As filed with the Securities Exchange Commission on November 24, 1998
Registration No. 333-66931
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KINDER MORGAN ENERGY PARTNERS, L.P.
KINDER MORGAN OPERATING L.P. "A"
KINDER MORGAN OPERATING L.P. "B"
KINDER MORGAN OPERATING L.P. "C"
KINDER MORGAN OPERATING L.P. "D"
KINDER MORGAN NATURAL GAS LIQUIDS CORPORATION
KINDER MORGAN CO2, LLC
KINDER MORGAN BULK TERMINALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0380342
Delaware 76-0380015
Delaware 76-0414819
Delaware 76-0547319
Delaware 76-0561780
Delaware 76-0256928
Delaware 76-0563308
Louisiana 72-1073113
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1301 McKinney Street, Suite 3450
Houston, Texas 77010
(713) 844-9500
(Address, zip code, and telephone number,
of registrant's principal executive offices)
Joseph Listengart
Kinder Morgan Energy Partners, L.P.
1301 McKinney Street, Suite 3450
Houston, Texas 77010
(713) 844-9500
(Name, address, zip code and telephone
number, of service agent)
Copy to:
George E. Rider
Patrick J. Respeliers
Morrison & Hecker L.L.P.
2600 Grand Avenue
Kansas City, Missouri 64108
(816) 691-2600
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Approximate commencement date of proposed public sale: From time to time after
the effective date of this Registration Statement.
<PAGE>
If the only securities being registered on this form are being offered
by dividend or interest reinvestment plans, check the following box. [ ]
If any of the securities being registered on this form will 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 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 delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act of 1933, please check the following box. [ ]
-----------------------------
The registrant amends this Registration Statement on such date or dates as may
be necessary to delay its effective date until the registrant files a further
amendment which specifically states that this Registration Statement shall
become effective according to Section 8(a) of the Securities Act or until the
Registration Statement shall become effective on such date as the Securities
Exchange Commission, acting under Section 8(a), may determine.
<PAGE>
Subject to completion, dated November 24, 1998
KINDER MORGAN ENERGY PARTNERS, L.P.
PROSPECTUS
$600,000,000
Common Units
Debt Securities
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We will provide the specific terms of these securities in
supplements to this prospectus. You should read this prospectus
and any supplement carefully before you invest.
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This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities we will provide a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement may also add, update or change
information contained in this prospectus.
The Units are traded on the New York Stock Exchange ("NYSE") under the
symbol "ENP." On November 20, 1998, the last reported sales price for the Units
as reported on the NYSE Composite Transactions tape was $35 1/8 per Unit.
We will provide information in the prospectus supplement for the
expected trading market, if any, for the Debt Securities.
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This prospectus is not an offer to sell the securities and it is not
soliciting any offer to buy the securities in any state where the offer
and sale is not permitted. Neither the Securities and Exchange
Commission nor any state securities commission has approved or
disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
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The Prospectus is dated ____________, 1998
<PAGE>
Where You Can Find More Information
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read our SEC filings over the Internet
at the SEC's website at http:\\www.sec.gov. You may also read and copy documents
at the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms.
We also provide information to the NYSE because the Units are traded on
the NYSE. You may obtain reports and other information at the offices of the
NYSE at 20 Broad Street, New York, New York 10002.
We provide an annual report to Unitholders of record within 90 days
after the close of each calendar year. The annual report contains audited
financial statements and a related report by our independent public accountants.
We will also provide you with tax information within 90 days after the close of
each taxable year.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose to you important information
contained in other documents filed with the SEC by referring you to those
documents. The information incorporated by reference is an important part of
this prospectus. Information we later file with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below:
o annual report on Form 10-K for the year ended December 31, 1997;
o quarterly reports on Form 10-Q for the quarters ended March 31, 1998, June
30, 1998 and September 30, 1998;
o current report on Form 8-K dated March 5, 1998, as amended;
o current report on Form 8-K dated November 6, 1998;
o the description of the Units in our Registration Statement on Form S-1
(File No. 33-48142) filed on June 1, 1992 and any amendments or reports
filed to update the description; and
o all documents filed under Section 13(e), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 between the date of this prospectus and the
termination of the Registration Statement.
If information in incorporated documents conflicts with information in
this prospectus you should rely on the most recent information. If information
in an incorporated document conflicts with information in another incorporated
document, you should rely on the most recent incorporated document.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Kinder Morgan Energy Partners, L.P.
1301 McKinney Street, Suite 3450
Houston, Texas 77010
Attention: Carol Haskins
(713) 844-9500.
You should only rely on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are making offers of
the securities only in states where the offer is permitted. You should not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the front of those documents.
FORWARD LOOKING STATEMENTS
Some information in this prospectus or any prospectus supplement may
contain forward-looking statements. Such statements use forward-looking words
such as "anticipate," "continue," "estimate," "expect," "may," "will," or other
similar words. These statements discuss future expectations or contain
projections. Specific factors which could cause actual results to differ from
those in the forward-looking statements, include:
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o price trends and overall demand for natural gas liquids, refined petroleum
products, carbon dioxide, and coal in the United States. Economic activity,
weather, alternative energy sources, conservation and technological
advances may affect price trends and demand;
o if the Federal Energy Regulatory Commission or the California Public
Utilities Commission changes our tariff rates;
o our ability to integrate any acquired operations into our existing
operations;
o if railroads experience difficulties or delays in delivering products to
our bulk terminals;
o our ability to successfully identify and close strategic acquisitions and
make cost saving changes in operations;
o shut-downs or cutbacks at major refineries, petrochemical plants,
utilities, military bases or other businesses that use our services;
o the condition of the capital markets and equity markets in the United
States; and
o the political and economic stability of the oil producing nations of the
world.
In addition, our classification as a partnership for federal income tax
purposes means that generally we do not pay federal income taxes on our net
income. We do, however, pay taxes on the net income of subsidiaries that are
corporations. We are relying on a legal opinion from our counsel, and not a
ruling from the Internal Revenue Service, as to our proper classification for
federal income tax purposes. See "Material Federal Income Tax Consequences."
When considering forward-looking statements, you should keep in mind the
risk factors referred to below. The risk factors could cause our actual results
to differ materially from those contained in any forward-looking statement. We
disclaim any obligation to update the above list or to announce publicly the
result of any revisions to any of the forward looking statements to reflect
future events or developments.
You should consider the above information when reading any forward looking
statements in:
o this prospectus;
o documents incorporated in this prospectus by reference;
o reports filed with the SEC;
o press releases; or
o oral statements made by us or any of our officers or other persons acting
on our behalf.
RISK FACTORS
Before you invest in our securities, you should carefully consider the
risks involved. We have described the risks associated with an investment in our
partnership in our reports filed with the SEC, which are incorporated by
reference.
THE PARTNERSHIP
We own and operate a wide range of energy assets, including:
o six refined products/liquids pipeline systems containing over 5,000 miles
of trunk pipeline and twenty-one truck loading terminals;
o two coal terminals;
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o a dry bulk terminal operator;
o a 24% interest in Plantation Pipe Line Company which owns and operates a
3,100 mile pipeline system;
o a 20% interest in a joint venture that produces, markets and delivers CO2
for enhanced oil recovery (Shell CO2 Company); and
o a 25% interest in a Y-grade fractionation facility that separates energy
products.
We group our operations into three reportable business segments:
o Pacific Operations;
o Mid-Continent Operations; and
o Bulk Terminals.
We were formed in August, 1992, as a publicly traded master limited
partnership. We are currently the largest pipeline master limited partnership
and the second largest pipeline system in the United States in terms of volumes
delivered. Our goal is to operate as a growth-oriented master limited
partnership by:
o reducing operating costs;
o better utilizing and expanding our asset base; and
o making selective, strategic acquisitions that allow us to increase our
distributions to Unitholders.
We regularly evaluate potential acquisitions of assets and businesses that would
complement our existing business.
Our general partner receives incentive distributions that provide it
with a strong incentive to increase Unitholder distributions through successful
management and growth of our business.
Our address is 1301 McKinney Street, Suite 3450, Houston, Texas 77010.
Our telephone number is (713)844-9500.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods indicated
is as follows:
Nine Months
Ended
Twelve Months Ended December 31 September 30, 1998
------------------------------- ------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
2.01 2.16 2.05 2.14 2.65 3.05
These computations include us and our operating partnerships and
subsidiaries, and 50% or less equity companies. For these ratios, "earnings" is
the amount resulting from adding and subtracting the following items.
Add the following:
o pre-tax income from continuing operations before adjustment for minority
interests in consolidated subsidiaries or income or loss from equity
investees;
o fixed charges;
o amortization of capitalized interest;
o distributed income of equity investees; and
o our share of pre-tax losses of equity investees for which charges arising
from guarantees are included in fixed charges.
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From the total of the added items, subtract the following:
o interest capitalized;
o preference security dividend requirements of consolidated subsidiaries; and
o minority interest in pre-tax income of subsidiaries that have not incurred
fixed charges.
The term "fixed charges" means the sum of the following:
o interest expensed and capitalized;
o amortized premiums, discounts and capitalized expenses related to
indebtedness;
o an estimate of the interest within rental expenses; and
o preference security dividend requirements of consolidated subsidiaries.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be our direct unsecured general obligations. The
Debt Securities will be either senior debt securities or subordinated debt
securities. The Debt Securities will be issued under one or more separate
indentures between us and a trustee to be named in the prospectus supplement.
Senior Debt Securities will be issued under a "Senior Indenture" and
Subordinated Debt Securities will be issued under a "Subordinated Indenture".
Together the Senior Indentures and the Subordinated Indentures are called
"Indentures".
We have summarized selected provisions of the Indentures below. The summary
is not complete. The forms of the Indentures have been filed as exhibits to the
registration statement and you should read the Indentures for provisions that
may be important to you. In the summary below, we have included references to
section numbers of the applicable Indentures so that you can easily locate these
provisions. Capitalized terms used in the summary have the meanings specified in
the Indentures.
General
The Debt Securities will be our direct, unsecured obligations. The Senior
Debt Securities will rank equally in right of payment with all of our other
senior and unsubordinated debt. The Subordinated Debt Securities will rank
junior in right of payment to all of our Senior Debt.
We are a holding company that conducts all of our operations through our
subsidiaries. The Senior Indenture will require any of our Subsidiaries which
are guarantors or co-obligors of our Funded Debt to fully and unconditionally
guarantee, as "Guarantors," our payment obligations on the Senior Debt
Securities.
"Funded Debt" means all debt maturing one year or more from the date of its
creation, all debt directly or indirectly renewable or extendable, at the option
of the debtor, by its terms or by the terms of any instrument or agreement
relating to the debt, to a date one year or more from the date of its creation,
and all debt under a revolving credit or similar agreement obligating the lender
or lenders to extend credit over a period of one year or more.
In particular, the Senior Indenture will require those Subsidiaries who are
guarantors or borrowers under our Credit Agreement to equally guarantee the
Senior Debt Securities. However, holders of Senior Debt Securities will
generally have a junior position to claims of creditors and preferred
stockholders of our subsidiaries who are not Guarantors.
The Subordinated Indenture will not require our Subsidiaries to guarantee
the Subordinated Debt Securities. As a result, the holders of Subordinated Debt
Securities will generally have a junior position to claims of all creditors and
preferred stockholders of our subsidiaries.
Some of our operating subsidiaries have outstanding debt. As of September
30, 1998, our subsidiaries had approximately $379 million of outstanding debt.
This amount includes $355 million that is owed by subsidiaries that as of the
date of this prospectus have not guaranteed any Senior Debt of the Partnership.
As a result, these subsidiaries would not be required to be Guarantors.
In the Indentures, the term "Subsidiary" means, with respect to any person:
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o any corporation, association or other business entity of which more than
50% of the total voting power of the equity interests entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof, or
o any partnership of which more than 50% of the partners' equity interests
(considering all partners' equity interests as a single class) is at the
time owned or controlled, directly or indirectly, by such person or one or
more of the other Subsidiaries of such person or combination thereof.
A prospectus supplement and a supplemental indenture relating to any series
of Debt Securities being offered will include specific terms relating to the
offering. These terms will include some or all of the following:
o the form and title of the Debt Securities;
o the total principal amount of the Debt Securities;
o the portion of the principal amount which will be payable if the maturity
of the Debt Securities is accelerated;
o any right we may have to defer payments of interest by extending the dates
payments are due whether interest on those deferred amounts will be payable
as well;
o the dates on which the principal of the Debt Securities will be payable;
o the interest rate which the Debt Securities will bear and the interest pay-
ment dates for the Debt Securities;
o any optional redemption provisions;
o any sinking fund or other provisions that would obligate us to repurchase
or otherwise redeem the Debt Securities;
o any changes to or additional Events of Default or covenants; and
o any other terms of the Debt Securities.
Neither of the Indentures limits the amount of Debt Securities that may be
issued. Each Indenture allows Debt Securities to be issued up to the principal
amount that may be authorized by us and may be in any currency or currency unit
designated by us.
Debt Securities of a series may be issued in registered, bearer, coupon or
global form. (Sections 201 & 202)
Denominations
The prospectus supplement for each issuance of Debt Securities will state
whether the securities will be issued in registered form in other amounts than
$1,000 each or multiples thereof.
No Personal Liability of General Partner
The General Partner and its directors, officers, employees and shareholders
will not have any liability for our obligations under the Indentures or the Debt
Securities. Each holder of Debt Securities by accepting a Debt Security waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Debt Securities.
Subordination
Under the Subordinated Indenture, payment of the principal, interest and any
premium on the Subordinated Debt Securities will generally be junior in right of
payment to the prior payment in full of all Senior Debt. "Senior Debt" is
defined to include all notes or other unsecured evidences of indebtedness,
including guarantees of the Partnership for money borrowed by the Partnership,
not expressed to be subordinate or junior in right of payment to any other
indebtedness of the Partnership.
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The Subordinated Indenture provides that no payment of principal, interest
and any premium on the Subordinated Debt Securities may be made in the event:
o we or our property are involved in any voluntary or involuntary liquidation
or bankruptcy;
o we fail to pay the principal, interest, any premium or any other amounts on
any Senior Debt when due; or
o we have a nonpayment default on any Senior Debt that imposes a payment
blockage on the Subordinated Debt Securities for a maximum of 179 days at
any one time.
(Sections 1401, 1402 and 1403 of the Subordinated Indenture)
The Subordinated Indenture will not limit the amount of Senior Debt that we
may incur.
Consolidation, Merger or Sale
Each Indenture generally allows us to consolidate or merge with a domestic
partnership or corporation. They also allow us to sell, lease or transfer all or
substantially all of our property and assets. If this happens, the remaining or
acquiring partnership or corporation must assume all of our responsibilities and
liabilities under the Indentures including the payment of all amounts due on the
Debt Securities and performance of the covenants in the Indentures.
However, we will only consolidate or merge with or into any other
partnership or corporation or sell, lease or transfer all or substantially all
of our assets according to the terms and conditions of the Indentures, which
include the following requirements:
o the remaining or acquiring partnership or corporation is organized under
the laws of the United States, any state or the District of Columbia;
o the remaining or acquiring partnership or corporation assumes the
Partnership's obligations under the Indentures; and
o immediately after giving effect to the transaction no Default or Event of
Default exists.
The remaining or acquiring partnership or corporation will be substituted
for us in the Indentures with the same effect as if it had been an original
party to the Indenture. Thereafter, the successor may exercise our rights and
powers under any Indenture, in our name or in its own name. Any act or
proceeding required or permitted to be done by our Board of Directors or any of
our officers may be done by the board or officers of the successor. If we sell
or transfer all or substantially all of our assets, we will be released from all
our liabilities and obligations under any Indenture and under the Debt
Securities. If we lease all or substantially all of our assets, we will not be
released from our obligations under the Indentures.
(Sections 801 & 802)
The Senior Indenture contains similar provisions for the Guarantors.
Modification of Indentures
Under each Indenture, generally our rights and obligations, the Guarantors'
rights and obligations and the rights of the holders may be modified with the
consent of the holders of a majority in aggregate principal amount of the
outstanding Debt Securities of each series affected by the modification. No
modification of the principal or interest payment terms, and no modification
reducing the percentage required for modifications, is effective against any
holder without its consent. In addition, the Partnership and the trustee may
amend the Indentures without the consent of any holder of the Debt Securities to
make certain technical changes, such as:
o correcting errors;
o providing for a successor trustee;
o qualifying the Indentures under the Trust Indenture Act; or
o adding provisions relating to a particular series of Debt Securities.
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(Sections 901 & 902)
Events of Default
"Event of Default" when used in an Indenture, will mean any of the following:
o failure to pay the principal of or any premium on any Debt Security when
due;
o failure to pay interest on any Debt Security for 30 days;
o failure to perform any other covenant in the Indenture that continues for
60 days after being given written notice;
o certain events in bankruptcy, insolvency or reorganization of the Partner-
ship; or
o any other Event of Default included in any Indenture or supplemental
indenture. (Section 501)
An Event of Default for a particular series of Debt Securities does not
necessarily constitute an Event of Default for any other series of Debt
Securities issued under an Indenture. The Trustee may withhold notice to the
holders of Debt Securities of any default (except in the payment of principal or
interest) if it considers such withholding of notice to be in the best interests
of the holders. (Section 602)
If an Event of Default for any series of Debt Securities occurs and
continues, the Trustee or the holders of at least 25% in aggregate principal
amount of the Debt Securities of the series may declare the entire principal of
all the Debt Securities of that series to be due and payable immediately. If
this happens, subject to certain conditions, the holders of a majority of the
aggregate principal amount of the Debt Securities of that series can void the
declaration. (Section 502)
Other than its duties in case of a default, a Trustee is not obligated to
exercise any of its rights or powers under any Indenture at the request, order
or direction of any holders, unless the holders offer the Trustee reasonable
indemnity. (Section 601) If they provide this reasonable indemnification, the
holders of a majority in principal amount of any series of Debt Securities may
direct the time, method and place of conducting any proceeding or any remedy
available to the Trustee, or exercising any power conferred upon the Trustee,
for any series of Debt Securities. (Section 512)
Provisions only in the Senior Indenture
General. The Senior Indenture contains provisions that limit our ability to
put liens on our principal assets or to sell and lease back those assets. The
Senior Indenture also requires our Subsidiaries that guarantee our long term
debt to guarantee the Senior Debt Securities on an equal basis. The Subordinated
Indenture does not contain any similar provisions. We have described below these
provisions and some of the defined terms used in them. In this section,
references to the Partnership relate only to Kinder Morgan Energy Partners,
L.P., the issuer of the Debt Securities, and not our Subsidiaries.
Limitations on Liens. The Senior Indenture provides that the Partnership
will not, nor will it permit any Subsidiary to, create, assume, incur or suffer
to exist any lien upon any Principal Property (as defined below) or upon any
shares of capital stock of any Subsidiary owning or leasing any Principal
Property, whether owned or leased on the date of the Senior Indenture or
thereafter acquired, to secure any debt of the Partnership or any other person
(other than the Senior Debt Securities issued thereunder), without in any such
case making effective provision whereby all of the Senior Debt Securities
Outstanding thereunder shall be secured equally and ratably with, or prior to,
such debt so long as such debt shall be so secured.
"Principal Property" means, whether owned or leased on the date of the
Senior Indenture or thereafter acquired:
(a) any pipeline assets of the Partnership or any Subsidiary, including any
related facilities employed in the transportation, distribution, storage or
marketing of refined petroleum products, natural gas liquids, coal and carbon
dioxide, that are located in the United States of America or any territory or
political subdivision thereof; and
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(b) any processing or manufacturing plant or terminal owned or leased by the
Partnership or any Subsidiary that is located in the United States or any
territory or political subdivision thereof,
except, in the case of either of the foregoing clauses (a) or (b):
(1) any such assets consisting of inventories, furniture, office fixtures
and equipment (including data processing equipment), vehicles and equipment used
on, or useful with, vehicles, and
(2) any such assets, plant or terminal which, in the opinion of the Board of
Directors, is not material in relation to the activities of the Partnership or
of the Partnership and its Subsidiaries, taken as a whole.
There is excluded from this restriction:
1. Permitted Liens (as defined below);
2. any lien upon any property or assets created at the time of acquisition
of such property or assets by the Partnership or any Subsidiary or within one
year after such time to secure all or a portion of the purchase price for such
property or assets or debt incurred to finance such purchase price, whether such
debt was incurred prior to, at the time of or within one year after the date of
such acquisition;
3. any lien upon any property or assets to secure all or part of the cost of
construction, development, repair or improvements thereon or to secure debt
incurred prior to, at the time of, or within one year after completion of such
construction, development, repair or improvements or the commencement of full
operations thereof (whichever is later), to provide funds for any such purpose;
4. any lien upon any property or assets existing thereon at the time of the
acquisition thereof by the Partnership or any Subsidiary; provided, however,
that such lien only encumbers the property or assets so acquired;
5. any lien upon any property or assets of a person existing thereon at the
time such person becomes a Subsidiary by acquisition, merger or otherwise;
provided, however, that such lien only encumbers the property or assets of such
person at the time such person becomes a Subsidiary;
6. with respect to any series, any lien upon any property or assets of the
Partnership or any Subsidiary in existence on the date the Senior Debt
Securities of such series are first issued or provided for pursuant to
agreements existing on such date;
7. liens imposed by law or order as a result of any proceeding before any
court or regulatory body that is being contested in good faith, and liens which
secure a judgment or other court-ordered award or settlement as to which the
Partnership or the applicable Subsidiary has not exhausted its appellate rights;
8. any extension, renewal, refinancing, refunding or replacement (or
successive extensions, renewals, refinancing, refunding or replacements) of
liens, in whole or in part, referred to in clauses (1) through (7) above;
provided, however, that any such extension, renewal, refinancing, refunding or
replacement lien shall be limited to the property or assets covered by the lien
extended, renewed, refinanced, refunded or replaced and that the obligations
secured by any such extension, renewal, refinancing, refunding or replacement
lien shall be in an amount not greater than the amount of the obligations
secured by the lien extended, renewed, refinanced, refunded or replaced and any
expenses of the Partnership and its subsidiaries (including any premium)
incurred in connection with such extension, renewal, refinancing, refunding or
replacement; or
9. any lien resulting from the deposit of moneys or evidence of indebtedness
in trust for the purpose of defeasing debt of the Partnership or any Subsidiary.
Notwithstanding the foregoing, under the Senior Indenture, the Partnership
may, and may permit any Subsidiary to, create, assume, incur, or suffer to exist
any lien upon any Principal Property to secure debt of the Partnership or any
person (other than the Senior Debt Securities) that is not excepted by clauses
(1) through (9), inclusive, above without securing the Senior Debt Securities
issued under the Senior Indenture, provided that the aggregate principal amount
of all debt then outstanding secured by such lien and all similar liens,
together with all net sale proceeds from Sale-Leaseback Transactions (excluding
Sale-Leaseback Transactions permitted by clauses (1) through (4), inclusive, of
the first paragraph of the restriction on sale-leasebacks covenant described
below) does not exceed 10% of Consolidated Net Tangible Assets. (Section 1006)
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"Permitted Liens" means:
(1) liens upon rights-of-way for pipeline purposes;
(2) any statutory or governmental lien or lien arising by operation of law,
or any mechanics', repairmen's, materialmen's, suppliers', carriers',
landlords', warehousemen's or similar lien incurred in the ordinary course of
business which is not yet due or which is being contested in good faith by
appropriate proceedings and any undetermined lien which is incidental to
construction, development, improvement or repair;
(3) the right reserved to, or vested in, any municipality or public
authority by the terms of any right, power, franchise, grant, license, permit or
by any provision of law, to purchase or recapture or to designate a purchaser
of, any property;
(4) liens of taxes and assessments which are (A) for the then current year,
(B) not at the time delinquent, or (C) delinquent but the validity of which is
being contested at the time by the Partnership or any Subsidiary in good faith;
(5) liens of, or to secure performance of, leases, other than capital
leases;
(6) any lien upon, or deposits of, any assets in favor of any surety company
or clerk of court for the purpose of obtaining indemnity or stay of judicial
proceedings;
(7) any lien upon property or assets acquired or sold by the Partnership or
any Subsidiary resulting from the exercise of any rights arising out of defaults
on receivables;
(8) any lien incurred in the ordinary course of business in connection with
workmen's compensation, unemployment insurance, temporary disability, social
security, retiree health or similar laws or regulations or to secure obligations
imposed by statute or governmental regulations;
(9) any lien in favor of the Partnership or any Subsidiary;
(10) any lien in favor of the United States of America or any state thereof,
or any department, agency or instrumentality or political subdivision of the
United States of America or any state thereof, to secure partial, progress,
advance, or other payments pursuant to any contract or statute, or any debt
incurred by the Partnership or any Subsidiary for the purpose of financing all
or any part of the purchase price of, or the cost of constructing, developing,
repairing or improving, the property or assets subject to such lien;
(11) any lien securing industrial development, pollution control or similar
revenue bonds;
(12) any lien securing debt of the Partnership or any Subsidiary, all or a
portion of the net proceeds of which are used, substantially concurrent with the
funding thereof (and for purposes of determining such "substantial concurrence,"
taking into consideration, among other things, required notices to be given to
Holders of outstanding securities under the Indenture (including the Debt
Securities) in connection with such refunding, refinancing or repurchase, and
the required corresponding durations thereof), to refinance, refund or
repurchase all outstanding securities under the Indenture (including the Debt
Securities), including the amount of all accrued interest thereon and reasonable
fees and expenses and premium, if any, incurred by the Partnership or any
Subsidiary in connection therewith;
(13) liens in favor of any person to secure obligations under the provisions
of any letters of credit, bank guarantees, bonds or surety obligations required
or requested by any governmental authority in connection with any contract or
statute; or
(14) any lien upon or deposits of any assets to secure performance of bids,
trade contracts, leases or statutory obligations.
"Consolidated Net Tangible Assets" means, at any date of determination, the
total amount of assets after deducting therefrom:
(1) all current liabilities (excluding (A) any current liabilities that by
their terms are extendable or renewable at the option of the obligor thereon to
a time more than 12 months after the time as of which the amount thereof is
being computed, and (B) current maturities of long-term debt), and
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(2) the value (net of any applicable reserves) of all goodwill, trade names,
trademarks, patents and other like intangible assets, all as set forth, or on a
proforma basis would be set forth, on the consolidated balance sheet of the
Partnership and its consolidated subsidiaries for the Partnership's most
recently completed fiscal quarter, prepared in accordance with generally
accepted accounting principles.
Restriction on Sale-Leasebacks. The Senior Indenture provides that the
Partnership will not, and will not permit any Subsidiary to, engage in the sale
or transfer by the Partnership or any Subsidiary of any Principal Property to a
person (other than the Partnership or a Subsidiary) and the taking back by the
Partnership or any Subsidiary, as the case may be, of a lease of such Principal
Property (a "Sale-Leaseback Transaction"), unless:
(1) such Sale-Leaseback Transaction occurs within one year from the date of
completion of the acquisition of the Principal Property subject thereto or the
date of the completion of construction, development or substantial repair or
improvement, or commencement of full operations on such Principal Property,
whichever is later;
(2) the Sale-Leaseback Transaction involves a lease for a period, including
renewals, of not more than three years;
(3) the Partnership or such Subsidiary would be entitled to incur debt
secured by a lien on the Principal Property subject thereto in a principal
amount equal to or exceeding the net sale proceeds from such Sale-Leaseback
Transaction without equally and ratably securing the Senior Debt Securities; or
(4) the Partnership or such Subsidiary, within a one-year period after such
Sale-Leaseback Transaction, applies or causes to be applied an amount not less
than the Attributable Indebtedness from such Sale-Leaseback Transaction to (A)
the prepayment, repayment, redemption, reduction or retirement of any debt of
the Partnership or any Subsidiary that is not subordinated to the Senior Debt
Securities, or (B) the expenditure or expenditures for Principal Property used
or to be used in the ordinary course of business of the Partnership or its
Subsidiaries.
"Attributable Indebtedness," when used with respect to any to any
Sale-Leaseback Transaction, means, as at the time of determination, the present
value (discounted at the rate set forth or implicit in the terms of the lease
included in such transaction) of the total obligations of the lessee for rental
payments (other than amounts required to be paid on account of property taxes,
maintenance, repairs, insurance, assessments, utilities, operating and labor
costs and other items that do not constitute payments for property rights)
during the remaining term of the lease included in such Sale-Leaseback
Transaction (including any period for which such lease has been extended). In
the case of any lease that is terminable by the lessee upon the payment of a
penalty or other termination payment, such amount shall be the lesser of the
amount determined assuming termination upon the first date such lease may be
terminated (in which case the amount shall also include the amount of the
penalty or termination payment, but no rent shall be considered as required to
be paid under such lease subsequent to the first date upon which it may be so
terminated) or the amount determined assuming no such termination.
Notwithstanding the foregoing, under the Senior Indenture the Partnership
may, and may permit any Subsidiary to, effect any Sale-Leaseback Transaction
that is not excepted by clauses (1) through (4), inclusive, of the above
paragraph, provided that the net sale proceeds from such Sale-Leaseback
Transaction, together with the aggregate principal amount of outstanding debt
(other than the Senior Debt Securities) secured by liens upon Principal
Properties not excepted by clauses (1) through (9), inclusive, of the first
paragraph of the limitation on liens covenant described above, do not exceed 10%
of the Consolidated Net Tangible Assets. (Section 1007)
Addition and Release of Guarantees. The Senior Indenture will provide that
if any Subsidiary of the Partnership is a guarantor or obligor of any Funded
Debt of the Partnership at any time on or subsequent to the date on which the
Senior Debt Securities are originally issued (including, without limitation,
following any release of such Subsidiary from its Guarantee as described below),
then the Partnership will cause the Senior Debt Securities to be equally and
ratably guaranteed by such Subsidiary. Under the terms of the Senior Indenture,
a Guarantor may be released from its Guarantee if such Guarantor is not a
guarantor or obligor of any Funded Debt of the Partnership, provided that no
Default of Event of Default under the Senior Indenture has occurred or is
continuing. (Section 1008)
Initially, we expect that the Guarantors will be Kinder Morgan Operating
L.P. "A," Kinder Morgan Operating L.P. "B," Kinder Morgan Operating L.P. "C,"
Kinder Morgan Operating L.P. "D," Kinder Morgan Natural Gas Liquids Corporation,
Kinder Morgan CO2, LLC and Kinder Morgan Bulk Terminals, Inc. Each of the
Guarantees will be an unsecured obligation of a Guarantor and will rank equally
with that Guarantor's guarantee under the Partnership's existing credit facility
and existing and future unsecured debt that is not expressly subordinated to its
Guarantee.
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Each Guarantor is obligated under its Guarantee only up to an amount that
will not constitute a fraudulent conveyance or fraudulent transfer under
federal, state or foreign law.
Payment and Transfer
Principal, interest and any premium on fully registered securities will be
paid at designated places. Payment will be made by check mailed to the persons
in whose names the Debt Securities are registered on days specified in the
Indentures or any prospectus supplement. Debt Securities payments in other forms
will be paid at a place designated by us and specified in a prospectus
supplement. (Section 307)
Fully registered securities may be transferred or exchanged at the corporate
trust office of the Trustee or at any other office or agency maintained by us
for such purposes, without the payment of any service charge except for any tax
or governmental charge. (Section 305)
Defeasance
We and the Guarantors may choose to either discharge our obligations on the
Debt Securities of any series in a covenant defeasance, or to release ourselves
from our covenant restrictions on the Debt Securities of any series in a
covenant defeasance. We may do so at any time on the 91st day after we deposit
with the Trustee sufficient cash or government securities to pay the principal,
interest, any premium and any other sums due to the stated maturity date or a
redemption date of the Debt Securities of the series. If we choose the legal
defeasance option, the holders of the Debt Securities of the series will not be
entitled to the benefits of the Indenture except for registration of transfer
and exchange of Debt Securities, replacement of lost, stolen or mutilated Debt
Securities conversion or exchange of Debt Securities, sinking fund payments and
receipt of principal and interest on the original stated due dates or specified
redemption dates.
(Section 1302)
We may discharge our obligations under the Indentures or release ourselves
from covenant restrictions only if we meet certain requirements. Among other
things, we must deliver an opinion of our legal counsel that the discharge will
not result in holders having to recognize taxable income or loss or subject then
to different tax treatment. In the case of legal defeasance, this opinion must
be based on either an IRS letter ruling or change in federal tax law. We may not
have a default on the Debt Securities discharged on the date of deposit. The
discharge may not violate any of our agreements. The discharge may not result in
our becoming an investment company in violation of the Investment Company Act of
1940.
Book Entry, Delivery and Form
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global certificates that will be deposited with a depositary
identified in a prospectus supplement.
Unless otherwise stated in any prospectus supplement, The Depository Trust
Company, New York, New York ("DTC") will act as depositary. Book-entry notes of
a series will be issued in the form of a global note that will be deposited with
DTC. This means that we will not issue certificates to each holder. One global
note will be issued to DTC who will keep a computerized record of its
participants (for example, your broker) whose clients have purchased the notes.
The participant will then keep a record of its clients who purchased the notes.
Unless it is exchanged in whole or in part for a certificate note, a global note
may not be transferred; except that DTC, its nominees and their successors may
transfer a global note as a whole to one another.
Beneficial interests in global notes will be shown on, and transfers of
global notes will be made only through, records maintained by DTC and its
participants.
DTC has provided us the following information: DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the United States
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants ("Direct Participants") deposit with DTC. DTC
also records the settlement among Direct Participants of securities
transactions, such as transfers and pledges, in deposited securities through
computerized records for Direct Participant's accounts. This eliminates the need
to exchange certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations.
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DTC's book-entry system is also used by other organizations such as
securities brokers and dealers, banks and trust companies that work through a
Direct Participant. The rules that apply to DTC and its participants are on file
with the SEC.
DTC is owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., The American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc.
We will wire principal and interest payments to DTC's nominee. We and the
Trustee will treat DTC's nominee as the owner of the global notes for all
purposes. Accordingly, we, the Trustee and any paying agent will have no direct
responsibility or liability to pay amounts due on the global notes to owners of
beneficial interests in the global notes.
It is DTC's current practice, upon receipt of any payment of principal or
interest, to credit Direct Participants' accounts on the payment date according
to their respective holdings of beneficial interests in the global notes as
shown on DTC's records. In addition, it is DTC's current practice to assign any
consenting or voting rights to Direct Participants whose accounts are credited
with notes on a record date, by using an omnibus proxy. Payments by participants
to owners of beneficial interests in the global notes, and voting by
participants, will be governed by the customary practices between the
participants and owners of beneficial interests, as is the case with notes held
for the account of customers registered in "street name." However, payments will
be the responsibility of the participants and not of DTC, the Trustee or us.
Notes represented by a global note will be exchangeable for certificate
notes with the same terms in authorized denominations only if:
o DTC notifies us that it is unwilling or unable to continue as depositary or
if DTC ceases to be a clearing agency registered under applicable law and a
successor depositary is not appointed by us within 90 days; or
o we determine not to require all of the notes of a series to be represented
by a global note and notify the Trustee of our decision.
Certificates and Opinions to Be Furnished to Trustee
Each Indenture provides that, in addition to other certificates or opinions
that may be specifically required by other provisions of an Indenture, every
application by us for action by the Trustee shall be accompanied by a
certificate of certain of our officers and an opinion of counsel (who may be our
counsel) stating that, in the opinion of the signers, all conditions precedent
to such action have been complied with by us. (Section 102)
Report to Holders of Debt Securities
The Trustee is required to submit an annual report to the holders of the
Debt Securities regarding, among other things, the Trustee's eligibility to
serve as such, the priority of the Trustee's claims regarding certain advances
made by it, and any action taken by the Trustee materially affecting the Debt
Securities.
The Trustee
We will name the trustee for each Indenture in the applicable prospectus
supplement. We anticipate that the same person initially will act as trustee
under the Senior Indenture and the Subordinated Indenture.
Pursuant to the Indentures and the Trust Indenture Act of 1939, as amended,
governing trustee conflicts of interest, any uncured Event of Default with
respect to any series of Senior Debt Securities will force the trustee to resign
as trustee under either the Subordinated Indenture or the Senior Indenture.
Likewise, any uncured Event of Default with respect to any series of
Subordinated Debt Securities will force the trustee to resign as trustee under
either the Senior Indenture or the Subordinated Indenture. Any resignation will
require the appointment of a successor trustee under the applicable Indenture in
accordance with the terms and conditions.
The trustee may resign or be removed by us with respect to one or more
series of Debt Securities and a successor trustee may be appointed to act with
respect to any such series. The holders of a majority in aggregate principal
amount of the Debt Securities of any series may remove the trustee with respect
to the Debt Securities of such series. (Section 610)
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Each Indenture contains certain limitations on the right of the trustee
thereunder, in the event that it becomes a creditor of the Partnership, to
obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. (Section 613)
DESCRIPTION OF COMMON UNITS
Number of Units
As of September 30, 1998, we have 48,851,690 Units outstanding. Our
partnership agreement does not limit the number of Units we may issue.
Listing
Our outstanding Units are listed on the New York Stock Exchange under
the symbol "ENP". Any additional Units we issue will also be listed on the NYSE.
Distributions
Our partnership agreement requires us to distribute 100% of "Available
Cash" to the Partners within 45 days following the end of each calendar quarter.
"Available Cash" consists generally of all of our cash receipts, less cash
disbursements and net additions to reserves. In addition, when we acquired our
Pacific Operations from Santa Fe Pacific Pipeline Partners, L.P. ("Santa Fe"),
the general partner of Santa Fe retained a .5% interest in those operations.
"Available Cash" does not include amounts payable to the former Santa Fe general
partner due to this interest.
We distribute Available Cash for each quarter as follows:
o first, 98% to the Limited Partners and 2% to the General Partner until the
Limited Partners have received a total of $.3025 per Unit for such quarter;
o second, 85% to the limited Partners and 15% to the General Partner until
the Limited Partners have received a total of $.3575 per Unit for such
quarter;
o third, 75% to the Limited Partners and 25% to the General Partner until the
Limited Partners have received a total of $.4675 per Unit for such quarter;
and
o fourth, thereafter 50% to the Limited Partners and 50% to the General
Partner.
Transfer Agent and Registrar
Our transfer agent and registrar for the Units is First Chicago Trust
Company of New York. You may contact them at the following address:
First Chicago Trust Company of New York
525 Washington Blvd.
Jersey City, NJ 07310
Summary of Partnership Agreement
A summary of the important provisions of our partnership agreement is
included in the reports filed with the SEC.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
General
The following discussion is a summary of material tax considerations
that may be relevant to a prospective Unitholder. The discussion is the opinion
of Morrison & Hecker L.L.P. ("Counsel") as to the material federal income tax
consequences of the ownership and disposition of Units. Counsel's opinion does
not include portions of the discussion regarding factual matters or portions of
the discussion that specifically state that it is unable to opine. The IRS
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may disagree with Counsel's opinion as to the tax consequences of ownership and
disposition of Units. The Partnership has not and will not request a ruling from
the IRS as to any matter addressed in this discussion.
The following discussion is based upon current provisions of the Code,
existing and proposed regulations under the Code and current administrative
rulings and court decisions, including modifications made by the Taxpayer Relief
Act of 1997 (the "1997 Act"), all as in effect on the date of this Prospectus.
This discussion is also based on the assumptions that the operation of the
Partnership and its operating partnerships (collectively, the "Operating
Partnerships") will be in accordance with the relevant partnership agreements.
This discussion is subject both to the accuracy of these assumptions and the
continued applicability of such legislative, administrative and judicial
authorities. Subsequent changes in such authorities may cause the tax
consequences to vary substantially from the consequences described below. Any
such change may be retroactively applied in a manner that could adversely affect
a holder of Units.
The discussion below is directed primarily to a Unitholder that is a
United States person for federal income tax purposes. Except as specifically
noted, the discussion does not address all of the federal income tax
consequences that may be relevant:
o to a holder in light of the holder's particular circumstances;
o to a holder that is a partnership, corporation, trust or estate (and their
partners, shareholders and beneficiaries);
o to holders subject to special rules, such as certain financial institutions,
tax-exempt entities, foreign corporations, non-resident alien individuals,
regulated investment companies, insurance companies, dealers in securities,
or traders in securities who elect to mark to market; and
o to persons holding Units as part of a "straddle," "synthetic security,"
"hedge" or "conversion transaction" or other integrated investment.
Moreover, the effect of any applicable state, local or foreign tax laws is not
discussed.
The discussion deals only with Units held as "capital assets" within the
meaning of Section 1221 of the Code.
The federal income tax treatment of holders of Units depends in some
instances on determinations of fact and interpretations of complex provisions of
federal income tax laws for which no clear precedent or authority may be
available. Accordingly, each prospective Unitholder should consult his own tax
advisors when determining the federal, state, local and any other tax
consequences of the ownership and disposition of Units.
Legal Opinions and Advice
The remainder of the discussion under this "Material Federal Income Tax
Considerations" section is the opinion of Counsel as to the material federal
income tax consequences of the ownership and disposition of Units.
Counsel has rendered its opinion to the Partnership to the effect that:
o the Partnership and the Operating Partnerships are and will continue to be
classified as partnerships for federal income tax purposes and will not be
classified as associations taxable as corporations, assuming that the
factual representations set forth in "-General Features of Partnership
Taxation-Partnership Status" are adhered to by such partnerships;
o each person who acquires beneficial ownership of Units pursuant to this
prospectus and either has been admitted or is pending admission to the
Partnership as an additional limited partner will be treated as a partner of
the Partnership for federal income tax purposes; and
o each person who acquired beneficial ownership of Units and whose Units are
held by a nominee will be treated as a partner of the Partnership for
federal income tax purposes, so long as such person has the right to direct
the nominee in the exercise of all substantive rights attendant to the
ownership of such Units.
The following are material federal income tax issues associated with the
ownership of Units and the operation of the Partnership with respect to which
Counsel is unable to opine:
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o whether a court would sustain the valuations of assets and allocations of
such amounts (the "Book-Tax Disparity") among tangible assets (and the
resulting net Curative Allocations) if the IRS challenged such valuations
and allocations;
o whether a court would sustain certain procedures utilized by the Partnership
in administering the Section 754 election and the resulting Section 743(b)
adjustments to any Unitholder's basis in its Units if the IRS challenged
such procedures. See "-Tax Treatment of Operations-Section 754 Election.";
and
o whether a court would allow the Partnership's monthly convention for
allocating Partnership income, gain, loss, deduction or credit to Partners.
See "Disposition of Units--Allocations Between Transferors and Transferees."
A more detailed discussion of these items is contained in the applicable
sections below.
The opinion of Counsel as to partnership classification is based on
certain representations of the Partnership and the General Partner. These
representations address the nature of the income of the Partnership which is
relevant to a determination of whether its income qualifies for the Natural
Resource Exception pursuant to Section 7704 of the Code. See "-General Features
of Partnership Taxation-Partnership Status." The opinion of Counsel is based
upon existing provisions of the Code and the Regulations, existing
administrative rulings and procedures of the IRS and existing court decisions.
Such authorities may change in the future, which change could be retroactively
applied. Such opinions represent only Counsel's best legal judgment as to the
particular issues and are not binding on the IRS or the courts.
General Features of Partnership Taxation
Partnership Status. The applicability of the federal income tax
consequences described in this prospectus depends on the treatment of the
Partnership and the Operating Partnerships as partnerships for federal income
tax purposes and not as associations taxable as corporations. For federal income
tax purposes, a partnership is not a taxable entity. It is a conduit through
which all items of partnership income, gain, loss, deduction and credit are
passed through to its partners. Thus, income and deductions resulting from
partnership operations are allocated to the partners and are taken into account
by the partners on their individual federal income tax returns. In addition, a
partner generally is not taxed upon a distribution of money from a partnership
unless the amount of the distribution exceeds the partner's tax basis in the
partner's interest in the partnership. If the Partnership or any of the
Operating Partnerships were classified for federal income tax purposes as an
association taxable as a corporation, the entity would be a separate taxable
entity. In such a case, the entity, rather than its members, would be taxed on
the income and gains and would be entitled to claim the losses and deductions
resulting from its operations. A member would be taxed on distributions from the
entity in the same manner as a shareholder would be taxed on distributions from
a corporation. A member would recognize ordinary income to the extent of the
current and accumulated earnings and profits of the entity, then a nontaxable
reduction of basis to the extent of the member's tax basis in the member's
interest in the entity and finally gain from the sale or exchange of the
member's interest in the entity. Any such characterization of either the
Partnership or one of the Operating Partnerships as an association taxable as a
corporation would likely result in a material reduction of the anticipated cash
flow and after-tax return to the Unitholders.
Pursuant to Final Treasury Regulations 301.7701-1, 301.7701-2 and
301.7701-3, effective January 1, 1997 (the "Check-the-Box Regulations"), an
entity in existence on January 1, 1997, will generally retain its current
classification for federal income tax purposes. As of January 1, 1997, the
Partnership was classified and taxed as a partnership. Pursuant to the
Check-the-Box Regulations this prior classification will be respected for all
periods prior to January 1, 1997, if (1) the entity had a reasonable basis for
the claimed classification; (2) the entity recognized federal tax consequences
of any change in classification within five years prior to January 1, 1997; and
(3) the entity was not notified prior to May 8, 1996, that the entity
classification was under examination. Prior to the finalization of the
Check-the-Box Regulations, the classification of an entity as a partnership was
determined under a four factor test developed by a number of legal authorities.
Based on this four factor test, the Partnership had a reasonable basis for its
classification as a partnership. Moreover, the Partnership has not changed its
classification and the IRS has not notified the partnership that its
classification was under examination.
Section 7704 provides that publicly traded partnerships will, as a
general rule, be taxed as corporations. However, an exception exists with
respect to publicly traded partnerships 90% or more of the gross income of which
for every taxable year consists of "qualifying income" (the "Natural Resource
Exception"). "Qualifying income" includes income and gains derived from the
exploration, development, mining or production, processing, refining,
transportation (including pipelines) or marketing of any mineral or natural
resource including oil, natural gas or products of oil and
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natural gas. Other types of "qualifying income" include interest (other than
from a financial business), dividends, gains from the sale of real property and
gains from the sale or other disposition of capital assets held for the
production of income that otherwise constitute "qualifying income." The General
Partner has represented that the Partnership will derive more than 90% of its
gross income from fees and charges for transporting natural gas liquids
("NGLs"), carbon dioxide ("CO2" ) and other hydrocarbons through the
Partnership's pipelines, dividends from the corporation that owns the Mont
Belvieu Fractionator and interest (other than from a financial business). Based
upon that representation, Counsel is of the opinion that the Partnership's gross
income derived from these sources will constitute "qualifying income" and the
Partnership will qualify for the Natural Resource Exception.
If the Partnership fails to meet the Natural Resource Exception, the
Partnership will be treated as if it had transferred on the first day of the
year in which it fails to meet the Natural Resource Exception all of its assets
(subject to liabilities) to a newly-formed corporation in exchange for stock in
that corporation. Then that Partnership will be treated as having distributed
such stock to the partners in liquidation of their interests in the Partnership.
This contribution and liquidation should be tax-free to the holders of Units and
the Partnership, if the Partnership, at that time, does not have liabilities in
excess of the basis of its assets. Thereafter, the Partnership would be treated
as a corporation for tax purposes.
However, in such case the Partnership will not be treated as a corporation
if the IRS determines that the failure to meet the Natural Resources Exception
is inadvertent, and the Partnership takes steps within a reasonable time to once
again meet the 90% gross income test and agrees to make such adjustments and pay
such amounts as the IRS requires. Such amount might include the tax liability
that would be imposed on the Partnership if it were treated as a corporation
during the period of inadvertent failure. The General Partner, as general
partner of the Partnership, will use its best efforts to assure that the
Partnership will continue to meet the gross income test for each taxable year.
The Partnership anticipates that it will continue to meet the gross income test.
If the Partnership fails to meet the gross income test for any taxable year, the
General Partner, as general partner of the Partnership, will use its best
efforts to assure that the Partnership will qualify under the inadvertent
failure exception discussed above.
If the Partnership or any Operating Partnership were treated as an
association or otherwise taxable as a corporation in any taxable year, because
it failed to meet the Natural Resource Exception or for any other reason, its
items of income, gain, loss, deduction and credit would be reflected only on its
tax return rather than being passed through to the holders of Units, and its net
income would be taxed at the entity level at corporate rates. In addition, any
distribution made to a holder of Units would be treated as either taxable
dividend income (to the extent of the Partnership's current or accumulated
earnings and profits) or in the absence of earnings and profits as a nontaxable
return of capital (to the extent of the holder's basis in the Units) or taxable
capital gain (after the holder's basis in the Units is reduced to zero).
Accordingly, treatment of either the Partnership or any of the Operating
Partnerships as an association taxable as a corporation would materially reduce
a Unitholder's cash flow and after-tax economic return on an investment in the
Partnership.
Congress could change the tax laws to treat the Partnership as an
association taxable as a corporation for federal income tax purposes or
otherwise subject it to entity-level taxation. The Partnership Agreement
provides that, if a law is enacted that subjects the Partnership to taxation as
a corporation or otherwise subjects the Partnership to entity-level taxation for
federal income tax purposes, the General Partner will amend the Partnership
Agreement to reduce its incentive distributions.
Under current law, the Partnership and the Operating Partnerships are
classified and taxed as partnerships for federal income tax purposes and not as
associations taxable as corporations. This conclusion is based upon certain
factual representations and covenants made by the General Partner including:
o the General Partner will operate the Partnership and the Operating
Partnerships strictly in accordance with (i) all applicable partnership
statutes, and (ii) the Partnership Agreements;
o the General Partner will at all times act independently of the Unitholders;
o for each taxable year, the Partnership and the Operating Partnerships will
derive less than 10% of the aggregate gross income from sources other than
(i) the exploration, development, production, processing, refining,
transportation or marketing of any mineral or natural resource, including
oil, gas or products of oil and natural gas and naturally occurring carbon
dioxide or (ii) other items of "qualifying income" within the definition of
Section 7704(d);
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o prior to January 1, 1997, the General Partner maintained throughout the term
of the Partnership and the Operating Partnerships substantial assets that
creditors of the Partnership and the Operating Partnerships could reach.
This determination was based upon the fair market value of its assets and
excluding its interest in, and any account or notes receivable from or
payable to, any limited partnership in which the General Partner has any
interest; and
o the Partnership and each of the Operating Partnerships have not elected
association classification under the Check-the-Box Regulations or otherwise
and will not elect such classification.
The Partnership has not requested or received any ruling from the IRS
with respect to the classification of the Partnership and the Operating
Partnerships for federal income tax purposes and the opinion of Counsel is not
binding on the IRS. The IRS imposed certain procedural requirements for years
prior to 1997 to be met before it would issue a ruling to the effect that a
limited partnership with a sole corporate general partner would be classified as
a partnership for federal income tax purposes. These procedural requirements
were not rules of substantive law to be applied on audit, but served more as a
"safe-harbor" for purposes of obtaining a ruling. The General Partner believes
that the Partnership and the Operating Partnerships did not satisfy all such
procedural requirements. The conclusion described above as to the partnership
status of the Partnership for years before January 1, 1997 does not depend upon
the ability of the Partnership to meet the criteria set forth in such procedural
requirements.
The following discussion assumes that the Partnership and the Operating
Partnerships are, and will continue to be, treated as partnerships for federal
income tax purposes. If either assumption is incorrect, most, if not all, of the
tax consequences described in the prospectus would not apply to Unitholders. In
particular, if the Partnership is not a partnership, a Unitholder may for
federal income tax purposes (i) recognize ordinary income, as the result of any
payments to him in respect of partnership distributions and (ii) not be entitled
to allocations of partnership income, gain, loss and deduction.
Limited Partner Status. Holders of Units who the General Partner has
admitted as limited partners will be treated as partners of the Partnership for
federal income tax purposes. Moreover, the IRS has ruled that assignees of
partnership interests who have not been admitted to a partnership as partners,
but who have the capacity to exercise substantial dominion and control over the
assigned partnership interests, will be treated as partners for federal income
tax purposes. On the basis of this ruling, except as otherwise described in this
prospectus, the General Partner will treat the following persons as partners of
the Partnership for federal income tax purposes, (a) assignees who have executed
and delivered Transfer Applications, and are awaiting admission as limited
partners and (b) holders of Units whose Units are held in street name or by a
nominee and who have the right to direct the nominee in the exercise of all
substantive rights attendant to the ownership of their Units. As this ruling
does not extend, on its facts, to assignees of Units who are entitled to execute
and deliver Transfer Applications and thereby become entitled to direct the
exercise of attendant rights, but who fail to execute and deliver Transfer
Applications, Counsel cannot opine as to the status of these persons as partners
of the Partnership. Income, gain, deductions, losses or credits would not appear
to be reportable by such a holder of Units, and any such holders of Units
receiving cash distributions would be fully taxable as ordinary income. These
holders should consult their own tax advisors with respect to their status as
partners in the Partnership for federal income tax purposes. A purchaser or
other transferee of Units who does not execute and deliver a Transfer
Application may not receive certain federal income tax information or reports
furnished to record holders of Units, 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.
A beneficial owner of Units whose Units have been transferred to a short
seller to complete a short sale would appear to lose the status as a partner
with respect to such Units for federal income tax purposes.
See "-Disposition of Units-Treatment of Short Sales."
Tax Consequences of Unit Ownership
Basis of Units. A Unitholder's initial tax basis for a Unit is the
amount paid for the Unit plus his share, if any, of nonrecourse liabilities of
the Partnership. A partner also includes in the tax basis for such partnership
interest any capital contributions that the partner actually makes to the
Partnership and the partner's allocable share of all Partnership income and
gains, less the amount of all distributions that the partner receives from the
Partnership and such partner's allocable share of all Partnership losses. For
purposes of these rules, if a partner's share of Partnership liabilities is
reduced for any reason, the partner is deemed to have received a cash
distribution equal to the amount of the reduction. The partner will recognize
gain as a result of this deemed cash distribution if, and to the extent that,
the deemed cash distribution exceeds the partner's adjusted tax basis for his
partnership interest.
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Flow-through of Taxable Income. The Partnership will not pay any federal
income tax. Instead, each holder of Units must report on such holder's income
tax return such holder's allocable share of the income, gains, losses and
deductions without regard to whether corresponding cash distributions are
received by such Unitholders. Consequently, the Partnership may allocate income
to a holder of Units even though the holder has not received a cash distribution
in respect of such income.
Treatment of Partnership Distributions. Under Section 731 of the Code, a
partner will recognize gain as a result of a distribution from a partnership if
the partnership distributes an amount of money to the partner which exceeds such
partner's adjusted tax basis in the partnership interest prior to the
distribution. The amount of gain is limited to this excess. Cash distributions
in excess of such Unitholder's basis generally will be considered to be gain
from the sale or exchange of the Units, taxable in accordance with the rules
described under "-Disposition of Units."
A decrease in a Unitholder's percentage interest in the Partnership,
because of the Partnership's issuance of additional Units, or otherwise, will
decrease a Unitholder's share of nonrecourse liabilities of the Partnership, if
any. This decrease will result in a corresponding deemed distribution of cash.
The Partnership does not currently have, and the General Partner does not
anticipate that it will have, any material nonrecourse liabilities.
A non-pro rata distribution of money or property may result in ordinary
income to a holder of Units, regardless of such holder's tax basis in Units, if
the distribution reduces such holder's share of the Partnership's "Section 751
Assets." "Section 751 Assets" are defined by the Code to include assets giving
rise to depreciation recapture or other "unrealized receivables" or
"substantially appreciated inventory." For this purpose, inventory is
substantially appreciated if its value exceeds 120% of its adjusted tax basis.
In addition to depreciation recapture, "unrealized receivables" include rights
to payment for goods (other than capital assets) or services to the extent not
previously includable in income under a partnership's method of accounting. To
the extent that such a reduction in a Unitholder's share of Section 751 Assets
occurs, the Partnership will be deemed to have distributed a proportionate share
of the Section 751 Assets to the Unitholder followed by a deemed exchange of
such assets with the Partnership in return for the non-pro rata portion of the
actual distribution made to such holder. This deemed exchange will generally
result in the realization of ordinary income under Section 751(b) by the
Unitholder. Such income will equal the excess of (1) the non-pro rata portion of
such distribution over (2) the Unitholder's tax basis in such holder's share of
Section 751 Assets deemed relinquished in the exchange.
Limitations on Deductibility of Losses. Generally, a Unitholder may
deduct his share of losses that the Partnership incurs only to the extent of his
tax basis in the Units which he holds. A further "at risk" limitation may
operate to limit deductibility of losses in the case of an individual holder of
Units if the "at risk" amount is less than the holder's basis in the Units. This
limitation also applies to a corporate holder of Units if five or fewer
individuals or certain tax-exempt organizations own directly or indirectly more
than 50% in the value of its stock. A holder of Units must recapture losses
deducted in previous years to the extent that the Partnership distributions
cause such Unitholder's at risk amount to be less than zero at the end of any
taxable year. Losses disallowed to a holder of Units or recaptured as a result
of theses limitations will carry forward and will be allowable to the extent
that the Unitholder's basis or at risk amount (whichever is the applicable
limiting factor) is increased.
In general, a holder of Units will be "at risk" to the extent of the
purchase price of the holder's Units. The amount "at risk" may be less than the
Unitholder's basis for the Units in an amount equal to the Unitholder's share of
nonrecourse liabilities, if any, of the Partnership. A Unitholder's at risk
amount will increase or decrease as the basis of such Units held increases or
decreases, excluding any effect on basis attributable to changes in the
Unitholder's share of Partnership nonrecourse liabilities.
The passive loss limitations generally provide that individuals,
estates, trusts, certain closely-held corporations and personal service
corporations can only deduct losses from passive activities (generally,
activities in which the taxpayer does not materially participate) that are not
in excess of the taxpayer's income from such passive activities or investments.
The passive loss limitations are not applicable to a widely held corporation.
The passive loss limitations are to be applied separately with respect to each
publicly traded partnership. Consequently, a Unitholder can use the losses
generated by the Partnership, if any, only to offset future income generated by
the Partnership. A Unitholder cannot use such losses to offset income from other
passive activities or investments (including other publicly traded partnerships)
or salary or active business income. Passive losses that are not deductible,
because they exceed the Unitholder's allocable share of income generated by the
Partnership would be deductible in the case of a fully taxable disposition of
such Units to an unrelated party. The passive activity loss rules are applied
after other applicable limitations on deductions such as the at risk rules and
the basis limitation.
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The IRS has announced that it will issue Treasury Regulations that
characterize net passive income from a publicly traded partnership as investment
income for purposes of the limitations on the deductibility of investment
interest.
Allocation of Income, Gain, Loss and Deduction. In general, the Partnership
will allocate items of income, gain, loss and deduction between the General
Partner, in its capacity as general partner, and the holders of Units in the
same proportion that Available Cash is distributed between the General Partner
and the holders of Units. If distributions of Available Cash are not made in
respect of a particular taxable year, the Partnership will allocate such items
among the partners in accordance with their respective percentage interests. If
the Partnership has a net loss, the Partnership will allocate items of income,
gain, loss and deduction first, to the General Partner and the Unitholders to
the extent of their positive capital accounts, and second, to the General
Partner. On a liquidating sale of assets, the Partnership Agreement provides
separate gain and loss allocations, designed to the extent possible, (1) to
eliminate a deficit in any partner's capital account and (2) to produce capital
accounts which, when followed on liquidation, will result in each holder of
Units recovering Unrecovered Capital, and a distributive share of any additional
value.
Under Section 704(b), a partnership's allocation of any item of income,
gain, loss or deduction to a partner will not be given effect for federal income
tax purposes, unless it has "substantial economic effect," or is otherwise
allocated in accordance with the partner's interest in the partnership. If the
allocation does not satisfy this standard, it will be reallocated among the
partners on the basis of their respective interests in the partnership, taking
into account all facts and circumstances.
Regulations under Section 704(b) delineate the circumstances under which
the IRS will view partnership allocations as having an "economic effect" that is
"substantial." Generally, for an allocation to have "economic effect" under the
Regulations:
o the partnership must reflect the allocation as an appropriate increase or
decrease in a capital account maintained for each partner in accordance with
specific rules set forth in the Regulations;
o throughout the term of the partnership, the partnership must make
liquidating distributions (including complete redemptions of a partner's
interest in the partnership) in accordance with the partner's positive
capital account balances; and
o any partner with a deficit balance in such partner's capital account
following a liquidating distribution must be unconditionally obligated
(either by contract or state law) to restore the amount of such deficit to
the partnership within a limited period of time.
If the first two of these requirements are met, but the partner to whom
an allocation of loss or deduction is made is not obligated to restore the full
amount of any deficit balance in such partner's capital account upon liquidation
of the partnership, an allocation of loss or deduction may still have economic
effect, if (1) the agreement contains a "qualified income offset" provision, and
(2) the allocation either does not (i) cause a deficit balance in a partner's
capital account (reduced by certain anticipated adjustments, allocations and
distributions specified in the Regulations) as of the end of the partnership
taxable year to which the allocation relates or (ii) increase any such deficit
balance in this specially adjusted capital account by more than the partner's
unpaid obligation to contribute additional capital to the partnership. A
qualified income offset provision requires that in the event of any unexpected
distribution (or specified adjustments or allocations) the partnership must make
an allocation of income or gain to the distributees that eliminates the
resulting capital account deficit as quickly as possible. This rule is referred
to in this prospectus as the "Alternate Economic Effect Rule."
The Regulations require that capital accounts be:
o credited with the fair market value of property contributed to the
partnership, net of liabilities encumbering the contributed property that
the partnership is considered to assume or take subject to pursuant to
Section 752 ("Contributed Property");
o credited with the amount of cash contributed to the partnership; and
o adjusted by items of depreciation, amortization, gain and loss attributable
to partnership properties that have been computed by taking into account the
book value (rather than tax basis) of such properties.
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A partner's capital account must also be reduced by:
o the amount of money distributed to such partner by the partnership;
o the fair market value of property distributed to such partner by the
partnership, net of liabilities encumbering the distributed property that
such holder is considered to assume or take subject to pursuant to Section
752; and
o a distributive share of certain partnership expenses that are neither
deductible nor amortizable.
The "Book-Tax Disparities" created by crediting capital accounts with the
value of Contributed Properties are eliminated through tax allocations that
cause the partner whose capital account reflects unrealized gain or loss to
bear the corresponding tax benefit or burden associated with the recognition of
such unrealized gain or loss in accordance with the principles of Section
704(c). The allocations of these tax items that differ in amount from their
correlative book items do not have economic effect, because they are not
reflected in the partners' capital accounts. However, the allocations of such
items will be deemed to be in accordance with the partners' interests in the
partnership if they are made in accordance with the Section 704(c) Regulations.
In addition, the Regulations permit a partnership to increase or
decrease partners' capital accounts to reflect a fair market revaluation of
partnership property, if the adjustments are made for a substantial non-tax
business purpose in connection with a contribution or distribution of money or
other property in consideration for the acquisition or relinquishment of an
interest in the partnership. These adjustments may also create Book-Tax
Disparities, which the Regulations require a partnership to eliminate through
tax allocations in accordance with Section 704(c) principles.
An allocation must not only have economic effect to be respected, but
that economic effect must also be "substantial." The economic effect of an
allocation is substantial if there is a reasonable possibility that the
allocation will affect substantially the dollar amounts the partners will
receive from the partnership, independent of tax consequences. As a general
matter, however, the economic effect of an allocation is not substantial if, at
the time the partnership adopts the allocation, the after-tax economic
consequences of at least one partner may, in present value terms, be enhanced by
such allocation, but there is a strong likelihood that the after-tax economic
consequences of no other partner will, in present value terms, be substantially
diminished by such allocation.
The Partnership Agreement requires that the Partnership maintain a
capital account for each partner, generally in accordance with the applicable
tax accounting principles set forth in the Regulations, and that the Partnership
reflect all allocations to a partner by an appropriate increase or decrease in
the partner's capital account. In addition, the General Partner will make
distributions upon liquidation of the Partnership in accordance with positive
capital account balances. The limited partners are not required to contribute
capital to the Partnership to restore deficit balances in their capital accounts
upon liquidation of the Partnership. However, the Partnership Agreement contains
qualified income offset and minimum gain chargeback provisions, which under the
Section 704(b) Regulations comply with the Alternate Economic Effect Rule and
will obviate the requirement to restore negative capital accounts. The
Partnership Agreement provides for the reallocation to the General Partner of
any losses or deductions otherwise allocable to a holder of Units that have the
effect of creating a deficit balance in such holder's capital account, as
specially adjusted, pursuant to the Partnership Agreement's terms.
Except as discussed below, items of income, gain, loss and deduction
allocated to the holders of Units, in the aggregate, will be allocated among the
holders of Units in accordance with the number of Units held by such Unitholder.
The Partnership will make special tax (but not book) allocations to reflect
Book-Tax Disparities with respect to Contributed Properties. The Partnership
Agreement also provides for certain special allocations of income and gain
required by the qualified income offset and minimum gain chargeback provisions.
In addition, the Partnership Agreement empowers the General Partner to allocate
various Partnership items other than in accordance with the percentage interests
of the General Partner and the holders of Units when, in its judgment, such
special allocations are necessary to comply with applicable provisions of the
Code and the Regulations and to achieve uniformity of Units. See "-Uniformity of
Units."
With respect to Contributed Property, the Partnership Agreement provides
that, for federal income tax purposes, items of income, gain, loss and deduction
are first allocated among the partners in a manner consistent with Section
704(c). In addition, the Partnership Agreement requires the Partnership to
allocate items of income, gain, loss and deduction attributable to any
properties in accordance with Section 704(c) principles when, upon the
subsequent
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issuance of any Units, the Partnership has adjusted the book value of such
properties to reflect unrealized appreciation or depreciation in value from the
later of the Partnership's acquisition date for such properties or the latest
date of a prior issuance of Units ("Adjusted Property"). Thus, the Partnership
will specially allocate deductions for the depreciation of Contributed Property
and Adjusted Property to the non-contributing Unitholders and the Partnership
will specially allocate gain or loss from the disposition of such property
attributable to the Book-Tax Disparity (the "Section 704(c) Gain") to the
contributing Unitholders so that the non-contributing Unitholders may claim, to
the extent possible, cost recovery and depreciation deductions and the
Partnership will allocate to them gain or loss from the sale of assets generally
as if they had purchased a direct interest in the Partnership's assets.
The Partnership Agreement also allocates gain from the sale of
properties that is characterized as recapture income among the holders of Units
and the General Partner (or its successors) in the same manner in which such
partners were allocated the deductions giving rise to such recapture income.
Final Treasury Regulations under Section 1245 provide that depreciation
recapture will be specially allocated based on the allocation of the deductions
giving rise to such recapture income, as provided for in the Partnership
Agreement.
Items of gross income and deduction will be allocated in a manner
intended to eliminate Book-Tax Disparities, if any, that are not eliminated by
Section 704(c) allocations as a result of the application of the Ceiling Rule
with respect to Contributed Property or Adjusted Property. Such Curative
Allocations of gross income and deductions to preserve the uniformity of the
income tax characteristics of Units will not have economic effect, because the
capital accounts of the holders of Units will not reflect such allocations.
However, such allocations will eliminate Book-Tax Disparities and are thus
consistent with the Regulations under Section 704(c). With the exception of
certain conventions adopted by the Partnership with respect to administration of
the Section 754 election and the attendant Section 743(b) basis adjustments
discussed at "-Tax Treatment of Operations-Section 754 Election"; and allocation
of the effect of unamortizable Section 197 Book-Up amounts and common inside
basis, allocations under the Partnership Agreement will be given effect for
federal income tax purposes in determining a holder's distributive share of an
item of income, gain, loss or deduction. There are, however, uncertainties in
the Regulations relating to allocations of partnership income, and Unitholders
should be aware that the IRS may successfully challenge some of the allocations
in the Partnership Agreement. See "-Tax Treatment of Operations-Section 754
Election-" and "-Uniformity of Common Units" for a discussion of such
allocations.
Tax Treatment of Operations
Accounting Method and Taxable Year. The Partnership currently maintains
the calendar year as its taxable year and has adopted the accrual method of
accounting for federal income tax purposes.
Tax Basis, Depreciation and Amortization. The Partnership will use its
tax bases for its assets to compute depreciation and cost recovery deductions
and, ultimately, after adjustment for intervening depreciation or cost recovery
deductions, gain or loss on the disposition of such assets.
The Partnership and the Operating Partnerships will have tangible assets
of substantial value, including the pipelines and related equipment. A
significant portion of the assets were placed in service prior to the effective
dates of the accelerated cost recovery system and will be depreciated over a
171/2 year period on a declining balance method. The General Partner will
depreciate certain assets using the accelerated methods provided for under
Section 168 of the Code. In addition, the Partnership, will use accelerated
methods provided for under Section 167 of the Code to depreciate certain other
assets during the early years of the depreciable lives of those assets, and then
elect to use the straight line method in subsequent years.
The Partnership allocated the capital account value among the
Partnership's assets after the acquisition of Santa Fe based upon their relative
fair market values established by an independent appraisal. Any amount in excess
of the fair market values of specific tangible assets may constitute
non-amortizable intangible assets (including goodwill).
The tax basis of goodwill and most other intangible assets used in a
trade or business acquired after August 10, 1993 (or prior to that time in
certain events), may be amortized over 15 years. The Partnership will not
amortize the goodwill, if any, created as a result of the acquisition of Santa
Fe for tax capital account or income tax purposes because of the Step-in-the
Shoes and Anti-Churning rules. However, see "-Section 754 Election" with respect
to the amortization of Section 743(b) adjustments available to purchasers of
Units. The IRS may challenge either the fair market values or the useful lives
assigned to such assets. If any such challenge or characterization were
successful, the Partnership would reduce the deductions allocated to a holder of
Units in respect of such assets and would increase by a like amount a
Unitholder's share of taxable income from the Partnership. Any such increase
could be material.
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If the Partnership disposes of depreciable property by sale, foreclosure
or otherwise, all or a portion of any gain may be subject to the recapture rules
and taxed as ordinary income rather than capital gain. The Partnership will
determine the amount of the gain by reference to the amount of depreciation
previously deducted and the nature of the property. Similarly, a partner that
has taken cost recovery or depreciation deductions with respect to Partnership
property may be required to recapture such deductions upon a sale of such
partner's interest in the Partnership. See "-Allocation of Partnership Income,
Gain, Loss and Deduction" and "-Disposition of Common Units-Recognition of Gain
or Loss."
A partnership may amortize its organizational costs over any period
selected by the partnership not shorter than 60 months. A partnership must
capitalize the costs incurred in promoting the issuance of Units, including
underwriting commissions and discounts. The Partnership cannot deduct such costs
currently, ratably or upon termination of the Partnership. Uncertainties exist
regarding the classification of costs as organization expenses, which the
Partnership may amortize, and as syndication expenses which the Partnership may
not amortize.
Section 754 Election. The Partnership has previously made a Section 754
election and will make another Section 754 election for protective purposes.
This election is irrevocable without the consent of the IRS. The election will
generally permit a purchaser of Units to adjust such purchaser's share of the
basis in the Partnership's properties ("Common Basis") pursuant to Section
743(b) to reflect the purchase price paid for such Units. In the case of Units
purchased in the market, the Section 743(b) adjustment acts in concert with
Section 704(c) allocations (and Curative Allocations, if respected) in providing
the purchaser of such Units with the equivalent of a fair market value Common
Basis. See " -Allocation of Partnership Income, Gain, Loss and Deduction." The
Section 743(b) adjustment is attributed solely to a purchaser of Units and is
not added to the bases of the Partnership's assets associated with Units held by
other Unitholders. For purposes of this discussion, a Unitholder's inside basis
in the Partnership's assets is considered to have two components:
o the Unitholder's share of the Partnership's actual basis in such assets
("Common Basis"); and
o the Unitholder's Section 743(b) adjustment allocated to each such asset.
A Section 754 election is advantageous if the transferee's basis in
Units is higher than the Partnership's aggregate Common Basis allocable to that
portion of its assets represented by such Units immediately prior to the
transfer. In such case, pursuant to the election, the transferee would take a
new and higher basis in the transferee's share of the Partnership's assets for
purposes of calculating, among other items, depreciation deductions and the
applicable share of any gain or loss on a sale of the Partnership's assets.
Conversely, a Section 754 election is disadvantageous if the transferee's basis
in such Units is lower than the Partnership's aggregate Common Basis allocable
to that portion of its assets represented by such Units immediately prior to the
transfer. Such election may affect either favorably or unfavorably, the amount
that a holder of Units may obtain upon the sale of Units. A constructive
termination of the Partnership will also cause a Section 708 termination of the
Operating Partnerships. Such a termination could also result in penalties or
loss of basis adjustments under Section 754, if the General Partner could not
determine that the termination had occurred and, therefore, did not timely file
a tax return or make appropriate Section 754 elections for the "new"
Partnership.
Proposed Treasury Regulation Section 1.743-1(j)(4)(B) generally requires
the Partnership to depreciate the Section 743(b) adjustment attributable to
recovery property as if the total amount of such adjustment were attributable to
newly-acquired recovery property placed in service when the purchase of a Unit
occurs. Under Treasury Regulation Section 1.167(c)-1(a)(6), a Section 743(b)
adjustment attributable to property subject to depreciation under Section 167
rather than cost recovery deductions under Section 168 is generally required to
be depreciated using either the straight-line method or the 150% declining
balance method. Although Counsel is unable to opine as to the validity of such
an approach, the Partnership intends to depreciate the portion of a Section
743(b) adjustment attributable to unrealized appreciation in the value of the
Partnership property (to the extent of any unamortized Book-Tax Disparity) using
a rate of depreciation derived from the depreciation method and useful life
applied to the Common Basis of such property, despite its inconsistency with
Proposed Treasury Regulation Section 1.743-1(j)(4)(B) and Treasury Regulation
Section 1.167(c)-1(a)(6). If an asset is not subject to depreciation or
amortization, no Section 743(b) adjustment would be available to that extent. If
the General Partner determines that the Partnership cannot reasonably take such
position, it may adopt a depreciation convention under which all purchasers
acquiring Units in the same month would receive depreciation, whether
attributable to Common Basis or Section 743(b) basis, based upon the same
applicable rate as if they had purchased a direct interest in the Partnership's
property. Such an aggregate approach, or any other method required as a result
of an IRS examination, may result in lower annual depreciation deductions than
would otherwise be allowable to certain holders of Units. See "-Uniformity of
Units."
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The Partnership must allocate the Section 743(b) adjustment in
accordance with the principles of Section 1060. Based on these principles, the
IRS may seek to reallocate some or all of any Section 743(b) adjustment that the
Partnership does not allocate to intangible assets which have a longer 15 year
amortization period and which are not eligible for accelerated depreciation
methods generally applicable to other assets of the Partnership.
The calculations involved in the Section 754 election are complex and
the Partnership will make such calculations on the basis of certain assumptions
as to the value of the Partnership assets and other matters. The IRS may
challenge the General Partner's determinations and may seek to disallow or
reduce the deductions attributable to them.
Valuation of Property of the Partnership. The federal income tax
consequences of the acquisition, ownership and disposition of Units will depend
in part on estimates by the General Partner of the relative fair market values,
and determinations of the tax basis, of the assets of the Partnership. Although
the General Partner may from time to time consult with professional appraisers
with respect to valuation matters, the General Partner will make many of the
relative fair market value estimates by itself. These estimates are subject to
challenge and are not binding on the IRS or the courts. In the event the
determinations of fair market value are subsequently found to be incorrect, the
character and amount of items of income, gain, loss, deductions or credits
previously reported by Unitholders might change, and Unitholders might have
additional tax liability for such prior periods.
Corporate Interests. The Partnership owns an interest in several
corporations. As corporations these entities pay federal and state income taxes.
The Partnership, as a shareholder, will include in its income any amounts
distributed to it by such corporations to the extent of such corporations'
current and accumulated earnings and profits. The General Partner estimates that
a portion of the corporations' cash distributions to the Partnership will be
treated as taxable dividends.
Alternative Minimum Tax. Each holder of Units must take into account
such holder's distributive share of any items of the Partnership's income, gain
or loss for purposes of the alternative minimum tax ("AMT"). The AMT currently
is a tax of 26% on the first $175,000 of alternative minimum taxable income in
excess of the exemption amount and 28% on any additional alternative minimum
taxable income of individuals. Alternative minimum taxable income is calculated
using the 150% declining balance method of depreciation with respect to personal
property and 40-year straight-line depreciation for real property. These
depreciation methods are not as favorable as the alternative straight line and
accelerated methods provided for under Section 168 which the Partnership will
use in computing its income for regular federal income tax purposes.
Accordingly, a Unitholder's AMT taxable income derived from the Partnership may
be higher than such holder's share of the Partnership's net income. Prospective
holders of Units should consult with their tax advisors as to the impact of an
investment in Units on their liability for the alternative minimum tax.
Disposition of Units
Recognition of Gain or Loss. A Unitholder will recognize gain or loss on
a sale of Units equal to the difference between the amount realized and a
holder's tax basis for the Units sold. A holder's amount realized will be
measured by the sum of the cash received or the fair market value of other
property received, plus such holder's share of the Partnership's nonrecourse
liabilities. Because the amount realized includes a Unitholder's share of the
Partnership's nonrecourse liabilities, the gain recognized on the sale of Units
could result in a tax liability in excess of any cash received from such sale.
In general, the Partnership will allocate items of income, gain, loss
and deduction for book and tax purposes among the General Partner, in its
capacity as general partner, and the holders of Units in the same proportion
that Available Cash is distributed. If distributions of Available Cash are not
made in respect of a particular taxable year, the Partnership will allocate such
items among the partners in accordance with their percentage interests.
Moreover, if a Unitholder has received distributions from the Partnership which
exceed the cumulative net taxable income allocated to him, his basis will
decrease to an amount less than his original purchase price for the Units. In
effect, this amount would increase the gain recognized on sale of the Unit(s).
Under such circumstances, a gain could result even if the Unit(s) are sold at a
price less than their original cost.
The IRS has ruled that a partner acquiring interests in a partnership in
separate transactions at different prices must maintain an aggregate adjusted
tax basis in a single partnership interest and that, upon sale or other
disposition of some of the interests, the partnership must allocate a portion of
such aggregate tax basis to the interests sold on the basis of some equitable
apportionment method. The ruling is unclear as to how this aggregation concept
affects the holding period. If this ruling is applicable to the holders of
Units, the aggregation of tax bases of a holder of Units effectively
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prohibits such holder from choosing among Units with varying amounts of
unrealized gain or loss as would be possible in a stock transaction. Thus, the
ruling may result in an acceleration of gain or deferral of loss on a sale of a
portion of a holder's Units. It is not clear whether the ruling applies to
publicly traded partnerships, such as the Partnership, the interests in which
are evidenced by separate Units. Accordingly, Counsel is unable to opine as to
the effect such ruling will have on a holder of Units. A holder of Units
considering the purchase of additional Units or a sale of Units purchased at
differing prices should consult a tax advisor as to the possible consequences of
such ruling.
Should the IRS successfully contest the convention used by the
Partnership to amortize only a portion of the Section 743(b) adjustment
(described under "-Tax Treatment of Operations--Section 754 Election")
attributable to an Amortizable Section 197 Intangible after a sale of Units, a
holder of Units could realize more gain from the sale of its Units than if such
convention had been respected. In that case, the holder of Units may be unable
to claim additional deductions against income in prior years to which they are
entitled with the result of greater overall taxable income than appropriate.
Counsel is unable to opine as to the validity of the convention because of the
lack of specific regulatory authority for its use.
Treatment of Short Sales and Deemed Sales. Under the 1997 Act, a
taxpayer is treated as having sold an "appreciated" partnership interest (one in
which gain would be recognized if such interest were sold), if such taxpayer or
related persons entered into one or more positions with respect to the same or
substantially identical property which, for some period, substantially
eliminated both the risk of loss and opportunity for gain on the appreciated
financial position. This rule would include selling "short against the box"
transactions. Holders of Units should consult with their tax advisers in the
event they are considering entering into a short sale transaction or any other
risk arbitrage transaction involving Units.
A holder that loans Units to a "short seller" to cover a short sale of
Units will be considered as having transferred beneficial ownership of those
Units. Such a holder will, thus, no longer be a partner with respect to those
Units during the period of the loan. As a result, during this period:
o any Partnership income, gain, deductions, losses or credits with respect to
those Units would appear not to be reportable by the holders thereof;
o any cash distributions received by such holders with respect to those Units
would be fully taxable; and
o all of such distributions would appear to be treated as ordinary income.
The IRS could also contend that a loan of Units to a "short seller" constitutes
a taxable exchange. If the IRS were successful, a lending holder of Units may be
required to recognize gain or loss. Holders of Units desiring to assure their
status as partners should modify their brokerage account agreements, if any, to
prohibit their brokers from borrowing their Units.
Character of Gain or Loss. Generally, a Unitholder will recognize
capital gain or loss on the sale or exchange of a Unit. This rule does not apply
to a "dealer" in Units. For transactions in tax years ending after December 31,
1997, the 1998 Act reduced the holding period required for long-term capital
gain treatment to 12 months in order to qualify a gain for an effective maximum
tax rate of 20%. Capital assets sold at a profit within 12 months of purchase
would result in short term capital gains taxed at ordinary income tax rates. The
Partnership must separately compute any gain or loss. These gains or losses will
be taxed as ordinary income or loss under Section 751 to the extent attributable
to assets giving rise to depreciation recapture or other "unrealized
receivables" or to "inventory" owned by the Partnership. The 1997 Act provides
for a maximum 25% tax rate for depreciation recapture attributable to
"unrecaptured Section 1250 gain". For this purpose, Section 1250 gain includes
any gain which would have been treated as ordinary income if the property had
been Section 1245 property. This provision would effectively tax all
depreciation on Section 1250 property at a 25% rate. The term "unrealized
receivables" also includes potential recapture items other than depreciation
recapture. Ordinary income attributable to unrealized receivables, inventory and
depreciation recapture may exceed net taxable gain realized upon the sale of a
Unit. In such a case, a Unitholder will recognize income even if there is a net
taxable loss realized on the sale of a Unit. Any loss recognized on the sale of
Units will generally be a capital loss. Thus, a holder of Units may recognize
both ordinary income and a capital loss upon a disposition of Units. Net capital
loss may offset no more than $3,000 of ordinary income in the case of
individuals and may only offset capital gains in the case of a corporation.
Allocations between Transferors and Transferees. In general, the
Partnership will determine taxable income and losses annually and will prorate
these amounts on a monthly basis. The Partnership will subsequently apportion
these amounts among the holders in proportion to the number of Units owned by
them as of the opening of the first
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business day of the month to which the income and losses relate even though
Unitholders may dispose of their Units during the month in question. The
Partnership will allocate gain or loss realized on a sale or other disposition
of Partnership assets other than in the ordinary course of business among the
Unitholders of record as of the opening of the NYSE on the first business day of
the month in which such gain or loss is recognized. As a result of this monthly
allocation, a holder of Units transferring Units in the open market may be
allocated income, gain, loss, deduction, and credit accrued after the transfer.
Existing Treasury Regulations may not permit the use of the monthly
conventions discussed above. Accordingly, Counsel is unable to opine on the
validity of the method of allocating income and deductions between a transferor
and a transferee of Units. If a court determines the Treasury Regulations do not
allow a monthly convention (or that it only applies to transfers of less than
all of the holder's Units), it could reallocate taxable income or losses of the
Partnership among the holders of Units. The General Partner is authorized to
review the Partnership's method of allocation
o between transferors and transferees; and
o among partners whose interests otherwise vary during a taxable period
to conform to a method permitted by future Treasury Regulations.
If a holder disposes of Units prior to the record date for a quarterly
distribution, the Partnership will allocate to such holder items of income and
gain attributable to such quarter for the months during which such Units were
owned. However, such holder will not receive the cash distribution for such
quarter.
Notification Requirements. A Unitholder who sells or exchanges Units
must notify the Partnership in writing of such sale or exchange within 30 days
of the sale or exchange and in any event by January 15 of the following year.
The Partnership must notify the IRS of the transaction and furnish certain
information to the transferor and transferee. However, these reporting
requirements do not apply to a sale by an individual who is a United States
citizen and who effects such sale through a broker. Additionally, a transferor
and a transferee of a Unit must furnish statements to the IRS with their income
tax returns for the taxable year in which the sale or exchange occurred, which
set forth the amount of the consideration received for such Unit that is
allocated to goodwill or going concern value of the Partnership. A Unitholder
may have to pay substantial penalties if it fails to satisfy such reporting
obligations.
Constructive Termination. The Partnership and the Operating Partnerships
will be considered to have been terminated if there is a sale or exchange of 50%
or more of the total interests in partnership capital and profits within a
12-month period. A constructive termination results in the closing of a
partnership's taxable year for all partners and the "old" Partnership (before
termination) is deemed to have contributed its assets to the "new" Partnership
and distributed interests in the "new" Partnership to the holders of Units. The
"new" Partnership is then treated as a new partnership for tax purposes. A
constructive termination of the Partnership will also cause a Section 708
termination of the Operating Partnerships. Such a termination could also result
in penalties or loss of basis adjustments under Section 754, if the Partnership
cannot determine that the termination had occurred and, therefore, did not
timely file a tax return and make the appropriate Section 754 elections for the
"new" Partnership.
In the case of a holder of Units reporting its taxable income on a
fiscal year other than a calendar year, the closing of a tax year of the
Partnership may result in more than 12 months' taxable income or loss of the
Partnership being includable in its taxable income for the year of termination.
The Partnership must make new tax elections, including a new election under
Section 754, subsequent to the constructive termination. A constructive
termination would also result in a deferral of the Partnership's deductions for
depreciation and amortization. In addition, a termination might either
accelerate the application of or subject the Partnership to any tax legislation
enacted with effective dates after the date of the termination.
Entity-Level Collections. If applicable law so requires, the Partnership
must pay any federal, state or local income tax on behalf of any holder of Units
or the General Partner or former holders of Units. In such a case, the General
Partner may pay such taxes from Partnership funds. The Partnership will treat
such payments, if made, as current distributions of cash. The General Partner
may amend the Partnership Agreement to maintain uniformity of intrinsic tax
characteristics of Units and to adjust subsequent distributions so that after
giving effect to such deemed distributions, the priority and characterization of
distributions otherwise applicable under the Partnership Agreement is maintained
as nearly as is practicable. Payments by the Partnership as described above
could give rise to an overpayment of tax on behalf of an individual partner in
which event, the partner could file a claim for credit or refund.
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Uniformity of Units. The Partnership cannot trace the chain of ownership
of any particular Unit. Therefore, it is unable to track the economic and tax
characteristics related to particular Units from owner to owner. Consequently,
the Partnership needs to maintain uniformity of the economic and tax
characteristics of the Units to a purchaser of Units. In order to achieve
uniformity, compliance with a number of federal income tax requirements, both
statutory and regulatory, could be substantially diminished. For example, a lack
of uniformity can result from a literal application of Proposed Treasury
Regulation Section 1.743-1(j)(4)(B) and Treasury Regulation Section
1.167(c)-1(a)(6) and from the effect of the Ceiling Rule on the Partnership's
ability to make allocations to eliminate Book-Tax Disparities attributable to
Contributed Properties and partnership property that the Partnership has
revalued and reflected in the partners' capital accounts. If the IRS
successfully challenged the conventions that are intended to achieve uniformity,
the tax consequences of holding particular Units could differ. Any such
non-uniformity could have a negative impact on the value of Units.
The Partnership intends to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value of Contributed
Property or Adjusted Property (to the extent of any unamortized Book-Tax
Disparity) using a rate of depreciation derived from the depreciation method and
useful life applied to the Common Basis of such property, despite its
inconsistency with Proposed Treasury Regulation Section 1.743-1(j)(4)(B) and
Treasury Regulation Section 1.167(c)-1(a)(6). See "Tax Treatment of
Operations-Section 754 Election." If the Partnership determines that it cannot
reasonably take this position, the Partnership will adopt a different
depreciation convention. For example, all purchasers acquiring Units in the same
month could receive depreciation, whether attributable to Common Basis or
Section 743(b) basis, based upon the same applicable rate as if they had
purchased a direct interest in the Partnership's property. If the Partnership
adopts such an aggregate approach, it may result in lower annual depreciation
deductions to certain holders of Units and risk the loss of depreciation
deductions not taken in the year that such deductions are otherwise allowable.
The Partnership will not adopt this convention if the Partnership determines
that the loss of depreciation deductions would have a material adverse effect on
a holder of Units. If the Partnership chooses not to utilize this aggregate
method, the Partnership may use any other reasonable depreciation convention to
preserve the uniformity of the intrinsic tax characteristics of Units that would
not have a material adverse effect on the holders of Units. The IRS may
challenge any method of depreciating the Section 743(b) adjustment described in
this paragraph. If such a challenge were sustained, the uniformity of Units
might be affected.
The Partnership will specially allocate items of income and deduction,
including the effects of any unamortizable intangibles under the Proposed
Treasury Regulation Section 1.197-2(g)(1), in a manner that is intended to
preserve the uniformity of intrinsic tax characteristics among all Units,
despite the application of the Ceiling Rule to Contributed Properties and
Adjusted Properties. The Partnership will make the special allocations solely
for federal income tax purposes. See "-Tax Consequences of Ownership of Units"
and "-Allocations of Income, Gain, Loss and Deduction."
Tax-Exempt Organizations and Certain Other Investors. Ownership of Units
by certain tax-exempt entities, regulated investment companies and foreign
persons raises issues unique to such persons and, as described below, may have
substantial adverse tax consequences.
Employee benefit plans and most other organizations exempt from federal
income tax (including IRAs and other retirement plans) are subject to federal
income tax on unrelated business taxable income in excess of $1,000. Each such
entity must file a tax return for each year in which it has more than $1,000 of
gross income included in computing unrelated business taxable income.
Substantially all of the taxable income derived by such an organization from the
ownership of a Unit will be unrelated business taxable income and thus will be
taxable to such a holder of Units at the maximum corporate tax rate. Also, to
the extent that the Partnership holds debt financed property, the disposition of
a Unit could result in unrelated business taxable income.
A regulated investment company is required to derive 90% or more of its
gross income from interest, dividends, gains from the sale of stocks or
securities or foreign currency or certain related sources. The Partnership does
not anticipate that any significant amount of its gross income will include
those categories of income.
Non-resident aliens and foreign corporations, trusts or estates which
acquire Units will be considered to be engaged in business in the United States
on account of ownership of Units. As a result, they file federal tax returns for
their distributive shares of Partnership income, gain, loss, deduction or credit
and pay federal income tax at regular tax rates on such income. Generally, a
partnership must pay a withholding tax on the portion of the partnership income
which is effectively connected with the conduct of a United States trade or
business and which is allocable to the foreign partners, regardless of whether
the Partnership has made any actual distributions to such partners. However,
under procedural guidelines applicable to publicly traded partnerships, the
Partnership has elected instead to withhold (or a
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broker holding Units in street name will withhold) at the rate of 39.6% on
actual cash distributions made quarterly to foreign holders of Units. Each
foreign holder of Units must obtain a taxpayer identification number from the
IRS and submit that number to the Transfer Agent on a Form W-8 in order to
obtain credit for the taxes withheld. Subsequent adoption of Treasury
Regulations or the issuance of other administrative pronouncements may require
the Partnership to change these procedures.
Because a foreign corporation which owns Units will be treated as
engaged in a United States trade or business, such a holder may have to pay a
United States branch profits tax at a rate of 30%, on its allocable share of the
Partnership's earnings and profits that are effectively connected with the
conduct of a United States trade or business. This amount will be adjusted for
changes in the foreign corporation's "U.S. net equity." Such a tax may be
reduced or eliminated by an income tax treaty between the United States and the
country where the foreign corporate holder of Units is a "qualified resident."
This tax is in addition to regular federal income tax.
An interest in the Partnership may also constitute a "United States Real
Property Interest" ("USRPI") under Section 897(c) of the Code. For this purpose,
Treasury Regulation Section 1.897-1(c)(2)(iv) treats a publicly traded
partnership the same as a corporation. Assuming that the Units continue to be
regularly traded on an established securities market, a foreign holder of Units
who sells or otherwise disposes of a Unit and who has always held 5% or less in
value of the Units, including Units held by certain related individuals and
entities during the five-year period ending on the date of the disposition will
qualify for an exclusion from USRPI treatment and will not be subject to federal
income tax on gain realized on the disposition that is attributable to real
property held by the Partnership. However, such holder may have to pay federal
income tax on any gain realized on the disposition that is treated as
effectively connected with a United States trade or business of the foreign
holder of Units. This tax would be due regardless of a foreign Unitholder's
percentage interest in the Partnership or whether Units are regularly traded. A
foreign holder of Units will be subject to federal income tax on gain
attributable to real property held by the Partnership if the holder held more
than 5% in value of the Units, including Units held by certain related
individuals and entities, during the five-year period ending on the date of the
disposition or if the Units were not regularly traded on an established
securities market at the time of the disposition.
A foreign holder of Units will also be subject to withholding under
Section 1445 of the Code if such holder owns, including Units held by certain
related individuals and entities, more than a 5% interest in the Partnership.
Under Section 1445 a transferee of a USRPI is required to deduct and withhold a
tax equal to 10% of the amount realized on the disposition of a USRPI if the
transferor is a foreign person.
Administrative Matters
Information Returns and Audit Procedures. The Partnership intends to
furnish to each holder of Units within 90 days after the close of each
Partnership taxable year, certain tax information, including a Schedule K-1. The
Schedule K-1 will list each holder's allocable share of the Partnership's
income, gain, loss, deduction and credit. In preparing this information, which
counsel will generally not review, the General Partner will use various
accounting and reporting conventions to determine the respective Unitholder's
allocable share of income, gain, loss, deduction and credits. Some of these
conventions were discussed above. There is no assurance that any such
conventions will yield a result which conforms to the requirements of the Code,
the Regulations or administrative interpretations of the IRS. The General
Partner cannot assure a current or prospective holder of Units that the IRS will
not successfully contend in court that such accounting and reporting conventions
are impermissible.
The IRS may in the future audit the Partnership which could result in
adjustments to the Partnership's tax returns. A holder of Units owning less than
a 1% profits interest in the Partnership has limited rights to participate in
the income tax audit process. Further, any adjustments in the Partnership's
returns will lead to adjustments in Unitholder's returns and may lead to audits
of their returns and adjustments of items unrelated to the Partnership. Each
Unitholder would bear the cost of any expenses incurred in connection with an
examination of such holder's personal tax return.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of partnership items of income,
gain, loss, deduction and credit are determined at the partnership level in a
unified partnership proceeding rather than in separate proceedings with the
partners. Under the 1997 Act, any penalty relating to an adjustment to a
partnership item is determined at the partnership level. The Code provides for
one partner to be designated as the "Tax Matters Partner" for these purposes.
The Partnership Agreement appoints the General Partner as the Tax Matters
Partner.
The Tax Matters Partner will make certain elections on behalf of the
Partnership and holders of Units and can extend the statute of limitations for
assessment of tax deficiencies against holders of Units with respect to the
Partnership
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items. The Tax Matters Partner may bind a holder of Units with less than a 1%
profits interest in the Partnership to a settlement with the IRS, unless such
holder elects, by filing a statement with the IRS, not to give such authority to
the Tax Matters Partner. The Tax Matters Partner may seek judicial review of a
final partnership administrative adjustment. All the holders of Units would be
bound by the court's decision in the judicial review. If the Tax Matters Partner
fails to seek judicial review, any holder having at least a 1% interest in the
profits of the Partnership or holders of Units having in the aggregate at least
a 5% profits interest may seek such a review. However, only one action for
judicial review will go forward, and each holder of Units with an interest in
the outcome may participate.
A holder of Units must file a statement with the IRS identifying the
treatment of any item on its federal income tax return that is inconsistent with
the treatment of the item on the Partnership's return to avoid the requirement
that all items be treated consistently on both returns. A holder of Units may
have to pay substantial penalties if it intentionally or negligently disregards
the consistency requirement.
Electing Large Partnerships. The 1997 Act provides that certain
partnerships with at least 100 partners may elect to be treated as an electing
large partnership ("ELP") for tax years ending after December 31, 1997. If
Congress makes further revisions to the law, it is possible that at some future
date the Partnership will make this election to be taxed as an electing large
partnership. However, based on current law, the Partnership does not intend to
make such an election for 1998 or any subsequent year.
Under the reporting provisions of the 1997 Act, each partner of an ELP will
take into account separately such partner's share of several designated items,
determined at the partnership level. The ELP procedures provide that any tax
adjustments generally would flow through to the holders of Units for the year in
which the adjustment takes effect, and the adjustments would not affect
prior-year returns of any holder, except in the case of changes to any holder's
distributive share. In lieu of passing through an adjustment to the holders of
Units, the Partnership may elect to pay an imputed underpayment. The
Partnership, and not the holders of Units, would be liable for any interest and
penalties resulting from a tax adjustment.
Nominee Reporting. Persons who hold an interest in the Partnership as a
nominee for another person are required to furnish to the Partnership:
o the name, address and taxpayer identification number of the beneficial
owners and the nominee;
o whether the beneficial owner is (1) a person that is not a United States
person, (2) a foreign government, an international organization or any
wholly-owned agency or instrumentality of either of the foregoing or (3) a
tax-exempt entity;
o the amount and description of Units held, acquired or transferred for the
beneficial owners; and
o certain information including the dates of acquisitions and transfers,
means of acquisitions and transfers, and acquisition cost for purchases, as
well as the amount of net proceeds from sales.
Brokers and financial institutions are required to furnish additional
information, including whether they are a United States person and certain
information on Units they acquire, hold or transfer for their own account. A
Unitholder may have to pay a penalty of $50 per failure (up to a maximum of
$100,000 per calendar year) for failure to report such information to the
Partnership. The nominee must supply the beneficial owner of the Units with the
information furnished to the Partnership.
Registration as a Tax Shelter. The Code requires that "tax shelters" be
registered with the Secretary of the Treasury. The Treasury Regulations
interpreting the tax shelter registration provisions of the Code are extremely
broad. The Partnership may not be subject to the registration requirement on the
basis that (1) it does not constitute a tax shelter, or (2) it constitutes a
projected income investment exempt from registration. However, the General
Partner registered the Partnership as a tax shelter with the IRS when it was
originally formed in the absence of assurance that the Partnership would not be
subject to tax shelter registration and in light of the substantial penalties
which might be imposed if registration was required and not undertaken. The
Partnership's tax shelter registration number with the IRS is 9228900496. The
Partnership will provide this number to every Unitholder with year-end tax
information. Issuance of the registration number does not indicate that an
investment in the Partnership or the claimed tax benefits have been reviewed,
examined or approved by the IRS. The Partnership must furnish the registration
number to the holder of Units, and a holder of Units who sells or otherwise
transfers a Unit in a subsequent transaction must furnish the registration
number to the transferee. The penalty for failure of the transferor of a Unit to
furnish such registration
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number to the transferee is $100 for each such failure. The holder of Units must
disclose the tax shelter registration number of the Partnership on any tax
return on which any deduction, loss, credit or other benefit generated by the
Partnership is claimed or income of the Partnership is included. Form 8271 is
used to disclose tax shelter registration numbers. A holder of Units who fails
to disclose the tax shelter registration number on such holder's tax return,
without reasonable cause for such failure, may have to pay a $250 penalty for
each such failure. Any penalties discussed in this prospectus are not deductible
for federal income tax purposes.
Accuracy-Related Penalties. An additional tax equal to 20% of the amount
of any portion of an underpayment of tax which is attributable to one or more of
certain listed causes, including substantial understatements of income tax and
substantial valuation misstatements, is imposed by the Code. A Unitholder will
not have to pay a penalty with respect to any portion of an underpayment if it
is shown that there was a reasonable cause for such portion and that the
taxpayer acted in good faith with respect to such portion.
A substantial understatement of income tax in any taxable year exists if
the amount of the understatement exceeds the greater of 10% of the tax required
to be shown on the return for the taxable year or $5,000 ($10,000 for most
corporations). The amount of any understatement subject to penalty generally is
reduced if any portion:
o is attributable to an item with respect to which there is, or was,
"substantial authority" for the position taken on the return; or
o is attributable to an item for which there was a reasonable basis for the
tax treatment of the items and as to which the pertinent facts are disclosed
on the return.
Certain more stringent rules apply to "tax shelters," which term includes a
partnership if a significant purpose of such entity is the avoidance or evasion
of income tax. This term does not appear to include the Partnership. If any
Partnership item of income, gain, loss, deduction or credit included in the
distributive shares of Unitholders might result in such an "understatement" of
income for which no "substantial authority" exists, the Partnership must
disclose the pertinent facts on its return. In addition, the Partnership will
make a reasonable effort to furnish sufficient information for holders of Units
to make adequate disclosure on their returns to avoid liability for this
penalty.
A substantial valuation misstatement exists if the value of any property
(or the adjusted basis of any property) claimed on a tax return is 200% or more
of the amount determined to be the correct amount of such valuation or adjusted
basis. No penalty is imposed unless the portion of the underpayment attributable
to a substantial valuation misstatement is in excess of $5,000 ($10,000 for most
corporations). If the valuation claimed on a return is 400% or more than the
correct valuation, the penalty imposed increases to 40%.
State, Local and Other Taxes
Holders of Units may have to pay other taxes, such as:
o state and local taxes;
o unincorporated business taxes;
o estate or inheritance taxes; or
o intangible taxes
in the various jurisdictions in which the Partnership does business or owns
property. Unitholders should consider state and local tax consequences of an
investment in the Partnership. On November 6, 1998, the Partnership owned an
interest in the Operating Partnerships, which owned property or conducted
business in:
o Arizona;
o California;
o Illinois;
o Indiana;
o Iowa;
o Kansas;
o Kentucky;
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o Louisiana;
o Missouri;
o Nebraska;
o Nevada;
o New Mexico;
o Oregon;
o Texas; and
o Wyoming.
A holder of Units will likely have to file state income tax returns and/or pay
taxes in most of these states and may be subject to penalties for failure to do
so. Some of the states may require the Partnership to withhold a percentage of
the distribution to a holder of Units that is not a resident of the state. Such
amounts withheld, if any, which may be greater or less than a particular
holder's income tax liability to the state, generally do not relieve the
non-resident Unitholder from the obligation to file a state income tax return.
Amounts withheld, if any, will be treated as if distributed to holders of Units
for purposes of determining the amounts distributed by the Partnership. Based on
current law and its estimate of future partnership operations, the General
Partner does not anticipate withholding any material amount. In addition, an
obligation to file tax returns or to pay taxes may arise in other states.
The Partnership also owns, directly or indirectly, interests in several
corporations which will be subject to state income tax on their income.
Each prospective holder of Units should investigate the legal and tax
consequences, under the laws of pertinent states or localities, of such
investment in the Partnership. Further, each holder of Units must file all
required state and local, as well as federal tax returns. Counsel has not
rendered an opinion on the state and local tax consequences of an investment in
the Partnership.
USE OF PROCEEDS
We will use the net proceeds from the sale of the Units and Debt
Securities for general business purposes, including debt repayment, future
acquisitions, capital expenditures and working capital. We may change the
potential uses of the net proceeds in a prospectus supplement.
PLAN OF DISTRIBUTION
We may sell the Units or Debt Securities directly, through agents, or to
or through underwriters or dealers (possibly including our affiliates). Read the
prospectus supplement to find the terms of the Unit or Debt Securities offering,
including:
o the names of any underwriters, dealers or agents;
o the offering price;
o underwriting discounts;
o sales agents' commissions;
o other forms of underwriter or agent compensation;
o discounts, concessions or commissions that underwriters may pass on to
other dealers;
o any exchange on which the Units or Debt Securities are listed.
We may change the offering price, underwriter discounts or concessions,
or the price to dealers when necessary. Discounts or commissions received by
underwriters or agents and any profits on the resale of Units or Debt Securities
by them may constitute underwriting discounts and commissions under the
Securities Act of 1933.
Unless we state otherwise in the prospectus supplement, underwriters
will need to meet certain requirements before purchasing Units or Debt
Securities. Underwriters may only purchase all of the Units or Debt Securities.
Agents will act on a "best efforts" basis during their appointment. We will also
state the net proceeds from the sale in the prospectus supplement.
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Any brokers or dealers that participate in the distribution of the Units
or Debt Securities may be "underwriters" within the meaning of the Securities
Act for such sales. Profits, commissions, discounts or concessions received by
any such broker or dealer may be underwriting discounts and commissions under
the Securities Act.
When necessary, we may fix Unit or Debt Securities distribution using
changeable, fixed prices, market prices at the time of sale, prices related to
market prices, or negotiated prices.
We may, through agreements, indemnify underwriters, dealers or agents
who participate in the distribution of the Units or Debt Securities against
certain liabilities including liabilities under the Securities Act. We may also
provide funds for payments such underwriters, dealers or agents may be required
to make. Underwriters, dealers and agents, and their affiliates may transact
with us and our affiliates in the ordinary course of their businesses.
LEGAL MATTERS
Morrison & Hecker L.L.P., our counsel, will issue an opinion for us
about the legality of the Units and Debt Securities and the material federal
income tax considerations regarding the Units. Any underwriter will be advised
about other issues relating to any offering by their own legal counsel.
EXPERTS
The consolidated financial statements as of and for the year ended
December 31, 1997 of the Partnership and its subsidiaries and the financial
statements as of and for the year ended December 31, 1997 of Mont Belvieu
Associates incorporated in this Prospectus by reference to the Partnership's
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.
The consolidated financial statements of the Partnership and its
subsidiaries and the financial statements of Mont Belvieu Associates as of
December 31, 1996 and for the two years ended December 31, 1996 included in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated by reference in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The consolidated financial statements of Santa Fe as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 incorporated in this Prospectus by reference to the Partnership's Current
Report on Form 8-K, dated March 5, 1998, as amended, 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.
The balance sheet of the General Partner as of December 31, 1997,
incorporated by reference in the Registration Statement of which this Prospectus
is a part, has 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.
32
<PAGE>
- ----------------------------------------------
-----------------------
TABLE OF CONTENTS
Page
Where You Can Find More Information 2
Forward Looking Statements 2
Risk Factors 3
The Partnership 3
Ratio Of Earnings To Fixed Charges 4
Description Of Debt Securities 5
Description of Common Units 14
Material Federal Income Tax Considerations 14
Use Of Proceeds 31
Plan Of Distribution 31
Legal Matters 32
Experts 32
- ----------------------------------------------
<PAGE>
- ----------------------------------------------
$600,000,000
Common Units
Debt Securities
KINDER MORGAN
ENERGY PARTNERS L.P.
-------------------------
PROSPECTUS
_______ ___, 1998
-------------------------
- ------------------------------------------
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
We will incur and pay the following costs of this transaction. All
amounts other than the SEC registration fee are estimated.
Securities and Exchange Commission registration fee.............$ 172,200
Printing........................................................$ 20,000
Legal fees and expenses ........................................$ 40,000
Accounting fees and expenses ...................................$ 30,000
Miscellaneous...................................................$ 15,000
Rating Agencies.................................................$ 210,000
Trustee's Fees & Expenses.......................................$ 15,000
Total.......................................................$ 502,200
Item 15. Indemnification of Directors and Officers
The Partnership Agreement provides that the Partnership will indemnify
any person who is or was an officer or director of the General Partner or any
departing partner, to the fullest extent permitted by law. In addition, the
Partnership may indemnify, to the extent deemed advisable by the General Partner
and to the fullest extent permitted by law, 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 as an officer or director of the General Partner, a
departing partner or any of their Affiliates (as defined in the Partnership
Agreement) ("Indemnitees") from and against any and all losses, claims, damages,
liabilities (joint or several), expenses (including, without limitation, legal
fees and expenses), judgments, fines, settlements and other amounts arising from
any and all claims, demands, actions, suits or proceedings, whether civil,
criminal, administrative or investigative, in which any Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, by reason of
its status as an officer or director 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
believed to be in or not opposed to the best interests of the Partnership and,
with respect to any criminal proceeding, had no reasonable cause to believe its
conduct was unlawful. Any indemnification under these provisions will be only
out of the assets of the Partnership and the General Partner shall not be
personally liable for, or have any obligation to contribute or loan funds or
assets to the Partnership to enable it to effectuate, such indemnification. The
Partnership is authorized to purchase (or to reimburse the General Partner or
its affiliates for the cost of) insurance against liabilities asserted against
and expenses incurred by such person to indemnify such person against such
liabilities under the provisions described above.
Article XII(c) of the Certificate of Incorporation of the General
Partner (the "Corporation" therein) contains the following provisions relating
to indemnification of directors and officers:
(c) Each director and each officer of the corporation (and such holder's
heirs, executors and administrators) shall be indemnified by the
corporation against expenses reasonably incurred by him in connection
with any claim made against him or any action, suit or proceeding to
which he may be made party, by reason of such holder being or having
been a director or officer of the corporation (whether or not he
continues to be a director or officer of the corporation at the time of
incurring such expenses), except in cases where such action, suit or
proceeding shall be settled prior to adjudication by payment of all or a
substantial portion of the amount claimed, and except in cases in which
he shall be adjudged in such action, suit or proceeding to be liable or
to have been derelict in the performance of such holder's duty as such
director or officer. Such right of indemnification shall not be
exclusive of other rights to which he may be entitled as a matter of
law.
II-1
<PAGE>
Richard D. Kinder, the Chairman of the Board of Directors and Chief
Executive Officer of the General Partner, and William V. Morgan, a Director and
Vice Chairman of the General Partner, are also officers and directors of Kinder,
Morgan, Inc. ("KMI") and are entitled to similar indemnification from KMI
pursuant to KMI's certificate of incorporation and bylaws.
Item 16. Exhibits
*1.1 - Form of Underwriting Agreement (for Units)
*1.2 - Form of Underwriting Agreement (for Debt Securities)
***3.1 - Second Amendment to Amended and Restated Agreement of Limited
Partnership dated as of February 14, 1997 (Exhibit 3.1 to the
Partnership's Registration Statement on Form S-4 (File No.
333-46709)).
***4.1 - Specimen Certificate representing Common Units (Exhibit 4.1 to
the Partnership's Registration Statement on Form S-4 (File No.
333-46709).
*4.2 - Form of Senior Indenture
*4.3 - Form of Subordinated Indenture
*5 - Opinion of Morrison & Hecker L.L.P. as to the legality of the
securities registered hereby
*8 - Opinion of Morrison & Hecker L.L.P. as to tax matters
*23.1 - Consent of Morrison & Hecker L.L.P. (included in Exhibits 5 and
8)
**23.2 - Consent of Arthur Andersen LLP
**23.3 - Consent of PriceWaterhouseCoopers LLP
**23.4 - Consent of PriceWaterhouseCoopers LLP
*24.1 - Power of Attorney (included on signature page)
****26.1 - Form T-1 Statement of Eligibility and Qualification
***99.1 - Balance Sheet of Kinder Morgan G.P., Inc., as of December 31,
1997 (Exhibit 99.1 to the Partnership's Registration Statement on
Form S-4 (File No. 333-46709).
- ------------------------
* Previously filed.
** Filed herewith.
*** Incorporated by reference.
**** To be filed with a Current Report on Form 8-K or a Post-Effective
Amendment to Registration Statement.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange
II-2
<PAGE>
Commission such indemnification is against public policy as expressed in the Act
and is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
i) To include any prospectus required by section 10(a)(3) of
the 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;
iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
Provided, however, that paragraphs (1)(i) and 1(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
that are incorporated by reference into the Registration Statement;
(2) That, for the purpose of determining any liability under the 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.
(3) To remove from registration by means of a post-effective amendment
any of the Common Units which remain unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the 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 the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each
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
No. 2 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Houston, State of Texas, on November
23, 1998.
KINDER MORGAN ENERGY PARTNERS, L.P.
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., INC.
as General Partner
By: /s/ William V. Morgan
-----------------------------
William V. Morgan,
Vice Chairman
KINDER MORGAN OPERATING L.P. "A"
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., INC.
as General Partner
By: /s/ William V. Morgan
-----------------------------
William V. Morgan,
Vice Chairman
KINDER MORGAN OPERATING L.P. "B"
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., INC.
as General Partner
By: /s/ William V. Morgan
-----------------------------
William V. Morgan,
Vice Chairman
KINDER MORGAN OPERATING L.P. "C"
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., INC.
as General Partner
By: /s/ William V. Morgan
-----------------------------
William V. Morgan,
Vice Chairman
II-4
<PAGE>
KINDER MORGAN OPERATING L.P. "D"
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., INC.
as General Partner
By: /s/ William V. Morgan
-----------------------------
William V. Morgan,
Vice Chairman
KINDER MORGAN ENERGY NATURAL GAS
LIQUIDS CORPORATION
(A Delaware Corporation)
By: /s/ William V. Morgan
-----------------------------
William V. Morgan,
Vice Chairman
KINDER MORGAN CO2, LLC
(A Delaware Limited Liability
Company)
By: KINDER MORGAN OPERATING L.P."A"
as sole Member
By: KINDER MORGAN G.P., INC.
as General Partner
By: /s/ William V. Morgan
William V. Morgan,
Vice Chairman
KINDER MORGAN BULK TERMINALS, INC.
(A Louisiana Corporation)
By: /s/ William V. Morgan
-----------------------------
William V. Morgan,
Vice Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
II-5
<PAGE>
KINDER MORGAN ENERGY PARTNERS G.P., INC.
(General Partner to Kinder Morgan Operating L.P. "A," General Partner to
Kinder Morgan Operating L.P. "B," General Partner to Kinder Morgan
Operating L.P. "C," General Partner to Kinder Morgan Operating L.P. "D,"
and Kinder Morgan Operating L.P. "A" is the sole Member of Kinder Morgan
CO2, LLC.)
Name Title Date
/s/ Richard D. Kinder Chairman of the Board and Chief November 20, 1998
- -------------------------- Executive Officer of Kinder
Richard D. Kinder Morgan G.P., Inc.
/s/ William v. Morgan Director and Vice Chairman November 20, 1998
- -------------------------- of Kinder Morgan G.P., Inc.
William V. Morgan
* Director of Kinder Morgan November 20, 1998
- -------------------------- G.P., Inc.
Alan L. Atterbury
* Director of Kinder Morgan November 20, 1998
- -------------------------- G.P., Inc.
Edward O. Gaylord
/s/ David G. Dehaemers, Jr. Vice President, Chief Financial November 20, 1998
- -------------------------- Officer of Kinder Morgan
David G. Dehaemers, Jr. G.P., Inc. (principal financial
officer and principal accounting
officer)
KINDER MORGAN NATURAL GAS LIQUIDS CORPORATION
Name Title Date
/s/ Richard D. Kinder Director and Chief Executive November 20, 1998
- -------------------------- Officer of Kinder Morgan
Richard D. Kinder Natural Gas Liquids Corporation.
/s/ William V. Morgan Director of Kinder Morgan November 20, 1998
- -------------------------- Natural Gas Liquids Corporation.
William V. Morgan
/s/ David G. Dehaemers, Jr. Chief Financial Officer of November 20, 1998
- -------------------------- Kinder Morgan Natural Gas
David G. Dehaemers, Jr. Liquids Corporation (principal
financial officer and
principal accounting officer).
II-6
<PAGE>
KINDER MORGAN BULK TERMINALS, INC.
Name Title Date
/s/ Richard D. Kinder Director of Kinder Morgan November 20, 1998
- -------------------------- Bulk Terminals, Inc.
Richard D. Kinder
/s/ William V. Morgan Director of Kinder Morgan November 20, 1998
- -------------------------- Bulk Terminals, Inc.
William V. Morgan
* President of Kinder Morgan Bulk November 20, 1998
- -------------------------- Terminals, Inc. (chief executive
Thomas B. Stanley officer)
/s/David G. Dehaemers, Jr. Treasurer of Kinder Morgan November 20, 1998
- -------------------------- Bulk Terminals, Inc. (principal
David G. Dehaemers, Jr. financial officer and principal
accounting officer)
*By: /s/ William V. Morgan
--------------------------
William V. Morgan
Attorney-in-fact
II-7
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
*1.1 - Form of Underwriting Agreement (for Units)
*1.2 - Form of Underwriting Agreement (for Debt Securities)
***3.1 - Second Amendment to Amended and Restated Agreement of Limited
Partnership dated as of February 14, 1997 (Exhibit 3.1 to the
Partnership's Registration Statement on Form S-4 (File No.
333-46709)).
***4.1 - Specimen Certificate representing Common Units (Exhibit 4.1 to
the Partnership's Registration Statement on Form S-4 (File No.
333-46709).
*4.2 - Form of Senior Indenture
*4.3 - Form of Subordinated Indenture
*5 - Opinion of Morrison & Hecker L.L.P. as to the legality of the
securities registered hereby
*8 - Opinion of Morrison & Hecker L.L.P. as to tax matters
*23.1 - Consent of Morrison & Hecker L.L.P. (included in Exhibits 5 and
8)
**23.2 - Consent of Arthur Andersen LLP
**23.3 - Consent of PriceWaterhouseCoopers LLP
**23.4 - Consent of PriceWaterhouseCoopers LLP
*24.1 - Power of Attorney (included on signature page)
****26.1 - Form T-1 Statement of Eligibility and Qualification
***99.1 - Balance Sheet of Kinder Morgan G.P., Inc., as of December 31,
1997 (Exhibit 99.1 to the Partnership's Registration Statement on
Form S-4 (File No. 333-46709).
- --------------------------
* Previously filed.
** Filed herewith.
*** Incorporated by reference.
**** To be filed with a Current Report on Form 8-K or a Post-Effective Amend-
ment to Registration Statement.
II-8
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our reports dated February 21, 1997
included in Kinder Morgan Energy Partners, L.P.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, and to all references to our Firm
included in this Registration Statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Houston, Texas
November 19, 1998
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment 2 to the Registration Statement on Form S-3
(No.333-66931) of Kinder Morgan Energy Partners, L.P. of our report dated March
6, 1998 relating relating to the consolidated financial statements of Mont
Belvieu Associates appearing on page F-20 of Kinder Morgan Energy Partners,
L.P.'s Annual Report on Form 10-K for the year ended December 31, 1997. We also
hereby consent to the incorporation by reference in this Amendment 2 to the
Registration Statement on Form S-3 (No. 333-66931) of Kinder Morgan Energy
Partners, L.P. of our report dated March 16, 1998 relating to the balance sheet
of Kinder Morgan G.P., Inc., appearing in Exhibit 99.1 of Kinder Morgan Energy
Partners, L.P.'s Amendment 1 to Form S-4 (No. 333-46709). We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
November 19, 1998
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment 2 to the Registration Statement on Form S-3
(No.333-66931) of Kinder Morgan Energy Partners, L.P. of our report dated
January 30, 1998 appearing on page F-1 of Kinder Morgan Energy Partners, L.P.'s
Current Report on Form 8-K dated March 5, 1998, as amended. We also consent to
the references to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
November 19, 1998
