 but not more than
60 days' notice, to purchase all, but not less than all, of the Units held by
such nonaffiliated persons. In the event of any such purchase, the price payable
for Units shall be the greater of (i) the Current Market Price (as defined
below) as of the date the General Partner mails written notice of its election
to purchase Units or (ii) the highest cash price paid by the General Partner or
any of its affiliates for any Unit within the 90 days preceding the date the
General Partner mails notice of its election to purchase such Units.
As used herein, (i) "Current Market Price" of a Unit as of any date
means the average of the daily Closing Prices (as hereinafter defined) per Unit
for the twenty consecutive Trading Days (as hereinafter defined) immediately
prior to such date; (ii) "Closing Price" for any day means the last sale price
on such day, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices on such day, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the NYSE or, if the Units
are not listed or admitted to trading on the NYSE, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal National Securities Exchange on which the Units are listed or
admitted to trading or, if the Units are not listed or admitted to trading on
any National Securities Exchange, the last quoted price on such day or, if not
so quoted, the average of the high bid and low asked prices on such day in the
over-the-counter market, as reported by NASDAQ or such other system then in use,
or, if on any such day the Units are not quoted by any such organization, the
average of the closing bid and asked prices on such day as furnished by a
professional market maker making a market in the Units selected by the
independent committee of the board of directors of the Partnership, or, if on
any such day no market maker is making a market in the Units, the fair value of
such Units on such day as determined reasonably and in good faith by the
independent committee of the board of directors of the Partnership, and (iii)
"Trading Day" means a day on which the principal National Securities Exchange on
which the Units are listed or admitted to trading is open for the transaction of
business or, if the Units are not listed or admitted to trading on any National
Securities Exchange, a day on which banking institutions in New York City
generally are open.
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<PAGE> 19
AMENDMENT OF PARTNERSHIP AGREEMENTS
Amendments to the Partnership Agreement may be proposed only by the
General Partner. If an amendment is proposed, the General Partner is required to
seek written approval of the holders of the number of Units required to approve
such amendment or call a meeting of the limited partners of the Partnership to
consider and vote upon the proposed amendment. Proposed amendments (other than
those described below) must be approved by holders of a majority of the Units.
Amendments to the Operating Partnership Agreements may be proposed
either by the general partner or by the limited partner of the respective
Operating Partnerships. Proposed amendments to the Operating Partnership
Agreement of KPOP (other than those described below) require the approval of the
Partnership, as the limited partner of KPOP, and the General Partner.
The General Partner may make amendments to the Partnership Agreements
without the approval of any limited partner of the Partnership or assignee of
the Partnership to reflect (i) a change in the name of the Partnership or the
location of the principal place of business of the Partnership, (ii) admission,
substitution, withdrawal or removal of Partners in accordance with the
Partnership Agreement, (iii) a change that, in the opinion of the General
Partner, is necessary or advisable to qualify or continue the qualification of
the Partnership as a partnership in which the limited partners have limited
liability under the laws of any state or to ensure that the Partnership will not
be taxable as a corporation or be treated as an association taxable as a
corporation for federal income tax purposes, (iv) a change that in the sole
discretion of the General Partner does not adversely affect the limited partners
of the Partnership in any material respect, (v) a change that is necessary or
desirable to satisfy any requirements, conditions or guidelines contained in any
opinion, directive, order, ruling or regulation of any federal or state agency
or contained in any federal or state statute, (vi) a change that is necessary or
desirable to facilitate the trading of the Units or comply with any rule,
regulation, guideline or requirement of any National Securities Exchange on
which the Units are or will be listed for trading, compliance with any of which
the General Partner deems to be in the best interests of the Partnership and the
limited partners of the Partnership, (vii) a change that is required or
contemplated by the Partnership Agreement or the Registration Statement of which
this Prospectus is a part, (viii) an amendment that is necessary, as reflected
in an opinion of counsel to the Partnership, to prevent the Partnership or the
General Partner or its respective directors or officers from in any manner being
subjected to the provisions of the Investment Company Act of 1940, as amended,
the Investment Advisors Act of 1940, as amended, the Public Utility Holding
Company Act of 1935, as amended, or "plan asset" regulations adopted under the
Employee Retirement Income Security Act of 1974, as amended, whether or not
substantially similar to plan asset regulations currently applied or proposed by
the United States Department of Labor, (ix) a change in a provision of the
Partnership Agreement which requires any action to be taken by or on behalf of
the General Partner or the Partnership pursuant to the requirements of the
Delaware Act if the provisions of the Delaware Act are amended, modified or
revoked so that the taking of such action is no longer required, provided that
such changes are not materially adverse to the limited partners of the
Partnership, (x) an amendment that in the sole discretion of the General Partner
is necessary or desirable in connection with the authorization of additional
Units, (xi) an amendment insofar as is necessary to maintain or establish the
uniformity of intrinsic tax characteristics as to all Units or the uniformity of
capital accounts underlying all Units and to make subsequent adjustments to
distributions in a manner which, in the reasonable judgment of the General
Partner, will make as little alteration in the priority and amount of
distributions otherwise applicable under the Partnership Agreement, and will not
otherwise alter the distributions to which Partners and assignees are entitled
under the Partnership Agreement and (xii) any other amendments similar to the
foregoing.
Except for amendments described in the preceding paragraph, no
amendment will become effective without the approval of the holders of 90% of
the Units unless the Partnership obtains an opinion of counsel to the effect
that such amendment will not cause the Partnership or KPOP to be taxable as a
corporation or to be treated as an association taxable as a corporation for
federal income tax purposes and will not affect the limited liability of any
Unitholder or the limited partner of KPOP.
18
<PAGE> 20
MEETINGS; VOTING
Unitholders or assignees who are record holders of Units on the record
date set pursuant to the Partnership Agreement will be entitled to notice of,
and to vote at, meetings of limited partners of the Partnership and to act with
respect to matters as to which approvals may be solicited. With respect to
voting rights attributable to Units that are owned by assignees who have not yet
been admitted as limited partners of the Partnership, the General Partner shall
be deemed to be the limited partner with respect thereto and shall, in
exercising the voting rights in respect of such Units on any matter, vote such
Units at the written direction of such record holder. Absent such direction, the
General Partner may exercise the voting rights with respect to such Units.
The General Partner does not anticipate that any meeting of limited
partners of the Partnership will be called in the foreseeable future. Any action
that is required or permitted to be taken by the limited partners of the
Partnership may be taken either at a meeting of the limited partners of the
Partnership or without a meeting if consents in writing setting forth the action
so taken are signed by holders of such number of Units as would be necessary to
authorize or take such action at a meeting of the limited partners of the
Partnership and consented to by the General Partner. Limited partners of the
Partnership may vote either in person or by proxy at meetings. A majority of the
Units represented in person or by proxy will constitute a quorum at a meeting of
limited partners of the Partnership of the Partnership.
Each record holder of a Unit has a vote according to his Percentage
Interest in the Partnership, although additional Units having special voting
rights could, under certain circumstances, be issued by the General Partner. The
Partnership Agreement provides that Units held in nominee or street name
accounts will be voted by the broker (or other nominee) pursuant to the
instruction of the beneficial owner unless the arrangement between the
beneficial owner and his nominee provides otherwise.
Any notice, demand, request, report or proxy materials required or
permitted to be given or made to record holders of Units (whether or not such
record holder has been admitted as a limited partner of the Partnership) under
the terms of the Partnership Agreement will be delivered to the record holder by
the Partnership or by the transfer agent at the request of the Partnership.
INDEMNIFICATION
The Partnership Agreements provide that the Partnership will, to the
fullest extent permitted by law, indemnify and advance expenses to the General
Partner, any Departing Partner, any person who is or was an affiliate of the
General Partner or any Departing Partner, any person who is or was an officer,
director, employee, partner, agent or trustee of the General Partner or any
Departing Partner or any affiliate of the General Partner or any Departing
Partner, or any person who is or was serving at the request of the General
Partner or any affiliate of the General Partner or any Departing Partner or any
affiliate of any Departing Partner as an officer, director, employee, partner,
agent or trustee of another person ("Indemnitees") from and against any and all
losses, claims, damages, liabilities (joint or several), expenses (including
legal fees and expenses), judgments, fines, settlements and other amounts
arising from any and all claims, demands, actions, suits or proceedings, 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 the General Partner, Departing Partner or an affiliate of either,
an officer, director, employee, partner, agent or trustee of the General
Partner, any Departing Partner or affiliate of either or a person serving at the
request of the Partnership in another entity in a similar capacity, provided
that in each case the Indemnitee acted in good faith and in a manner which such
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Partnership and such action did not constitute gross negligence or willful
misconduct on the part of the Indemnitee, and, with respect to any criminal
proceeding, the Indemnitee had no reasonable cause to believe its conduct was
unlawful. This indemnification would under certain circumstances include
indemnification for liabilities under the Securities Act. In addition, each
Indemnitee would automatically be entitled to the advancement of expenses in
connection with the foregoing indemnification. Any indemnification under these
provisions will be only out of the assets of the Partnership. The Partnership is
authorized to purchase insurance against liabilities asserted against and
expenses incurred by such persons in connection with the Partnership's
activities, whether or not the Partnership would have the power to indemnify
such person against such liabilities under the provisions described above.
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<PAGE> 21
LIMITED LIABILITY
Assuming that a limited partner of the Partnership does not take part
in the control of the business of the Partnership, within the meaning of the
Delaware Act, and that he otherwise acts in conformity with the provisions of
the Partnership Agreement, his liability under the Delaware Act will be limited,
subject to certain possible exceptions, generally to the amount of capital he is
obligated to contribute to the Partnership in respect of his Units plus his
share of any undistributed profits and assets of the Partnership. Under the
Delaware Act, a limited partnership may not make a distribution to a partner to
the extent that at the time of the distribution, after giving effect to the
distribution, all liabilities of the partnership, other than liabilities to
partners on account of their partnership interest and nonrecourse liabilities,
exceed the fair value of the assets of the limited partnership. For the purpose
of determining the fair value of the assets of a limited partnership, the
Delaware Act provides that the fair value of property subject to nonrecourse
liability shall be included in the assets of the limited partnership only to the
extent that the fair value of that property exceeds that nonrecourse liability.
The Delaware Act provides that a limited partner who receives such a
distribution and knew at the time of the distribution that the distribution was
in violation of the Delaware Act shall be liable to the limited partnership for
the amount of the distribution for three years from the date of the
distribution. Under the Delaware Act, an assignee who becomes a substituted
limited partner of a limited partnership is liable for the obligations of his
assignor to make contributions to the partnership, except that the assignee is
not obligated for liabilities unknown to him at the time he became a limited
partner and which liabilities could not be ascertained from the Partnership
Agreement.
KPOP conducts business in Kansas, Nebraska, Iowa, Oregon, South Dakota,
North Dakota, Colorado, Washington and Wyoming and may, in the future, conduct
business in other states. STOP conducts business in 16 states. Maintenance of
limited liability will require compliance with legal requirements in such
jurisdictions in which the Operating Partnerships conduct business. Limitations
on the liability of limited partners for the obligations of a limited
partnership have not been clearly established in many jurisdictions. If it were
determined that the Partnership, by virtue of a limited partner interest in the
Operating Partnerships or otherwise, was conducting business in any state
without compliance with the applicable limited partnership statute, or that the
right or exercise of the right by the limited partners of the Partnership as a
group to remove or replace the General Partner, to make certain amendments to
the Partnership Agreement, or to take other action pursuant to the Partnership
Agreement constituted "control" of the Partnership's business for the purposes
of the statutes of any relevant jurisdiction, then a limited partner of the
Partnership could be held personally liable for the Partnership's obligations
under the law of such jurisdiction to the same extent as the General Partner.
The Partnership will operate in such manner as the General Partner deems
reasonable and necessary or appropriate to preserve the limited liability of
Unitholders.
BOOKS AND REPORTS
The General Partner is required to keep appropriate books of the
business at the principal offices of the Partnership. The books will be
maintained for both tax and financial reporting purposes on an accrual basis.
The fiscal year of the Partnership is the calendar year.
As soon as practicable, but in no event later than 120 days after the
close of each calendar year, the General Partner is required to furnish each
record holder of a Unit (as of a record date selected by the General Partner)
with an annual report containing audited financial statements of the Partnership
for the past fiscal year, prepared on the accrual basis in accordance with
generally accepted accounting principles, and an opinion thereon expressed by
independent public accountants. As soon as practicable, but in no event later
than 60 days after the close of each calendar quarter (except the fourth
quarter), the General Partner is required to furnish each record holder of a
Unit (as of a record date selected by the General Partner) with unaudited
financial statements prepared in the same manner.
The General Partner is required to use all reasonable efforts to
furnish each record holder of a Unit information required for tax reporting
purposes within 75 days after the close of each taxable year. Such information
is furnished in a summary form so that certain complex calculations normally
required of partners can be avoided. The General Partner's ability to furnish
such summary information to Unitholders is dependent on the cooperation of such
Unitholders in supplying certain information to the General Partner. Every
Unitholder (without regard to whether he supplies such information to the
General Partner) will receive information to assist him in determining his
federal and state tax liability and filing his federal and state income tax
returns.
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<PAGE> 22
RIGHT TO INSPECT PARTNERSHIP BOOKS AND RECORDS
The Partnership Agreement provides that a limited partner of the
Partnership can for a purpose reasonably related to such limited partner's
interest as a limited partner, upon reasonable demand and at his own expense,
have furnished to him (i) a current list of the name and last known address of
each Partner, (ii) a copy of the Partnership's tax returns, (iii) information as
to the amount of cash, and a description and statement of the Net Agreed Value
(as defined in the Partnership Agreement) of any other property or services,
contributed or to be contributed by each Partner and the date on which each
became a Partner, (iv) copies of the Partnership Agreement, the Certificate of
Limited Partnership of the Partnership, amendments thereto and powers of
attorney pursuant to which the same have been executed, (v) information
regarding the status of the Partnership's business and financial condition, and
(vi) such other information regarding the affairs of the Partnership as is just
and reasonable. The General Partner may, and intends to, keep confidential from
the limited partners of the Partnership trade secrets or other information the
disclosure of which the General Partner believes in good faith is not in the
best interests of the Partnership or which the Partnership is required by law or
by agreements with third parties to keep confidential.
TERMINATION, DISSOLUTION AND LIQUIDATION
The Partnership will continue until December 31, 2039, unless sooner
terminated pursuant to the Partnership Agreement. The Partnership will be
dissolved upon (i) the election by the General Partner to dissolve the
Partnership, if approved by the holders of a majority of the Units, (ii) the
sale of all or substantially all of the assets and properties of the Partnership
or KPOP, (iii) the bankruptcy or dissolution of the General Partner, (iv)
withdrawal or removal of the General Partner or any other event that results in
its ceasing to be the General Partner (other than by reason of a transfer in
accordance with the Partnership Agreement or withdrawal or removal following
approval of a successor), provided that the Partnership shall not be dissolved
upon an event described in clause (iv) if upon such removal or within 90 days
after such event of withdrawal the holders of a majority of the Units agree in
writing to the appointment, effective as of the date of such event, of a
successor General Partner, (v) a written determination by the General Partner
that projected future revenues of the Partnership will be insufficient to enable
payment of projected Partnership costs and expenses or, if sufficient, will be
such that continued operation of the Partnership is not in the best interest of
the Partners or (vi) any other event that would cause the dissolution of the
Partnership under the Delaware Act. Upon a dissolution pursuant to clause (iii)
or clause (iv) and a failure to elect a successor General Partner, the holders
of a majority of the Units may elect, within 180 days after such event, to
reconstitute the Partnership and continue its business on the same terms and
conditions set forth in the Partnership Agreement by forming a new limited
partnership on terms identical to those set forth in the Partnership Agreement
and having as a general partner an entity approved by the holders of a majority
of the Units, subject to receipt by the Partnership of an opinion of counsel
that such approval may be made without the approval of all Partners and that
such reconstitution and continuation will not result in the loss of the limited
liability of Unitholders or cause KPOP or the reconstituted limited partnership
to be taxable as a corporation or to be treated as an association taxable as a
corporation for federal income tax purposes and that any required consents of
any regulatory authorities have been obtained.
Upon dissolution of the Partnership, unless the Partnership is
reconstituted and continued as a new limited partnership, the liquidating
trustee will liquidate the Partnership's assets and apply the proceeds of the
liquidation in the order of priority set forth in the Partnership Agreements.
The liquidating trustee may defer liquidation or distribution of the
Partnership's assets and/or distribute assets to Partners in kind if it
determines that an immediate sale would be unsuitable.
SELLING UNITHOLDER
The following table sets forth the beneficial ownership of the Units
held by the Selling Unitholder, immediately prior to and upon completion of this
offering.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AFTER
UNITS PLEDGED(1) OFFERING
--------------------------------- ---------------------------------
NUMBER OF PERCENT OF UNITS TO BE NUMBER OF
NAME UNITS CLASS SOLD UNITS PERCENT OF CLASS
- ---------------------------------- --------------- -------------- ---------------- ------------- ----------------
<S> <C> <C> <C>
Harris Trust and Savings Bank 500,000 3.11% 500,000 - -
</TABLE>
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<PAGE> 23
- ---------
(1) The Selling Unitholder owns no Units as of the date appearing on the
front cover of this Prospectus. However the Selling Unitholder may, in
the future, acquire Units pursuant to the pledge described below.
In March 1998, KPL made a capital contribution of 500,000 Units to
Martin Oil Corporation ("Martin"), its wholly-owned subsidiary. Martin
subsequently pledged such Units to the Selling Unitholder as security for a
revolving credit facility under which the maximum amount available thereunder is
currently limited to $20 million. In connection with such transactions, the
Partnership agreed to file and maintain a shelf registration statement for the
sale of such Units by such Selling Unitholder should it acquire such Units
through foreclosure. The registration statement of which this prospectus is a
part was filed by the Partnership to comply with such commitment.
PLAN OF DISTRIBUTION
The Units may be sold from time to time by or for the account of the
Selling Unitholder pursuant to this Prospectus or pursuant to Rule 144 under the
Securities Act. Sales of Units pursuant to this Prospectus may be effected in
the over-the-counter market, on the NYSE or otherwise at prices and on terms
then prevailing or at prices related to the then current market price (in each
case as determined by the Selling Unitholder), directly or through agents
designated from time to time, or through dealers or underwriters to be
designated or in negotiated transactions. The Units may be sold by any one or
more of the following methods: (a) a block trade (which may involve crosses) in
which the broker or dealer so engaged will attempt to sell the securities as
agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; (c)
exchange distributions and/or secondary distributions in accordance with the
rules of the NYSE; (d) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; (e) through the writing of options on Shares
(whether such options are listed on an options exchange or otherwise); or (f)
privately negotiated transactions. To the extent required by applicable law, the
specific Units to be sold, the purchase prices and public offering prices, the
names of any such agent, dealer or underwriter and any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying Prospectus Supplement. The Selling Unitholder may effect such
transactions by selling Units directly to other purchasers, through agents or
through broker-dealers, and any such agents or broker-dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Unitholder, from purchasers of Units for whom they act as
agents, or from both sources (and such compensation may be in excess of
customary commission). The Selling Unitholder and any broker-dealers that
participate in the distribution of the Units may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such sales, and any
commission, and any profit on the resale of Units, received by the Selling
Unitholder and any such broker-dealers may be deemed to be underwriting
discounts and commissions.
LEGAL MATTERS
Certain legal matters in connection with the Units will be passed upon
by Fulbright & Jaworski L.L.P., Houston, Texas, as counsel for the Partnership.
EXPERTS
The consolidated financial statements of Kaneb Pipe Line Partners, L.P.
incorporated in this Prospectus by reference to the Annual Report on Form 10-K
for the year ended December 31, 1997 have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
GLOSSARY
"Available Cash" means with respect to any calendar quarter, (i) the
sum of (a) all cash receipts of the Partnership during such quarter from all
sources (including distributions of cash received from subsidiaries) and (b) any
reduction in reserves established in prior quarters, less (ii) the sum of (aa)
all cash disbursements of the Partnership during such quarter, including,
without limitation, disbursements for operating expenses, taxes on the
Partnership as an
22
<PAGE> 24
entity or paid by the Partnership on behalf of, or amounts withheld with respect
to, all but not less than all of the Unitholders, if any, debt service
(including the payment of principal, premium and interest), capital expenditures
and contributions, if any, to a subsidiary corporation or partnership (but
excluding cash distributions to Unitholders and to KPL), (bb) any reserves
established in such quarter in such amounts as the General Partner shall
determine to be necessary or appropriate in its reasonable discretion (x) to
provide for the proper conduct of the business of the Partnership (including
reserves for future capital expenditures) or (y) to provide funds for
distributions with respect to any of the next four calendar quarters and (cc)
any other reserves established in such quarter in such amounts as the General
Partner determines in its reasonable discretion to be necessary because the
distribution of such amounts would be prohibited by applicable law or by any
loan agreement, security agreement, mortgage, debt instrument or other agreement
or obligation to which the Partnership is a party or by which it is bound or its
assets are subject. Taxes paid by the Partnership on behalf of, or amounts
withheld with respect to, less than all of the Unitholders shall not be
considered cash disbursements of the Partnership that reduce "Available Cash."
Notwithstanding the foregoing, "Available Cash" shall not include any cash
receipts or reductions in reserves or take into account any disbursements made
or reserves established after commencement of the dissolution and liquidation of
the Partnership.
"Cash from Interim Capital Transactions" means cash receipts of the
Partnership determined by the General Partner to be from Interim Capital
Transactions in accordance with the terms of the Partnership Agreement.
"Cash from Operations" means, at any date but prior to the commencement
of the dissolution and liquidation of the Partnership, on a cumulative basis,
all cash receipts of the Partnership plus $3,526,000 (excluding any cash
proceeds from any Interim Capital Transactions (as defined below) or Terminating
Capital Transactions (as defined in "Distributions of Cash Upon Liquidation"))
during the period since the commencement of operations by the Partnership
through such date, less the sum of (a) all cash operating expenditures of the
Partnership during such period including, without limitation, taxes imposed on
the Partnership as an entity or taxes paid by the Partnership on behalf of, or
amounts withheld with respect to, all but not less than all of the Unitholders,
if any, (b) all cash debt service payments of the Partnership during such period
(other than payments or prepayments of principal and premium required by reason
of loan agreements (including covenants and default provisions therein) or by
lenders, in each case in connection with sales or other dispositions of assets
or made in connection with refinancings or refundings of indebtedness, provided
that any payment or prepayment of principal, whether or not then due, shall be
determined at the election and in the discretion of the General Partner, to be
refunded or refinanced by any indebtedness incurred or to be incurred by the
Partnership simultaneously with or within 180 days prior to or after such
payment or prepayment to the extent of the principal amount of such indebtedness
so incurred), (c) all cash capital expenditures of the Partnership during such
period (other than (i) cash capital expenditures made to increase the throughput
or deliverable capacity or terminaling capacity (assuming normal operating
conditions, including down-time and maintenance) of the assets of the
Partnership, taken as a whole, from the throughput or deliverable capacity or
terminaling capacity (assuming normal operating conditions, including down-time
and maintenance) existing immediately prior to such capital expenditures and
(ii) cash expenditures made in payment of transaction expenses relating to
Interim Capital Transactions), (d) an amount equal to revenues collected
pursuant to a rate increase that are subject to possible refund, (e) any
additional reserves outstanding as of such date which the General Partner
determines in its reasonable discretion to be necessary or appropriate to
provide for the future cash payment of items of the type referred to in (a)
through (c) above, and (f) any reserves that the General Partner determines to
be necessary or appropriate in its reasonable discretion to provide funds for
distributions with respect to any one or more of the next four calendar
quarters, all as determined on a consolidated basis and after elimination of
intercompany items and KPL's general partner interest in KPOP. Where cash
capital expenditures are made in part to increase the throughput or deliverable
capacity or terminaling capacity and in part for other purposes, the General
Partner's good faith allocation thereof between the portion increasing capacity
and the portion for other purposes shall be conclusive. Taxes paid by the
Partnership on behalf of, or amounts withheld with respect to, less than all of
the Unitholders shall not be considered cash operating expenditures of the
Partnership that reduce "Cash from Operations."
"East Pipeline" means KPOP's 1,917 mile pipeline system and the 15
associated terminals.
"First Target Distribution" means $0.60 per Unit per calendar quarter,
subject to certain adjustments.
"General Partner" means Kaneb Pipe Line Company, a Delaware
corporation.
23
<PAGE> 25
"Interim Capital Transactions" means (a) borrowings and sales of debt
securities (other than for working capital purposes and other than for items
purchased on open account in the ordinary course of business) by the
Partnership, (b) sales of partnership interests by the Partnership and (c) sales
or other voluntary or involuntary dispositions of any assets of the Partnership
(other than (x) sales or other dispositions of inventory in the ordinary course
of business, (y) sales or other dispositions of other current assets including
receivables and accounts or (z) sales or other dispositions of assets as a part
of normal retirements or replacements), in each case prior to the commencement
of the dissolution and liquidation of the Partnership.
"KPL" means Kaneb Pipe Line Company, a Delaware corporation.
"KPOP" means Kaneb Pipe Line Operating Partnership, L.P., a Delaware
limited partnership.
"KSI" means Kaneb Services, Inc., a Delaware corporation.
"Minimum Quarterly Distribution" means $0.55 per Unit per calendar
quarter, subject to adjustment as described under "Cash
Distributions--Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels."
"Operating Partnership Agreements" means the Agreements of Limited
Partnership of the Operating Partnerships.
"Operating Partnerships" means KPOP and STOP.
"Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of the Partnership.
"Partnership" means Kaneb Pipe Line Partners, L.P., a Delaware limited
partnership.
"Pipelines" means the East Pipeline and the West Pipeline.
"Second Target Distribution" means $0.65 per Unit, subject to
adjustment as described under "Cash Distributions--Adjustment of Minimum
Quarterly Distribution and Target Distribution Levels."
"Selling Unitholder" means Harris Trust and Savings Bank.
"ST" means the terminal business of Support Terminals Services, Inc.
"STI" means StanTrans, Inc., a Delaware corporation.
"STOP" means Support Terminals Operating Partnership, L.P., a Delaware
limited partnership.
"STS" means Support Terminal Services, Inc., a Delaware corporation.
"Third Target Distribution" means $0.70 per Unit, subject to adjustment
as described under "Cash Distributions--Adjustment of Minimum Quarterly
Distribution and Target Distribution Levels."
"Unit" means a Partnership Interest of a Limited Partner or Assignee in
the Partnership representing such fractional part of the Partnership Interests
of all the Limited Partners and Assignees as shall be determined by the General
Partner pursuant to the Partnership Agreement; provided, however, that each Unit
at any time outstanding shall represent the same fractional part of the
Partnership Interests of all Limited Partners as each other Unit.
"Unitholder" means a person who holds Units.
"West Pipeline" means KPOP's 550-mile pipeline system and its four
associated terminals.
24
<PAGE> 26
===============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES 500,000 UNITS
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, KANEB PIPE LINE
PARTNERS, L.P. CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE PARTNERSHIP SINCE THE DATE HEREOF, OR THAT INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE REPRESENTING HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------------------------
TABLE OF CONTENTS
PAGE
----
Available Information......................................2
Incorporation of Certain Documents.........................2
Prospectus Summary.........................................3
Risk Factors...............................................5
Cash Distributions.........................................7
Conflicts of Interest and Fiduciary Responsibilities.......7
Description of the Units..................................13
Selling Unitholders.......................................22
Plan of Distribution......................................22
Legal Matters.............................................23
Experts...................................................23
Glossary..................................................23
===============================================================================
===============================================================================
500,000 UNITS
KANEB PIPE LINE PARTNERS, L.P.
REPRESENTING
LIMITED PARTNER INTERESTS
------------------
PROSPECTUS
, 1998
------------------
===============================================================================
<PAGE> 27
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered hereby:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee............................ $ 5,227
Printing and engraving costs................................................... 1,000
Legal fees and expenses........................................................ 15,000
Accounting fees and expenses................................................... 10,000
Miscellaneous.................................................................. 3,773
--------
Total......................................................................... $ 35,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The section of the Prospectus entitled "Description of the Partnership
Agreements--Indemnification" is incorporated herein by reference.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
4.1 -- Form of Amended and Restated Agreement of Limited
Partnership of the Partnership (filed as Exhibit 4.1 to
the Partnership's Registration Statement on Form S-3
(Reg. No. 33-59373) and incorporated by reference
herein).
4.2 -- Certificate of Limited Partnership of the Partnership
(filed as Exhibit 3.2 to the Partnership's Registration
Statement on Form S-1 (Reg. No. 33-30330) and
incorporated by reference herein).
*5.1 -- Opinion of Fulbright & Jaworski L.L.P.
*23.1 -- Consent of Independent Accountants.
*23.2 -- Consent of Counsel (contained in the opinion filed as
Exhibit 5.1 hereto).
**24.1 -- Powers of Attorney (included on page II-4 of this
Registration Statement as originally filed).
- -------
* Filed herewith.
** Previously filed.
(b) Financial Statement Schedules
Not applicable.
II-1
<PAGE> 28
ITEM 17. UNDERTAKINGS
1. The undersigned registrant hereby undertakes:
a. 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;
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; 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 this
Registration Statement;
provided, however, that paragraphs 1.a.i and 1.a.ii above do not apply
if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
b. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to 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. 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.
2. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Exchange Act that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the provisions described in Item 15 above,
or otherwise, the Registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE> 29
SIGNATURE
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 amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Richardson, State of Texas, on the 17th day of
August, 1998.
KANEB PIPE LINE PARTNERS, L.P., by Kaneb Pipe Line
Company, as General Partner
By: EDWARD D. DOHERTY
Edward D. Doherty, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
POSITION WITH THE
SIGNATURE GENERAL PARTNER DATE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Chairman of the Board and
EDWARD D. DOHERTY Director
Edward D. Doherty (Principal Executive Officer) August 17, 1998
Controller
JIMMY L. HARRISON (Principal and Accounting
Jimmy L. Harrison Officer) August 17, 1998
SANGWOO AHN*
Sangwoo Ahn Director August 17, 1998
JOHN R. BARNES*
John R. Barnes Director August 17, 1998
MURRAY R. BILES*
Murray R. Biles Director August 17, 1998
FRANK M. BURKE, JR*.
Frank M. Burke, Jr. Director August 17, 1998
CHARLES R. COX*
Charles R. Cox Director August 17, 1998
</TABLE>
II-3
<PAGE> 30
<TABLE>
<CAPTION>
POSITION WITH THE
SIGNATURE GENERAL PARTNER DATE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
HANS KESSLER*
Hans Kessler Director August 17, 1998
JAMES R. WHATLEY*
James R. Whatley Director August 17, 1998
*By: Edward D. Doherty
As attorney-in-fact for the persons
indicated
</TABLE>
II-4
<PAGE> 31
INDEX TO EXHIBIT
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.1 -- Form of Amended and Restated Agreement of Limited
Partnership of the Partnership (filed as Exhibit 4.1 to
the Partnership's Registration Statement on Form S-3
(Reg. No. 33-59373) and incorporated by reference
herein).
4.2 -- Certificate of Limited Partnership of the Partnership
(filed as Exhibit 3.2 to the Partnership's Registration
Statement on Form S-1 (Reg. No. 33-30330) and
incorporated by reference herein).
*5.1 -- Opinion of Fulbright & Jaworski L.L.P.
*23.1 -- Consent of Independent Accountants.
*23.2 -- Consent of Counsel (contained in the opinion filed as
Exhibit 5.1 hereto).
**24.1 -- Powers of Attorney (included on page II-4 of this Registration
Statement as originally filed).
- -------
* Filed herewith.
** Previously filed.
<PAGE> 1
Exhibit 5.1
[letterhead of FULBRIGHT & JAWORSKI L.L.P.]
August 17, 1998
Kaneb Pipe Line Partners, L.P.
2435 North Central Expressway
Suite 700
Richardson, Texas 75080
Ladies and Gentlemen:
We have acted as special counsel for Kaneb Pipe Line Company, a
Delaware corporation ("KPL"), and Kaneb Pipe Line Partners, L.P., a Delaware
limited partnership (the "Partnership"), in connection with the registration
under the Securities Act of 1933, as amended (the "Act"), of units representing
limited partner interests in the Partnership ("Units") to be offered by an
affiliate of KPL, upon the terms and subject to the conditions set forth in the
Registration Statement on Form S-3 (Registration No. 333-59767) (the
"Registration Statement") relating thereto filed with the Securities and
Exchange Commission by the Partnership. Capitalized terms used but not otherwise
defined herein shall have the meanings set forth in the prospectus contained in
the Registration Statement.
In connection therewith, we have examined originals or copies
certified or otherwise identified to our satisfaction of the Registration
Statement, the Partnership Agreement and such other documents and instruments as
we have deemed necessary or appropriate for the expression of the opinions
contained herein.
We have assumed the authenticity and completeness of all records,
certificates and other instruments submitted to us as originals, the conformity
to original documents of all records, certificates and other instruments
submitted to us as copies, the authenticity and completeness of the originals of
those records, certificates and other instruments submitted to us as copies and
the correctness of all statements of fact contained in all records, certificates
and other instruments that we have examined.
Based on the foregoing, and having regard for such legal
considerations as we have deemed relevant, we are of the opinion that the Units
have been duly authorized and are validly issued, fully paid and nonassessable,
except as discussed below.
Assuming that a Limited Partner does not take part in the control
of the business of the Partnership, within the meaning of the Delaware Act, and
that he otherwise acts in conformity within the provisions of the Partnership
Agreement, his liability under the Delaware Act will be limited, subject to
certain possible exceptions, generally to the amount of capital he is obligated
to contribute to the Partnership in respect of his Units plus his share of any
undistributed profits and assets of the Partnership. Under the Delaware Act, a
limited partnership may not make a distribution to a partner to the extent that
at the time of the distribution, after giving effect to the distribution, all
liabilities of the partnership, other than liabilities to partners on account of
their partnership interest and nonrecourse liabilities, exceed the fair value of
the assets of the limited partnership. The Delaware Act provides that a limited
partner who receives such a distribution and knew at the time of the
distribution that the distribution was in violation of the Delaware Act shall be
liable to the limited partnership for the amount of the distribution for three
years from the date of the distribution. Under the Delaware Act, an assignee who
becomes a substituted limited partner of a limited partnership is liable for the
obligations of his assignor to make contributions to the partnership, except
that the assignee is not obligated for liabilities unknown to him at the time he
became a limited partner and which liabilities could not be ascertained from the
Partnership Agreement.
The foregoing opinion is limited to the federal laws of the United
States of America, the laws of the State of Texas and the Revised Uniform
Limited Partnership Act of the State of Delaware, and we are expressing no
opinion as to the effect of the laws of any other jurisdiction.
II-5
<PAGE> 2
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to our firm under the caption
"Legal Matters" in prospectus contained in the Registration Statement.
Very truly yours,
Fulbright & Jaworski L.L.P.
II-6
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
February 19, 1998, appearing on page F-13 of Kaneb Pipe Line Partners, L.P.'s
Annual Report on Form 10-K for the year ended December 31, 1997. We also consent
to the references to us under the heading "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
August 18, 1998
II-7
